Home > TOUCH NETWORKS, INC. v. GOGI DESIGN, LLC

TOUCH NETWORKS, INC. v. GOGI DESIGN, LLC

TOUCH NETWORKS, INC., a Washington corporation, Respondent,
v.
GOGI DESIGN, LLC, a Washington limited liability company, Appellant,
HYUNSOOK CHUNG, Defendant.
No. 63648-1-I.

Court of Appeals of Washington, Division One.

Filed August 22, 2011.

John Hoyer Ludwick, Attorney at Law, 11005 Main St, Bellevue, WA, 98004-6367.

Matthew Miller, Cuneo, Bilbert & LaDuca, LLP, 507 C. Street Ne, Washington, DC, 20002, Counsel for Appellant(s).

Kristin Gjesdahl Olson, O'Shea Barnard Martin & Olson PS, 10900 Ne 4th St Ste 1500, Bellevue, WA, 98004-5844, Counsel for Respondent(s).

UNPUBLISHED OPINION

LEACH, A.C.J.

Gogi Design LLC (Gogi) appeals a trial court determination that it breached the terms of its nondisclosure agreement with Touch Networks Inc. (TNI) and violated the Uniform Trade Secrets Act (UTSA).[1] Because Gogi did not breach the nondisclosure agreement and the trial court's findings of fact do not support its conclusion that Gogi violated the UTSA, we reverse.

FACTS

Vascular surgeon Mark Ombrellaro founded TNI and its wholly owned subsidiary TN Games to develop new medical and video game technologies. In March 2005, Ombrellaro met with Hyunsook Chung to discuss hiring Gogi, Chung's design and marketing firm, to redesign TNI's "logo." Before he would discuss the logo, however, Ombrellaro required Chung to sign a nondisclosure agreement.

The nondisclosure agreement protects TNI's proprietary information when TNI shares that information with others in the contemplation of a working relationship. The preamble states, "Solely for the purpose of evaluating whether Obligated Person desires to ______, Obligated Person [Gogi] is interested in viewing certain of Company's [TNI's] books, records, operating methods and other information and property."[2]

The nondisclosure agreement broadly defines proprietary information as "[a]ny and all information furnished or made available to Obligated Person . . . by Company . . . either prior to or after the date of this Agreement."

The agreement's first paragraph requires the signing party to keep TNI's proprietary information confidential. It states, "For a period of five (5) years from the date of this Agreement, Obligated Person: will hold in strict confidence and trust and maintain as confidential all Proprietary Information and any information derived therefrom."

The agreement's second paragraph protects TNI's ownership of and intellectual property rights attached to the proprietary information. It reads, "[A]ll Proprietary Information will at all times be and remain the sole property of Company; and Company is the sole owner of all copyrights, trademarks and other proprietary rights related to Proprietary Information."

Chung signed the nondisclosure agreement, and the parties then discussed TNI's logo. After the meeting, Ombrellaro hired Chung and elected to pay Gogi's cheaper, hourly rate rather than the more expensive project rate, which would have included "full usage" rights in Gogi's work.

Between March 2005 and September 2007, Gogi completed 72 projects for TNI. The nondisclosure agreement was the only written agreement between the parties.

When the working relationship ended, Ombrellaro requested all TNI project source files in Gogi's possession. In turn, Gogi requested that TNI pay its outstanding invoices. TNI experienced difficulty in obtaining the desired material, as evidenced by several e-mails. Eventually, TNI sent Gogi a letter, asking Gogi to

confirm[] our contract for design services on a work for hire basis and that the intellectual property generated by or from the work performed for us is Touch Networks' property. Please countersign below to confirm you will return all of our property to us, including all original works in your possession. This would include both items we sent to you and items you created for us.

Gogi did not sign the letter, and TNI refused to remit payment on the outstanding invoices.

On October 1, TNI sent Gogi a final e-mail requesting "EVERYTHING Gogi has ever done for us." Two weeks later, TNI filed a complaint naming Chung and Gogi as defendants and alleging breach of contract and UTSA claims. Specifically, TNI alleged that by retaining the requested information, Gogi both breached its nondisclosure agreement with TNI and violated the UTSA.

On October 18, Gogi removed the case to federal district court. The district court remanded after determining that Washington contract law governed and was not preempted by the Copyright Act.[3]

On November 2, Chung submitted seven copyright registration applications for TNI-related works. The United States Copyright Office denied three of the applications but registered the remaining four. When TNI learned about the copyright applications through discovery, it redesigned its brand at a cost of more than $72,000.

Gogi asserted several counterclaims, including breach of contract for failing to pay the outstanding balance and copyright infringement. Gogi also requested the court to enter declaratory judgment that copyright initially vested in Gogi as the author of the disputed works.

After a bench trial, the court entered judgment for TNI on both claims, finding "[t]he works identified in the copyrights registered to Gogi and others as indicated above are materials related to the Proprietary Information of TNI." As a result, the trial court concluded that TNI was "entitled to declaratory relief that it is the owner of copyright as to all works for which defendants submitted applications and received copyright registration from the U.S. Copyright Office as more particularly identified above." The trial court dismissed the copyright infringement counterclaims but ruled that TNI owed Gogi $7,220 for work performed.

The court ordered Chung and Gogi to pay $72,224.00 in damages incurred from TNI's rebranding and $99,534.75 in attorney fees and costs. Additionally, the trial court ordered Chung and Gogi to "return to TNI all Proprietary Information and all documents or data storage media containing any Proprietary Information of TNI and any and all copies thereof."

Gogi appeals.[4]

STANDARD OF REVIEW

When a party challenges findings of fact and conclusions of law, we limit our review to determining whether substantial evidence supports the trial court's findings and whether those findings support its legal conclusions.[5] "Substantial evidence exists if a rational, fair-minded person would be convinced by it."[6] We review questions of law and conclusions of law, including the interpretation of contract provisions, de novo.[7]

ANALYSIS

Gogi claims the trial court erred when it entered judgment for TNI on its breach of contract claim. Because the nondisclosure agreement does not address the ownership of works created by Gogi, we agree.

Washington follows the objective manifestation theory of contract interpretation.[8] Our primary goal in interpreting a contract is to ascertain the parties' intent from the ordinary meaning of the words in the contract.[9] In doing so, we "focus[] on the objective manifestations of the agreement, rather than on the unexpressed subjective intent of the parties."[10] "Thus, when interpreting contracts, the subjective intent of the parties is generally irrelevant if the intent can be determined from the actual words used."[11] We do not interpret what was intended to be written but what was actually written.[12]

The context rule allows courts to consider extrinsic evidence in determining the meaning of specific words and terms used but not to show an intention independent of the instrument or to vary, contradict, or modify the written word.[13] Extrinsic evidence includes the subject matter and objective of the contract, all of the circumstances surrounding the making of the contract, the subsequent acts and conduct of the parties, and the reasonableness of the respective interpretations urged by the parties.[14]

Because the information at issue here involves original works, we must also consider intellectual property concepts. Under the Copyright Act, a copyright "vests initially in the author or authors of the work."[15] "A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent."[16] "[T]he writing must ensure that the author `will not give away his copyright inadvertently' and `forces a party who wants to use the copyrighted work to negotiate with the creator to determine precisely what rights are being transferred and at what price.'"[17]

An exception to the general rule that a copyright automatically vests in the author applies if the work is a "work made for hire." A "work made for hire" is "(1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use . . . if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire."[18]

Therefore, under the Copyright Act, Gogi, as author, owned everything it created unless an express written agreement transferred ownership to TNI. The only written agreement between Gogi and TNI is the nondisclosure agreement. This agreement contains no language transferring ownership of work created by Gogi to TNI. It does protect certain proprietary information "[a]ny and all information furnished or made available to [Gogi]." But this only describes information provided by TNI to Gogi and not ownership of work created by Gogi from this information. Indeed, the agreement does not reference works created by Gogi and furnished to TNI. This omission is determinative because the works at issue here were created by Gogi.

TNI asserts that the phrases "derived from" and "related to" in the agreement's first and second paragraphs could be "reasonably interpreted to mean any work generated by Gogi and Ms. Chung about TNI and its products belongs to TNI." This reading misconceives the contractual provisions' clear structure and meaning.

The phrase "derived from" appears in the nondisclosure agreement's first paragraph. It states, "Obligated Person . . . will hold in strict confidence and trust and maintain as confidential all Proprietary Information and any information derived therefrom; and will not disclose any Proprietary Information or any information derived therefrom to any person." This paragraph concerns disclosure to a third party and does not purport to transfer any property rights between the contractual parties. It is therefore not relevant to TNI's breach of contract claim.

The subject of property rights appears in the nondisclosure agreement's second paragraph. That provision states, "[A]ll Proprietary Information will at all times be and remain the sole property of Company; and Company is the sole owner of all copyrights, trademarks and other proprietary rights related to Proprietary Information." (Emphasis added.) We read this provision to mean that TNI retained full ownership of its proprietary information (information given to Gogi by TNI). In other words, TNI's decision to share certain proprietary information with Gogi did not result in a transfer of any ownership interest to Gogi. The phrase "other proprietary rights related to Proprietary Information" is simply a catchall for any other proprietary rights that are not trademark or copyright. We decline to expand the phrase "related to" beyond its logical bounds to confer on TNI ownership of all proprietary rights arising from works authored by Gogi.

TNI's conduct demonstrates that it knew how to obtain the kind of proprietary rights it claims here. After signing the nondisclosure agreement, Gogi offered TNI two payment options: by project, which would have included a full usage buyout, and hourly, which did not include a buyout. TNI elected to pay Gogi's hourly rate, which Gogi substantially reduced to reflect the lack of usage rights. Also, Gogi performed work for Ombrellaro's medical practice, Eastside Vascular. Eastside Vascular elected to pay the project fee. Finally, after the working relationship ended, TNI sent Gogi a proposed letter agreement, asking Gogi to agree that it performed all design services for TNI on a "work for hire basis." This letter would have been unnecessary had the nondisclosure agreement transferred Gogi's ownership rights to TNI.

TNI argues that Gogi acknowledged TNI's copyright by placing a copyright notice on the disputed materials. But TNI does not cite to the record in support of this contention. Nor did the court enter any findings in that regard. Chung, however, testified that TNI had provided the information on which the copyright notice appeared. Under the terms of the nondisclosure agreement, therefore, those notices appeared on TNI's proprietary information, which TNI indisputably owns.

The nondisclosure agreement's stated purpose is to protect information that TNI shared with Gogi during the parties' process of determining whether they wished to enter into a working relationship. If TNI intended to acquire ownership of the design work Gogi produced after the relationship formed, it failed to reduce that intention to writing and to obtain Gogi's agreement. We hold that the trial court erred by entering judgment for TNI on its breach of contract claim.

Uniform Trade Secrets Act

Next, Gogi claims that the trial court erred in entering judgment for TNI on its UTSA claim. Because the trial court's findings of fact do not support its conclusion of law, we agree.

The UTSA prohibits the misappropriation of trade secrets.[19] RCW 19.108.010(4) defines "[t]rade secret" as

information, including a formula, pattern, compilation, program, device, method, technique or process that:
(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Further, the act defines "[m]isappropriation" as the

[d]isclosure or use of a trade secret of another without express or implied consent by a person who
. . . .
(ii) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was . . . (B) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.[20]

Thus, an action for misappropriation of a trade secret requires a plaintiff to establish that (1) it possessed a legally protectable trade secret and (2) the defendant misappropriated it. The determination of whether specific information is a trade secret is a factual question.[21]

Here, the apparent basis for the trial court's conclusion that Gogi violated the UTSA was its finding, "On July 26, 2007, Defendants disclosed confidential information of Plaintiff to a competitor of its TN Games division by e-mail from Defendants to Drew Staltman of a company then known as Gas Powered Games." But the trial court did not enter a specific factual finding that the information in Gogi's e-mail to Staltman met the statutory definition of "trade secret." Nor did it conclude that the trade secret had been misappropriated. Therefore, the trial court's findings of fact do not support its conclusion of law that Gogi violated the UTSA. We hold that the trial court erred by entering judgment for TNI on its UTSA claim.

Unpaid Invoices

Gogi also asks us to correct a clerical mistake in the trial court's judgment, which, it contends, does not reflect the trial court's conclusion that TNI owes Gogi an outstanding balance of $7,220 for work performed. Gogi should have filed a postjudgment motion with the trial court under CR 60(a). Because Gogi failed to bring the matter to the attention of the trial court, we will not consider it for the first time on appeal.[22]

Attorney Fees and Costs

TNI and Gogi request attorney fees. We may award attorney fees when authorized by a contract, statute, or recognized ground in equity.[23] The nondisclosure agreement provides for the award of attorney fees incurred at trial and on appeal. Because Gogi is the prevailing party on appeal, we deny TNI's request and grant Gogi's, subject to compliance with RAP 18.1(d).

CONCLUSION

We hold that the trial court erred in concluding that Gogi breached the nondisclosure agreement and violated the UTSA. Accordingly, we need not reach Gogi's additional claims. We reverse the judgment in favor of TNI and remand for further proceedings consistent with this opinion.

LAU and SPEARMAN, JJ., concur.

[1] Ch. 19.108 RCW.

[2] Gogi apparently did not fill in the blank.

[3] 17 U.S.C. 101, et seq.

[4] Chung withdrew her appeal due to her discharge in bankruptcy.

[5] Panorama Vill. Homeowners Ass'n v. Golden Rule Roofing, Inc., 102 Wn. App. 422, 425, 10 P.3d 417 (2000).

[6] In re Estate of Palmer, 145 Wn. App. 249, 265-66, 187 P.3d 758 (2008).

[7] Sunnyside Valley Irrigation Dist. v. Dickie, 149 Wn.2d 873, 880, 73 P.3d 369 2003); Sales Creators, Inc. v. Little Loan Shoppe, LLC, 150 Wn. App. 527, 530, 208 P.3d 1133 (2009).

[8] Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262 (2005).

[9] Hearst, 154 Wn.2d at 503.

[10] Hearst, 154 Wn.2d at 503.

[11] Hearst, 154 Wn.2d at 503-04.

[12] Hearst, 154 Wn.2d at 504.

[13] Hearst, 154 Wn.2d at 503 (quoting Hollis v. Garwall, Inc., 137 Wn.2d 683, 695-96, 974 P.2d 836 (1999)).

[14] Hearst, 154 Wn.2d at 502.

[15] 17 U.S.C. 201(a).

[16] 17 U.S.C. 204(a).

[17] Konigsberg Int'l Inc. v. Rice, 16 F.3d 355, 356-57 (9th Cir. 1994) (quoting Effects Assocs. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990)).

[18] 17 U.S.C. 101.

[19] Ch. 19.108 RCW.

[20] RCW 19.108.010(2)(b).

[21] Ed Nowogroski Ins., Inc. v. Rucker, 137 Wn.2d 427, 436, 971 P.2d 936 (1999).

[22] RAP 2.5(a).

[23] Mellor v. Chamberlin, 100 Wn.2d 643, 649, 673 P.2d 610 (1983); RAP 18.1.