Modular Mining Systems, Inc. v. Jigsaw Technologies, Inc. et al (4/30/2009)

May 12, 2009

Arizona Court of Appeals Division Two Holds That Trial Court Trial Court, In Trade Secrets Case, Properly Concluded Injunctive Relief Moot Where Defendants Voluntarily Ceased Use of Alleged Trade Secret Upon Learning Plaintiff Considered The Material a Trade Secret.

Modular Mining Systems, Inc. (Modular) manufactures a mine-management system known as “Dispatch.”  Dispatch is a combination of hardware and software that gathers data about a mine’s equipment and calculates the equipment’s optimal use.  The Dispatch system consists of a central server and one or more field units that are attached to mobile mining equipment.  Two former Modular employees formed Jigsaw Technologies Inc. (Jigsaw), which eventually manufactured a mine-management product called “MineOps.”  MineOps competes directly with Dispatch. 

Modular filed suit in 2004, naming Jigsaw and individual defendants.  Modular sought a preliminary injunction and alleged, inter alia, a violation of Arizona’s Uniform Trade Secrets Act and breach of employment agreements.  The trial court denied the injunction in May 2005 after a five-day hearing.  In August 2007, Modular amended its complaint and sought only injunctive relief.  Modular contended Jigsaw had misappropriated two computer codes and used them to allow Jigsaw’s field units to communicate with Modular’s field units aboard certain vehicles at two mines in Peru and Argentina.  Modular sought to enjoin Jigsaw from using these computer codes.

Jigsaw moved for summary judgment on all of Modular’s claims in January 2008.  Jigsaw asserted that it had been unaware Modular considered the computer codes at issue to be trade secrets until Jigsaw deposed Modular’s expert in February 2008.  Upon learning that Modular considered the computer codes to be trade secrets, it immediately discontinued their use and implemented an alternate procedure that was published and thus not a trade secret.  Jigsaw also asserted that the Dispatch systems, in any event, would be decommissioned in both mines by the end of 2008.  Modular did not dispute that Jigsaw was using the computer codes at only the two specified mines or that both mines stopped using Dispatch in 2008.  The trial court granted Jigsaw’s summary judgment motion in its entirety, concluded Modular’s claim for injunctive relief was moot and awarded Jigsaw its requested attorneys’ fees in the amount of $510,561.50 under A.R.S. § 12-341.01 and § 44-404.  Modular appealed.

Division Two affirmed.  Reviewing de novo whether the grant of summary judgment was proper, the Court’s opinion focused on Modular’s argument that the trial court erred in finding its request for injunctive relief moot.  The issue of injunctive relief is moot when the “events make it absolutely clear the allegedly wrongful behavior could not be reasonably expected to recur.”  Although the mere cessation of illegal conduct does not necessarily render a case moot, the necessary determination is that “there exists some cognizable danger of recurrent violation, something more than the mere possibility which serves to keep the case alive.”  Factors that may point to a danger of future violations include past violations, involuntary cessation of the violations, and their continuance in disregard of the lawsuit. 

On appeal, Modular contended that its expert contraverted Jigsaw’s assertion that Jigsaw’s discontinuance of the command codes at issue in the future rendered its use of Modular’s computer codes moot.  Quoting at length from the expert’s affidavit, the Court found that the expert’s statement failed to create a genuine issue of material fact because: (1) the substance of the expert’s statements did not provide any evidence contraverting Jigsaw’s factual assertions that it had stopped using the computer codes once it learned Modular considered them to be trade secrets; (2) the expert’s statement that there was a possibility that Jigsaw could benefit from its past use of Modular’s trade secrets was irrelevant to Modular’s claim for injunctive relief, and (3) the expert’s statements were dependent on additional research and further discovery, language which would be appropriate for a Rule 56(f) motion, but which did not demonstrate a genuine factual dispute.   The Court concluded that in general, Modular failed to produce any evidence suggesting there was any reason or likelihood that Jigsaw would revert to using the previous configuration procedure.

Finally, the Court affirmed award of attorneys fees to Jigsaw under § 12-341.01.  It rejected Modular’s arguments that while Jigsaw was entitled to fees incurred in connection with the claims for breach of employment agreements, Jigsaw could not obtain its fees incurred in defending Modular’s trade secret claim, which does not arise out of contract.  The Court agreed with Jigsaw that Modular’s claims were “inextricably interwoven,” and thus the trial court did not abuse its discretion in awarding fees.

Judge Espinosa authored the opinion, with Judges Howard and Pelander concurring.