Yield Dynamics v. TEA Systems Corp.

TEA Systems Corporation (TEA) (defendant) was functionally inseparable from its founder and sole employee, Terrence Zavecz (defendant). Zavecz sold the rights to several software applications he developed, along with the source codes underlying those applications, to Yield Dynamics, Inc. (Yield) (plaintiff). Zavecz joined Yield as a vice president. Yield incorporated Zavecz’s applications and source codes in its own products. Yield regarded not only the products but also their underlying source codes as Yield’s trade secrets. Zavecz subsequently left Yield and reused one of the source codes to develop an application called Weir. Yield brought a state-court suit against Zavecz and TEA for trade-secret misappropriation. At the ensuing bench trial, the trial court heard evidence suggesting that (1) elements contained in the disputed source code were indispensable to Weir’s functioning; (2) as an experienced programmer who developed the disputed source code, Zavecz gained relatively little benefit from reusing the source code instead of devising all-new source code for Weir; (3) neither Weir nor Zavecz’s other products was in competition with Yield’s products; and (4) although the disputed source code was voluminous, it was impossible to say how large a proportion of Weir the disputed source code represented. The trial court ruled that Yield failed to establish that the disputed source code had the requisite independent economic value to constitute a trade secret and entered judgment for Zavecz and TEA. Yield appealed to the California Court of Appeal, where Yield contended that the disputed source code constituted a trade secret as a matter of law.