Recent Decisions and Case Developments

On April 30, 2015, Kolon Industries Inc. ("Kolon"), a South Korean company, agreed to pay $360 million to E.I. du Pont de Nemours and Co. ("DuPont") after a lengthy trade secrets dispute over Kevlar technology.

On September 21, 2009, DuPont sued Kolon in the U.S. District Court for the Eastern District of Virginia. Subsequently, Judge Robert Payne issued a spoilation-of-evidence order, adverse-inference jury instruction and attorneys fees for DuPont in response to Kolon's intentional destruction of evidence. In 2011, the jury awarded $919 to DuPont. In 2014, the Fourth Circuit overturned the jury verdict on the ground that Kolon was wrongly prevented from presenting trial evidence and assigned the case to a new judge.

Meanwhile, two former DuPont employees plead guilty to the involvement with the trade secret misappropriation in 2009 and 2014, and five former Kolon executives and employees where charged in 2012. Kolon finally started settlement talks with DuPont in light of the parallel jury trials in both civil and criminal courts.

Kolon pled guilty to conspiracy for stealing the Kevlar trade secrets. In turn, the company was sentenced to pay $85 million in criminal fines and $275 million in restitution damages in Eastern District of Virginia court. This was a land mark case for the U.S. Department of Justice as the first instance where a foreign corporation without direct presence in the United States was directly served with a U.S. criminal process based on an international treaty.

In this case during a twelve day trial, the jury found that Plaintiff, Professional Investigating & Consulting Agency, Inc.’s (“PICA”) Channel Management Program, was a trade secret and that Defendant, Hewlett-Packard Company (“HP”) wilfully and maliciously misappropriated the Channel Management Proposal. On the Channel Management Proposal misappropriation claim, the jury awarded PICA $300,000 in damages for out of pocket expenses and lost profits as well $700,000 for HP’s unjust enrichment.

On March 23, 2015, the New Castle County Delaware Superior Court decided on the parties’ post-trial motions. The court granted in part and denied in part PICA’s motions for exemplary damages and attorneys’ fees, attorneys’ fees and expenses, and costs and interest. The court also denied HP’s motion for a new trial or remittitur and renewed motion for judgment as a matter of law. Regarding the trade secret misappropriation verdict, HP argued that PICA did not present evidence that it derived any economic value from the Channel Management Program not being generally well-known because “every aspect of PICA’s proposal was generally known”, and that PICA attempted to keep the program confidential. The court, however, applied Delaware’s Uniform Trade Secret Act (“DUSTA”) and found that PICA provided extensive evidence at trial that though some of the components of PICA’s program was a trade secret, the program as a whole was a trade secret and that the jury’s damage award was not duplicative.

The court also applied the DUSTA when it granted in part and denied in part PICA’s motion for exemplary damages and attorneys’ fees. Although PICA moved for the court to grant two million dollars in exemplary damages (the maximum amount allowed under the DUSTA), the court followed the guidance of Agilent Technologies, Inc. v. Kirkland and denied exemplary damages. Agilent took the approach of making the plaintiff “whole and to deprive [the defendant] of unjust rewards.” The court here analogized this case to Agilent, where further punishment through exemplary damages were unnecessary because the court had already granted a “stringent remedy that [would] sufficiently vindicate the interests of [the plaintiff] and those more generally protected by the Delaware Uniform Trade Secrets Act.” In the current case, the court held that “the jury’s $1 million award reasonably compensates PICA for misappropriation of its trade secrets… [and] in light of the total jury verdict, the Court decline[d] to impose an additional amount for exemplary damages for punitive purposes.”
This case is significant because the court demonstrates that though the DUTSA permits a court to award exemplary damages in cases where wilful and malicious misappropriation exists, the bar for granting exemplary damages will be set high in cases where the total jury verdict already reasonably compensates the plaintiff for the misappropriation. Though the bar is set high for exemplary damages, this wasn’t much of a total loss for the plaintiff because the court granted the plaintiff’s requested 75% of attorneys’ fees for the entire litigation of the Channel Management Program misappropriation claim as well as 75% of attorneys’ fees and expenses incurred by PICA since July 29, 2013 due to HP’s bad faith throughout the discovery process. Although PICA was not able to obtain exemplary damages, the court did grant PICA to recover for most of the costs incurred with the claims which it prevailed on.

On March 13, 2015, the Texas Supreme Court denied review of Lamont et al v. Vaquillas Energy Lopeno, Ltd. et al, thereby upholding a $4.9 million jury award for Vaquillas in its trade secret misappropriation suit. At the center of the dispute is the seismic map of oil and gas prospects that Ricochet Energy, Inc. generated pursuant to an agreement with Vaquillas in 2003 and 2004. The seismic map, or “treasure map” as both parties had referred to it, had identified a lucrative prospect – a gas reservoir containing natural gas estimated as much as $60 million.

The instant controversy began when Thomas Lamont, a co-owner of Ricochet, separated from Ricochet in 2006, and then formed a new entity, Montecristo II, with another oil and gas investor, Rosendo Carranco in 2007. Because Lamont had continued to own a working interest in the gas prospect, after Lamont’s separation, Ricochet shared the treasure map with Lamont as a potential investor, without signing any confidentiality agreements. Montecristo II then outbid Ricochet to lease property adjacent to the gas reservoir, and depleted it, foreclosing any opportunity for Ricochet to withdraw any gas.

On appeal from the jury’s verdict in favor of Vaquillas, Lamont argued that the trade secret’s status was destroyed when Ricochet shared the treasure map with Lamont after his effective resignation date. However, the court noted that the disclosure to Lamont was in his role as a potential investor, and as such, the limited disclosure did not destroy its trade secret status. The disclosure was never meant to enable a potential investor to compete directly against Ricochet, but instead, to work with them in an investment opportunity. Further, the court noted that Ricochet took proper means to protect its trade secret, by keeping it a secret from its employees, competitors, and the public. Next, the appellate court concluded there was sufficient evidence to support a finding that Lamont and Carranco’s actions fell below the generally accepted standards of commercial morality, because they used improper means to locate the gas reservoir when they misused the map. Notably, Lamont and Carranco had never conducted any independent research, indicating their reliance on the map, which they used to enrich themselves off of Ricochet’s work and investment.

While Texas adopted a version of the Uniform Trade Secrets Act, it only took effect on September 1, 2013, and does not apply to prior misappropriation. As such, in the instant case, the appellate court relied heavily on the 3rd Restatement of Unfair Competition, which notably, is aligned with the Act. Therefore, this case is still persuasive in situations where a company must rely on common law to protect its trade secrets if it is in a state where the UTSA, or any version of the model Act, has not been adopted. Further, and more significantly, this case demonstrates that companies which did not employ confidentially or non-disclosure agreements, may still be protected in the scenario a potential business investor misuses their secrets. While certainly helpful in situations where negotiations could be stalled for such agreements, it is always better to employ these agreements, if for no other reason than it may define the scope of litigation.

On January 28, 2015, the Delaware Court of Chancery released an opinion finding that a choice of law clause in a noncompete contract, designating Delaware as the venue and choice of law for dispute resolution, did not govern the dispute because the state of California had a materially greater interest in the issue. The parties here engaged in an employee investment agreement (“EIA”) in July of 2008, in which Defendant Underwood agreed not to compete with Ascension or its parent for two years after leaving his position at Ascension. Plaintiff Ascension sought to enforce the non-compete clause in the EIA and the Court of Chancery was presented with the question of whether California’s employee friendly statute or Delaware’s contract-friendly policies should govern the validity of the non-compete clause.

In the EIA both parties agreed to Delaware venue as well as Delaware choice of law. However, the court found that California was the state with the strongest contacts to the contract because the EIA was entered between a California resident and a Delaware limited liability company that now has its principal place of business in California, the non-compete clause was negotiated in California, and but for the choice-of-law provision, California law would apply to the EIA. Additionally, California’s interest in its employee-friendly public policy is greater than Delaware’s interest in the sanctity of a contract.

This decision is significant because the Chancery Court, which is historically corporate-friendly, took a strong stance against allowing corporations to contract around unfavorable state laws. The court emphasized that California’s public policy against non-compete clauses is so fundamental that it would prevail over a contracted to term which goes against this policy. This decision empowers employees and ensures that they will be able to rely on his or her state’s employee protection policies as long as he or she is engaging in the employment relationship in his or her state. Even if an employee agrees to a choice-of-law clause, applicable state policies will still be able to protect him or her. In the future, this decision should cause corporations to investigate the state policies on non-compete clauses in the states in which it engages in employee relationships.