IP Law Daily Court approves jury award of $1.5M for misappropriation of mobile payment products source code
Thursday, September 10, 2020

Court approves jury award of $1.5M for misappropriation of mobile payment products source code

By Brian Craig. J.D.

The court entered judgment after the jury awarded $1.5 million in compensatory damages for misappropriation of source code but denied requests for an injunction, punitive damages, and attorney fees.

Following a jury trial for misappropriation of trade secrets for source code used with mobile payment products, the federal district court in San Jose, California has entered a judgment of $1.5 million in compensatory damages but has denied requests for punitive damages, injunctive relief, and attorney fees. The court concluded that despite willful and malicious conduct, punitive damages should not be awarded based on defendant RiverPay Inc.’s inability to pay. The court also held that an injunction is not warranted because plaintiff Citcon USA, LLC failed to show how the monetary damage award of $1.5 million is insufficient (Citcon USA, LLC v. RiverPay, Inc., September 8, 2020, Cousins, N.).

Plaintiff Citcon USA, LLC provides services to merchants in the United States to facilitate customer payments using major Chinese mobile payment systems. Citcon brought an action for misappropriation of trade secrets under the Defend Trade Secrets Act (DTSA) and other related claims. Citcon alleges that defendant RiverPay Inc., which offers competing services, created its products using source code copied from Citcon by two both former Citcon employees now working for RiverPay. In May 2019, the court denied RiverPay’s motion for summary judgment. On December 20, 2019, a jury returned a verdict after a 10-day trial. The jury found that Citcon proved by clear and convincing evidence that RiverPay acted with malice, oppression, or fraud in committing trade secret misappropriation of source code. The jury awarded $1.5 million in damages. The parties filed various post-trial motions.

Punitive damages. Though the jury found sufficient evidence that RiverPay acted both willfully and maliciously, the court declined to award punitive damages based on RiverPay’s lack of wealth. The court may consider the following factors in determining whether to award punitive damages: (1) the particular nature of the defendant’s acts in light of the record; (2) the amount of compensatory damages awarded; and (3) the wealth of the particular defendant. The court concluded that the $1.5 million in compensatory damages awarded by the jury is sufficient to both punish RiverPay and to deter similar conduct, especially relative to RiverPay’s net worth. RiverPay operated at a net loss in 2017 and 2018. RiverPay continued to operate at a loss in 2019 through the date of the trial. With this ample evidence of RiverPay’s lack of funds, the court declined to award punitive damages.

Injunction. The court also declined to grant an injunction against RiverPay because Citcon failed to present evidence of irreparable injury or why the monetary damages of $1.5 million in insufficient. To obtain an injunction, a plaintiff must show: (1) that it has suffered irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the parties, an equitable remedy is warranted; and (4) that the public interest would be served by the court entering a permanent injunction. While Citcon has been injured by the trade secret misappropriation, Citcon failed to show that the harm is irreparable. Citcon failed to present evidence why the $1.5 million jury award is inadequate.

Sufficiency of evidence. The court denied RiverPay’s renewed motion for judgment as a matter of law and concluded that the jury had sufficient evidence to find that RiverPay misappropriated trade secrets. Citcon presented some admissible evidence that the device at issue could be reverse-engineered to acquire the trade secrets in the designs.

Attorney fees. The court declined to award attorney fees and costs because the case ended in a mixed result. The DTSA allows the court to award attorney fees for trade secret misappropriation that is willful and malicious. But attorney fees are not mandatory even if the jury finds willful and malicious misappropriation. While Citcon prevailed on one of its claims for trade secrets misappropriation relating to the source code, Citcon chose to bring claims for four other categories of trade secrets misappropriation, none of which it could substantiate. The defendant incurred fees defending successfully defeating four of Citcon’s five trade secrets claims. Therefore, the court ordered each party to bear its own costs.

California’s Unfair Competition Law. The court concluded that neither side presented sufficient evidence to prevail on the respective claims under California’s Unfair Competition Law. Though four of the five trade secrets claims were dismissed, the court declined to find that Citcon improperly brought the claims in bad faith for anticompetitive purposes.

This case is No. 5:18-cv-02585-NC.

Attorneys: J. James Li (LiLaw, Inc.) for Citcon USA, LLC.

Companies: Citcon USA, LLC; RiverPay Inc.

MainStory: TopStory TradeSecrets GCNNews CaliforniaNews

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