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Alaska Supreme Court Decides Case in What Could be Called a Facebook-Style Swindle

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Photo by cafnr app_0031, Creative Commons licensing.

In a case eerily reminiscent of the creation of Facebook, the Alaska Supreme Court ruled Friday that a business partner cost prospective app developers first-mover advantage in the market, but added the developers failed to justify the damages awarded them.

In The Social Network, a dramatization of the genesis of Facebook, Tyler and Cameron Winklevoss approach fellow Harvard University student Mark Zuckerberg about building a social networking website. Zuckerberg allegedly strings them along for months until — spoiler alert — the Winklevoss twins discover The Facebook, a product from which they did not benefit, is up and running.

The Winklevoss twins eventually settled for $65 million dollars.

The plot is strikingly similar to the findings in Recreational Data Services, Inc. v Trimble Navigation Limited.

According to the Mat-Su Valley Frontiersman, software developer Brian Feucht was snow machining on Lake Louise in 2008 when he encountered a pack of wolves. He did not know whether or not he could shoot them.

Shortly thereafter, Feucht and Jim Belz formed Recreational Data Services (RDS) and filed a patent for an app that could determine the user’s position and identify nearby recreational opportunities and regulatory information. They envisioned a shockproof, waterproof smartphone that would be pre-loaded with sportsmen’s apps.

In 2009, RDS contacted firearms manufacturer Remington to market the product and Trimble Mobile Computing Services to handle the hardware.

Trimble Mobile is a division of GPS company Trimble Navigation.

The trio of companies called the idea the Copper Center Project.

“Feucht testified that [Trimble] and [Remington] both advised him not to launch a stand-alone app before the smartphone was complete; this would protect future hardware sales and ensure that the hardware and software were integrated,” the Court documented.

But in 2010, Remington left the project. After Trimble allegedly “strung RDS along through deceptive statements,” Trimble told RDS that Trimble Outdoors, another division of Trimble Navigation, was working on similar, but non-competing, apps for outdoor retailer Cabela’s.

Trimble Outdoors was not part of the partnership with RDS.

Four months later, in March of 2011, a consultant set up a meeting between Trimble Mobile, RDS, and Cabela’s, but Trimble didn’t show. While Feucht was waiting in the Cabela’s restaurant for the meeting, he saw advertisements for Recon Hunt and Recon Fish, apps Feucht called “an absolute rip-off of my idea” for HuntZone, FishZone, and RecZone.

RDS sued. A jury awarded the company $51.3 million based on revenue potential a Trimble employee estimated and drew up on a whiteboard in 2010.

However, Superior Court Judge Catherine Easter granted Trimble’s motion for judgment notwithstanding the verdict (JNOV).

“Reasonable persons could not differ in their judgment that RDS, an unestablished business, did not prove any amount of lost profits with reasonable certainty,” Easter ruled.

Supreme Court Reverses Ruling, But Grants Remittitur

RDS appealed to the Supreme Court, arguing that the decision did not consider the evidence in the light most favorable to RDS, as the non-moving party.

The Court wrote in City of Delta Junction v Mack Trucks, Inc. that “Our standard of review for a directed verdict is to determine whether the evidence, and all reasonable inferences which may be drawn from the evidence, viewed in the light most favorable to the non-moving party, permits room for diversity of opinion among reasonable jurors.”

A JNOV is a type of directed verdict.

Similarly, in a much more recent decision, L.D.G., Inc. v Brown, the Court wrote, “In deciding whether to issue a JNOV, a trial court must determine whether the evidence, when viewed in the light most favorable to the non-moving party, is such that reasonable persons could not differ in their judgment.”

Oral arguments in RDS were held at West High School in Anchorage as part of the Supreme Court Live program.

Friday, the Supreme Court reversed Easter’s JNOV.

“In order to prove causation, RDS needed to demonstrate only that [Trimble’s] misrepresentations caused some monetary loss,” the Court emphasized.

A juror could reasonably conclude that RDS could have spent the time between November 2010 and March 2011 developing competitive apps while it sought new partners for the later creation and launch of a ruggedized smartphone…

A reasonable juror could also conclude that Trimble Mobile delayed producing the hardware and persuaded RDS not to market its software separately in order to prevent RDS from competing with ReconHunt and ReconFish. And a reasonable juror could conclude that Trimble Mobile delayed its own departure from the partnership until it was too late for RDS to create even a competitive app on its own. Weaving these conclusions together, a reasonable juror could find that RDS more likely than not lost first-mover status to Trimble Outdoors because Trimble Mobile’s breach accelerated the production of ReconHunt and ReconFish while delaying the Copper Center Project.

However, the Court agreed with Easter that the amount of damages “must be proven to a reasonable certainty, based on evidence that ‘afford[s] sufficient data from which the court or jury may properly estimate the amount of damages.’”

“The jury was instructed that reasonable certainty meant it could ‘not award damages to RDS on the basis of speculation, guess, or conjecture.’ But there was nothing else on which the jury could base a lost-profits award in this case,” the Court declared.

RDS relied on Trimble’s 2010 revenue projection of $38.5 million, a “75% revenue goal.” To reach RDS’s damages of $51.3 million, the jury simply added another 25 percent.

The Court cited its decision in Guard v P&R Enterprises, Inc., in which it wrote that under contract law policy, a claim “will not be allowed to rely solely on statistical projections to prove lost profits.”

Trimble’s projections were apparently based on two large-scale market research surveys Remington conducted before it left the project.

“[W]ith Remington gone, they provided at most a rough estimate for the phone’s success, without accounting for how new partners, a new marketing strategy, and a new customer base might affect the project’s actual profits,” the Court wrote.

RDS argues that its evidence can be distinguished from the “statistical projections” we disapproved in Guard because Trimble Mobile helped develop and approve the profit and loss statements and generated the whiteboard valuation itself. RDS suggests we clarify that Guard “intended to disallow projections developed by the plaintiff alone, perhaps as part of an optimistic business plan or created specifically for trial.” But projected profits are not more reliable simply because the defendant agreed with them at the time they were created; both parties may be equally detached from the economic realities on which the jury is required to base its award.

RDS also argued that it was entitled to $2.5 million, Trimble Outdoors’s profit projection for Recon Hunt and Recon Fish in 2012, but the Court concluded that figure didn’t rise to the level of reasonable certainty.

Instead, the Court granted remittitur and remanded the case for determination of nominal damages. RDS did not ask for nominal damages at the trial court level, but the Court’s decision is in keeping with a similar circumstance in Anchorage Chrysler Center v DaimlerChrysler Motors Corp.

This means RDS may still receive damages in the case, but probably far less than the $51.3 million the jury initially awarded and certainly less than the $112 million RDS sought.

Evidence Indicates Trimble Violated Partnership, Shared Confidential Data

To reach its conclusion that a reasonable juror would find for RDS based on a preponderance of the evidence, the Court looked at the nature of the relationship between RDS and Trimble.

Trimble disavowed the existence of a business partnership.

Yet neither Trimble nor RDS signed a document circulated by Remington that expressly denied a partnership.

“As RDS notes, a reasonable juror could conclude that the other parties ultimately did not sign it because they ‘did not want to be bound by a document that characterized their relationship as something other than a partnership,’” the Court wrote.

Alaska statute stipulates, “[T]he association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.” (emphasis added)

The Court determined a reasonable juror would consider the relationship a partnership.

AS 32.06.404, defining a partner’s duty of loyalty, prohibits a partner from acting “on behalf of a party having an interest adverse to the partnership.”

The Court ruled a reasonable juror would agree that Trimble “deliberately strung RDS along through deceptive statements, thereby protecting Trimble’s ability to get to market first with its products and denying RDS the opportunity to gain first-mover advantage in marketing either standalone apps or a phone preloaded with a specialized suite of apps.”

Rich Rudow of Trimble Outdoors wrote in an email to Trimble Mobile’s Chaur-Fong Chen that RDS’s 2011 meeting with Cabela’s could “screw it up for all of us.”

Rudow then wrote that “Tom [Rosdale, Cabela’s Vice President of Marketing,] didn’t appreciate the hoop jumping he just completed to kill the RDS deal. It was unnecessary and Trimble was part of the problem.” Larry Fox, Trimble Outdoors’s main contact with Cabela’s, testified that Rosdale contacted him because he was confused by the need to meet with different Trimble divisions. Although Rosdale and a Cabela’s marketing manager both testified by deposition that they declined the Copper Center Project because Cabela’s was “not a telecommunication company,” a reasonable juror could find instead, based on this record, that the project was stymied by purposeful interference from Trimble Outdoors, with Trimble Mobile’s acquiescence.

Trimble told the Court that the Copper Center Project was never viable.

“But there was evidence that Cabela’s considered selling a similar app on a ‘ruggedized, shockproof, and waterproof’ phone produced and designed by Casio around the same time it was approached by RDS,” the Court noted. “Viewing this evidence in the light most favorable to RDS, a reasonable juror could conclude that Cabela’s was interested in marketing a ruggedized phone with preloaded apps but was diverted from the Copper Center Project by Trimble Outdoors’s competing product.”

The Court added, “An expert for Trimble testified that several ruggedized phones had been produced since 2006; he also testified about existing phone apps that were ‘almost identical to what was being presented’ by RDS, although not ‘all in one package’ as RDS proposed.”

Chen admitted during trial that he forwarded Copper Center Project data that RDS marked confidential to Trimble Outdoors. Trimble Outdoors was not a participant in a nondisclosure agreement between RDS and Trimble Mobile.

The data was attached in an email from RDS’s Feucht, reading, “This email and any files transmitted with it are RDS… property, are confidential, and are intended solely for the use of the individual or entity to whom this email is addressed.”

Trimble told the Court that language is “boilerplate.”

However, the Court noted, “[T]here do not appear to be any other emails from Feucht in the record that contain the same or similar language.”

“A reasonable juror could find that the market research data produced by Remington and the corresponding financial information were partnership property,” the Court held.