IP Law Daily Company that obtained new trade secrets damages trial could not reinstate first jury’s award
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Friday, March 31, 2017

Company that obtained new trade secrets damages trial could not reinstate first jury’s award

After obtaining a new trial on damages in a trade secrets misappropriation case against a competitor, oil and gas company Gaedeke was not entitled to disregard the second jury’s award and reinstate the first jury’s damages verdict, the U.S. Court of Appeals in Denver has held. The district court did not err in rejecting Gaedeke’s motion to reinstate the court’s judgment from the first trial. The court also did not err in rejecting the defendants’ argument that Gaedeke lacked standing to assert a trade secret misappropriation claim. Oklahoma’s Uniform Trade Secrets Act does not make ownership a prerequisite to fling a misappropriation claim (Gaedeke Holdings VII Ltd. v. Baker, March 30, 2017, Phillips, G.).

Gaedeke Holdings VII, LTD and Gaedeke Oil & Gas Operating, LLC (collectively, "Gaedeke") sued Landon Speed, Todd Baker, and Baker Petroleum and Investments, Inc. (collectively, "defendants"), alleging that they had used Gaedeke’s confidential geological study to profit on oil-and-gas leases. At trial, Gaedeke asserted six claims: (1) violation of the Oklahoma Uniform Trade Secrets Act (OUTSA); (2) violation of Section 43(a) Lanham Act; (3) misappropriation and conversion; (4) civil conspiracy; (5) tortious interference; and (6) unjust enrichment, constructive trust, and accounting. The jury found in Gaedeke’s favor except on its claim for tortious interference with contract. On a special-verdict form, the jury awarded Gaedeke $3,400,000 for unjust enrichment, $1,000,000 for misappropriation of trade secrets, $1,000,000 for conversion, $1,500,000 for civil conspiracy, and $1,000,000 under the Lanham Act.

After the first trial, the district court granted in part the defendants’ renewed motion for judgment as a matter of law (JMOL) under Federal Rule of Civil Procedure 50(b). The court rejected the defendants’ argument that Gaedeke lacked standing to assert its OUTSA claim because Gaedeke had transferred the trade secret to a related company, AMI Partnership. The court, however, agreed that Gaedeke’s common-law claims were preempted by the OUTSA because they were based entirely on factual allegations relating to misappropriation of trade secrets. The court also found that Gaedeke could not pursue its equitable unjust enrichment claim because Gaedeke had an adequate remedy at law. The district court entered a judgment awarding $1,000,000 to Gaedeke on its OUTSA claim.

After entry of judgment, Gaedeke filed a motion under Rule 59 to alter or amend the judgment to reinstate the jury’s award of $3,400,000 on Gaedeke’s unjust enrichment claim, or alternatively, for a new trial on damages. The district court granted Gaedeke a new trial on damages because it agreed that Gaedeke was prejudiced by the court’s decision to strike Gaedeke’s expert witnesses without allowing Gaedeke to respond.

Following the second trial on damages, which included Gaedeke’s expert’s testimony, the jury awarded Gaedeke $40,000. The district court entered a judgment for Gaedeke in that amount and Gaedeke appealed. The defendants cross-appealed the district court’s denial of their JMOL on the issue of trade secret ownership.

Unjust enrichment award. On appeal, Gaedeke argued that the district court erred by reducing the first jury’s damages award from $3.4 million to $1 million, instead of entering judgment that included the jury’s awards for both actual and unjust enrichment damages because the OUTSA allows recovery of both types of damages. The defendants argued that when Gaedeke obtained a new trial, the new trial necessarily vacated the district court’s earlier judgment on damages.

The appeals court agreed with the defendants. By seeking a new trial under Rule 59(a) after the district court declined to alter or amend its judgment under Rule 59(e), Gaedeke chose to abandon the first jury’s damages verdict, the court explained. Once the district court granted Gaedeke’s motion for a new trial, the jury’s verdict and the corresponding judgment were vacated. Thus, Gaedeke could not reinstate the district court’s judgment from the first trial.

Trade secret ownership. The defendants argued that the district court should have dismissed Gaedeke’s claim for misappropriation of trade secrets because Gaedeke presented no evidence that it owned the trade secret at the time of the alleged misappropriation. Gaedeke admitted that it had transferred the trade secret to AMI Partnership, but contended that it retained that right to use the trade secret after the transfer.

The appeals court sided with Gaedeke. Nothing in Oklahoma’s UTSA defines ownership of the trade secret as an element of a claim for misappropriation of trade secrets, the court observed. In addition, no court reviewing Oklahoma law has included ownership as an element of a claim for misappropriation of trade secrets. Oklahoma adopted the Uniform Trade Secrets Act originally drafted by the National Conference of Commissioners. The court noted that the Uniform Act’s commentary suggested that its drafters did not intend to limit trade secret claims to owners. For example, the comment to Section 2 states that "[w]here more than one person is entitled to trade secret protection with respect to the same information, only that one from whom misappropriation occurred is entitled to a remedy." Uniform Trade Secrets Act § 2 cmt. (2005). This comment suggested that multiple parties could be entitled to trade-secret protection, the court said.

The defendants provided authority from other states suggesting that ownership is a required element of a claim for misappropriation of trade secret, but those cases were distinguishable because they dealt with statutes that included specific language referring to "owner" in their definition of a trade secret.

The court declined to add ownership as a new element to a claim for trade secret misappropriation under Oklahoma law.

The case is Nos. 16-6004 and 16-6017.

Attorneys: LeAnne Burnett (Crowe & Dunlevy) and Peter Michael Jung (Strasburger & Price, LLP) for Gaedeke Holdings VII Ltd. and Gaedeke Oil & Gas Operating, LLC. James M. Chaney (Kirk & Chaney) for Baker Petroleum and Investments, Inc.

Companies: Gaedeke Holdings VII Ltd.; Gaedeke Oil & Gas Operating, LLC; Baker Petroleum and Investments, Inc.

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