MicroStrategy Inc. v. Li

• Decision Date: 17 September 2004
• Docket Number: Record No. 032239.
• Citation: MicroStrategy Inc. v. Li, 601 S.E.2d 580, 268 Va. 249 (2004)
• Parties: MICROSTRATEGY INCORPORATED v. Wenfeng LI, et al.
• Court: Virginia Supreme Court

601 S.E.2d 580

268 Va. 249

MICROSTRATEGY INCORPORATED v.Wenfeng LI, et al.

Record No. 032239.

Supreme Court of Virginia.

September 17, 2004.

Thomas J. Cawley, McLean (John Charles Thomas, Lewis F. Powell, III, Richmond; Ingo F. Burghardt; Sona Rewari; Hunton & Williams, on briefs, McLean), for appellant.

Amy L. Bess(Drew W. Marrocco, Washington, DC; William G. Broaddus, Richmond; Sonnenschein, Nath & Rosenthal, Washington, DC; McGuireWoods, on briefs, Richmond), for appellees.

Present: All the Justices.

BARBARA MILANO KEENAN, Justice.

In this appeal, we consider whether the chancellor erred in holding that the plaintiff failed to meet its burden of proving that the defendants misappropriated certain trade secrets, within the meaning of the Virginia Uniform Trade Secrets Act (the Act), Code §§ 59.1-336 through -343.

We will state the evidence in the light most favorable to the defendants, Actuate Corporation(Actuate), Wenfeng "Wayne" Li, and Xiaogang "Gary" Xue, the prevailing parties in the circuit court.Barner v. Chappell,266 Va. 277, 283, 585 S.E.2d 590, 594(2003);Jenkins v. Bay House Assocs., L.P.,266 Va. 39, 41, 581 S.E.2d 510, 511(2003).According to this evidence, MicroStrategy Incorporated(MicroStrategy) and Actuate are "indirect competitors" that design, license, and support highly sophisticated computer software known as "business intelligence software."

Business intelligence software facilitates data retrieval by allowing users to directly retrieve selected data from the volumes of information stored and collected by a business.The data that these businesses collect are stored in computer memories called "data warehouses."

MicroStrategy competes primarily in an On Line Analytical Processing (OLAP)"power-user" market.OLAP is a feature that allows users to sort or rearrange columns of data in a business report and to "drill down" or engage in "data mining" within a column to retrieve more specific data from the report.Unlike MicroStrategy, Actuate primarily competes in "a less sophisticated market that does not require OLAP or other high-end analytics."

MicroStrategy's "flagship" product, "MicroStrategy 7," was released in June 2000.MicroStrategy spent about $35,000,000 and four years in the design and implementation of MicroStrategy 7, the sales of which represent the bulk of MicroStrategy's revenue.MicroStrategy 7 was not merely an enhancement of MicroStrategy's previous software products, but was created "from scratch" when MicroStrategy chose to "completely rewrite its product" to address the structural limitations of its existing software and to meet its customers' evolving needs.

MicroStrategy 7 features an enhanced ability to deliver information to a larger group of users and allows a greater number of users to have simultaneous access to the stored information.MicroStrategy 7 has increased reliability through the installation of a "failover function," which allows a computer server's data to be "seamlessly redistributed" to other computer servers "with little or no disruption of service" in the event that a server "crashes."Customers who purchase MicroStrategy 7 also are required to purchase a "commercial relational database" to manage their data warehouse.

Actuate's premier product, Actuate 6, was released in May 2002.Unlike MicroStrategy 7, Actuate 6 did not result from the development of a completely new software product, but was an enhancement of Actuate's existing software.The development of Actuate 6 was "in the early planning stages" by the time Actuate's previous product, Actuate 5, was released in December 2000.

At "a high level," Actuate 5 and Actuate 6 are very similar products, the "primary difference" being that Actuate 5's "core servers" were combined into "a single process" for Actuate 6 and the server in Actuate 6 "operates in a cluster environment."Another major difference between Actuate 5 and Actuate 6 is the inclusion in Actuate 6 of a proprietary database which, unlike the software in MicroStrategy 7, allows customers to manage the data warehouse without purchasing a commercial relational database from a third party vendor.

Both MicroStrategy and Actuate use the "C++" computer programming language to write the underlying "source code" for the design and implementation of their computer software products.The C++ programming language is the "language of choice for systems programming on nearly all major computing platforms."

MicroStrategy 7 and Actuate 6 both use "metadata" to organize and identify the data stored in their customers' data warehouses."Metadata," which also is referred to as "data about data," is a relational database that contains information about the data located in a data warehouse.The metadata is accessed through certain tables and indexes, which collectively are known as the "schema."The tables and indexes in the schema provide the organizational structure for a product's metadata and allow a user to locate more quickly information stored in the user's data warehouse.

The schema for the two companies' software products are "quite different."MicroStrategy 7 has a "homogeneous" schema in which different objects are stored in the same ten tables.Actuate 6, however, has a "heterogeneous" schema that stores objects in 44 different tables.The use of a "homogeneous" versus a "heterogeneous" design resulted in "a number of differences in the table structures for the two schemas" of MicroStrategy 7 and Actuate 6.

MicroStrategy and Actuate also both use "StrongPointers" and "SmartPointers"(collectively, pointers) to combat "memory leak," which is a commonly occurring problem in the operation of computer software programs.Memory leak occurs when a software program uses a portion of a computer's memory for a particular operation and fails to release that memory back to the computer once the operation is completed.A "pointer" is a feature that is written into a software program's source code and identifies specific pieces of a computer's memory.A "StrongPointer" is a pointer that is designed to release a portion of a computer's memory once that portion is no longer being used by the software program.A "SmartPointer" is a "more sophisticated" type of pointer that releases the computer's memory once the "last pointer to the memory has finished with the memory," similar to a system in which the "last one out turns off the lights."

In May 1996 and June 1997, respectively, MicroStrategy hired Li and Xue as software engineers and assigned them to work on the development of MicroStrategy 7.While they were employed at MicroStrategy, both Li and Xue executed MicroStrategy's Employment Agreement in which they pledged not to disclose or use any of MicroStrategy's confidential information for their own benefit or for the benefit of any party other than MicroStrategy.

Before joining MicroStrategy, Li earned undergraduate and master's degrees in computer science and acquired three years of software design experience working for various computer companies.Li's professional experience included the design of a complex database schema that required the use of hundreds of tables to store information relating to customer usage.

Prior to working at MicroStrategy, Xue also earned undergraduate and master's degrees in computer science, with an emphasis on database systems and design.Xue had served as a teaching assistant for a graduate course involving schema design.He also had worked as a research assistant on a project for the National Aeronautics and Space Administration ( NASA) that involved the creation of a complex "object oriented relational database and table and indexing schema design."

Both Li and Xue received several promotions during their employment with MicroStrategy.Li was promoted to the position of "lead engineer" for one of the teams working on the development of MicroStrategy 7, and he eventually became the head of that team.While in this leadership capacity, Li had access to all the design documents and the source code for the MicroStrategy 7 project.Xue also became the leader of one of the teams working on the MicroStrategy 7 project, and he wrote the source code implementing the design of the metadata schema for MicroStrategy 7.

Li left MicroStrategy in November 2000 and was employed by Actuate later that month; Xue left in February 2001 and began working at Actuate shortly thereafter.Actuate assigned Li and Xue to work on the development of Actuate 6.

Xue created some of the tables and indexes for the metadata schema in Actuate 6.Li served as the head of the "server team" for Actuate 6 and was responsible for allocating resources and projects to various server teams and for reviewing designs and specifications to ensure that the product satisfied management's requirements.Although Li was a "hands-off manager" at Actuate and was not involved in any "low-level decision-making,"he wrote some of the source code for the StrongPointers and SmartPointers in Actuate 6.

In June 2001, MicroStrategy filed a bill of complaint against Li, Xue, and Actuate (collectively, the defendants) alleging, among other things, that the defendants misappropriated MicroStrategy's trade secrets in violation of the Act.¹MicroStrategy alleged that Li and Xue disclosed MicroStrategy's confidential information to Actuate, and that the defendants used that information in the design and implementation of Actuate's products.MicroStrategy sought damages in "an amount not less than" $5,000,000, and asked the chancellor to "enjoin Actuate from developing, marketing, selling, licensing, or making any use of any product that in any respect or to any degree is based on, derived from, or incorporates any of MicroStrategy's [c]onfidential [i]nformation or trade secrets."

Code§ 59.1-336 defines "trade secret" as follows:

"Trade secret" means information, including but not limited to, a formula, pattern, compilation, program, device,

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