Young Design, Inc. v. Teletronics International, Inc. ( 2002 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
YOUNG DESIGN, INCORPORATED, 
Plaintiff-Appellee,
v.
 No. 01-2474
TELETRONICS INTERNATIONAL,
INCORPORATED,
Defendant-Appellant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-00-970-A)
Argued: June 3, 2002
Decided: July 19, 2002
Before MOTZ and KING, Circuit Judges, and
Robert R. BEEZER, Senior Circuit Judge of the
United States Court of Appeals for the Ninth Circuit,
sitting by designation.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Maurice Ulman Cahn, CAHN & SAMUELS, L.L.P.,
Washington, D.C., for Appellant. Mary Catherine Zinsner, TROUT-
MAN, SANDERS, MAYS & VALENTINE, L.L.P., McLean, Vir-
ginia, for Appellee. ON BRIEF: Frederick N. Samuels, CAHN &
SAMUELS, L.L.P., Washington, D.C., for Appellant.
2 YOUNG DESIGN v. TELETRONICS INTERNATIONAL
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Defendant, Teletronics International, Incorporated, appeals from
the district court’s denial of its motion for an award of attorneys’ fees.
Teletronics asserts that the Plaintiff, Young Design, Incorporated, ini-
tiated and maintained in bad faith its claim for misappropriation of
trade secrets (the "Trade Secrets Claim"), thereby warranting a fee
award under the Virginia Unfair Trade Secrets Act ("VUTSA"). The
district court found that Young Design had not pursued the Trade
Secrets Claim in bad faith, and it declined to award Teletronics its
attorneys’ fees. Young Design, Inc. V. Teletronics Int’l, Inc., Memo-
randum Opinion, 00-970-A (E.D. Va. Nov. 9, 2001) (the "Fee Opin-
ion"). As explained below, we affirm.
I.
A.
Young Design and Teletronics are direct competitors in the market
for wireless communications equipment. In January 1998, at a
national industry conference, representatives of Young Design
inquired whether Teletronics was interested in purchasing Young
Design’s bi-directional external amplifiers (the "YDI Amplifiers"). At
that time, Teletronics did not itself manufacture such products.1
Teletronics responded favorably to Young Design’s offer, and it
1
An external amplifier serves to increase the range and performance of
wireless radio modems and local area networks. As of 1998, only two
domestic companies, Young Design and its competitor, Hyperlink, pro-
duced such amplifiers. Teletronics was interested in the YDI Amplifiers
because it had received complaints from customers that the modems that
it produced, containing internal amplifiers, did not meet their power
needs.
YOUNG DESIGN v. TELETRONICS INTERNATIONAL 3
thereafter purchased twenty-eight YDI Amplifiers and tested their
performance. As part of the sales transactions, Young Design pro-
vided Teletronics with an electronic version of its user and installation
manual with respect to the YDI Amplifiers. The purchase orders
reflecting these transactions did not restrict either Teletronics’s use of
proprietary information or its use and disposal of the YDI Amplifiers.
Upon testing the YDI Amplifiers, Teletronics discovered a problem
in their performance: the amplifiers would suddenly lock into transmit
mode at high air temperatures. It notified Young Design of this prob-
lem and, in response, Young Design advised Teletronics that the
problem had been solved by the installation of a thermistor on the
YDI Amplifiers.2 Teletronics, however, made no further purchases of
them.
About a year later, in April 1999, Young Design learned that
Teletronics was then manufacturing external amplifiers. After exam-
ining a Teletronics amplifier, Young Design concluded that the YDI
Amplifiers had been copied by Teletronics, and it confronted
Teletronics. Teletronics denied the accusation, explaining that it had
begun designing its own amplifier in the summer of 1997, and assert-
ing that it had completed its first amplifier prototype in August 1998.
B.
On June 14, 2000, Young Design filed a five count complaint
against Teletronics in the Eastern District of Virginia, asserting, along
with the Trade Secrets Claim, claims for breach of contract, fraud and
constructive fraud, copyright infringement, and trover. In response,
Teletronics filed a six count counterclaim, alleging malicious interfer-
ence with economic relationships, tortious inducement to breach an
existing contract, three counts of unfair competition, and trover.
This lawsuit culminated in a three-day bench trial in the district
court, which was conducted in January 2001. In light of the court’s
pre-trial rulings, the only two claims involved in the trial were the
Trade Secrets Claim and the copyright infringement claim asserted by
2
A thermistor is a specialized commercially-available resistor that cor-
rects for temperature variances.
4 YOUNG DESIGN v. TELETRONICS INTERNATIONAL
Young Design.3 At trial, Young Design presented only one live wit-
ness (Michael Young), who testified both as a fact witness and as an
expert in radio frequency engineering. The court, however, was not
impressed with his testimony, finding it to be "often self-serving and
marred by exaggeration." Young Design also presented at trial the
deposition evidence of Michael Chen, a former Teletronics vice-
president, but the court found that his "language problem undercut our
confidence in the accuracy of his testimony." In its case, Teletronics
called two live witnesses — an expert in radio frequency technology
and electrical engineering, and one of its current vice presidents.
Teletronics also presented the deposition evidence of five other wit-
nesses.
On July 31, 2001, the district court ruled on the two claims of
Young Design, which it had tried six months earlier. Young Design,
Inc. v. Teletronics Int’l, Inc., Memorandum Opinion, 00-970-A (E.D.
Va. July 31, 2001) (the "Trial Opinion"). Pursuant thereto, the court
concluded that Young Design had not sustained its burden of proof
on the Trade Secrets Claim, and that Claim was dismissed. The court
then ruled in favor of Young Design on the copyright infringement
claim, and it entered an order permanently enjoining Teletronics from
copying the manual which had accompanied the YDI Amplifiers.4
C.
Following the trial and the filing of the court’s Trial Opinion,
Young Design and Teletronics made cross motions for attorneys’
fees. In its Fee Opinion of November 9, 2001, the court denied both
3
Prior to trial, the district court dismissed Young Design’s claims for
breach of contract and fraud and constructive fraud, and it awarded sum-
mary judgment to Young Design on its trover claim. In addition, the
court awarded Teletronics summary judgement on its trover counter-
claim, and it awarded summary judgment to Young Design on all of the
remaining counterclaims.
4
Teletronics admitted that the manual used for its amplifiers included
portions copied from Young Design’s manual. Because the parties
agreed that Teletronics was no longer copying Young Design’s manual,
the court referred to its permanent injunction against Teletronics as a
"symbolic injunction." Fee Opinion at 4.
YOUNG DESIGN v. TELETRONICS INTERNATIONAL 5
of the attorneys’ fees motions, observing that the litigation was a
"very hard fought, contentious civil action [which] should be charac-
terized as a draw." Fee Opinion at 1. With respect to the Trade Secrets
Claim specifically, the court concluded that, although Young Design
was unable to sustain its burden of proof, its Claim withstood the "no
chance of success" test applicable under VUTSA. Id. at 10-11. The
court also observed, in denying the attorneys’ fees motion of
Teletronics, that the Trade Secrets Claim had survived numerous pre-
trial motions and that the court had spent several weeks fully evaluat-
ing the trial evidence relating to it. Id. at 11. Teletronics then filed a
timely notice of appeal from the Fee Opinion. We possess jurisdiction
pursuant to 28 U.S.C. § 1291.5II.
We review "the denial of an award for attorney fees for abuse of
discretion." People for Ethical Treatment of Animals v. Doughney,
263 F.3d 359, 370 (4th Cir. 2001) (citing Shell Oil Co. v. Commercial
Petroleum, Inc., 928 F.2d 104, 108 n. 6 (4th Cir. 1991)). And an
abuse of discretion only arises if the district court’s "conclusions are
based on mistaken legal principles or clearly erroneous factual find-
ings." Id. (citing Westberry v. Gislaved Gummi AB, 178 F.3d 257, 261
(4th Cir. 1999)).
III.
Teletronics seeks its attorneys’ fees award pursuant to VUTSA,
which permits recovery of attorneys’ fees by a prevailing party "[i]f
the court determines that . . . a claim of misappropriation [wa]s made
in bad faith." Va. Code Ann. § 59.1-338.1. In this connection,
Teletronics concedes that the issue of bad faith is to be determined by
the court, utilizing an "objective reasonableness" standard, and that
the district court applied this standard in its Fee Opinion. As such,
Teletronics’ sole contention on appeal is that the court clearly erred
in finding that Young Design did not act in bad faith in pursuing the
Trade Secrets Claim. More specifically, Teletronics maintains that
5
Young Design did not appeal the Fee Opinion’s denial of its motion
for attorneys’ fees. Furthermore, no appeals have been taken in connec-
tion with the other rulings made by the district court in this litigation.
6 YOUNG DESIGN v. TELETRONICS INTERNATIONAL
Young Design’s failure to sustain its burden of proof on all elements
of the Trade Secrets Claim mandates a finding that it pursued the
Claim in bad faith.6
In concluding that Young Design had not pursued the Trade
Secrets Claim in bad faith, the court recognized that the Claim was
not legally insufficient. Fee Opinion at 11 (stating that court did "not
find that [Young Design’s] claims had no chance of success under the
Act"). The court also observed that, even though the trial evidence
supporting the Trade Secrets Claim was weak, Young Design had
nonetheless offered evidence which, if credited, could have substanti-
ated the Claim. Furthermore, the court recognized that the Trade
Secrets Claim had "survived extensive pretrial motions and that the
[c]ourt needed several weeks to evaluate the trial evidence fully." Id.In light of this record and the various other findings and rulings of the
district court, we see nothing to suggest that it clearly erred in con-
cluding that Young Design did not pursue its Trade Secrets Claim in
bad faith. As a result, the attorneys’ fees claim of Teletronics must fail.7
6
In order to prove the Trade Secrets Claim, Young Design was obliged
to establish, as the district court properly recognized, the following four
elements by a preponderance of the evidence: (1) whether an express or
implied confidential relationship existed between the parties; (2) whether
Young Design took reasonable efforts to maintain the secrecy of its
alleged trade secrets; (3) whether the trade secrets were, in fact, either
publicly revealed or generally known; and (4) whether there were suffi-
ciently substantial differences between the products. Trial Opinion at 10-
11; see also Va. Code Ann. § 59.1-336; Dionne v. Southeast Foam Con-
verting & Packaging, 397 S.E.2d 110, 113-14 (Va. 1990).
7
Teletronics has also filed with us a motion to strike portions of Young
Design’s Brief, maintaining that it relied on materials outside of the
record on appeal. Pursuant to Rule 10 of the Federal Rules of Appellate
Procedure, "[t]he following items constitute the record on appeal: (1) the
original papers and exhibits filed in the district court; (2) the transcript
of proceedings, if any; and (3) a certified copy of docket entries . . . ."
Furthermore, Local Rule 28(f) allows a party to rely on material found
in the record on appeal, even though not contained in the Joint Appendix.
In response to the motion to strike, Young Design concedes that the
deposition testimony of Messrs. Jamal and Fang, referred to on pages 30
and 31 of its Brief, was not introduced at trial, and it has agreed that
these references should be stricken. As such, we grant Teletronics’s
motion to strike these references in Young Design’s Brief. We deny the
balance of the motion to strike, however, because the material relied
upon is in the record on appeal.
YOUNG DESIGN v. TELETRONICS INTERNATIONAL 7
IV.
Pursuant to the foregoing, the district court did not abuse its discre-
tion, and we affirm.
AFFIRMED