IP Law Daily Court upholds $74.6 million trade secrets verdict against Caterpillar
Wednesday, April 5, 2017

Court upholds $74.6 million trade secrets verdict against Caterpillar

The federal district court in Chicago has declined to overturn Miller UK Ltd.’s $74.6 million jury verdict against Caterpillar Inc. for trade secret misappropriation. The court denied Caterpillar’s post-trial motions for a judgment as a matter of law in its favor, a new trial, and review of the damages awarded to Miller. The court also upheld Caterpillar’s $1 million verdict against Miller for defamation (Miller UK Ltd. et al. v. Caterpillar Inc., March 31,2017, Wood, A.).

Miller sued Caterpillar for misappropriating trade secrets related to heavy equipment—Miller’s "the Bug," a coupler allowing earthmovers and excavators to attach shovels, buckets, and other attachments to their mechanical arms quickly and without the vehicle operator having to leave its cab. Miller’s predecessor had entered into a "Supply Agreement" with Caterpillar in 1999 to manufacture a product based upon the Bug that Caterpillar would sell under its own name. Caterpillar subsequently made its own coupler, the "Center-Lock," and terminated the agreement. Miller alleged that Caterpillar breached the Supply Agreement’s confidentiality provisions and misappropriated Miller’s trade secrets by using proprietary information about the Bug to make the "Center-Lock."

Caterpillar denied liability and filed counterclaims against Miller for statutory commercial disparagement, defamation, and Lanham Act and state statutory violations. The counterclaims arose out of a package that Miller sent to Caterpillar dealers about the performance and safety of the Center-Lock coupler, that Caterpillar contended contains false, misleading, and defamatory statements.

After a 23-day trial, the jury awarded Miller $24.9 million in compensatory damages and $49.7 million in exemplary damages on the Illinois Trade Secrets Act ("ITSA") claim and $16 million on the breach of contract claim. The court entered judgment only on the ITSA award, since both claims alleged the same conduct and the ITSA award was larger. The jury also awarded Caterpillar $1 million on its defamation counterclaim.

In its post-trial motions, Caterpillar sought a judgment in its favor, contending that Miller’s evidence was insufficient for the jury to find that (1) the Miller information at issue was confidential; (2) Caterpillar knowingly used Miller’s information to design its Center-Lock coupler; and (3) Miller suffered compensable harm.

Confidentiality. The court first held that Caterpillar failed to demonstrate that Miller’s information, contained in 3-D coupler models shared with Caterpillar under the Supply Agreement, was not confidential, or that the jury lacked sufficient evidence to find that the information was confidential.

Caterpillar argued that the models were not designated as confidential by Miller, nor accompanied by any warning restricting their use. The court found, however, that there was sufficient evidence to support Miller’s contention that confidentiality was established in an oral agreement between the companies. The court also rejected Caterpillar’s argument that by disclosing the information to potential licensees in attempts to negotiate "permitted uses," Miller destroyed its confidentiality.

Caterpillar also argued that certain information from the Miller coupler models was already made public, either because it originated with Caterpillar, was disclosed in Miller patents, or could be ascertained by examination of the product itself. Even if individual elements of a product are in the public domain, "the combination of those elements still can be a trade secret under Illinois law," the court held in rejecting this argument.

Caterpillar also argued that Miller did not take reasonable steps to keep the information confidential. But the court cited evidence of security measures that Miller took, as well as the oral agreement with Caterpillar, as constituting reasonable steps.

Use of the Miller Models. Even if the information was confidential, Caterpillar contended that there was insufficient evidence to support the jury’s finding that Caterpillar knew or had reason to know of any restriction on its use or that the Center-Lock coupler was substantially derived from the Miller models. The court disagreed, citing the Supply Agreement’s limitation on the use of "Proprietary Information" to purposes of the agreement—the development of a joint product by Caterpillar and Miller. Based on that agreement, "a jury finding that the Miller models were confidential would reasonably permit a finding that Caterpillar knew or should have known that use of the models to make its own coupler was prohibited," the court held. There was also sufficient evidence that find that Caterpillar’s use of the Miller models was culpable, the court found, citing, among other things, testimony from a Caterpillar engineer that he used Miller’s models in his design work on the Center-Lock.

Compensable harm. Caterpillar argued that Miller suffered no compensable harm, because the ITSA only applies in cases where the conduct at issue occurred substantially in Illinois. Miller’s offices are in Kansas and Caterpillar argued that much of the relationship was centered there. The court disagreed. First, it cited the ITSA ‘s "Legislative intent" provision, which states that "a contractual or other duty to maintain secrecy or limit use of a trade secret shall not be deemed to be void or unenforceable solely for lack of durational or geographical limitation on the duty." 765 ILCS 1065/8(b)(1). The court also noted that the parties’ agreement included an Illinois choice-of-law provision.

Exemplary Damages. Because the evidence at trial was enough to permit the jury to find that Caterpillar employees knew the Miller models were confidential and knowingly used them to design the Center-Lock, in the face of contractual obligations not to do so, the court upheld the jury’s exemplary damages award under the ITSA.

New trial motion. The court also denied Caterpillar’s motion for a new trial, rejecting every one of Caterpillar’s arguments about the correctness of the court’s evidentiary rulings and jury instructions.

Remittitur. Caterpillar sought remittitur of the damages award, claiming that it resulted from the jury’s passion and prejudice, rather than the evidence, and noting that the jury had awarded the maximum amount available under the ITSA. The existence of a statutory damages cap, however, "suggests that an award of damages at the capped maximum is not outlandish," the court stated, rejecting Caterpillar’s argument.

Miller new trial motion. The court also denied Miller’s new trial motion seeking to overturn the jury verdict for Caterpillar on its statutory commercial disparagement and common law defamation counterclaims. It found sufficient evidence to support the jury’s finding that the information contained in the package sent to Caterpillar dealers was false and misleading, and Miller knew it to be such.

The case is 1:10-cv-03770.

Attorneys: Casey James McGushin (Kirkland & Ellis LLP) for Miller UK Ltd. and Miller International Ltd. Bridget S. McCabe (Baker & Hostetler LLP) for Caterpillar, Inc.

Companies: Miller UK Ltd.; Miller International Ltd.; Caterpillar, Inc.

MainStory: TopStory TradeSecrets IllinoisNews

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