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Software rivals fence before appeals court

An appeals court in Washington weighs whether a jury should have decided a trade secret matter in a long-running legal dispute.

WASHINGTON--A federal appeals court pondered Thursday whether a jury should have been allowed to consider an ongoing spat between two business software rivals.

The dispute between Business Objects and MicroStrategy, companies that sell relational database programs, has raged for the past several years and has largely centered on accusations of patent infringement. But the oral arguments Thursday morning, which lasted about 35 minutes, followed a ruling issued by the U.S. District Court in eastern Virginia last August.

In that case, Virginia-based MicroStrategy alleged that Business Objects, a French corporation, had meddled in MicroStrategy's business relationships and that employees hired away by Business Objects shared MicroStrategy's trade secrets.

The trial court decided there wasn't enough evidence to present to the jury. The Norfolk, Va., judge wrote that employees of Business Objects had misappropriated trade secrets in just two of 18 specific instances describing "when information was acquired," and enjoined Business Objects from using those two documents.

Carter Phillips, the attorney for MicroStrategy, argued Thursday that the trial court should have allowed testimony from an expert witness and that the case should have proceeded to a jury.

"This is a situation where a wrongdoer has walked away without paying a nickel," Phillips said. "We were entitled to a verdict."

The report from the expert witness would have provided compelling evidence that MicroStrategy did lose customers as a result of the trade-secret leaks, Phillips said.

When the dot-com bubble burst, the value of MicroStrategy's stock plummeted from a high of $313 per share to as low as 49 cents per share, according to the district court opinion. The company laid off 10 percent of its work force in 2000 and one-third of its remaining employees a year later. Business Objects hired 17 workers from the firings.

Arguing for Business Objects, attorney Daniel Furniss said the court didn't admit MicroStrategy's expert testimony because its methodology was "flawed." He said the company neglected to put forward a causal relationship between its business losses and the illegal acts committed by Business Objects and offered only "temporal" claims.

Judge Randall Rader pressed Phillips on his request for a jury trial, asking the attorney to show him where in the court's record MicroStrategy put a value on the losses it attributed to the trade secret misappropriations. "Did you say, we have a memo that shows this customer changed because it followed the employee who was improperly influenced, and the value is X?" Rader asked.

Rader also suggested that MicroStrategy was already on a "downward spiral" and asked Phillips whether the company would have lost the customers anyway.

"That's the jury question," Phillips replied.

But not until the company can "show a more particular form of causation," Rader said.

Judge Pauline Newman suggested that the court should have allowed "competing experts to appear at trial and be subject to cross-examination. "Perhaps (MicroStrategy was) deprived of a legitimate complaint," she said.

Business Objects recently had patent infringement claims against MicroStrategy dismissed by the U.S. District Court of Northern California. A separate patent infringement case is still pending in a federal court in Delaware. According to a MicroStrategy press release, the trial is expected to begin next May.