Win for Tech Company in NDA case
In Elation Systems v. Fenn Bridge (2021), Elation Systems sued Fenn Bridge for allegedly breaching a Non-Disclosure Agreement (NDA) during a failed business negotiation. Elation claimed Fenn Bridge misused proprietary information to develop a competing software product. The court found the NDA enforceable, emphasizing clear definitions of confidential information and restrictions on its use.
An article published in the National Law Review describes the case:
Under California Civil Code section 3360, “[w]hen a breach of duty has caused no appreciable detriment to the party affected, he may yet recover nominal damages.” In the partially published case, Elation Sys. v. Fenn Bridge LLC, the appellate court confirmed the application of Section 3360 to a breach of a non-disclosure agreement despite the jury’s finding of no actual damages. (Nov. 22, 2021) A159749 (Cal. Ct. App.).
In, Elation, a software engineer, Tiebiao “Joe” Shi, signed an NDA with his employer, Elation, in which he agreed “to hold all Confidential Information in strict confidence and secrecy and not to disclose to others or to use” the information, and to make “no copies of Confidential Information” except upon his employer’s written authorization. Shi then left Elation to start a business marketing “similar, if not identical software” using replicated source code. A settlement agreement was reached where Elation could inspect the software developed by Shi and prevent the use of any trade secrets or confidential information. Elation could then reinspect the software both before and after the first sale of the product by Shi.
After the first sale was made, Elation determined its trade secrets and confidential information were being used in Shi’s software and sued for breach of both the NDA and settlement agreement. A jury found Shi breached the NDA and harmed Elation, awarding it $10,000 in damages. The jury also found Shi breached the settlement agreement. Shi then successfully moved for a judgment notwithstanding the verdict (JNOV) challenging the jury’s finding that Elation was harmed by the breach of the NDA and that Shi breached the settlement agreement. Elation appealed the order granting the JNOV.
The article goes on to emphasize the precedent by the outcome of the case:
Elation is an important decision for California companies suing to recover and prevent the use of confidential information in violation of confidentiality agreements or NDAs. Even if no harm has yet occurred as a result of the violation, a company may still seek to enforce its agreements, obtain injunctive relief, and potentially recover fees and costs.
Works Cited:
Sheppard, Mullin, Richter & Hampton LLP, Richter. “Court Finds Company Entitled to Nominal Damages for Former Employee’s Breach of an NDA.” The National Law Review, 2 Dec. 2021, https://natlawreview.com/article/court-finds-company-entitled-to-nominal-damages-former-employee-s-breach-nda#:~:text=Although%20Elation%20could%20not%20establish,contractual%20duty%20under%20the%20NDA. Accessed 12 Dec. 2021.
