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DIGITAL ENVOY, INC. v. GOOGLE

November 8, 2005.

DIGITAL ENVOY, INC., Plaintiff,
v.
GOOGLE, INC., Defendant.



The opinion of the court was delivered by: RICHARD SEEBORG, Magistrate Judge

ORDER GRANTING IN PART AND DENYING IN PART GOOGLE'S MOTION FOR PARTIAL SUMMARY JUDGMENT
I. INTRODUCTION
Defendant Google, Inc. ("Google") seeks partial summary judgment on the damages claims asserted by plaintiff Digital Envoy, Inc. ("Digital"), arguing that the parties' November 30, 2000 License Agreement ("Agreement") bars or circumscribes the amount of damages recoverable in this case. In particular, Google asserts that the Agreement operates to permit recovery by an aggrieved party only where the other party has engaged in "willful misconduct" and, in any event, the Agreement limits any damages otherwise recoverable by Digital to twice the amount paid by Google under the terms of the license. Google further argues that Digital is not entitled to recover damages pursuant to Cal. Civ. Code § 3426.3(a) because Digital cannot establish the requisite causal nexus between the alleged misuse of Digital's proprietary technology and any gain enjoyed by Google. Digital responds that the Agreement does not bar or limit the damages it may recover in this instance. Further, Digital contends it can establish advertisers viewed Google's ability to geotarget advertisements as a valuable facet of the offered services, thereby entitling Digital to recover damages for the unjust enrichment obtained by Google in its AdSense program through the use of Digital's technology.

Google's motion for partial summary judgment was fully briefed and heard by the Court on September 21, 2005. Based on all papers filed to date, including the supplemental briefs filed by both parties, as well as on the oral argument of counsel, the Court finds that Google has demonstrated the Agreement bars the recovery of actual damages on Digital's contract claims, but has failed to establish, as a matter of law, that Digital is precluded from recovering any "unjust enrichment" on Digital's trade secret misappropriation claim.*fn1

  II. STANDARDS

  Fed.R.Civ.Pro. 56(d) provides in relevant part that, in those instances where judgment is not rendered upon the whole case, the court "by examining the pleadings and the evidence before it and by interrogating counsel, shall if practicable ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted." Should the court determine that certain facts appear without substantial controversy, an order specifying such facts shall be issued and those facts shall be deemed established at trial. Id.

  "The obligation imposed on the court by Rule 56(d) to specify uncontroverted material facts is technically compulsory. However, if the court determines that identifying indisputable facts through partial summary judgment would not expedite the adjudicative process, it may decline to do so." Dept. of Toxic Substances Control v. Interstate Non-Ferrous Corp., 99 F.Supp.2d 1123, 1124 (E.D. Cal. 2000).

  III. DISCUSSION

  A. Digital's Damages Are Barred or Limited

  Google seeks judgment in its favor regarding Digital's claims for actual damages based on the language set forth in the Agreement which it contends either: (1) completely bars recovery in this case due to the absence of any evidence that Google committed "willful misconduct" or (2) limits any recovery by Digital to the amount paid by Google under the terms of the Agreement, which in this instance was $308,600. As an initial matter, Digital notes that Google's motion is premature because discovery has not been completed nor have experts been designated. As a result, Digital argues that Google's motion is based on an incomplete factual record, lacks expert analysis and opinion, and unjustifiably attempts to "short-circuit the legal process."

  Addressing the substantive arguments raised by Google, Digital insists that the Agreement's limitation to actions based on "willful misconduct" refers to any action that is not the result of an error or inadvertence in the performance of a party's duties under the Agreement and does not, therefore, require a heightened showing of intent on Google's part. Digital also contends that the clause in the Agreement purporting to cap Digital's damages to twice the amount paid by Google is void as against the public policy of California.

  The proper interpretation of Section 8 of the Agreement, entitled "Warranties; Limitations; Disclaimer," lies at the center of the pending motion. That section provides:
Licensor warrants that the Product will materially conform with its written specifications during the term of this Agreement. It is mutually acknowledged that data entry, communication and storage are subject to a possibility of human and machine errors, omissions, delays, and losses, including inadvertent loss of data or damage to media, which may give rise to loss or damage. Neither party hereto undertakes any liability to the other for any such errors, omissions, delays, or losses. EXCEPT AS STATED ABOVE, LICENSOR MAKES AND LICENSEE RECEIVES NO WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR ANY OTHER COMMUNICATION, REGARDING THE PRODUCT, THE DATABASE LIBRARIES AND THE SERVICES, AND THE LICENSOR SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NEITHER PARTY UNDERTAKES OR ACCEPTS ANY LIABILITY WHATSOEVER TO THE OTHER FOR ERRORS, OMISSIONS, DELAYS, INTERRUPTIONS, OR LOSSES UNLESS CAUSED BY THEIR WILLFUL MISCONDUCT. EXCEPT FOR INDEMNIFICATION UNDER SECTION 7.5, IN NO EVENT SHALL EITHER PARTY'S DAMAGES IN ANY LAWSUIT OR OTHER ACTION BROUGHT UNDER THIS AGREEMENT EXCEED THE AMOUNTS PAID BY LICENSEE HEREUNDER.
See Declaration of David Kramer, Exh. B, Section 8.
  1. Willful Misconduct Defined Google cites the portion of Section 8 which states, "Neither party undertakes or accepts any liability whatsoever to the other for errors, omissions, delays, interruptions, or losses unless caused by their willful misconduct," to support its contention that Digital is not entitled to actual damages in this instance because it cannot establish that Google engaged in "willful misconduct." More specifically, Google asserts that, in order to recover damages, Digital must show that in utilizing its technology in the AdSense program, Google knew that it was breaching the parties' Agreement and intended to do so in order to harm Digital. Dazo v. Globe Airport Security Services, 295 F.3d 934, 941 (9th Cir. 2002). As Google correctly notes,
Under California law, willful or wanton misconduct is separate and distinct from negligence. . . . Unlike negligence, which implies a failure to use ordinary care, and even gross negligence, which connotes such a lack of care as may be presumed to indicate a passive and indifferent attitude toward results, willful misconduct is not marked by a mere absence of care. Rather, it involves a more positive intent actually to harm another or to do an act with a positive, active and absolute disregard of its consequences.
Dazo v. Globe Airport Security Services, 295 F.3d at 941. (internal quotes omitted).

  Digital does not quibble with the definition of "willful misconduct" proffered by Google, acknowledging the Ninth Circuit formulation that, "Where an actor's conduct is of an unreasonable character and in disregard of a known risk, or one that should have been known, and that risk is so great as to make it highly probable that harm will follow, we term it willful misconduct . . ." Rost v. United States, 803 F.2d 448, 451 (9th Cir. 1986). See Digital's Supplemental Reply Brief, Document 340, at p. 2. Digital also notes, however, that a party is not protected simply because it fails to appreciate the risk and acts without regard to the consequences. "The actor is not protected because he personally failed to recognize the precise peril posed. . . . It is enough that he knows or has reason to know of the circumstances which would bring home to the realization of the ordinary, reasonable man the highly dangerous character of his conduct." Id. Accordingly, the dispute in this motion turns on whether the evidence establishes that Google, by incorporating Digital's technology into the AdSense program, acted in violation of the parties' Agreement with a specific intent to harm Digital or with a positive, active, and absolute disregard of the consequences of its actions.

  2. No Evidence That Google Engaged in Willful Misconduct

  Digital contends that "willful misconduct" on the part of Google is shown through the evidence submitted, which it argues establishes that Google intentionally performed an act, namely, utilized Digital's proprietary technology in the AdSense campaign without Digital's permission, in reckless disregard of the probable consequences that Digital would be harmed thereby. Dazo v. Globe Airport Security Services, 295 F.3d at 941. To support this argument, Digital relies on email correspondence between the parties at the time that the License was being negotiated in which Google confirmed its understanding that it would not be authorized, under the terms of the License, ". . . . to repackage [Digital's] database in conjunction with product offerings and [allow] other third parties to directly access it." Waddell Declaration, Exh. 3. ...


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