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Results for "Trade secret"
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NDA Sunset Provision Means Trade Secret Use May Not Be Misappropriation

by | Sep 16, 2021 |

The US Court of Appeals for the Ninth Circuit reversed a district court ruling in a trade secret misappropriation case based on a non-disclosure agreement (NDA) that resulted in an award of more than $60 million, ruling that any disclosures that occurred after the termination date of the NDA were not subject to misappropriation claims. BladeRoom Group Ltd. v. Emerson Electric Co., Case No. 19-16583 (9th Cir. Aug. 30, 2021) (Murphy, J.) (Rawlinson, J., concurring).

BladeRoom and Emerson compete for contracts to design and build data centers. In August 2011, the companies explored a potential sale of BladeRoom to Emerson. BladeRoom drafted an NDA governed by English law, and the parties signed it. Critically, the 12th paragraph of the NDA provided that “this agreement shall terminate on the date 2 years from the date hereof.” The potential acquisition ultimately fell through.

Not long after, Facebook began plans to build a data center in northern Sweden. BladeRoom pitched a design in July 2012, and Emerson pitched a design several months later. In October 2012, Facebook verbally approved Emerson’s design although it was only 10% complete. Almost a year later, Facebook contacted BladeRoom asking about updates to its proposal. In November 2013, Facebook selected Emerson’s proposal. Facebook and Emerson signed a design-build contract in March 2014, at which point BladeRoom learned about the design Emerson had pitched. BladeRoom sued Facebook and Emerson, alleging that Emerson had breached the NDA and misappropriated BladeRoom’s trade secrets.

The case was tried to a jury. During trial, BladeRoom settled with Facebook but not Emerson. Before closing arguments, Emerson proposed a jury instruction excluding information disclosed or used after August 2013 (i.e., after the NDA allegedly expired). The district court denied the instruction. BladeRoom then moved in limine to prohibit Emerson from arguing that the NDA permitted it to use BladeRoom’s information after August 2013. The district court granted the motion. The jury found Emerson liable and awarded $10 million in lost profits and $20 million in unjust enrichment damages but did not distinguish between the breach and misappropriation claims in making its award. The district court awarded $30 million in punitive damages and further awarded pre-judgment interest beginning on October 30, 2012, and $18 million in attorney’s and expert witness’ fees. Emerson appealed.

The Ninth Circuit first considered whether the NDA expired after two years. Applying English law, the Court held that it did based on a primarily textual analysis. However, the Court could not determine from the record the date on which the alleged breach/misappropriation had occurred. Accordingly, it vacated the judgment and remanded for a new trial.

The Ninth Circuit also discussed several issues in the appeal that would be relevant if Emerson was found liable on remand. The Court stated that the punitive damages award was not supported by the record where the jury did not distinguish between the breach and misappropriation claims because punitive damages are not available for breach of contract under California law. The Court also discussed prejudgment interest, observing [...]

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Patents and Trade Secrets Aren’t Mutually Exclusive: The Nuanced Nature of Trade Secret Protection

by | Aug 19, 2021 |

Addressing the nuanced nature of trade secret protection of patented products, the US Court of Appeals for the Seventh Circuit affirmed a district court’s trade secret protection determination, finding that the asserted trade secrets were not publicly disclosed and had been adequately protected. Life Spine, Inc. v. Aegis Spine, Inc., Case No. 21-1649 (7th Cir. Aug. 9, 2021) (St. Eve, J.)

The underlying conflict in this case has its roots in a short-lived business relationship between two companies specializing in selling spinal implant devices. Life Spine makes and sells a device called the ProLift Expandable Spacer System. Aegis Spine contracted with Life to distribute Life’s ProLift system to hospitals and surgeons for scheduled surgeries. Under the distribution agreement, Aegis was obligated to protect Life’s confidential information, act as a fiduciary for Life’s property and refrain from reverse engineering the ProLift system. Aegis did not abide by its contractual promises. It gave information about Life’s ProLift system to L&K Biomed, Aegis’s parent company and Life’s direct competitor. L&K used Life’s confidential information to develop a competing spinal implant device. Shortly after L&K’s device appeared on the market, Life sued Aegis for trade secret misappropriation and breach of the distribution agreement. The district court ruled in favor of Life, granting its motion for preliminary injunction against Aegis and its business partners, all of whom could no longer market the competing product. Aegis appealed.

Aegis argued that the injunction rested on the flawed legal conclusion that a company can have trade secret protection on a device that it publicly discloses through patents, displays and sales. The Seventh Circuit disagreed.

While the Court reaffirmed that there can be no trade secret protection in information available in the public domain, it found that such was not the nature of the information sought to be protected in this matter. Rather, the Seventh Circuit agreed with the district court that Life did not publicly disclose the specific information it sought to protect via patenting, displaying and selling its ProLift system.

The ProLift expandable spinal implant consists of the implant (or cage) component and an installer. The cage comprises an upper and lower endplate, a nose and base ramp and an expansion screw. The installer is used to insert the cage into a patient’s spine and expand the affected spinal disc height. Life considers “the precise dimension and measurements of the ProLift components and subcomponents and their interconnectivity” to be confidential trade secrets. The district court found that third parties are unable to access that precise dimensional information without first signing confidentiality agreements, and the information is not available in any of Life’s marketing materials (which include only dimensional approximations) or patents. Life’s ProLift system cannot be purchased by the general public or even handled at industry convention displays without Life’s close supervision. Instead, Life’s distributors sell ProLift directly to hospitals and surgeons for scheduled surgeries only.

The Seventh Circuit noted that “a limited disclosure” does not destroy all trade secret protection on a product, allowing a company [...]

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What Does it Take to Plead Trade Secret Misappropriation Under the DTSA?

by | Jun 24, 2021 |

Addressing the pleading standard under the Defend Trade Secrets Act (DTSA) and New Jersey Trade Secrets Act (NJTSA), the US Court of Appeals for the Third Circuit vacated the district court’s dismissal of a third amended complaint for trade secrets misappropriation and remanded for further proceedings. Oakwood Labs. LLC v. Thanoo, Case No. 19-3707 (3d Cir. May 8, 2021) (Jordan, J.)

Thanoo was a key player in Oakwood Laboratories’ Microsphere Project, a 20-year, $130 million project to develop injectable sustained-release drug products using a complex and rare microsphere technology. In 2013, Aurobindo approached Oakwood about a possible collaboration, specifically to involve Aurobindo’s manufacture of an active pharmaceutical ingredient for Oakwood. Subject to a nondisclosure agreement, Oakwood shared with Aurobindo confidential information, including a 27-page memorandum describing the Microsphere Project. Ultimately, Aurobindo declined to proceed, citing financial considerations. Aurobindo subsequently hired Thanoo. Although Thanoo told Oakwood that he was going to Aurobindo to work on standard injectable drugs and not microspheres, he immediately set up a research and development program concerning microspheres for Aurobindo. Aurobindo, which had no previous experience in microspheres, announced that it would have products ready for clinical testing in just one to four years, despite a relatively small investment of only $6 million. Oakwood sued Thanoo and Aurobindo for trade secret misappropriation under the DTSA and NJTSA, and for breach of contract and tortious interference.

On Thanoo’s motion, the district court dismissed Oakwood’s complaint, finding that it failed to provide specific allegations of what trade secrets were allegedly misappropriated and how Aurobindo allegedly used the trade secrets. Oakwood filed first, second and third amended complaints, each alleging with greater specificity the trade secrets associated with the Microsphere Project and expanding on the allegation that Aurobindo could not have proceeded so quickly from no experience to announcing near-complete development of microsphere products without using Oakwood’s trade secrets. Nonetheless, the district court dismissed each complaint as being insufficiently specific as to which particular trade secrets were allegedly misappropriated and the particular way in which Aurobindo allegedly used the trade secrets. The district court also held that, absent any product launch from Aurobindo, any harm from the alleged misappropriation was too speculative to support a claim. After dismissal of the third amended complaint, Oakwood appealed.

The Third Circuit reversed, concluding that Oakwood’s complaint sufficiently pled a claim for trade secret misappropriation under either the DTSA or the NJTSA. The Court explained that Oakwood had sufficiently identified its trade secrets by its allegation that information laying out its design, research and development (including identification of variables that affect the development), test methods and results, manufacturing processes, quality assurance, marketing strategies and regulatory compliance related to its development of a microsphere system were trade secrets. Oakwood had also identified a specific memorandum disclosed to Aurobindo under a confidentiality agreement as containing trade secrets, and attached other documents specifying in detail secrets related to the Microsphere Project.

The Court further found that Oakwood had sufficiently alleged misappropriation. Although there are several ways to [...]

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For Certain Not Secret Now: Court Declines to Seal Alleged Trade Secret in Amended Complaint

by | Mar 24, 2021 |

The US Court of Appeals for the Federal Circuit affirmed a decision declining to seal information in an amended complaint where the defendant failed to prove that the information was a trade secret. DePuy Synthes Products, Inc. v. Veterinary Orthopedic Implants, Inc., Case No. 20-1514 (Fed. Cir. Mar. 12, 2021) (Dyk, J.)

After DePuy sued Veterinary Orthopedic Implants (VOI) for patent infringement, the district court issued a protective order providing that “supplier . . . names and identifying information” would be treated as “Highly Confidential Material—Attorney Eyes Only.” DePuy later filed an amended complaint containing such information when it joined VOI’s manufacturer as a defendant. The amended complaint disclosed the manufacturer as such and alleged additional facts about the defendants’ relationship. VOI argued that the manufacturer’s identity and additional facts about the VOI-manufacturer relationship should be sealed as trade secrets. DePuy argued that the manufacturer’s identity was already public, but took no position regarding the additional facts. After the district court declined to seal the amended complaint, VOI appealed.

The Federal Circuit first considered whether it had jurisdiction under the collateral order doctrine and whether the district court abused its discretion in denying the motion to seal.

The Federal Circuit found that it had jurisdiction under the collateral order doctrine because:

  • The district court’s order conclusively determined the sealing issue.
  • The sealing issue was important although unrelated to the merits of the infringement claim.
  • Meaningful review after final judgment would be impossible because disclosed information can never be secret again.

On the merits, the Federal Circuit found no abuse of discretion, reasoning that there was no clear error in the district court’s finding that the manufacturer’s identity was not a trade secret where (1) the manufacturer openly advertised itself as an orthopedic manufacturer, (2) the manufacturer and VOI did not have a confidentiality agreement or a confidential relationship giving rise to an implied obligation of confidentiality, and (3) a third-party email suggested that VOI’s relationship with the manufacturer was “known within the relevant community.” The Court further found no abuse of discretion in the district court’s declining to seal the additional allegations despite DePuy’s non-opposition because the district court was required to independently weigh the parties’ interest in confidentiality against the public right of access.

Practice Note: Parties routinely seek sealing of information that may not qualify as formal trade secrets. The district court’s duty to independently evaluate sealing means that parties must be prepared to articulate the particularized harm they will suffer absent sealing or risk the public disclosure of the information, even where the parties agree to treat information confidentially.



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$6 Million Verdict Vacated in Flooring Tech Trade Secrets Row

by | Feb 11, 2021 |

The US Court of Appeals for the 11th Circuit reversed a judgment of trade secret misappropriation because the plaintiff had not proved that the defendant’s duty to maintain the secret arose at the time it acquired the secret. AcryliCon USA, LLC v. Silikal GmbH, Case No. 17-15737 (11th Cir. Jan. 26, 2021) (Tjoflat, J.)

AcryliCon USA, LLC (AC-USA), AcryliCon International, Ltd. (AC-I) (collectively, AcryliCon), and Silikal are in the industrial flooring business. Hegstad is a chemical engineer who founded AC-I. In 1987, Hegstad invented, with Silikal’s help, a formula for a special industrial flooring material called 1061 SW. The formula belonged to Hegstad, and Silikal possessed the formula as the manufacturer of 1061 SW resin for Hegstad and AC-I. In 1997, AC-I and Silikal contractually established AC-I as the exclusive distributor of 1061 SW resin. In 2008, AC-USA was incorporated and entered into license agreements to obtain the right to import, market and sell 1061 SW (among other products) in the United States.

Thereafter, a dispute arose between AC-I and Silikal. The dispute was resolved by a 2010 global settlement agreement (GSA), which ended the prior agency relationship but provided (inter alia) that Silikal would preserve the secrecy of the formula and not sell 1061 SW resin to anyone but AcryliCon. The GSA also contained a forum selection provision stating that disputes arising from activities in the United States would be governed by Georgia law and waiving objections to personal jurisdiction in the Northern District of Georgia.

AC-USA sued Silikal in 2014 in the Northern District of Georgia, claiming that Silikal breached the GSA by manufacturing 1061 SW resin, selling it globally and taking credit for 1061 SW in its marketing. AC-USA’s complaint included several other causes of action, including misappropriation of trade secrets. Silikal moved to dismiss for lack of personal jurisdiction, contending that it had not sold 1061 SW to anyone other than AcryliCon in the United States. The district court denied the motion on evidence that such sales had occurred. AC-USA moved for partial summary judgment on its contract claim and sought a permanent injunction barring Silikal from producing or selling 1061 SW. The district court granted the motion and injunction because “previous counsel for Silikal admitted” that there had been sales of 1061 SW in violation of the GSA and Silikal did not dispute that there had been a breach of contract. After trial, the jury found for AC-USA, awarding $1.5 million on the misappropriation claim and $1.5 million on the contract claim. The district court added $3 million in punitive damages. Silikal moved for judgment as a matter of law (JMOL), arguing that the district court lacked personal jurisdiction, that AcryliCon had failed to prove misappropriation, and that AcryliCon had failed to prove cognizable damages on its contract claim. The district court denied the motion, awarded AC-USA attorneys’ fees and entered judgment for AC-USC. Silikal appealed.

The 11th Circuit held that Silikal waived its challenge to personal jurisdiction by appealing only the pre-trial jurisdiction ruling [...]

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How Not to Build a Case of Trade Secret Misappropriation

by | Jan 14, 2021 | ,

The US Court of Appeals for the Ninth Circuit affirmed a dismissal of trade secret claims, finding that although misappropriation of a trade secret prior to the enactment of the Defend Trade Secrets Act (DTSA) does not preclude a claim arising from post-enactment or continued use of the same trade secret, the publication of a trade secret in a patent application extinguishes trade secret status. Eli Attia; Eli Attia Architect PC v. Google LLC, et al., Case No. 19-15771 (9th Cir. Dec. 16, 2020) (Wallace, J.)

Eli Attia is an architect who developed a system and method for automated design, fabrication and construction, called Engineered Architecture (EA). In 2010, Attia entered into a partnership with Google. Attia disclosed his trade secrets related to the technology to Google so that they could work together to develop a program that would implement EA. Attia executed patent assignments with Google, and a year later Google filed patent applications related to the EA trade secrets. The patents were published in 2012. Google then allegedly excluded Attia from the project and used EA to create Flux, a platform used by architects, engineers and construction workers, focused on making buildings more efficient and using artificial intelligence to streamline the design process.

In 2014, Attia sued Google under state law for trade secret misappropriation and breach of contract. In 2016, Congress enacted the DTSA. Since its inception, DTSA has been an enumerated predicate for the civil Racketeer Influenced and Corrupt Organizations Act (RICO), which means that plaintiffs can bring lawsuits claiming a conspiracy when theft of trade secrets is an underlying claim. Attia amended his complaint to add RICO claims based on Google’s alleged trade secret misappropriation. Google removed the action to federal court and moved to dismiss. Attia filed another amended complaint, this time asserting a new DTSA claim and two RICO claims.

The district court dismissed Attia’s federal claims with prejudice and declined to exercise supplemental jurisdiction over the state law claims. The district court found that the alleged trade secrets were already disclosed in Google’s 2012 published patent applications, and those publications extinguished the relevant trade secrets. The court held that Attia lacked standing to assert DTSA or RICO claims, and neither estoppel nor continued use could convert the 2012 publications into a DTSA violation. Attia appealed.

On appeal, the Ninth Circuit noted that the issue was one of first impression before the Court, and set out to determine whether, as a matter of law, the pre-enactment disclosure of a trade secret forecloses the possibility of a DTSA claim arising from the continued use of the trade secret after enactment. The Uniform Trade Secrets Act (UTSA), the established model statute for trade secret misappropriation that has been adopted by the majority of the states, contains an anti-continued use provision, the Court noted. The UTSA states that “ a continuing misappropriation that began prior to the effective date,”… “does not apply to the continuing misappropriation that occurs after the effective date.” The DTSA does not [...]

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Defend Trade Secrets Act Supports Sealing Information on Appeal

by | Jan 7, 2021 | ,

Addressing whether purported trade secret information ought to remain under seal on appeal, the US Court of Appeals for the Sixth Circuit ruled in a one-judge order that the Defend Trade Secrets Act (DTSA) provided a statutory basis that overcame the presumption of public access. Magnesium Machine, LLC v. Terves, LLC, Case No. 20-3779 (6th Cir. Dec. 10, 2020) (McKeague, J.)

This case presented the issue of what part of a record may be sealed on appeal—normally a routine question—in litigation that was anything but routine. According to the verified complaint, Magnesium Machine discovered a particular salt-based treatment for use on oil and gas tools. According to Magnesium, in the course of litigating a patent infringement suit against one of Magnesium’s suppliers, Terves and its counsel, McDonald Hopkins, obtained information reflective of Magnesium’s alleged trade secret from a third party pursuant to subpoena. Specifically, Magnesium claimed that particular language in a settlement agreement disclosed Magnesium’s trade secrets. The settlement agreement had been produced by the third party without any confidentiality designation. The complaint alleged violations of the federal DTSA and Oklahoma and Ohio state trade secrets acts.

Invoking the seizure provisions of the DTSA, Magnesium sought and obtained an ex parte order directing the US Marshals to seize Terves’s electronic equipment, including devices at Terves’ president’s home. That order did not last long. Following an evidentiary hearing (in which Terves participated) the day after the order was issued, the district court vacated the seizure order because Magnesium had not demonstrated misappropriation of a trade secret.

To appeal, Magnesium requested express findings of fact and conclusions of law. The district court explained that Terves and its lawyers subpoenaed materials in good faith, that the settlement agreement was produced without restriction (such as a confidentiality marking), that Terves’s lawyers did not impermissibly share the settlement agreement with Terves employees and that upon objection by Magnesium, Terves deleted its copies of the settlement agreement. Thereafter, on motions to dismiss, the district court concluded that Magnesium failed to allege misappropriation and that the litigation privilege protected Terves’ counsel.

Terves sought and obtained attorneys’ fees against Magnesium and its counsel for proceeding in bad faith. The district court found that Magnesium had every reason to know that its claims were baseless, because it was “well aware at the time the suit was filed that Defendants had received the allegedly secret information through legitimate discovery means and that it was provided to them without description.” Moreover, claiming that a three-word phrase in the settlement agreement purportedly disclosed trade secret information was “an intentional exaggeration/misrepresentation.” Indeed, other public statements had provided far more detail than the purportedly secret phrase, according to the district court.

On appeal, although Terves contended that the purported trade secret did not qualify as a secret, in the exercise of caution and on Magnesium’s request, Terves nonetheless sought to file a brief under seal. Judge David McKeague, acting on behalf of the Sixth Circuit, agreed that it was appropriate to seal the information, [...]

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A Clear Need: To Allege Misappropriation, Identify Trade Secret

by | Oct 29, 2020 |

The US Court of Appeals for the Ninth Circuit reversed a district court’s grant of summary judgment, finding that the plaintiff had sufficiently pled trade secret misappropriation by identifying its trade secrets and how they were protected with sufficient particularity. InteliClear, LLC v. ETC Global Holdings, Inc., Case No. 19-55862 (9th Cir. Oct. 15, 2020) (Gould, J.).

In 2004, InteliClear began development on a comprehensive electronic system for managing stock brokerage firm accounting, securities clearance and securities settlement services using a Structured Query Language relational database designed to handle millions of trades each business day. It named the program the “InteliClear System.”

In 2008, ETC’s predecessor signed a software license agreement with InteliClear and obtained a license for the InteliClear System. The license agreement acknowledged that all information InteliClear provided was confidential, proprietary and copyrighted, and ETC agreed to maintain that information in confidence “during and after” the terms of the agreement.

In 2017, InteliClear sent ETC a notice terminating the license agreement. ETC committed to remove the InteliClear database from its systems by February 26, 2018. On March 5, 2018, ETC certified that the InteliClear System had been removed from all ETC servers and that all copies had been destroyed. But, before the license agreement ended, ETC had already begun building its own securities clearance software. Around the same time that InteliClear terminated the license agreement, ETC launched its own electronic trading system. InteliClear immediately contacted ETC about its suspicion that ETC had improperly used the InteliClear System to build its own system, and, after months of negotiations, ETC agreed to allow a computer forensics company to compare the two systems and investigate. The forensics company found an abundance of evidence that the elements of each system were identical.

InteliClear sued ETC for trade secret misappropriation under federal and state law and for unfair competition. The district court dismissed the claim for unfair competition, reasoning that it was preempted by the California Uniform Trade Secrets Act. One day into discovery, and before any discovery had been requested or provided, ETC moved for summary judgment, asserting that InteliClear failed to identify its trade secrets with sufficient particularity and that InteliClear did not show that the InteliClear System was a trade secret or that ETC had access to InteliClear’s source code. The district court granted ETC’s motion and denied InteliClear’s motion to defer ruling until after completion of discovery under Rule 56(d). InteliClear appealed.

The Ninth Circuit analyzed the federal and state trade secret misappropriation claims together because the elements were substantially similar. The Court noted that to succeed on a claim for misappropriation, a plaintiff must prove (1) that the plaintiff possessed trade secrets, (2) that the defendant misappropriated the trade secrets, and (3) that the misappropriation caused or threatened damage to the plaintiff. To prove the first element, “a plaintiff must identify the trade secrets and carry the burden of showing they exist.” The Court pointed out that it is important to identify trade secrets with sufficient particularity because [...]

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Use of Infringing Product, Misappropriated Trade Secrets May Continue—for a Licensing Fee

by | Sep 3, 2020 |

The US Court of Appeals for the Sixth Circuit affirmed a district court’s stay of a permanent injunction against copyright infringement and trade secret misappropriation, permitting the infringer to continue use of an infringing product and misappropriated trade secrets but requiring the infringer to pay a licensing fee. ECIMOS, LLC v. Carrier Corp., Case Nos. 19-5436, -5519 (6th Cir. Aug. 21, 2020) (Boggs, J.).

Carrier sold HVAC systems. ECIMOS designed and sold a quality-control-testing system that assessed each HVAC unit at the end of Carrier’s assembly line. ECIMOS’s system consisted of a software program, associated hardware and a database that stored results of runtests performed by the system. Carrier paid ECIMOS to maintain and periodically upgrade its software system. ECIMOS licensed Carrier to use the system but prohibited unauthorized copying, distributing or creating derivative works based in whole or in part on the software.

Years into the relationship, ECIMOS upgraded its software to run on a new operating system. ECIMOS expected Carrier to agree to the proposed upgrade just as it had done previously. Unbeknownst to ECIMOS and without its consent, Carrier had already installed ECIMOS’s software directly onto the new operating system. Carrier started a venture with a third party, Amtec, to develop a new quality-control software and storage database to replace the ECIMOS system.

ECIMOS sued Carrier for violating the copyright on the ECIMOS system’s database, breaching the parties’ software-licensing agreement and misappropriating ECIMOS’s trade secrets. At trial, ECIMOS alleged that Carrier improperly shared ECIMOS’s copyrights and trade secrets with Amtec, allowing Amtec to develop a competing system. The jury agreed, finding that the competing system incorporated ECIMOS’s trade secrets. The jury determined that Carrier infringed the copyright on ECIMOS’s runtest database script source code, that ECIMOS held a trade secret in its software source code and its assembled hardware drawings and wiring diagrams, and that Carrier misappropriated those trade secrets by sharing them with Amtec. The jury awarded ECIMOS copyright and contract damages.

The district court also imposed a permanent injunction against Carrier’s use of the infringing Amtec database, but stayed the injunction until Carrier developed a noninfringing database. The court also enjoined Carrier from further disclosure of ECIMOS’s trade secrets, but did not enjoin Carrier from using those trade secrets. To the contrary, the district court appointed a special master to supervise the redesign and permitted Carrier to continue using the infringing database that incorporated ECIMOS’s trade secrets until the redesigned system was complete. The district court further required Carrier to pay ECIMOS the licensing fees that ECIMOS would have charged in the course of an ongoing, mutually agreeable licensing relationship. ECIMOS objected to the stay and appealed.

ECIMOS argued that the stay was an abuse of discretion, that the injunction should have prohibited Carrier from using (not just disclosing) ECIMOS’s trade secrets, and that the injunction should have prohibited Carrier’s disclosure and use of ECIMOS’s assembled hardware, not just the hardware drawings and wiring diagrams. The Sixth Circuit disagreed, affirming in full the district court’s [...]

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Attorney’s Fees Properly Awarded in Unsuccessful Trade Secret Misappropriation and Civil Theft Suit

by | Aug 26, 2020 |

The US Court of Appeals for the Fifth Circuit affirmed a take-nothing judgment and an attorney’s fees award against plaintiffs in a trade secret misappropriation and civil theft suit under Texas law, finding that the fee award did not need to be segregated to various claims. ATOM Instrument Corp. v. Petroleum Analyzer Co., L.P., Case Nos. 19-29151, -20371 (5th Cir. Aug. 7, 2020) (Southwick, J.). The Court also remanded for an additional award of appellate attorney’s fees.

Olstowski was a consultant for Petroleum Analyzer Co., L.P. (PAC), during which time he developed a krypton-chloride-based excimer lamp to detect sulfur with ultraviolet fluorescence. Although he developed the lamp independently, he used PAC resources to test the technology.  Olstowski and PAC negotiated but failed to agree on licensing. Olstowski founded ATOM Instrument to assist him in the licensing discussions. Subsequently, PAC filed a declaratory judgment action in Texas court alleging that it owned the lamp technology. The state court ordered the claim to arbitration. The arbitration panel declared Olstowski the owner of the technology and enjoined PAC from using it. The state court confirmed the arbitral award, and a Texas appellate court upheld the confirmation order.

PAC thereafter developed a new sulfur-detecting excimer lamp called MultiTek that also used krypton-chloride with UV fluorescence. Olstowski and ATOM filed in state court for contempt of the injunction, but the state court denied the contempt motion as moot because PAC had ceased selling MultiTek.

ATOM filed for bankruptcy the following year. Olstowski and ATOM initiated a district court proceeding against PAC alleging misappropriation of trade secrets, unfair competition and civil theft. After holding a bench trial, the court found that MultiTek did not practice Olstowski’s technology and therefore entered a take-nothing judgment in favor of PAC. The district court also awarded attorney’s fees to PAC under a provision of the Texas Theft Liability Act (TTLA) that awards fees to prevailing parties. Olstowski and ATOM appealed both issues, and PAC sought an award of its appellate attorney’s fees.

As to liability, ATOM argued that the district court erred in finding that the MultiTek lamp did not practice Olstowski’s technology. ATOM characterized the error as a legal one regarding interpretation of the arbitral award, but the Fifth Circuit held that “whether one company used another’s protected technology” is a factual question for which Olstowski and ATOM had failed to carry the burden of proof at trial. ATOM further argued that the district court had ignored the alleged law of the case in deviating from the scope of technology defined in the arbitral award, but the Court again rejected ATOM’s argument because the district court had explicitly stated that the description of Olstowski’s technology in the arbitral award remained in effect.

As to the award of attorney’s fees, ATOM argued that the district court had not appropriately segregated fees related to the TTLA claim from those related to other claims. Applying Texas law, the Fifth Circuit affirmed that the TTLA claim was sufficiently related to the other claims [...]

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