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Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc.

California Court of Appeals, Sixth District

April 28, 2015

MAXIM INTEGRATED PRODUCTS, INC., et al. Defendants and Respondents.

Trial Court: Santa Clara County Superior Court No.: 1-11-CV202605 The Honorable Peter H. Kirwan

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Morrison & Foerster, Arturo J. Gonzalez, Eric A. Tate, Tritia M. Murata, Miriam A. Vogel and Purvi G. Patel for Plaintiff and Appellant.

Ropers, Majeski, Kohn & Bentley, Michael J. Ioannou, Susan H. Handelman and Terry Anastassiou for Defendants and Respondents.



Plaintiff Cypress Semiconductor Corporation (Cypress) brought this action alleging that defendant Maxim Integrated Products, Inc. (Maxim), had misappropriated a trade secret, or was in the process of doing so, by seeking to hire away specialists in touch screen technology, a field in which Cypress and Maxim compete. Maxim responded that it was entitled to solicit prospective employment candidates in Cypress’s workforce and that there was no evidence it had acquired, or was seeking to acquire, any trade secret. After failing to secure temporary injunctive relief, and failing to obtain an order placing under seal evidence derived by Maxim from public sources, Cypress dismissed the action. The trial court awarded Maxim its attorney fees pursuant to Civil Code section 3426.4 (section 3426.4), which authorizes such an award to the prevailing party where a claim for misappropriation of

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trade secrets is found to have been made in bad faith. Cypress contends that this was error because the trial court could not properly find that Maxim was the prevailing party, or that Cypress brought the action in bad faith. We have concluded that (1) the trial court’s findings are free of procedural error; (2) the finding of bad faith is amply supported by evidence that defendants did no more, and Cypress accused them of no more, than attempting to recruit the employees of a competitor, which Maxim was entitled to do under the laws of this state; and (3) Maxim prevailed when, as the trial court impliedly found on substantial evidence, Cypress dismissed the suit to avoid an adverse determination on the merits. Accordingly, we will affirm the judgment.


A. Pre-Suit Events

Uncontradicted declarations established that in February 2011 Maxim was seeking to fill several positions, at least some of which required experience with touchscreen technology. Toward that end it engaged, among others, a recruiter named Zion Mushel, who operated out of Israel. On or shortly before February 9, 2011, Mushel sent an e-mail to a Cypress employee whom the parties have identified only as “Employee No. 60**” or “EE No. 60**, ” and to whom we shall refer as Employee 60XX. This was at least the third contact between Maxim and Employee 60XX. Mushel had exchanged e-mails with him in June 2010 concerning an opening for a “Business Manager/director Touch Interface Products” at Maxim’s headquarters in San Jose. Later, in January 2011-apparently on his own initiative-Employee 60XX had e-mailed a contact at Maxim about an opening for an “FAE, ” apparently meaning a field applications engineer, in Austin, Texas. Now, on February 9, 2011, Mushel apparently sent Employee 60XX an e-mail concerning another headquarters opening.[1] Employee 60XX replied, “I received your e-mail about the touchscreen business manager position. My profile is up on linkedin, so you can see I am certainly qualified. First question though... is this for Maxim? I have spoken to the[m] previously about an opening for touchscreen business manager. [¶] Let me know and we can discuss further.” (Ellipsis in original.) Mushel replied, “Yes, [i]t[’s] again

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them [¶] Can you recommend anyone from Cypress or others? [¶] Can you recommend me: Member of Technical Staff: MTS, SMTS, PMTS, or scientist as well? [¶] I appreciate your help.”

Cypress ultimately presented copies of e-mail exchanges assertedly showing that from February through April 2011, Mushel had “solicited at least nine Cypress employees who specialize in the touchscreen field.”[2]

On April 6, 2011, Cypress president T. J. Rodgers wrote to Maxim president Tunc Doluca accusing Maxim of “seeking to obtain Cypress’s proprietary information illegally by targeting Cypress employees skilled in touch screen technology.” He warned that “[i]f Maxim persists in these actions, Cypress will sue Maxim and enjoin it from creating or distributing any products using any touch screen expertise obtained from Cypress through former employees.” This was followed by an exchange of letters and e-mails in which Doluca disclaimed any interest in Cypress's touch screen technology while Rodgers continued to insist that Maxim was engaging in conduct that could lead to litigation. In a letter dated April 18, 2011, Rodgers complained that Employee 60XX, whom he described as “a 14-year Cypress employee with intimate knowledge of all of Cypress’s touchscreen trade secrets, ” had accepted an offer of employment from Maxim. After arguing that hiring Employee 60XX could “contaminate Maxim’s own touchscreen intellectual property, ” Rodgers wrote, “We are currently performing an internal investigation to determine if [Employee 60XX] was contacted by a headhunter hired by Maxim to recruit Cypress touchscreen people. If he was unlawfully recruited, I will follow through on my written promise and immediately file a lawsuit to enjoin Maxim from recruiting and hiring Cypress employees with touchscreen expertise.” Doluca replied in e-mail, stating in part that Maxim’s offer to Employee 60XX “was generated in March, before I received your first letter. More importantly, he was hired into a field applications engineering position in the U.S. where he will not be working on touch technology at all. I will make sure he does not contaminate our touch technology.” On May 12, Rodgers replied stating that Employee 60XX had “chosen to remain at Cypress.” He continued to accuse Maxim of wrongful conduct, incorporating in the letter purported facsimiles of the e-mail exchanges between Mushel

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and Employee 60XX.[3] Rodgers asserted that these messages directly contradicted Doluca’s denials by showing that Mushel had “contacted [Employee 60XX] for a touchscreen job.”[4] (Italics & boldface omitted.)

B. Suit Against Mushel

On May 13, 2011, Cypress filed an action against Mushel and Eurika Consultants (Eurika), an Israeli corporation on whose behalf he was alleged to have been acting. The complaint asserted causes of action for misappropriation of trade secrets and unlawful competition. Efforts to serve process on Mushel and Eurika were unsuccessful. Eventually, Cypress voluntarily dismissed the complaint against them.

C. Complaint and Application for Temporary Restraining Order

Cypress initiated this action on June 8, 2011, by filing a complaint against Maxim and Doluca. The allegations of the complaint are discussed in part IV(B), post. Two days later Cypress filed an ex parte application for a temporary restraining order prohibiting Maxim and Doluca from soliciting Cypress touch screen employees and requiring them to “immediately return all Cypress trade secret and confidential and proprietary information that became known to Defendants, including specifically any list or roster of Cypress employees working on touchscreen technology.” The application was accompanied by the declaration of Rodgers as well as that of Thomas Surrette, a human resources officer at Cypress, who described the steps taken by Cypress “to protect both its technical information and employee information as confidential information.” He declared that Cypress employees signed a “Patent & Confidentiality Agreement” in which they undertook not to “improperly use or disclose Cypress’s proprietary information.” The agreement, he asserted, “applie[d] to... the names, skills, and compensation of other Cypress employees.” Employees also agreed to be bound by “Cypress’s Code of Business Conduct and Ethics, ” which described “lists of customers, dealers, and employees” as proprietary and confidential information, not to be disclosed. Employees also received “training on their confidentiality obligations, ” including that “any data regarding Cypress’s... lists of employees..., and the skills and compensation of Cypress’s employees and

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projects they are working on are proprietary and confidential and should not be published or otherwise disclosed.”

Also supporting the application was the declaration of a Cypress touch screen technologist referred to as Employee No. 294** (Employee 294XX).[5] He authenticated copies of e-mail messages he had exchanged with Zion Mushel between March 16 and March 28, 2011. These reflect that Mushel contacted him stating that he was looking for candidates for four positions involving “[t]ouch interface products.” Employee 294XX replied on March 25 expressing a desire to “chat with [Mushel] about the opportunity” and stating that he was qualified for two of the four positions. Mushel inquired into his salary expectations. Employee 294XX replied that for a publicly traded company, he would “probably expect something north of $240K a year plus bonus and stock package.” Mushel wrote back that the total compensation would fall in a range bracketing this figure, and advising that “[t]he positions are at Maxim [¶] Please keep it confidential.” He added, “Can it be suitable to you? [¶] Can you add your experience at Cypress and your touch experience [¶] Can you recommend anyone? [¶] I appreciate your help.”

In opposition to the application for a temporary restraining order, Maxim manager Bart DeCanne declared that when his business unit had job openings, his practice was to forward a job description to several outside recruiters, one of whom was Mushel. On February 9, 2011, DeCanne told five recruiters, including Mushel, that Maxim was seeking to fill a business manager position and a product definer position. Mushel inquired, “[W]hat are the best companies to hunt people for these 2 positions[?]” DeCanne sent him a list of five companies, including Cypress. In response to this assignment, Mushel eventually provided Maxim with a number of candidates “from companies on the list other than Cypress, as well as from companies not on the list.” One of the candidates presented was Employee 294XX, but DeCanne told Mushel that Maxim did not have a suitable opening for him.

Maxim also filed a declaration by one of its attorneys, Lael Andara, who described how he had identified a number of Cypress touchscreen specialists by using only publicly available sources. His efforts were concentrated on (LinkedIn), a professional networking website. He examined Cypress’s own page on LinkedIn, which included a section referring to the change of one employee’s position from “Touchscreen Marketing Director” to “Senior Member of Technical Staff.” A link to that person’s own LinkedIn

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page revealed that it too referred to his previous “Touchscreen” position. That page referred to other Cypress employees including one identified as a “System Engineering Director.” By these and other searches on LinkedIn he was able to identify some 20 Cypress employees having touch screen or seemingly related experience.

The Andara declaration was submitted both in an unexpurgated version, filed conditionally under seal, and a redacted version from which the names and other identifying information of Cypress employees had been removed. Simultaneously with its opposition to the application for a restraining order, Maxim moved to seal the unredacted version of the declaration on the ground that it contained “personal information concerning Cypress employees, ” which it had withheld from the public record out of consideration for “the employees’ privacy rights.”[6] Maxim indicated that it had “also given Plaintiff’s counsel notice... in the event Plaintiff’s counsel desires to attempt to assert additional grounds warranting the sealing of the redacted employee information.”

The application for a restraining order was set to be heard on June 17, 2011 On that day the parties stipulated to, and the court ordered, a 30-day “mutual standstill” in which neither party would solicit the other’s employees. The court also issued a stipulated order to seal the standstill order, but declared the sealing effective only for “30 days subject to a motion pursuant to Cal. Rules of Court and CCP.” It does not appear that such a motion was ever made.

D. Demand for Identification of Trade Secrets; Demurrer; Proceedings to Seal

On June 29, 2011, Maxim demanded in writing that Cypress, pursuant to Code of Civil Procedure section 2019.210, “identify the trade secrets that are the subject of [its] claim for misappropriation of trade secrets.”[7] Cypress did not respond until October 31, 2011, when it issued a confidential response identifying two supposed trade secrets: “1. A compilation or list of Cypress employees who worked with Cypress’s touchscreen technology and products area and their employee information, including contact information, ” and “2. Cypress’s substantive confidential information regarding its proprietary touchscreen technology and high performance products.”

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Meanwhile, on July 11, 2011, Maxim demurred generally to the complaint, asserting that (1) the identities of Cypress's touch screen employees were not a trade secret because the information was publicly available; (2) the complaint failed to allege any conduct by either defendant constituting misappropriation; (3) no actionable conduct of any kind was attributed to defendant Doluca; and (4) the second cause of action, for unlawful business practices, was preempted by California's Uniform Trade Secrets Act (Civ. Code, §§ 3426-3426.11). The demurrer was scheduled to be heard almost four months later—on November 1, 2011—apparently due to calendar congestion.

At some point Maxim informed Cypress that it was withdrawing its motion to seal the Andara declaration. Cypress then filed its own motion to seal, to be heard on November 1. In addition to seeking to seal the Andara declaration and its exhibits the motion sought to seal the declaration of Employee 294XX. In support of the motion, counsel for Cypress declared that the redacted material identified “Cypress touchscreen employees, ” which was “one of the trade secrets alleged in Cypress’s complaint.” Maxim filed opposition, contending in essence that the identities of these employees, and their possession of touch screen experience, could not possibly be protectable trade secrets—or subject to sealing as such—since that information was available from, and indeed had been taken from, publicly available sources. Cypress filed a reply in which it disputed these premises, but also argued that whether or not the information was even colorably a trade secret, it was required to be sealed under Civil Code section 3426.5, which declares that “a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include... sealing the records of the action.” Emphasizing the term “alleged, ” Cypress argued in effect that the court could not look behind the complaint’s characterization of the information as a trade secret, but must instead prevent any disclosure of that information unless and until it had been adjudicated, by trial or summary judgment, not to be a trade secret.

Cypress’s motion to seal was heard on November 15, 2011. At the outset of the hearing, the court asked counsel for Cypress to confirm that the gist of his argument was that “even though information may be accessible to the general public, the fact that it’s being claimed as a trade secret, until that issue is litigated or adjudicated, you’re entitled to protection.” Counsel replied, ...

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