1
1 UNITED STATES DISTRICT COURT
2 FOR THE DISTRICT OF ARIZONA
__________
3
4 TEKNOW, INC., an Arizona ) No. CIV 96-2228 PHX PGR
Corporation )
5 Plaintiff, ) Phoenix, Arizona
) February 25, 1998
6 vs. )
)
7 AARON THOMPSON, a married )
individual and MEGAN ELAINE )
8 McPEAK THOMPSON, a married )
individual. )
9 Defendants. )
)
10
REPORTER'S TRANSCRIPT OF PROCEEDINGS
11 BEFORE THE HONORABLE PAUL G. ROSENBLATT
UNITED STATES DISTRICT JUDGE
12
JUDGE'S RULING
13
APPEARANCES:
14 For the Plaintiff: Squire, Sanders & Dempsey L.L.P.
By: MICHAEL A. LECHTER, Esq.
15 DONALD A. WALL, Esq.
40 North Central, Suite 2700
16 Phoenix, Arizona 8504
17
For the Defendant: JOHN D. CLARK Jr., Esq.
18 3140 N. Arizona Ave., Ste. 102
Chandler, Arizona 85224
19
JOHN JOSEPH VOLIN, Esq.
20 1811 S. Alma School, Ste. 220
Mesa, Arizona 85210
21
Court Reporter: William A. McNutt III, RMR
22 230 N. First Ave., Room 7404
Phoenix, Arizona 85025
23 (602) 253-0707
24 Proceedings recorded by mechanical stenography, transcript
produced by computer-aided transcription.
25
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1
2 (Proceedings convened in open court at 10:08 A.M.)
3 MR. LECHTER: Good morning, Your Honor.
4 MR. CLARK: Good morning, Your Honor.
5 MR. WALL: Good morning, Judge.
6 THE COURT: Good morning, counsel.
7 One of the great parts of this job is that we are
8 forever being educated on new and interesting subjects,
9 topics, and situations. It's sort of like being in a
10 classroom where you are continually being educated and I
11 love being in classrooms. The biggest problem is that while
12 there was just a general test at the end of each course,
13 there's a major test involved with this job and that is
14 challenging as well, to say the least.
15 The sad part is that in cases such as this,
16 somebody wins and somebody loses and that's the nature of
17 the adversarial process and it's not fun from the Court's
18 stand point, particularly in cases such as this where we
19 have had some excellent lawyering on both sides.
20 These types of lawsuits also are not uncommon in
21 this day and age. Situations presented here are presented
22 in a great deal of litigation throughout the country,
23 particularly in the software business and particularly when
24 you're talking about intellectual property issues, trade
25 secrets and the circumstances are often very common as well
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1 that you have a young, bright employee who comes to work for
2 a business, learns in that business, makes a contribution to
3 the business and then leaves for one reason or another and
4 sets up shop and then we have the delicate balance between
5 these very important property issues.
6 And so, the courts are seeing more and more of
7 this type of litigation.
8 First of all, I need to address, for the record,
9 the narrow issues in this case. TekNow has withdrawn claims
10 pursuant to counts one, two, six, eight, ten, eleven and
11 twelve of the first amended complaint, leaving five counts:
12 The Count three, Lanham Act, section 43(a) false
13 advertising count.
14 The Arizona Trade Secrets Act in Count Four,
15 Arizona section 44-401, et seq.
16 Count Five, Breach of Fiduciary Duty.
17 Count Seven, Tortious Interference with business
18 advantage, opportunity and expectancy.
19 Count Nine, breach of contract.
20 And we have the defendant's affirmative defenses,
21 and the breach of contract counterclaim.
22 I am going to review the testimony as the Court
23 heard it, obviously this will not be complete or we would be
24 here for the full amount of the days that it took for the
25 Court to receive the testimony, but, I think it's important
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1 to review the witnesses, what they presented.
2 I will then attempt to recount the parties
3 positions, with some comment on credibility. I believe that
4 we'll be able to bring this case to a merciful end and avoid
5 the additional time and investment of posttrial briefs,
6 revised findings, and conclusions and then being put in the
7 black hole of submission, where, with a busy Court, finding
8 time to dig these things out after the evidence and
9 testimony has gone in cold storage would result in a
10 conclusion even further down the line with further time and
11 expense to everyone concerned. So, I'm hoping to avoid
12 that.
13 The plaintiff first called Aaron David Thompson.
14 We heard about his background, his education at the
15 University of Arizona, and his leaving school to come to
16 Phoenix and go to work for TekNow in September of 1991. He
17 testified at that time he had no paging experience but that
18 he had established his own bulletin board while at the
19 University of Arizona.
20 He testified that he signed a confidentiality
21 agreement in 1992, approximately 6 months after he had gone
22 to work for TekNow.
23 He said that number one is -- that Exhibit No. 1
24 is that confidentiality agreement.
25 Part of his duties he testified to were to write
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1 software. He acknowledged that he was in a position of
2 trust. He worked to a degree on SAMpage, did support work
3 on it, but also worked on the AlphaBox with the TAP
4 protocol. The alpha numerical pager which was developed by
5 TekNow and was already in place. He testified to the
6 programs of Glenayre and testified to TNPP as well as I say
7 the TAP protocol, and acknowledged that AlphaBox is still on
8 the market.
9 He also worked on PhenX from the beginning of his
10 employment and he helped develop it, including writing
11 source code and testified as to what it did to the extent
12 that it received incoming calls from a number of lines and
13 modems.
14 He also testified to some limited degree to the
15 ADT program, the Mobile Express automated user registration,
16 PhenX TK4000 and some of the additional products produced by
17 TekNow.
18 He worked with other technical people and they
19 consulted with each other. He testified as to definition
20 and nature of source codes, to the extent that it is
21 readable but complicated to untrained eyes and minds, and
22 acknowledged that it is kept secret and not provided to
23 customers, they only get the executed binary number codes.
24 He acknowledged that the employees at plaintiff's
25 company were, prior to signing a confidentiality agreement
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1 he talked about -- testified to C programming language, and
2 various terms of computerise, comments, headers, involved in
3 the source code writing process.
4 He testified to various exhibits, including
5 comments with copyright notes as they appear in the writing
6 of the source code.
7 He testified that he engaged in outside activities
8 when he was employed by the plaintiff, some related to
9 paging and some not. He testified about StarPaging and the
10 MessageMaster file which he established. Talked about first
11 product that he worked on outside which was the StarPaging
12 project. He was asked if this project would have been good
13 for TekNow, response was that he did not know, he had -- his
14 deposition he testified that it would surely be good for
15 TekNow.
16 He testified about groups features, handling
17 messages in the background and the types of things that
18 MessageMaster provided, again when asked as to the value of
19 this desirability to TekNow, he said that either; I don't
20 know, or possibly.
21 He testified to the TNPP developments that he
22 engaged in while at TekNow. The Windcall project by D -- by
23 Thompson was not started while he was at plaintiff. There
24 may be a conflict in this testimony with the deposition.
25 He continued with development of his MessageMaster
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1 after he left TekNow, adopting voice mail, numeric paging,
2 P -- HPI spectrum. His testimony was that this was started
3 from the same base but at that stage not the same system.
4 He testified as to the establishment of -- the development
5 of the CommTech web page which was placed on the internet
6 and testified that these were placed on the net some time in
7 1996.
8 He acknowledged that he couldn't provide Glenayre
9 protocol, as the web page stated at that time. He testified
10 to the exhibit which was the ADT web site which was placed
11 on the internet after the dissolution of CommTech.
12 He then was questioned on the consulting agreement
13 that he had entered into with TekNow. There was extended
14 testimony concerning the agreement itself with the
15 amendments which were -- though dated in June -- were signed
16 in July.
17 He testified that he sold four to five systems at
18 TekNow. Sold equipment to StarPaging in late September or
19 early October and finished in November.
20 He worked -- he testified as to other projects,
21 Dispatch of America, which resulted in revenue from $500 to
22 $1,000. StarPaging revenues amounted to about $4,000.
23 He testified to the other project, PageMart, which
24 is a CommTech project mobile radio CommTech, Breaking News,
25 Traffic Cast in early -- during the year of 1996.
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1 His testimony as to his amount of money that he
2 received from CommTech and the agreement that he had were
3 the profits were to be split. He testified to the fact that
4 he had no written release from TekNow for any of these
5 sales, directly related to those sales.
6 He testified about Bulletin Board and how he had
7 operated it from 1989 until he left the U of A. He
8 testified as to the location of the equipment. He testified
9 that he had never had pager before going with plaintiff and
10 had never heard of TAP or TNPP.
11 On direct examination there was of course
12 additional testimony that addressed first of all his
13 academic background. The use of C language on bulletin
14 board. The shareware concept that if you like something
15 that you see on the bulletin board, you send in a
16 contribution and participate then in that particular subject
17 matter that appears on the board.
18 He testified as to the paging system and how it
19 works bringing in the alpha messages, the TAP protocol, the
20 TNPP protocol, giving the Court definitions that -- in
21 testifying -- that TAP protocol was not used in Bulletin
22 Board programs, it was typically not utilized.
23 He testified as to what TNPP was. It allows the
24 different paging system to send messages through out the
25 network in the form of a wide area paging.
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1 He testified that about -- again about Bulletin
2 Board, the FidoNet, SysOp, wide area discussion groups
3 involved. He brought the bulletin board to Phoenix and used
4 it. TekNow used it briefly for support and that Thompson
5 used some of -- and -- and TekNow used some of -- strike
6 that.
7 That he used some of TekNow's stuff, I believe was
8 the word, but none that was proprietary. Everything he used
9 from TekNow was all PCIA source based.
10 He was presented with the confidentiality
11 agreement by Bonnie Anderson, who was the human resources
12 officer. Was left on his desk. He said he never
13 received -- he signed it, he never received a copy. He did
14 however later receive a copy from a friend who had excised
15 that -- the name of that friend.
16 He testified about AlphaBox. He testified as to
17 the TAP ROUTER and how it works. He testified about SAMpage
18 and Mobile Express. Acknowledged working on PhenX and he
19 used TAP and TNPP in working on PhenX.
20 He testified that PhenX is capable of receiving
21 TAP and using TNPP. He testified as to the nature and the
22 danger of the goto codes which he attempted to eliminate and
23 should be eliminated because of the fact that they tend to
24 result in spaghetti codes and do not lend themselves to easy
25 correction or modification.
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1 He testified more on MessageMaster, on
2 StarPaging. He testified that he received a telephone call
3 from Michael Wong. That -- he testified that -- that there
4 was no TekNow equipment that could be -- could do what Wong
5 wanted for StarPaging and they talked of a consulting
6 agreement and eventually agreed, Thompson agreed to consult
7 with Wong on StarPaging.
8 He testified that he did not have access to all of
9 TekNow's source codes. He testified as to the security
10 system that is common and important and necessary in
11 guarding these programs. And he testified as to the login
12 system which secured access to the source code except under
13 limited circumstances.
14 He testified that he took no source code. That he
15 received a small amount of the money under the consulting
16 contract.
17 He testified as to the PageMart testing,
18 consulting agreement that -- the consulting work that he did
19 for plaintiff and the questions from John Simpson after he
20 had returned the program and Simpson then provided a punch
21 list as to problems and we have that as Exhibit 105. I'm
22 not going through here and mentioning all the exhibits one
23 by one in the interest of time.
24 He testified that he received the punch list, made
25 the modifications and sent them back to TekNow.
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1 He testified these communications between Thompson
2 and TekNow, his letter to TekNow, and the letter from TekNow
3 to Thompson regarding the source code.
4 He testified that he still has the source code and
5 didn't return it because he didn't get paid. We will talk
6 about the stand off and the implications of this later.
7 He testified that none of TekNow's source code
8 went to the Bulletin Board or to MessageMaster.
9 He testified comparing the AlphaBox and
10 MessageMaster and PhenX, compared to MessageMaster.
11 He testified about Wind Call and reiterated that
12 he didn't borrow anything from plaintiff in this regard.
13 He testified as to paragraph 13 of the consulting
14 agreement, which is the release language from which he
15 raises a defense and which is contested, of course, by
16 TekNow.
17 He testified concerning the StarPaging job, that
18 he discussed this job with TekNow's vice-president of sales,
19 Mr. Treasure. He testified Mr. Treasure said that he knew
20 about it, that he didn't mind. That plaintiff TekNow didn't
21 have anything available to help the customer and was not
22 interested in the project.
23 He further testified that his MessageMaster has
24 source code that's derived from books, magazines and other
25 public source -- sources.
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1 He says he started the StarPage with his Bulletin
2 Board system as the base for providing the product that they
3 needed for their paging system.
4 He testified as to a great many exhibits,
5 diagrams, both on direct and cross-examination.
6 We then had the testimony of David Mook, who is
7 one of the TekNow experts. He testified as to his
8 background and expertise with the -- his degree, IBM
9 experience, teaching experience and consulting.
10 Obviously he is an employee of TekNow, but was
11 able to provide testimony concerning the paging program.
12 The adoption and concepts and guidelines for any type of
13 paging program. Analyzing customer's needs, determining
14 functionability.
15 He testified as to TAP, which is the protocol
16 program for paging communication.
17 He testified as to architecture, that is the
18 program requirements and how the program is structured.
19 He testified to low level design and programming,
20 which is the -- leads to the testing issue, that "what if"
21 aspects of program design.
22 He testified also that source codes are never
23 released to customers, the architecture is never released to
24 customers.
25 He testified as to definitions of variables,
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1 declaring a variable, C programming. The use of converters
2 for naming variables.
3 He testified as to functions which are a group of
4 executed statements.
5 He testified as to definition of comments,
6 programer's notes to himself, the ability to comment out and
7 the significance of that as they might appear to this
8 particular litigation.
9 He reviewed TekNow's source code and Thompson's
10 bulletin board and his opinion was that MessageMaster used
11 the PhenX code. He saw similar files structures, paging
12 technology, similar functions, structures, variables and
13 comments.
14 His report appears in Exhibit 36 in evidence and
15 sets forth in detail his opinions and conclusions.
16 He also testified to the attachments, numerous
17 attachments to Exhibit 36 which are various portions of the
18 codes as well as the diagrams. There's some confusion here
19 as to the little charts that were actually attached to
20 Exhibit 36 and what became of 36 A and B which were the
21 voluminous source code attachments to and in support of his
22 report.
23 He focused, as does the plaintiff, on a variety of
24 commonalities. One, the common paging source file names,
25 the common function names, the order of functions in the
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1 source file, identical comments, identical variable names,
2 and the order of declaration of variables.
3 He then, upon examination through a variety of
4 exhibits and blowups and pages in those exhibits, compared
5 MessageMaster and PhenX going through those various pages,
6 through sequence of functions, TAP in, source code for
7 PhenX, the source code for MessageMaster and the pages
8 directed to those similarities.
9 He testified to identifiable variable names and
10 identical order, identical functions. He testified these
11 are not dictated TAP protocols.
12 He testified to other similarities in source code,
13 TAP in, dot C in PhenX and TAP in dot C in MessageMaster.
14 Again pages were used to make those comparisons.
15 He testified that those entries came from PhenX
16 and were not dictated by TAP but were evidence of copying by
17 Thompson.
18 He referred and testified to the table of notice
19 dates again from various pages.
20 He testified to common misspellings in PhenX and
21 MessageMaster and mistakes in both PhenX and MessageMaster
22 and repeated again in other exhibits the similarities in
23 functions, same place names, statements.
24 On cross-examination we learned that he didn't
25 participate in the PhenX program. He acknowledged that if
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1 Thompson drafted both programs then there would be
2 similarities.
3 He testified that the AlphaBox is a different
4 style from the PhenX, and he acknowledged that there were
5 similarities in some 10 files of the 110 files involved.
6 He testified that if there were matters in those
7 files that were -- came from a third party source, that --
8 that plaintiff would not own that source.
9 He testified as the differences between CheckSum
10 and CRC. As a design engineer he acknowledged that he
11 doesn't write the programs but he -- he writes the specs for
12 those programs and he testified as to PVCS, which is the
13 document control system.
14 He testified that there was one placement of the
15 PhenX product.
16 We took, out of order and before Mr. Mook
17 finished, the testimony of Todd Stephenson, who was a 1978
18 NAU graduate with an MBA from UTEP in 1980. We heard
19 testimony about his background and experience with AT&T,
20 D Data, U.S. West and the fact that he came to work for
21 TekNow but was there only for one month employed as a vice
22 president for sales.
23 He was terminated after he had asked a head hunter
24 for replacement because he was unhappy with his
25 opportunities at TekNow and believed that there was no
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1 future for him there and as a result he left plaintiff's
2 employment.
3 He had been a party to this lawsuit but he settled
4 for a variety of reasons, including the costs and expense to
5 him and basically that it wasn't his issue.
6 He testified to the confidentiality agreement that
7 he had signed.
8 He testified as to plaintiffs products as he knew
9 them.
10 He testified that after his termination he took a
11 brief vacation, visited his father and came back and talked
12 to Thompson, who said he was going to resign and they talked
13 about Stephenson marketing Thompson's ideas. At this point
14 Thompson had left TekNow. Their agreement basically was
15 that Thompson would build and Stephenson would sell.
16 But Stephenson was concerned about the
17 confidentiality agreement with TekNow and obtained some
18 advice and then talked to Thompson again. He testified as
19 to Thompson's work habits, that he put in 12 to 14 hours a
20 day, 7 days a week, was very fast at writing code and could
21 type so fast that one could not see his fingers.
22 He testified that he designed the CommTech web
23 site, he put the page in. He got the advertising
24 information from magazines. He said he did not contact a
25 customer of TekNow's. He then made sales and calls in an
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1 effort to sell products.
2 Phoning almost all day was the way that he
3 attempted to make the page net -- PageMart sales.
4 After he settled, he again had three or four
5 interviews with plaintiff's attorneys concerning issues in
6 the lawsuit, I presume.
7 Out of order again was taken Thompson's expert,
8 Gerald D. Cain, who is a computer consultant, has a BS
9 degree from -- an education from Oklahoma. He testified as
10 to his background and experience, which is in Exhibit 118,
11 his report and his opinions as expressed as called upon to
12 provide.
13 He testified that he has written source codes.
14 He told us about ANSI language that he used, which
15 is the American National Standards Institute adopted by, I
16 believe.
17 He told us about FidoNet which we previously heard
18 about.
19 He said that he had been retained by Thompson to
20 compare the MessageMaster with the AlphaBox and PhenX
21 codes.
22 He testified as to matters in his report and
23 concluded that MessageMaster was not based on TekNow's
24 programs and that Thompson did not steal plaintiff's code.
25 He testified as to third party sources of books
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1 that provide the basics fundamental information and programs
2 that are in the public domain and therefore are not trade
3 secret protected information.
4 He testified that some of the comparisons that
5 Mook had provided were really not the same at all and that
6 although they might appear to be similar, that there was
7 great significance.
8 For example, in Exhibit 135 or 129 and 130, where
9 the small quote '0' small quote was far different from the
10 quote "0" quote mark and the significance of that difference
11 which would indicate that although on first blush there
12 would be a similarity, that they were not similar in a
13 substantial manner.
14 And he testified to the TAP CheckSum program.
15 He admitted on cross-examination that he was a
16 friend of Thompson's. That they had worked together and
17 compared notes on the Bulletin Board and FidoNet and he
18 admits and agrees that there are similarities but comes to
19 to different conclusion than Mook and Elbert.
20 We then return to and finished Mook's testimony.
21 And took then the testimony of Lev Elbert who is
22 also plaintiff's expert. Russian, well educated and I have
23 to say that if you think that the Court has difficulty
24 understanding computerise and the precise esoteric language
25 utilized in all computer program and source code writing,
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1 and particularly if you have a hearing problem, as the Court
2 does, what a challenge to listen to Mr. Elbert's testimony,
3 which is impacted by his Russian dialect.
4 He was a charming individual in spite of it all
5 and although the poor court reporter was stressed out even
6 more than the Court in taking that testimony, he did provide
7 important testimony to us.
8 He testified to his background, which appears in
9 his report, Exhibit No. 35. He is now employed as we know
10 as a consulting engineer with TekNow where he's been since
11 1975. He did work with Thompson, but he didn't know that
12 Thompson did any outside projects.
13 He testified as to various protocols and the
14 concept of protocol.
15 He reviewed the source code from the plaintiff's
16 products and Thompson's MessageMaster. He says the codes
17 are almost the same but with differences. In his opinion
18 the MessageMaster originated in TekNow's source code.
19 He testified again with diagrams and as to various
20 exhibits to the attachments to Exhibit 35 A and B, and
21 various design diagrams.
22 Essentially it was his opinion that the
23 similarities to appear as they did would be almost a
24 miracle.
25 He testified on cross-examination as to the
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1 program multiEd that he used to compare MessageMaster and
2 PhenX.
3 He testified as to the presence of a queuing in
4 PhenX and the fact that MessageMaster can send to other
5 ports that are not available to PhenX.
6 He testified as to the K and R style which was, as
7 I understood it, the style used in AlphaBox and he also
8 testified as to C language.
9 In the course of his testimony again we took out
10 of order -- well, wait, we finished -- no, yes.
11 Anyway we had the testimony of Michael Wong from
12 Bellevue, Washington, he's the man who testified as to his
13 background and education from the University of Berkeley,
14 experience in the Navy, University of Washington and at
15 Boeing Aircraft. He speaks Cantonese.
16 He involved himself with a secretarial page --
17 page phoning system which is marketed in Hong Kong. He
18 became involved with a Hong Kong friend who's now the
19 general manager of that company. He says the program didn't
20 have the capability to reach customers.
21 He made an effort to contact U.S. paging
22 companies. Went to a PCIA trade show looking for somebody
23 who could provide the program necessary to fulfill the needs
24 that they needed in their paging system, which essentially
25 was to provide some type of fan out capability.
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1 At any rate, he found TekNow and called TekNow and
2 the person that he talked to said they didn't have that fan
3 out capability but knew someone who did or could perhaps
4 help him and that turned out to be Thompson.
5 Essentially he entered into a contract with
6 Thompson to provide Star Pager and they entered into a
7 confidentiality agreement and consulting contract.
8 Believed that Thompson was paid about $4,000 under
9 the contract, maybe it was another $1,000 contract with
10 Thompson.
11 He testified that it is his responsibility as
12 program manager he writes the specs but not the programs.
13 He tried to enter into a contract with TekNow
14 because he preferred dealing with companies rather than
15 individuals but that they declined. That they didn't have
16 the capability and not only that but they were not
17 interested in the -- in the business opportunity.
18 John Simpson testified. He testified as to his
19 educational background. Works for TekNow. Worked with
20 Thompson on PageMart.
21 He testified that Thompson worked on PageMart
22 after he left TekNow. He also -- Simpson also worked on it
23 and used it as a customer would use it to -- essentially to
24 test it and he provided Exhibit 105, which was his punch
25 list of the list of things that he found wrong with the
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1 program and sent them back to Thompson to address.
2 He also testified that eventually he had to fix
3 some of the problems himself.
4 He testified that Thompson delivered the program
5 on August 2nd of 1996. He tested it, as I already
6 indicated, to work out the bugs. Sent the punch list to
7 Thompson and he -- because Thompson had the responsibility
8 to fix the errors which would not be unusual in this type of
9 consulting contract.
10 He said there were a few additional problems. He
11 talked with Thompson to get information and then was told by
12 TekNow to fix it and not go back to Thompson for additional
13 information.
14 He didn't know and would not likely have been able
15 to know if Thompson had any responsibility to fix the
16 program but the software was turned over to customer and
17 there were additional problems and Simpson believes that he
18 worked on those problems.
19 Andrew Hendricks who was the vice-president and
20 CEO next testified. He testified to his educational
21 background, his Bachelor of Science at Miami of Ohio, JD at
22 Arizona State University.
23 His experience in the practice of law with
24 prestigious law firms here in Phoenix and the fact that he
25 left TekNow or he went to TekNow in 1995 and stayed until
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1 1997. Essentially he was the VP and CEO at that time of
2 TekNow. There were about 25 employees at that time.
3 He testified as to Exhibit 1, the confidentiality
4 agreement and the fact that every employee was required to
5 sign and he testified as to the importance of this
6 confidentiality agreement to TekNow.
7 He testified as to Exhibit 2 A, B and C which are
8 the consulting agreements with the amendments. He prepared
9 the original draft of 2 A. He testified of an extended
10 drafting process that went on in the process of arriving at
11 the eventual consulting agreement.
12 He said that he prepared the original draft and
13 gave it to D -- to Thompson. Thompson made a couple of
14 additions and he testified that again there were additional
15 drafts but Thompson refused to sign the first draft and then
16 the subsequent modifications essentially he said that they
17 were at logger heads over some of the contents in the
18 consulting agreement.
19 He testified that there was -- that he had no
20 discussions on the confidentiality agreement or the effect
21 that this consulting agreement would impact the
22 confidentiality agreement.
23 He testified that Thompson was not paid because he
24 didn't return the materials that he had in his possession.
25 He testified that Exhibit 107, which is his letter
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1 demanding the return of materials that Thompson had and he
2 never -- Thompson never returned the materials.
3 He testified that he didn't know of any of
4 Thompson's moonlighting activities.
5 On cross-examination he testified to items in the
6 request for admissions and he didn't know as to whether or
7 not Exhibit 102 was defendant's version. At any rate he
8 prepared 103, which was a further revision and he testified
9 that Exhibit 104 was a revision that was prepared actually
10 before 103.
11 He testified to the differences in these various
12 drafts.
13 He testified that the first amendment, Exhibit 2
14 was prepared in Thompson's computer but most of the language
15 was language that had been prepared by him, at least
16 sections 2 and 3 of that amendment.
17 He testified he doesn't believe he read 2 A all
18 the way through but he acknowledged that the contract was
19 his responsibility as CEO.
20 He doesn't -- didn't recall if a check in the full
21 and final payment was prepared but not delivered.
22 He denied ever saying that the confidentiality
23 agreement was unenforceable.
24 Robert Treasure then testified. He testified to
25 his educational background and his position in TekNow
WM. A. MCNUTT III, RMR

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1 beginning in January of '95 as vice-president of sales.
2 He testified that Thompson reported to him. He
3 provided -- also that he provided technical -- he was a
4 technical support liaison for customers too and that he
5 sometimes referred inquiries to Thompson, especially support
6 calls.
7 He didn't know, according to his testimony, that
8 Thompson was doing outside jobs in the paging industry or
9 with paging customers.
10 He said he never gave his permission to defendant
11 Thompson for that. He said that only CEO Tomeoni could give
12 such permission and he says that Thompson never asked for
13 permission.
14 On cross-examination he testified that AlphaBox
15 TAP concentrators are, quote, "long in the tooth" and he
16 testified that PhenX had one placement.
17 He testified that in his sales efforts he was
18 interested in talking to the top 10 paging companies.
19 He testified that he did leave a message on
20 Thompson's answering machine or left a message or said
21 something to the effect that he would get amnesia if called
22 upon to testify.
23 He admitted and then denied things to Thompson
24 that Tomeoni knew and that -- that he, Treasure, knew of
25 Thompson's activities.
WM. A. MCNUTT III, RMR

26
1 We'll get, as I said, more into credibility later
2 but the rebuttal impeachment testimony, which was Exhibit
3 38, the tape, reflected Mr. Treasure saying "I'll deny
4 everything."
5 He then testified as to his statement that he made
6 in October, '96 declaration and that was prepared at
7 Thompson's directions and presented to Treasure for signing.
8 Scott Chamberlain then testified. Employee of
9 TekNow's, May of '95.
10 He knows that Thompson -- he knows Thompson and
11 worked under him for about six weeks.
12 He knew of the consulting contract and he recalls
13 Thompson telling him that he had pulled something over on
14 TekNow and or -- remembers the confidentiality agreement --
15 in reference to the confidentiality agreement.
16 On cross-examination the Exhibit 140 was
17 introduced and this was Chamberlain's affidavit. Different
18 inferences could be drawn from that affidavit which I will
19 get into later on but that affidavit does not specifically
20 reference the confidentiality agreement, it simply refers to
21 Thompson waiving some manila envelope and saying that he had
22 pulled something over on TekNow in the contract.
23 Ralph Tomeoni then testified. He is the president
24 and CEO of TekNow. He testified as to his education and
25 background and work experience.
WM. A. MCNUTT III, RMR

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1 He acknowledges that he has done some source code
2 writing but more importantly he testified that he is on
3 various PCIA committees and has great familiarity with the
4 subject matters of those committees, which include all of
5 their -- most all of their responsibilities dealing with TAP
6 and TNPP, et cetera.
7 He started with TekNow in '91 when there were only
8 three people, apparently there are now 34 employees.
9 He testified that TekNow sells hardware but
10 doesn't manufacture hardware.
11 He testified that software is all there is, that
12 everything else just comes off the shelf for TekNow's
13 products.
14 He testified as to the source code and that it is
15 the road map for all other products that plaintiff offers,
16 the building blocks of all the products that TekNow offers.
17 He testifies the importance of protecting source
18 codes. That -- that there must be a serious protection both
19 as to the access and use and those controls are followed
20 daily and weekly so that code is protected.
21 There are no hard copies of the source code, all
22 are electronic.
23 They enter into license agreements to allow
24 companies to use their source code but they can't copy or
25 use them elsewhere.
WM. A. MCNUTT III, RMR

28
1 He testified as to license agreements with -- all
2 with confidentiality agreements and he testified that all
3 employees sign the confidentiality agreement before they
4 come in the door. Obviously that was not the case early on
5 in the company since certainly in Thompson's instance, he
6 did not sign that agreement until after he'd been employed
7 for about six months.
8 He testifies that AlphaBox is still on the
9 market. And in fact have sold more in 1997 than in any
10 year.
11 He testified as to PhenX, '94 is still on the
12 market but moving to new platform environment.
13 He testified as to some of the other property,
14 TK4000, Gateway, et cetera, all with the original source
15 code involved to some extent. Said it took two years to
16 develop the original PhenX and then the modifications went
17 on for additional five to six years.
18 Says that there is eight and a half million
19 dollars invested in the company to date with a million and a
20 half to $2 million in PhenX, which is the principal value of
21 the company.
22 He said the primary competition is Glenayre and he
23 testified as to Glenayre's substantial market share, 86
24 percent with 55 percent in the U.S., other competitors are
25 Motorola. He wants to compete in the market against both
WM. A. MCNUTT III, RMR

29
1 Motorola and Glenayre and sees that as his focus.
2 He testified that he has no customers in Arizona,
3 but that there are customers in Dallas, Boston, Virginia,
4 California, Washington, virtually every metropolitan area
5 and country worldwide.
6 He hired Thompson in '91, we know that Thompson
7 worked from '91 to '96 and he thinks there were three to
8 four employees when Thompson came. He was hired to design
9 products. He primarily worked on AlphaBox and new
10 programs. He also worked a little bit on SAMpage and others
11 as well as PhenX. PhenX he was essentially the resident
12 technical expert for.
13 He was a software engineer, Thompson, and designed
14 and developed programs including Queue, then moved to
15 technical support. He was dealing with customers sometimes
16 directly. It was Thompson's responsibility to decide if the
17 product could be provided and Tomeoni's responsibility to
18 decide if the product would be provided.
19 He testified that Thompson resigned saying he was
20 going go back to college. He testified that he knew
21 Thompson was doing outside work in '93 or so but that was PC
22 work and that he indeed hired him to do work on his own
23 computer and other such computer set up installation type
24 projects.
25 He said he didn't know that Thompson was doing
WM. A. MCNUTT III, RMR

30
1 paging work. He said if he did know, he would not have
2 approved.
3 He said there was a requirement to get approval
4 for outside paging work and outside paging work would be in
5 violation or outside work would be in violation of the
6 confidentiality agreement. Thompson never asked and no one
7 else did either.
8 He testified that all of Thompson's paging work
9 that he did would have been interesting and TekNow would
10 have been interested in undertaking.
11 He testified, as I said, as to the PCIA
12 committees. He testified as to TAP and TNPP, he testified
13 that there had been only one request of the waiver of
14 Exhibit 1 but that was not Thompson.
15 He testified as to the violations that he believed
16 Thompson had committed in a variety of admitted exhibits.
17 He testified that he had signed all three parts of
18 Exhibit 2 and he testified that in regard to 2 A and 2 B,
19 that he talked to Thompson about the agreement when Thompson
20 brought them in. The conversation took place outside of
21 Tomeoni's office. He didn't read Exhibit 2 word for word.
22 He said this is for one job for PageMart and the answer was
23 yes. And anything I need to worry about? No. Based on
24 Tomeoni's or Thompson's integrity Tomeoni signed the
25 agreement.
WM. A. MCNUTT III, RMR

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1 He didn't discuss the confidentiality agreement
2 and he would not have been interested in modifying it. He
3 said he did not pay Thompson for the PageMart project
4 because he didn't complete it.
5 He testified on cross-examination to his letters
6 to Thompson. He testified that Thompson had until September
7 14th to fulfill the warranty portions that he faxed to --
8 well, strike that.
9 He testified that he didn't expressly accept or
10 reject Thompson's work before or after September 14th.
11 He testified to, on cross-examination, TekNow's
12 balance sheet and after discussion concerning portions of
13 Thompson's deposition testimony, the plaintiff rested.
14 Terry Stuiler, I had a hard time with that name,
15 testified he was a technical support representative at
16 TekNow. He testified that customers would call an 800 line
17 and ask for help.
18 He reported to Bob Treasure.
19 He testified that he knew that Thompson was doing
20 outside consulting because Treasure told him that Thompson
21 was doing outside consulting.
22 He saw Thompson's TAP ROUTER and knew that he was
23 working on that. He said that Thompson had -- that he saw
24 this and Thompson made no effort to conceal it.
25 He said he left because he was laid off.
WM. A. MCNUTT III, RMR

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1 He told that -- was told that TekNow was trying to
2 get away from software business. Simpson had told him this.
3 Thompson retook the stand testified as to the
4 negotiation and transactions that took place with Exhibit
5 102, the consulting agreement, and the changes that were
6 made on both sides. That he did not accept changes in 103
7 but then eventually they were able to reach an agreement.
8 He testified as to various portions of the ADT
9 source code and other exhibits.
10 Testified about third party sources which deal
11 with routines and procedures in third party sources and thus
12 a part of the public domain.
13 The last witness was Alex Lowy who testified as to
14 his background. He is a CPA. Was formally with TekNow from
15 April of 1995 to September of 1996. He was the controller
16 for TekNow. He set up policies and procedures and paid the
17 bills.
18 He got a confidentiality agreement but he didn't
19 sign it. He and Hendricks had a conversation concerning his
20 reluctance to sign the confidentiality agreement. He
21 testified that David -- or Aaron David Thompson was present
22 when Hendricks said that it was unenforceable. He didn't
23 want to sign it himself, but he said that Thompson
24 participated in the conversation and eventually he signed
25 the agreement.
WM. A. MCNUTT III, RMR

33
1 He said that he prepared a check for Thompson and
2 had it ready but doesn't believe it was delivered thinking
3 that it was held back.
4 He testified that there was a huge turnover at
5 TekNow, a hundred percent per year was his testimony.
6 He testified as to his opinion of Tomeoni and his
7 reputation for truthfulness and veracity. It was his
8 opinion that Tomeoni was not honest and that he did not have
9 a good reputation in the community.
10 The defendant rested. We had brief testimony from
11 Mr. Elbert who testified among other things that Tomeoni's
12 reputation is good.
13 Now, I have not, obviously, stated all of the
14 relevant evidence and information, I may have even perhaps
15 misunderstood a small portion but, it has given the Court
16 the opportunity to evaluate and address the respective
17 positions.
18 Bear with me. I'm sure that you will be pleased,
19 not necessarily with the result but with the fact that we
20 will be able to conclude this today.
21 Turning then to the parties' positions.
22 It is plaintiff's position that -- and belief that
23 there should be little dispute that the source code is a
24 trade secret. With time and money invested. That it is
25 important not only for present purposes but in the next
WM. A. MCNUTT III, RMR

34
1 generation of products and is an -- and must be kept
2 confidential.
3 He testified that in Thompson's five years of
4 employment with TekNow he was in a position of trust and
5 that he created software as well as being responsible for
6 fixing problems and he wrote a big portion of the source
7 code.
8 He, plaintiff, believes it important that Thompson
9 had no previous experience in the paging business. He
10 signed the confidentiality agreement, much of this is
11 undisputed. The dispute being the implications from some of
12 the undisputed facts and the disputed facts.
13 Thompson acknowledged that he did outside work,
14 that he was paid and that he kept those proceeds.
15 He worked in software products in a paging
16 industry, StarPaging, et cetera, and after he left TekNow he
17 competed with paging products.
18 His MessageMaster according to TekNow was
19 developed while he was at TekNow, including the StarPaging.
20 What are disputed, according to the plaintiff, are
21 that derivation of MessageMaster code and the ownership of
22 any code that Thompson wrote as an employee of TekNow.
23 TekNow's position is that the Lanham Act, the
24 section is 43(a), is clearly violated by the advertisements
25 in the MessageMaster web page referring to the Glenayre --
WM. A. MCNUTT III, RMR

35
1 strike that -- to the Glenayre program. Make that a little
2 simpler.
3 Insofar as the issues in dispute, it's TekNow's
4 position that MessageMaster was derived from TekNow source
5 codes and there are just too many similarities and
6 commonalities which were testified to by both Elbert and
7 Mook, as to source which would be ability line items, they
8 were copied. And the fingerprints that show this are the
9 common paging source file names, the common function names,
10 the order of functions in source files, the identical
11 comments, the identical variables names and the order of
12 declaration of variables.
13 Mr. Wall very ably stated the plaintiff's position
14 as to these fingerprints and points out that Thompson
15 acknowledges the similarities and restates basically the
16 defendant's position that the similarities came from
17 Thompson's Bulletin Board and that they -- or they came from
18 TAP or TNPP protocol.
19 Plaintiff's position in that regard is that these
20 protocols don't show how to do things -- or strike that.
21 They only show how to do things, not -- they do not dictate
22 how things are done and that there is a decided difference
23 in attempting to use TAP or TNPP protocols as justification
24 for commonalities.
25 He addresses also that's the position on public
WM. A. MCNUTT III, RMR

36
1 sources and points out that only an handful of codes
2 referred to public sources, and indeed the ones referred to,
3 did not show certain portions of the code.
4 It is plaintiff's position that they own all of
5 the source code from whatever source. That the
6 confidentiality agreement assigns all rights to TekNow to
7 anything invented or created, it belongs to TekNow and that
8 included StarPaging or any of the other outside work
9 performed by Thompson.
10 TekNow addresses defendant's position that he had
11 consent from Treasure and points out that Treasure's
12 testimony said essentially "no way" he points out to the
13 Treasure's affidavit which was obtained by Thompson in
14 October of 1996.
15 Addressing defendant's release, it is TekNow's
16 position that it has no impact on the confidentiality
17 agreement, that it is silent in regard to that agreement and
18 even if there were some question about this, the
19 confidentiality agreement's legality, that common law would
20 protect TekNow's ownership of the source code.
21 He addressed -- or TekNow addressed, through Mr.
22 Wall, the advertising aspects of the Lanham Act as
23 violations, the Glenayre reference, which Thompson didn't
24 have available as advertised and which were referenced in
25 CommTech and MessageMaster web pages.
WM. A. MCNUTT III, RMR

37
1 The implications that the plaintiff would have the
2 Court draw is that all of the violations then have been
3 shown; the Lanham Act, the trade secret statutes have been
4 violated, the breach of the confidentiality agreement.
5 That insofar as the confidentiality agreement is
6 that their only debate is the noncompete portion, not the
7 confidentiality portion for which there should be no debate
8 and the noncompete clause is reasonable -- I hope I make it
9 -- in its two year prohibition against competition and that
10 if the Court were to determine that there were a problem
11 with the overbreadth of the confidentiality agreement, that
12 under Olliver/Pilcher the Court should blue line those
13 unenforceable portions and leave the other portions
14 enforceable and separable.
15 Mr. Wall addressed the plaintiff's position on the
16 release agreement and that it doesn't have anything to do
17 with the plaintiff's claims or can it offset plaintiff's
18 claims.
19 Addressed briefly the breach of duty of loyalty,
20 the tortious interference claim, and addressed the
21 defendant's counterclaim and points out that Thompson admits
22 that he has plaintiff's source code and that he has refused
23 to return it and that he gets the $1400 as soon as he
24 returns the code.
25 Defendant's position is -- addresses essentially
WM. A. MCNUTT III, RMR

38
1 the same areas, not in the precise order but essentially the
2 effect that there was no misappropriation. That there was
3 no violation of the confidentiality agreement for a variety
4 of reasons. That he did not violate the noncompete clause,
5 if that clause is enforceable.
6 That he did not tortiously interfere.
7 That he did not violate the Lanham Act.
8 That it's -- it's affirmatively alleged that
9 TekNow has released Thompson by virtue of the paragraph 13
10 of the consulting agreement and plaintiff did indeed violate
11 the consulting agreement.
12 The defendant's position is that he had
13 established ADTBBS, Bulletin Board, when he had it in
14 Tucson, it was placed on the FidoNet and the public domain.
15 He was involved in and generated programs as a
16 student. And that although he signed the confidentiality
17 agreement six months after his employment with TekNow, there
18 was no consideration or bargained consideration by the
19 plaintiff and, for that reason, was unenforceable.
20 He did indeed write much of TekNow's source code.
21 But the new products that he's worked on are based on what
22 -- or that -- no, strike that. Not that he worked on but
23 that the -- the new products TekNow is developing are based
24 on the C++ system.
25 Points out that AlphaBox is old, and the PhenX
WM. A. MCNUTT III, RMR

39
1 sold -- only one was only sold to one customer.
2 It's his position that the definition of trade
3 secrets are clearly spelled out in statute and clearly those
4 definitions don't include certain ascertainable information.
5 You can't claim as a trade secret that which is
6 readily available or claim it as a secret simply by reason
7 of some imprimatur of secrecy.
8 The outside work, it was Thompson's position that
9 he did none for the first four years of employment but that
10 changed with Mr. Wong's call and that there is a dramatic
11 difference between the $4,000 contract for the StarPaging
12 and the $300,000 that the PhenX sold for or the eight to
13 $10,000 that AlphaBox is sold for.
14 That this is insignificant and not only that but
15 -- was it insignificant -- but TekNow couldn't do the job
16 and wasn't interested in the job.
17 He, Thompson's position that his TAP ROUTER, which
18 he developed, was openly done and talked about and it's his
19 position that the confidentiality agreement is not
20 enforceable because he was told by persons with the
21 authority that it was not enforceable.
22 We talked about the testimony concerning the
23 consulting agreement and the series of redrafts and
24 revisions, importantly that the July 10th agreement had the
25 release spelled out in Exhibit 102, it was a bargained for
WM. A. MCNUTT III, RMR

40
1 release as evidenced by the extended negotiations and
2 redrafting that went into that process and particularly as
3 compared to the unilateral confidentiality agreement which
4 was without bargain.
5 I may forget this otherwise but TekNow's position
6 is that that unilateral agreement did have consideration and
7 that consideration was continued employment and therefor,
8 even though there was no recitation in the agreement, that
9 that amounts to consideration and there is case law to
10 support that concept.
11 The position of Thompson was -- concerning the
12 consulting agreement was that he delivered the product as
13 agreed. That TekNow tested it. The punch list went back
14 and he made changes required and pointed out that the TAP
15 ROUTER, which he had developed on his own, was changed to
16 MessageMaster and is not based on the TekNow's source code,
17 either PhenX or -- PhenX or any other code, that it
18 originated in the Bulletin Board.
19 He also -- Thompson's position that in order for
20 the unilateral agreement to be enforceable there needs to be
21 some explanation to the employees as to what it is intended
22 to cover, and as to the procedure that would be utilized in
23 the event that there is a dispute over it.
24 The fact that there is no explanation in that
25 agreement as to who determines and under what circumstances
WM. A. MCNUTT III, RMR

41
1 there can be alleged violations of that agreement.
2 It's TekNow's position of course that this is Mr.
3 Tomeoni's responsibility but, Thompson points out that
4 there's nothing in the agreement to suggest that or to
5 define it's limitations.
6 It is, of course, as a result, tremendously
7 overbroad.
8 Thompson, in his defense appropriately addresses
9 points in his argument that he did not misappropriate --
10 misappropriate any of the source code. And points out that
11 MessageMaster had -- has some 124 files and both Elbert and
12 Mook could only find about 10 files with maybe 59 codes out
13 of some 10,000 codes that are even similar. If not
14 misappropriated.
15 MessageMaster he points out is a different
16 structure than PhenX and reiterates the explanation for the
17 similarities 'O' versus "O", the single quote marks and the
18 double quote marks, that this is a significant difference
19 and should not be relied upon by the Court in concluding
20 that there are similarities or commonalities that would
21 result in the conclusion that there was copying and
22 misappropriation.
23 Defendant relies again on Mr. Cain's report, which
24 outlines the other public sources and other explanations for
25 similarity but concludes that the basis for MessageMaster is
WM. A. MCNUTT III, RMR

42
1 the ADTBBS and not the PhenX code.
2 He points out that in the utilizing of any
3 procedures that there is a logical application and that if
4 those procedures were written by Thompson in both programs,
5 then that is also a logical explanation of some commonality.
6 There was testimony in the course of the trial and
7 was referenced in argument by Mr. Clark that the issue of
8 the copyright notices and that is fairly confusing by the
9 evidence and as to when and what particular copyright we're
10 talking about. That being the work done when the code work
11 is done, or being referenced to the overall expanding
12 copyright for the entire source code.
13 Defendant's position points out that in the
14 confidentiality agreement -- trying to interpret the
15 confidentiality agreement page 6 paragraph 11, that "outside
16 work" doesn't mean that all telepaging is competitive.
17 Points out, as I have previously mentioned, there
18 are no procedures to determine this but that in determining
19 what would be competitive and not competitive, that Treasure
20 clearly had the authority or the appearance and the apparent
21 authority to authorize that competitive effort and that
22 indeed Thompson did get this approval.
23 Defendant's position is that besides overbreadth,
24 that the noncompete clause cannot by itself justify a two
25 year ban on competition because of the fact that we're
WM. A. MCNUTT III, RMR

43
1 dealing with the old product, the AlphaBox or the PhenX,
2 which has one product sale, and that the worldwide reach of
3 the noncompete clause is clearly overbroad.
4 That plaintiff is not a worldwide company, it's
5 really a small company and points to what is devastating or
6 a very unfavorable financial statement as to the financial
7 condition of TekNow.
8 Points out that any restriction upon dealing with
9 customers or prospective customers is much too broad and
10 that even under the Olliver/Pilcher blue pencil test, that
11 this would be an invalid restriction.
12 Essentially he believes that there is clearly no
13 evidence to show tortious interference which would require a
14 higher burden of proof -- strike that, I'm not sure of that.
15 Certainly would be for the fraud count but I guess
16 the fraud count as appearing here that there was no
17 misappropriation of trade secrets under Arizona law, that
18 there was no Lanham Act violation. Insofar as the Glenayre
19 program is concerned, Thompson could produce that program if
20 somebody had asked for it, but no one did.
21 And so there are no comparative advertising issues
22 here which the general -- are the general basis for alleged
23 Lanham Act violations.
24 It is Thompson's position that the release is
25 absolute, that -- that it should be so construed and that
WM. A. MCNUTT III, RMR

44
1 there is a decided inconsistency if the Court is charged to
2 specifically determine the licensee abandon -- apply the
3 provisions of the unilateral confidentiality agreement and
4 yet, determine that it could disregard the paragraph 13 of
5 the consulting agreement.
6 Lastly, Mr. Thompson believes that plaintiff has
7 breached the consulting agreement and Mr. Tomeoni's
8 testimony showed that he was annoyed by -- by Thompson
9 leaving and particularly by his attempting to compete and he
10 simply said, "Don't pay for the contract."
11 And of course Mr. Wall was able to reply to, as
12 any good lawyer would, to the -- to the arguments of Mr.
13 Clark and the defendant's position as to what the evidence
14 showed.
15 A few words about credibility.
16 Obviously everyone who testified in this case has
17 a connection one way or another.
18 Mr. Thompson's an exceptionally bright, young man
19 with decided talents is anxious to advance his career and
20 one would expect his testimony to be in favor of his side of
21 the case. He wouldn't be here were it otherwise.
22 The experts all have an interest.
23 Mr. Cain is a friend of Mr. Thompson. Mr. Elbert
24 and Mr. Mook are employees of TekNow. I can't imagine
25 coming in here and expressing an opinion that says that
WM. A. MCNUTT III, RMR

45
1 Thompson's MessageMaster was independent of TekNow's source
2 code. It defies all logic.
3 And in that respect, I have to look at Exhibits 35
4 and 36, there is a strong similarity in the preparation of
5 those reports, almost identical insofar as -- verbatim
6 insofar as many portions are concerned and even in the
7 conclusions and opinions.
8 That while they appear to be rearranged, they
9 basically say in many cases identically the same thing and
10 I'm not too critical about that because we are talking about
11 an uneducated trier of fact that needs all the help it can
12 get in trying to understand the subtleties of source code
13 writing and what's involved in the process.
14 But they have a viewpoint that is not surprising.
15 None of them, I suggest, may well have met Daubert standards
16 for expert testimony but because that's what both sides had,
17 there was no objection from either side, we probably have
18 established expert credentials for all three of them to some
19 degree by virtue of this case.
20 But they are knowledgeable and I'm not concerned
21 with that aspect because they all had important things to
22 say to the Court to help it arrive at its decision.
23 But, as we go through the witness list the same
24 thing applies. Mr. Stephenson, who was there for a month
25 and then went to work in the formation of CommTech, got sued
WM. A. MCNUTT III, RMR

46
1 and as any smart individual would do, threw up the flag and
2 got out of there and it wasn't really his issue and so he
3 was able to provide testimony that aided the Court in
4 reaching it conclusions.
5 Stay tuned, we're getting close.
6 Mr. Wong didn't have much of an axe to grind, he
7 got his program, he was happy with Thompson. He testified
8 that he really intended to try and get TekNow to do this
9 work but they couldn't do it and were not interested in
10 doing it.
11 Simpson -- well, he's a TekNow employee, his
12 testimony wasn't I believe stretched in that regard because
13 we have both his affidavit and his live testimony.
14 The inferences from the testimony are up for the
15 Court to draw.
16 Mr. Hendricks has an interest in the litigation as
17 the former CEO and vice-president of TekNow. He's a
18 well-trained lawyer and he was involved in the -- and was
19 aware of the confidentiality agreement and certainly the
20 consulting agreement and the extended negotiation and
21 revisions that went into that contract.
22 Mr. Treasure is -- what can you say? Mr. Treasure
23 testified to anything anybody wanted him to. He is a man
24 who is a salesperson primarily and sales persons by their
25 nature say what others want them to say as long as they can
WM. A. MCNUTT III, RMR

47
1 sell product.
2 But we know precisely what he said in regard to
3 denying everything.
4 Mr. Chamberlain, who testified as to Thompson's
5 statement that he pulled the wool over plaintiff's eyes,
6 again didn't have a lot to offer in the resolution of the
7 case.
8 And Mr. Tomeoni, as one would expect, is the
9 president and CEO, has a lot at stake in this issue.
10 We have a company that is showing substantial
11 losses of -- at least through AlphaBox, which apparently
12 it's still selling and the one sale of PhenX is developing
13 new products and I don't know as to what the future brings
14 for TekNow.
15 Certainly there aren't going to be great
16 recoveries from Mr. Thompson in this case if the plaintiff
17 were to prevail.
18 He, as I indicated, provided or is in a position
19 to know by virtue of his PCIA committee assignments some of
20 the issues related to the resolution of this case.
21 Terry Stuiler, the person who testified as to the
22 defendant's work on outside products really didn't have a
23 lot to gain or interest in the lawsuit.
24 Mr. Lowy, the CPA, may have an interest in the
25 lawsuit. He was a disgruntled with his -- with TekNow,
WM. A. MCNUTT III, RMR

48
1 would he testify falsely under oath? I don't know that
2 there's any indication of that. He testified to the
3 conversation with Hendricks with Thompson present concerning
4 the enforceability.
5 So there are the respective positions, the
6 testimony as digested by the Court, and after having
7 reviewed this case in its entirety, reviewed the evidence
8 and reviewed the law, the Court -- the Court essentially
9 comes down with the decision that the defendant has the
10 better part of the argument in this case.
11 The plaintiff has made -- and on first blush as I
12 review the pretrial order -- made a complete case as to all
13 of the claims in the complaint but on close inquiry, there
14 is no substance to those claims.
15 The fact of the matter is that the Court recalls
16 that it's said that Wolfgang Amadeus Mozart could listen to
17 a symphonic composition and then write down, note by note,
18 every bit of that composition from beginning to end. That
19 was the type of mind and brain that that genius had.
20 If he had claimed that composition as his own,
21 clearly he would be in violation of every known concept of
22 protected intellectual material, but if he were to use a few
23 notes from that composition, progression, a phrase, that's
24 the way the human mind works and we cannot separate
25 ourselves entirely from that which we learn day by day from
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1 others and in our working experiences.
2 Essentially TekNow has not proved to the
3 satisfaction of the Court that the source of the
4 MessageMaster was the PhenX source code. Rather there is
5 substantial evidence that that software was developed
6 fundamentally from the Bulletin Board, on which he had
7 worked.
8 The similarities are explainable. They are not
9 necessarily to the source code itself, they are, as I point
10 out, portions that were written both by -- written by
11 Thompson, so that their appearance in the MessageMaster and
12 the PhenX is not surprising. They are not fundamental to
13 that software program.
14 Also there is no leap through technology that the
15 Court sees here.
16 If we were talking about something that Thompson
17 had learned or that TekNow had -- TekNow had that was on the
18 precipice of advancement in the new concepts, new programs,
19 then that would be, I think, apparent and obvious from what
20 it was that Thompson did with his MessageMaster.
21 But we don't see that in this particular case. We
22 don't see the PhenX and the AlphaBox and we know little
23 about the advanced products.
24 We know even less about the origination of the
25 AlphaBox, but the Court has not had presented to it evidence
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1 that we're talking about some break through or leap through
2 technology here.
3 If that were shown to the Court then all the rules
4 on separability and confidentiality agreements and trying to
5 read that release to include the confidentiality agreement,
6 I'd have to take even a harder look at but I don't see that
7 type of evidence.
8 That confidentiality agreement is overbroad and
9 neither by application of the Olliver/Pilcher case by blue
10 lining, by attempting to honor the separability clause in
11 that agreement can we reduce it to a stage that it would be
12 less than a whole bunch of blue lines.
13 There has to be in those enforceable agreements
14 some reasonable limitation both in time and scope and
15 definition as to what it is that an employee is bound by.
16 There has to be some information in there that clearly
17 defines work product and competition.
18 Not all paging efforts are in violation of
19 TekNow's paging efforts. Two years, if again if we had some
20 leap through issue here, then two years would be reasonable
21 but it doesn't seem to be any basis for that two year
22 covenant, particularly worldwide, particularly for possible
23 customers.
24 Their needs be some effort, to make those things
25 effective, a process by which the employee is acquainted
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1 with what's expected of him or her. There has to be some
2 provision as to how these alleged violations would be
3 determined or brought to the employee's attention.
4 The law encourages competition. That's the whole
5 concept of our economic structure.
6 The law recognizes that intellectual properties
7 and trade secrets must be protected under reasonable and
8 limited circumstances.
9 If we had the sale of a business with a noncompete
10 clause, those instances are clear because we know that the
11 price of the sale included goodwill and for a very popular
12 business owner to sell his business and move across the
13 street and start the same business, his old customers are
14 going to run right across the street.
15 I don't think that that is contemplated in case
16 law, Arizona case law nor is that supported by the facts of
17 this case.
18 Even if there were a confidentiality agreement,
19 it's hard for the Court not to conclude that the mutual
20 release does not apply.
21 We're talking about a well-trained lawyer who
22 participated in a series of redrafts of that document.
23 And did Thompson pull the wool over TekNow's eyes
24 in this regard? I suppose one might draw an inference from
25 that but it might also be an inference from the -- for the
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1 return date of the products or the acceptance dates by
2 TekNow of his paging program, maybe that's what he was
3 referring to.
4 Mr. Thompson is a very bright, young man, he's
5 cagey -- capable of seeing opportunities and taking
6 advantage of them, he's no dummy. But, he makes a good
7 point when he says that it's one thing to ask the Court to
8 strictly enforce the confidentiality agreement and not to
9 strictly enforce the consulting agreement and release clause
10 contained therein.
11 I don't find the Lanham Act supporting this type
12 of false advertising claim.
13 I suspect that if they were complaining in some
14 regard to this inability of MessageMaster to provide a
15 program or some such thing, that we might have a different
16 claim but for TekNow to try and recover damages because they
17 believe that MessageMaster could not provide the Glenayre
18 system really doesn't meet it's burden of proof simply by
19 virtue of the fact that had somebody requested Glenayre, the
20 testimony before the Court is that it could have been
21 provided or was already considered in the disjunctive
22 language of that representation in the MessageMaster web
23 page.
24 Breach of fiduciary duty. We are seeing in the
25 law an extension of the concept of fiduciary duty.
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1 Fiduciary duty, initially that was pretty much
2 limited to where you were handling somebody's money. We
3 expanded that legal concept but -- but it does not appear
4 that the plaintiff has met it's burden in this regard also.
5 And the vagaries of the tortious interference
6 likewise not proven.
7 The counterclaim on the breach of the consulting
8 agreement is, as Mr. Wall points out, really one of those
9 stand off issues.
10 If you pay I'll -- like two kids -- if you do this
11 first and I'll do that second and now you do this first and
12 I'll do that second.
13 Nevertheless I think that TekNow's responsibility
14 in that regard was to make full payment of that. There was
15 not any allegation that presented to Mr. Thompson that the
16 program was not workable or that he had not completed his
17 responsibility, rather it was indicated that he still had
18 the source code and hadn't returned it.
19 Well, as a simple proposition of law, TekNow
20 should have paid him and then if he didn't return the
21 materials, to bring some action for replevin or otherwise to
22 recover that. So I believe that -- that the defendant
23 should prevail on the counterclaim as well.
24 I have said about all that I can say concerning
25 this particular case at this time.
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1 Counsel for the defendant should provide revised
2 findings of fact and conclusions of law that are not
3 inconsistent with the Court's oral findings but you need
4 to -- and I'm not attempting to completely limit you in that
5 regard as well but as long as they generally are consistent
6 with the Court's rulings, the Court will approve them.
7 In the interest of time I really intend to save
8 the parties as much time and expense as they probably can
9 and if -- if there's to be an appeal, the sooner we get that
10 underway, the better.
11 Any questions? I may have misstated some of the
12 evidence, I'm trying to run this off orally and I wish I had
13 the time not to do it this way because it does lend itself
14 to incompleteness and perhaps misstatements but, as I
15 pointed out, if I don't get this done now, it doesn't get
16 done for 6 or 8 months.
17 MR. CLARK: On the claim for attorney's fees,
18 should we submit an affidavit for that?
19 THE COURT: Yes. That will, of course, have to go
20 it's usual course with a response and objection time and the
21 Court will evaluate reasonableness, if any, of the
22 assessment.
23 MR. CLARK: Okay.
24 THE COURT: Mr. Wall, any --
25 MR. WALL: No, Your Honor, no questions.
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1 THE COURT: I want to thank you again, you just
2 both have done a tremendous job in presenting this and
3 making it a difficult case for the case -- for the Court
4 but, you don't know how much difference it makes when we
5 have good lawyers arguing their positions.
6 MR. WALL: Thank you, Your Honor.
7 MR. CLARK: Thank you.
8 MR. LECHTER: Thank you, Your Honor.
9 THE CLERK: Court stands adjourned.
10 (Proceedings recessed at 12:20 P.M.)
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1 UNITED STATES OF AMERICA )
) ss.
2 DISTRICT OF ARIZONA )
3
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5 I HEREBY CERTIFY that I am a duly appointed,
6 qualified and acting Official Court Reporter for the United
7 States District Court for the District of Arizona.
8 I FURTHER CERTIFY that the foregoing printed
9 pages, numbered 1 through 56, inclusive, constitute a full,
10 true and accurate transcript of all of that portion of the
11 proceedings contained herein, had in the above-entitled
12 cause on the dates specified therein, and that said
13 transcript was prepared under my direction.
14 DATED at Phoenix, Arizona, this 4th day of
15 March, 1998.
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William A. McNutt III
21 U.S. Court Reporter
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