Phillip M. Adams & Associates v. Dell Computer Corporation

NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
PHILLIP M. ADAMS & ASSOCIATES, LLC,
Plaintiff-Cross Appellant,
v.
DELL COMPUTER CORPORATION, ITE
TECHNOLOGIES, INC., MPC COMPUTERS, MSI
COMPUTER CORP., MICRO-STAR
INTERNATIONAL, SONY ELECTRONICS, INC.,
AND WINBOND ELECTRONICS CORPORATION,
Defendants,
AND
ASUSTEK COMPUTER INC. AND
ASUS COMPUTER INTERNATIONAL, INC.,
Defendants-Appellants.
______________________
2012-1238
______________________
Appeals from the United States District Court
for the District of Utah in Case No. 05-CV-0064,
Chief Judge Ted Stewart.
______________________
Decided: March 18, 2013
______________________
2 ADAMS & ASSOC v. DELL COMPUTER
GREGORY D. PHILLIPS, Phillips, Ryther & Winchester,
of Salt Lake City, Utah, argued for plaintiff-Cross Appel-
lant. With him on the brief was JACOB R. ADAMS, Dumke
Law, of New York, New York.
RONALD S. LEMIEUX, Cooley LLP, of Palo Alto, Cali-
fornia, argued for defendants-appellants. With him on
the brief was VIDYA R. BHAKAR. Of counsel on the brief
was PHILLIP E. MORTON, of Reston, Virginia.
______________________
Before PROST, MOORE, and WALLACH, Circuit Judges.
WALLACH, Circuit Judge.
The district court judgments now on appeal arose
from patent infringement and trade secret litigation
between Phillip M. Adams & Associates, LLC (“PMAA”)
and ASUSTeK Computer, Inc. (“ASUSTeK”) and Asus
Computer International (“ACI”) (collectively, “ASUS”).
Over the course of this litigation, the district court: (1)
imposed an adverse inference sanction against ASUS for
spoliation of evidence; (2) granted summary judgment
dismissing PMAA’s trade secrets claim for untimeliness;
(3) denied ASUS’s post-verdict motion for judgment as a
matter of law (“JMOL”) of noninfringement; and (4)
denied PMAA’s motion for attorney fees under 35 U.S.C. §
285. ASUS appeals from the imposition of an adverse
inference sanction and the denial of its motion for JMOL.
PMAA cross appeals from the summary judgment dis-
missing its trade secrets claim and the denial of attorney
fees. Because the district court abused its discretion in
granting an adverse inference sanction against ASUS and
because there is inadequate evidence to support a jury
verdict of infringement absent such adverse inferences,
we reverse the denial of JMOL of noninfringement. The
district court’s grant of summary judgment and denial of
attorney fees are affirmed.
ADAMS & ASSOC v. DELL COMPUTER 3
BACKGROUND
I.
Phillip M. Adams (“Dr. Adams”) is the inventor of
PMAA’s U.S. Patent No. 5,983,002 (“the ’002 patent”). In
the early 1990s, Dr. Adams discovered a data corruption
defect affecting Floppy Disk Controllers (“FDC”) in cer-
tain Super I/O computer chips. 1 Dr. Adams developed a
technique to detect such defects, and on November 9,
1999, he obtained the ’002 patent claiming this detection
system and method.
The FDC controls “[d]ata transfer to and from a floppy
diskette,” including transfers to and from the computer’s
Central Processing Unit (“CPU”). ’002 patent col. 1 ll. 35-
38. The FDC must transfer such data at a specified rate
so that the data is written to the correct location on the
spinning floppy diskette. Id. col. 1 ll. 39-41. In some
situations, however, the data transfer rate fails to match
up to the correct location on the diskette. When this
occurs, the FDC generally detects this failure and “aborts
the write operation and signals to the CPU that a data
underrun condition has occurred.” Id. col. 1 ll. 42-47.
However, as noted above, a defect in certain FDCs results
in a failure to detect a “data underrun on the last byte of a
diskette read or write operation.” Id. col. 1 ll. 61-63.
Instead of being detected and aborted, this data underrun
results in incorrect data being “written to the diskette and
validated by the FDC.” 2 Id. col. 2 ll. 4-5. The ’002 patent
1 Super I/O computer chips perform multiple in-
put/output functions, including the function of FDCs.
2 The specification explains the concerns associated
with such an FDC defect: “Maintaining the integrity of
the stored data is essential to the proper function of
[computer systems like those used by businesses and
government national defense systems]. . . .” Id. col. 1 ll.
18-21.
4 ADAMS & ASSOC v. DELL COMPUTER
claims an apparatus and a method for detecting such FDC
defects.
Independent claim 1 discloses an apparatus compris-
ing: (1) a processor executing a detection program, (2) a
memory device and a system clock both connected to the
processor, (3) a media drive for storage, (4) an FDC con-
nected to the media drive, and (5) a direct memory access
controller connected to both the FDC and the memory
device that controls transfers of data between the two. Id.col. 1 ll. 17-36. Independent claim 12 discloses a method
comprised of delaying the last byte of data when transfer-
ring data from the memory device to the media drive
through the FDC; in short, it forces an underrun error in
the FDC’s data transfer. After the transfer is complete,
claim 12 teaches “verifying whether the floppy diskette
controller detected the underrun error.” Id. col. 1 ll. 29-30.
If it did not detect the error, the FDC is defective.
II.
During the late 1990s and early 2000s, ASUSTeK, a
Taiwan-based manufacturer of computer motherboards,
was a supplier to Sony and Hewlett Packard (“HP”),
among other computer companies; ACI was ASUSTeK’s
United States sales and inventory management subsidi-
ary. 3 ASUS’s motherboards incorporated Super I/O chips
purchased from Winbond Electronics Corporation (“Win-
bond”), among others.
In 1999, Dr. Adams cooperated in a class action law-
suit against Toshiba Corporation (“Toshiba”) related to
defective FDCs in Toshiba computers, which resulted in
3 For the sake of convenience, and because it was the
predominant practice of the district court and the parties,
the remainder of this opinion will refer to both ASUSTeK
and ACI as “ASUS,” even when only one entity is impli-
cated.
ADAMS & ASSOC v. DELL COMPUTER 5
Toshiba paying a $2.1 billion settlement. Following
announcement of the Toshiba settlement, there was
“industry-wide knowledge” of FDC defects and “the perva-
sive apprehension of pending litigation regarding the
defect.” Phillip M. Adams & Assocs. v. ASUSTeK Com-
puter, Inc., No. 05-64, slip op. at 5 (D. Utah Sept. 27,
2010) (“Sanctions Op.”). In late 1999, the same law firm
that brought the Toshiba litigation filed a similar suit
against HP, one of ASUS’s customers. HP then sent an
email to ASUS asking it to determine whether the ASUS
motherboards sold to HP contained the FDC defect.
ASUS assigned one of its Taiwan-based engineers, Sam
Yang, to develop software to detect such FDC defects.
The result was an executable software called IFDC.exe,
which Mr. Yang provided to HP and Winbond in January
2000.
III.
On May 12, 2005, PMAA filed suit against Sony and
several other defendants, alleging infringement of
PMAA’s ’002 patent and other patents related to the
detection of FDC defects. Sony then filed a third-party
complaint against Winbond and ASUS on the ground that
the allegations against Sony were based on “Super I/O
chips designed, manufactured, tested, and sold by Win-
bond . . . and computers and motherboards containing
these Super I/O chips designed, manufactured, tested and
sold by ASUS.” J.A.408. On May 3, 2007, PMAA asserted
cross claims for patent infringement and misappropria-
tion of trade secrets against Winbond and ASUS. The
trade secrets claim was dismissed for untimeliness.
Phillip M. Adams & Assocs. v. Winbond Elecs. Corp., No.
05-64 (D. Utah Aug. 25, 2010) (“Summary Judgment
Op.”). The parties then proceeded to trial, with PMAA
asserting multiple patents, including the ’002 patent,
against ASUS, Winbond, and other remaining defendants
who had not already settled with PMAA.
6 ADAMS & ASSOC v. DELL COMPUTER
On September 27, 2010, the district court reversed the
magistrate judge’s earlier pretrial order denying spolia-
tion sanctions and ordered an adverse inference sanction
against ASUS for spoliation of evidence, based on ASUS’s
failure to produce the source code for its IFDC.exe pro-
gram. 4 Sanctions Op. at 10. Based on this spoliation of
evidence, the district court found the case was exceptional
under 35 U.S.C. § 285. Phillip M. Adams & Assocs. v.
Sony Elecs. Inc., No. 05-64, slip op. at 5 (D. Utah Sept. 26,
2011) (“Attorney Fees Op.”). However, it declined to
award attorney fees to PMAA under § 285, finding the
adverse inference sanction was an adequate penalty
under the circumstances. Id.
On September 27, 2010, the same day as the district
court’s sanction order, ASUS moved for JMOL pursuant
to Fed. R. Civ. P. 50(a), which was denied by the district
court. The jury then returned verdicts of infringement of
various claims of the ’002 patent against ASUS and
Winbond. 5 However, the other two patents asserted by
PMAA were found not to be infringed. After the jury
verdict, Winbond settled with PMAA. ASUS, on the other
hand, renewed its motion for JMOL pursuant to Fed. R.
Civ. P. 50(b). The district court denied the motion, letting
the jury verdict stand. Phillip M. Adams & Assocs. v.
Sony Elecs. Inc., No. 05-64 (D. Utah Sept. 26, 2011)
(“JMOL Op.”). ASUS filed this timely appeal, and PMAA
cross appeals. We have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(1).
4 Although ASUS did not provide the IFDC.exe
source code to PMAA, it did provide the IFDC.exe pro-
gram itself.
5 In particular, the jury found that ASUSTeK in-
fringed claims 1, 11, 12, and 15 of the ’002 patent and
that ACI infringed claims 1 and 15 of the ’002 patent.
ADAMS & ASSOC v. DELL COMPUTER 7
DISCUSSION
Four separate issues are appealed to this court.
ASUS appeals (1) the adverse inference sanction and (2)
the denial of its motion for JMOL. PMAA cross appeals
(1) the grant of summary judgment dismissing its trade
secrets claim and (2) the refusal to grant it attorney fees
under 35 U.S.C. § 285. Each issue is addressed in turn.
I. ASUS’S APPEAL
1. THE DISTRICT COURT ERRED IN IMPOSING AN ADVERSE
INFERENCE SANCTION AGAINST ASUS
ASUS appeals from the district court’s imposition of
an adverse inference sanction for spoliation of evidence.
This court reviews such procedural matters not unique to
patent law under the law of the regional circuit. Sitrick v.
Dreamworks, LLC, 516 F.3d 993, 1002 (Fed. Cir. 2008).
The Tenth Circuit reviews a district court’s ruling on a
motion for spoliation sanctions for abuse of discretion.
Burlington N. and Santa Fe Ry. Co. v. Grant, 505 F.3d
1013, 1032 (10th Cir. 2007).
PMAA’s pretrial motion for spoliation sanctions
against ASUS was referred to a magistrate judge. The
magistrate judge found ASUS’s failure to produce the
IFDC.exe source code during discovery violated its duty to
preserve evidence. However, he also found that “[t]he
evidence that Adams lists from other parties does not
show that ASUS has willfully spoliated its evidence . . . .
In fact, the evidence that Adams obtained from other
parties shows just the opposite—other parties also have
very little documentary evidence involving ASUS.” Phillip
M. Adams & Assocs. v. Winbond Elecs. Corp., No. 05-64,
slip op. at 3 (D. Utah July 21, 2010) (“Magistrate’s Sanc-
tions Op.”). Accordingly, the magistrate judge concluded
there had been no bad faith spoliation, and thus denied
8 ADAMS & ASSOC v. DELL COMPUTER
sanctions. 6 PMAA objected to the magistrate judge’s
order.
According to statute and the Federal Rules of Civil
Procedure, a district court may reconsider a magistrate
judge’s nondispositive pretrial order, such as an order
denying discovery sanctions, only if such order is “clearly
erroneous or contrary to law.” 28 U.S.C. § 636(b)(1)(A); see
also Fed. R. Civ. P. 72(a). Following PMAA’s objection, the
district court found no clear error in the magistrate
judge’s order; that is, it left intact the magistrate judge’s
finding of no bad faith. Sanctions Op. at 10. In spite of
this finding, the district court determined a sanction was
warranted and imposed a broad adverse inference sanc-
tion against ASUS. 7 Id.6 The magistrate judge issued two decisions relating
to discovery sanctions. In 2009, the magistrate found
ASUS violated its duty to preserve evidence of the
IFDC.exe source code, but requested additional eviden-
tiary submission and briefing on whether PMAA had
suffered prejudice as a result. In 2010, the magistrate
judge denied PMAA’s motion for sanctions, finding there
had been no bad faith spoliation by ASUS and an inade-
quate showing of prejudice to PMAA. With respect to
prejudice, the magistrate judge reasoned that both parties
could present their evidence to the jury, and “[t]he jury
will consider these facts and draw their inferences.”
Magistrate’s Sanctions Op. at 6. This was not an adverse
inference sanction, however, but simply an analysis that
such evidence was relevant, and that an opportunity to
present its argument to the jury meant that PMAA suf-
fered little prejudice from the missing evidence.
7 The district court’s decision could be interpreted as
making an independent finding of bad faith. Sanctions
Op. at 2 (finding ASUS failed to preserve certain evidence
with “pinpoint precision.”). If this was the case, the
district court abused its discretion by failing to properly
ADAMS & ASSOC v. DELL COMPUTER 9
A spoliation sanction is proper under Tenth Circuit
law when “(1) a party has a duty to preserve evidence
because it knew, or should have known, that litigation
was imminent, and (2) the adverse party was prejudiced
by the destruction of the evidence.” Burlington N., 505
F.3d at 1032. An adverse inference sanction in particular
“must be predicated on the bad faith of the party destroy-
ing the records.” Aramburu v. Boeing Co., 112 F.3d 1398,
1407 (10th Cir. 1997) (emphasis added). The district
court committed legal error by imposing an adverse
inference sanction absent a finding of bad faith. “A dis-
trict court by definition abuses its discretion when it
makes an error of law.” Koon v. United States, 518 U.S.
81, 100 (1996). Accordingly, we reverse the district
court’s imposition of an adverse inference sanction, and
consider whether there is adequate evidence to support
the jury verdicts against ASUS absent such adverse
inferences.
2. THE DISTRICT COURT ERRED IN DENYING JMOL OF
NONINFRINGEMENT
The Tenth Circuit reviews de novo the denial of a mo-
tion for JMOL, and reapplies the district court’s standard
of review. Miller v. Eby Realty Group LLC, 396 F.3d 1105,
1110-11 (10th Cir. 2005). JMOL is proper when “the
evidence and all inferences to be drawn therefrom are so
clear that reasonable minds could not differ on the conclu-
sion.” Id. (internal quotation marks and citations omit-
ted). Moreover, review of a jury verdict is “limited to
determining whether that verdict is supported by sub-
stantial evidence when the record is viewed in the light
defer to the magistrate judge’s factual findings, as it is
required to do when reviewing a pretrial order. Fed. R.
Civ. P. 72(a).
10 ADAMS & ASSOC v. DELL COMPUTER
most favorable to the prevailing party.” 8 Beck v. N. Natu-
ral Gas Co., 170 F.3d 1018, 1021 (10th Cir. 1999).
The evidence presented in PMAA’s briefing to this
court can be summarized into two categories: evidence of
ASUS’s allegedly infringing IFDC.exe program and evi-
dence of ASUS’s allegedly infringing certification testing
of its motherboards. 9 On appeal, ASUS contends this
8 As a preliminary matter, PMAA argues ASUS was
precluded from challenging the jury verdict regarding
claim 12, the only method claim, because claim 12 was not
challenged in ASUS’s Rule 50(a) motion for JMOL.
However, PMAA did not raise this issue before the district
court, and instead represented that ASUS’s 50(b) motion,
which included the challenge to claim 12, was “simply a
rehash” of its earlier 50(a) motion. J.A.6465; see also
J.A.6476, 6488. Therefore, it is proper to review the
JMOL in its entirety, including the challenge to claim 12.
Guides, Ltd. v. Yarmouth Grp. Prop. Mgmt., Inc., 295 F.3d
1065, 1076 n.3 (10th Cir. 2002) (“When the non-moving
party fails to raise the inadequacy of a Rule 50(a) motion
in opposition to a Rule 50(b) motion, that party cannot
raise waiver as an argument on appeal.”).
9 PMAA maintains that it has more evidence than
this, but the record does not support these assertions. For
instance, PMAA’s opening brief argues that “[t]here is
substantial evidence that ASUS’[s] infringing testing was
not limited to IFDC.EXE in 2000.” PMAA’s Opening Br.
at 46. However, the citations PMAA provides in this
section refer to a detector program provided by ASUS to
Winbond in January 2000, which is the very IFDC.exe
program and 1999-2000 timeframe PMAA seeks to dis-
claim. Any listed citations that do not relate to IFDC.exe
do not appear to implicate ASUS at all. See Trial Ex. 29 at
J.A.7281 (regarding testing efforts undertaken by Win-
bond using test software provided by ASUS in January
2000); Trial Ex. 30 at J.A.7299 (referring to the same);
ADAMS & ASSOC v. DELL COMPUTER 11
evidence is insufficient to show infringement within the
United States during the six years before the infringe-
ment claim was filed.
With respect to the first category of evidence, PMAA
submitted evidence showing that ASUS’s IFDC.exe pro-
gram infringed the ’002 patent. PMAA argues ASUS’s
use of the IFDC.exe program within the United States is
sufficient to support a jury verdict of infringement under
35 U.S.C. § 271(a). However, evidence of the IFDC.exe
program is limited to the 2000 time period, over six years
before PMAA filed its claim for patent infringement
against ASUS.
Title 35 U.S.C. § 286 sets forth a limitation on dam-
ages:
Except as otherwise provided by law, no recovery
shall be had for any infringement committed more
than six years prior to the filing of the complaint
or counterclaim for infringement in the action.
In applying this section, “one starts from the filing of a
complaint or counterclaim and counts backward to deter-
mine the date before which infringing acts cannot give
rise to a right to recover damages.” Standard Oil Co. v.
Nippon Shokubai Kagaku Kogyo Co., Ltd., 754 F.2d 345,
348 (Fed. Cir. 1985) (emphases in original). Here, PMAA
may not recover for infringing acts taking place before
May 3, 2001, six years before it brought suit against
ASUS. PMAA provided evidence that the IFDC.exe
Trial Ex. 35 at 7303 (referring to same); Trial Ex. 84 at
7325 (referring to same); Trial Ex. 369 at J.A.7472 (refer-
ring to same); Trial Ex. 98 at J.A.7335 (emails primarily
between Winbond and HP employees, one of which was
sent to ASUS employees but otherwise making no refer-
ence to ASUS); Trial Ex. 155 at J.A.7357 (same).
12 ADAMS & ASSOC v. DELL COMPUTER
program was completed in 2000, and was sent to Winbond
and HP on January 27, 2000. ASUS employees may have
used the IFDC.exe program on HP products during a trip
to Cupertino, California in early 2000. These events all
occurred in 2000, over six years before PMAA filed suit
against ASUS. Accordingly, the IFDC.exe evidence
cannot form the basis for the jury verdict of infringe-
ment. 10
With respect to PMAA’s second category of evidence,
PMAA presented testimony that ASUS engaged in certifi-
cation testing of its motherboards, including stress tests,
Federal Communications Commission certification tests,
European Conformity certifications tests, and Windows
operating system compliance tests. PMAA argues this
certification testing infringed the ’002 patent and that
ASUS’s motherboards were “made by” this allegedly
infringing testing such that importation of the mother-
10 ASUS filed U.S. Patent Application 09/976,063
(“the ’063 application”) on October 15, 2001, entitled
Method for Preventing Data Corruption by a Floppy
Diskette Controller, but abandoned it in 2005. PMAA
argues that “[b]ecause of the great deal of evidence spoliat-
ed by ASUS, and the related jury instruction, the jury was
free to infer that [the infringing IFDC.exe] testing had
occurred in the United States up until at least 2005 when
ASUS finally abandoned its U.S. patent application.”
PMAA’s Opening Br. at 49-50 (emphasis added). Howev-
er, even this argument appears to concede that, absent
the adverse inference jury instruction, it is not reasonable
to infer the existence of infringing testing based solely on
the prosecution of a patent application. See Sunward
Corp. v. Dun & Bradstreet, Inc., 811 F.2d 511, 521 (10th
Cir. 1987) (“Although a jury is entitled to draw reasonable
inferences from circumstantial evidence, reasonable
inferences themselves must be more than speculation and
conjecture.”).
ADAMS & ASSOC v. DELL COMPUTER 13
boards into the United States constituted infringement
under 35 U.S.C. § 271(g). However, this argument fails
on two counts. First, the record does not show that the
certification testing constituted infringement of the ’002
patent. When asked on cross examination whether any of
the certification testing ran a detector program to reveal
an FDC defect and thereby infringed the ’002 patent,
PMAA’s expert Dr. Kraft testified that such proof was “in
a test report.” J.A.4698. Dr. Kraft then admitted that “if
it [was] not in the test report . . . , then [he had] no evi-
dence.” Id. In its brief, PMAA does not assert that the
referenced test report had any such information, but
simply argues that the certification testing logically must
include FDC testing. The fact that ASUS’s certification
testing comprehensively tested all parts of the machine
does not show that ASUS infringed the ’002 patent by
forcing a data underrun to detect an FDC defect.
Second, even assuming the certification testing consti-
tuted infringement of the ’002 patent, the motherboards
were not “made by” the certification testing pursuant to
35 U.S.C. § 271(g). The mere “production of information
is not covered” by § 271(g). Bayer AG v. Housey Pharm.,
Inc., 340 F.3d 1367, 1377 (Fed. Cir. 2003). PMAA’s argu-
ment that ASUS’s certification testing was “integrated
into ASUS’[s] manufacturing process” is thus unpersua-
sive. PMAA’s Opening Br. at 57. Rather, the certification
testing constituted mere “production of information” that
ASUS’s motherboards were or were not compliant with
certification standards. Accordingly, certification testing
was not part of the process to “make” the motherboards.
PMAA thus cannot show that ASUS’s importation of
motherboards into the United States constitutes in-
fringement under § 271(g). 11
11 ASUS also argues that Winbond’s post-verdict
settlement agreement with PMAA releases ASUS from
infringement liability. This settlement agreement grant-
14 ADAMS & ASSOC v. DELL COMPUTER
In sum, PMAA has failed to present substantial evi-
dence of infringement within the United States after May
3, 2001. Accordingly, the district court erred in denying
ASUS’s post-verdict motion for JMOL, and this court
reverses that determination.
II. PMAA’S CROSS APPEAL
PMAA cross appeals the grant of summary judgment
dismissing its trade secrets claim for untimeliness and
the denial of its motion for attorney fees under 38 U.S.C. §
285.
1. THE DISTRICT COURT CORRECTLY GRANTED SUMMARY
JUDGMENT DISMISSING PMAA’S TRADE SECRETS CLAIM FOR
UNTIMELINESS
This court reviews the grant of a motion for summary
judgment under the law of the regional circuit. The Tenth
Circuit subjects the grant of summary judgment to de
novo review. Lundstrom v. Romero, 616 F.3d 1108, 1118
(10th Cir. 2010). Summary judgment is appropriate only
if “the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judg-
ment as a matter of law.” Fed. R. Civ. P. 56(a).
ed Winbond a retroactive license covering Winbond-made
chips. ASUS contends this settlement releases ASUS, as
a customer of Winbond Super I/O chips, from all liability
to PMAA relating to ASUS’s purchase of Winbond prod-
ucts. PMAA, however, maintains that ASUS’s infringing
testing was not limited to Winbond products, and that the
Winbond settlement would not release ASUS for ASUS’s
independent liability. Even assuming PMAA’s argument
is correct, PMAA has failed to present substantial evi-
dence to support a finding of any such independent in-
fringement by ASUS in the United States during the
relevant time period.
ADAMS & ASSOC v. DELL COMPUTER 15
The Utah Uniform Trade Secrets Act (“Trade Secrets
Act”) provides that “[a]n action for [trade secret] misap-
propriation shall be brought within three years after the
misappropriation is discovered or, by the exercise of
reasonable diligence, should have been discovered.”
Utah Code Ann. § 13-24-7 (LexisNexis 2012). The Utah
Supreme Court has interpreted such language to estab-
lish a “statutory discovery rule,” under which a statute of
limitations is triggered “when a plaintiff first has actual
or constructive knowledge of the relevant facts forming
the basis of the cause of action.” Russell Packard Dev.,
Inc. v. Carson, 108 P.3d 741, 746 (Utah 2005).
The district court found that PMAA had constructive
knowledge of its trade secrets claim against ASUS by
March 4, 2004—over three years before PMAA filed its
cross claim against ASUS on May 3, 2007—when PMAA’s
lawyer sent an email to Winbond implicating both Win-
bond and ASUS in “potential theft” of PMAA’s patented
programs (“the March 4th email”). J.A.3174. The March
4th email stated:
[W]e discovered this past week that Gateway
somehow obtained an unauthorized copy of Dr.
Adams’ Detector from Quanta in 2000-2001. We
believe that Winbond also obtained or had posses-
sion of a copy of Dr. Adams’ Detector and related
programs. . . .
[W]e have also learned that Gateway claims that
Winbond’s detector (test utility) was actually ob-
tained from ASUS, who developed the test utility
from an IBM supplied design. These two files,
ifdc.exe and w2sec.exe, constitute the Winbond
test utility. Due to the legal ramifications and po-
tential theft involved, we would appreciate a copy
of these files immediately so that we can exoner-
ate your client.
16 ADAMS & ASSOC v. DELL COMPUTER
J.A.3174 (emphases added). The district court deter-
mined that this email reflected PMAA’s knowledge “that
ASUS had developed a utility that was a ‘potential theft’
of what [PMAA] claims to be trade secrets.” Summary
Judgment Op. at 5. Accordingly, the district court found
the statute of limitations was triggered on March 4, 2004,
and had expired by May 3, 2007, when PMAA filed its
claim against ASUS. Id. at 5-6.
PMAA argues the district court erred in granting
summary judgment because at the time of the email
“there was no evidence . . . that ASUS (1) had used
PMAA’s trade secrets, and (2) knew or had reason to
know that it was not in rightful possession of the infor-
mation.” 12 PMAA’s Opening Br. at 64. However, consid-
eration of the elements of a trade secrets claim confirms
the district court’s conclusion that the March 4th email
shows constructive knowledge sufficient to trigger the
statute of limitations.
The Trade Secret Act provides that “a complainant is
entitled to recover damages for misappropriation.”
Utah Code Ann. § 13-24-4 (LexisNexis 2012). Misappro-
priation is defined as follows:
(a) acquisition of a trade secret of another by a
person who knows or has reason to know that the
trade secret was acquired by improper means; or
12 In arguing that its trade secrets claim was not un-
timely, PMAA focuses on the district court’s earlier cau-
tioning that “‘reliance on third-hand information is
inappropriate.’” PMAA’s Opening Br. at 63 (quoting
J.A.3886.275). However, the district court’s statement
regarding third-hand information was chastising another
party for nonproduction of requested evidence in discov-
ery, not cautioning PMAA about when to file its trade
secrets claim.
ADAMS & ASSOC v. DELL COMPUTER 17
(b) disclosure or use of a trade secret of another
without express or implied consent by a person
who:
(i) used improper means to acquire knowledge
of the trade secret; or
(ii) at the time of disclosure or use, knew or
had reason to know that his knowledge of the
trade secret was:
(A) derived from or through a person who
had utilized improper means to acquire it;
(B) acquired under circumstances giving
rise to a duty to maintain its secrecy or
limit its use; or
(C) derived from or through a person who
owed a duty to the person seeking relief to
maintain its secrecy or limit its use. . . .
Utah Code Ann. § 13-24-2(2) (LexisNexis 2012). The
March 4th email reflects PMAA’s knowledge that ASUS
obtained or developed a copy of Dr. Adams’s Detector from
IBM and provided it to Winbond. See March 4th email at
J.A.3174 (alleging Winbond had a “copy of Dr. Adams’[s]
Detector” and that it had obtained such detector from
ASUS, “who developed the test utility from an IBM sup-
plied design.”). This is adequate to show constructive
knowledge of misappropriation pursuant to the Trade
Secrets Act. That is, if IBM was authorized to have the
detector, ASUS’s disclosure to Winbond would constitute
“disclosure” of a trade secret that was “derived from or
through a person who owed a duty to the person seeking
relief to maintain its secrecy or limit its use.”
Utah Code Ann. § 13-24-2(2)(b)(ii)(C) (LexisNexis 2012).
If, on the other hand, IBM was not authorized to have the
programs, ASUS’s acquisition was prohibited misappro-
priation, and its disclosure to Winbond was “derived from
or through a person who had utilized improper means to
18 ADAMS & ASSOC v. DELL COMPUTER
acquire it.” Id. § 13-24-2(2)(a),(b)(ii)(A) (LexisNexis 2012).
PMAA’s contention that it did not know whether ASUS
“used” the misappropriated detector program is thus
inapposite, because the March 4th email reflects sufficient
knowledge to meet the elements of misappropriation in a
variety of ways.
Additionally, PMAA’s argument that it had no infor-
mation of ASUS’s state of mind does not defeat PMAA’s
constructive knowledge of facts sufficient to make up its
trade secrets claim. The statutory discovery rule “does
not allow plaintiffs to delay filing suit until they have
ascertained every last detail of their claims.” McCollin v.
Synthes Inc., 50 F. Supp. 2d 1119, 1124 (D. Utah 1999);
see also id. (quoting United Park City Mines Co. v. Greater
Park City Co., 870 P.2d 880, 889 (Utah 1993)) (“‘All that is
required [to trigger the statute of limitations] is . . .
sufficient information to apprise [the plaintiff of the
underlying cause of action] so as to put them on notice to
make further inquiry if they harbor doubts or questions’
about the defendant’s actions.”) (alterations in
McCollin). 13 Additionally, the fact that ASUS did not
admit it had stolen PMAA’s trade secrets when ques-
tioned, PMAA’s Opening Br. at 69, does not defeat
PMAA’s “constructive knowledge” of facts sufficient to
make up its trade secrets claim. Statutes of limitations
would be rendered meaningless if claims did not accrue
until the potential defendant admitted wrongdoing.
In sum, there is no genuine issue of material fact that
PMAA had constructive knowledge of its trade secrets
13 With respect to state of mind, the Utah Su-
preme Court has held that constructive notice of a fraud
claim was shown as a matter of law by a letter in which
plaintiffs accused defendant of the underlying fraudulent
conduct, even though the letter did not make allegations
regarding defendant’s state of mind. Allred ex rel. Jensen
v. Allred, 182 P.3d 337, 345 (Utah 2008).
ADAMS & ASSOC v. DELL COMPUTER 19
claim by March 4, 2004, more than three years before it
brought its claim against ASUS on May 3, 2007. The
district court’s grant of summary judgment is thus af-
firmed.
2. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN
DENYING ATTORNEY FEES
The district court found that ASUS’s litigation mis-
conduct relating to its spoliation of the IFDC.exe source
code made the case “exceptional” under 35 U.S.C. § 285.
Attorney Fees Op. at 5. However, the court declined to
grant attorney fees to penalize such spoliation, having
already imposed an adverse inference sanction for the
same conduct. Id. On appeal, PMAA argues this denial of
attorney fees was an abuse of discretion.
“A district court abuses its discretion when ‘its deci-
sion is based on clearly erroneous findings of fact, is based
on erroneous interpretations of the law, or is clearly
unreasonable, arbitrary or fanciful.’” Forest Labs., Inc. v.
Abbott Labs., 339 F.3d 1324, 1328 (Fed. Cir. 2003) (quot-
ing Cybor Corp. v. FAS Techs., 138 F.3d 1338, 1460 (Fed.
Cir. 1998)). None of these situations is present here. To
the contrary, it was reasonable for the district court to
decide against imposing two different penalties for the
same conduct. Furthermore, this court’s determination
with respect to ASUS’s motion for JMOL of noninfringe-
ment means that PMAA is no longer a “prevailing party”
in the case, making attorney fees under § 285 inappropri-
ate. 35 U.S.C. § 285 (“The court in exceptional cases may
award reasonable attorney fees to the prevailing party.”)
(emphasis added).
CONCLUSION
For the foregoing reasons, this court reverses the dis-
trict court’s imposition of an adverse inference sanction,
and its denial of ASUS’s motion for JMOL. However, the
grant of summary judgment dismissing PMAA’s trade
20 ADAMS & ASSOC v. DELL COMPUTER
secrets claim and the denial of attorney fees under 35
U.S.C. § 285 are affirmed.
REVERSE-IN-PART and AFFIRM-IN-PART