By Brian Craig, J.D.
The appeals court held that a plaintiff need only demonstrate lawful possession of a trade secret, and not ownership, to maintain a claim for misappropriation of trade secrets.
In a misappropriation of trade secrets case involving rocket technology, the U.S. Court of Appeals in Philadelphia has affirmed a judgment entered by the federal district court in Harrisburg awarding Advanced Fluid Systems nearly $3.1 million in damages, including damages for lost profits and $2 million in punitive damages against a former employee, a competitor, and other defendants. The Third Circuit held that a plaintiff need only demonstrate lawful possession of a trade secret, and not ownership in the traditional sense, to maintain a claim for misappropriation of trade secrets. In what the Third Circuit described as a "sorry story of disloyalty and deception piled upon deception," the court found that it is patently incorrect to say that the record lacks enough evidence to sustain an award of punitive damages (Advanced Fluid Systems, Inc. v. Huber, April 30, 2020, Jordan, K.).
Advanced Fluid Systems, Inc. ("AFS") distributes, manufactures, and installs hydraulic components and hydraulic systems. Defendant Livingston & Haven, LLC ("Livingston") also designs, assembles, and installs hydraulic fluid systems. AFS claimed that defendant Kevin Huber, a former employee of AFS, and other defendants misappropriated trade secrets in violation of the Pennsylvania Uniform Trade Secrets Act (PUTSA). This misappropriation caused AFS to lose contracts with the Virginia Commonwealth Space Flight Authority to upgrade the hydraulic system used to launch the Antares rocket from NASA’s facility on Wallops Island in Virginia. After the six-day bench trial, the district court awarded compensatory damages of $1,096,009, jointly and severally, against all defendants. The district court also awarded exemplary damages of $1 million against Huber individually, and $1 million in punitive damages of $1 million, jointly and severally, against Huber, Livingston, and one of Livingston’s employees. The various defendants filed several post-trial motions, which the district court denied. The defendants appealed.
Trade secrets claim. The Third Circuit first concluded that the district court properly held that AFS could properly maintain a trade secret misappropriation claim. The appeals court rejected the argument that AFS did not actually own the claims trade secrets. The Third Circuit agreed with courts in other jurisdictions that a plaintiff need only demonstrate lawful possession of a trade secret, and not ownership in its traditional sense to maintain a claim for misappropriation of trade secrets. While ownership of the sort traditionally associated with real or personal property is sufficient to maintain a trade secret misappropriation claim because the complete bundle of rights related to trade secrets includes the right to enjoy the value of the information’s secrecy, it is not a necessary condition.
The Third Circuit also rejected the argument that AFS lacked standing because it did not lawfully possess the trade secrets. Ownership of a trade secret undoubtedly imbues the owner with the authority to give others lawful possession. Such possessory rights were given to AFS, even if a full ownership interest was not. In addition, the appeals court rejected the argument that Space Flight Authority failed to take adequate measures to ensure continued secrecy. Space Flight Authority honored AFS’s proprietary designation and did not disclose its information except as needed. The evidence showed that the defendants engaged in coordinated, clandestine campaign of tortious conduct to obtain the trade secrets.
New trial. The Third Circuit also concluded the district court did not abuse its discretion in granting a request for a new trial based on the conduct of Livingston’s trial counsel. Livingston argued that the trial counsel’s failure to gain formal authorization to practice before the district court amounted to fraud and the attorney’s failure to submit any post-trial proposed findings of fact and conclusions of law justified a new trial based on excusable neglect. The Third Circuit recognized that non-compliance with the local rules for admission before the district court was essentially technical, not substantive, in nature. Any harm from failure to submit post-trial proposed findings of fact and conclusions of law was mitigated by the district court’s awareness of the arguments which had largely been advanced in one form or another over the course of the drawn-out proceedings.
Punitive damages. The appeals court further found that the record supported the award of punitive damages. Punitive damages may be awarded under Pennsylvania law where conduct is outrageous because of reckless indifference to the rights of others and the conduct at issue was intentional, reckless or malicious. The terms exemplary damages and punitive damages are synonymous. Here, the Third Circuit ruled that it is patently incorrect to say that the record lacks enough evidence to sustain an award of punitive damages. The parties had actual knowledge of Huber’s attempts to move business from AFS to Livingston and of the wrongfulness of Huber’s actions. The Third Circuit had little difficulty rejecting the assertion that the district court improperly awarded punitive damages based on lack of remorse for the misconduct.
Set-off from settlement. Next, the Third Circuit held that the district court did not err in excluding a previous settlement from its compensatory damages calculation because the issued was never raised before trial. The district court properly held that the defendants failed to put either the opposing party or the court on notice that a setoff theory was fair game at trial. In belatedly raising the issue for the first time after trial and judgment, the defendants, without justification, unreasonably deprived the opposing party of a fair opportunity to address the issue.
Lost profit damages calculation. Finally, the district court properly calculated damages for lost profits. The district court’s lost profits analysis ultimately rested on the amount actually paid under the contract for work actually performed. The Huber parties were not entitled to a reduction in damages for expenses they never incurred and apparently were not obligated to incur.
Therefore, the Third Circuit affirmed the judgment of the district court.
Attorneys: David G. Concannon (Law Offices of David G. Concannon, LLC) for Advanced Fluid Systems, Inc. Jonathan Z. Cohen (Conrad O’Brien PC) for Kevin Huber.
Companies: Advanced Fluid Systems, Inc.
MainStory: TopStory TradeSecrets GCNNews DelawareNews NewJerseyNews PennsylvaniaNews
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