$6 Million Verdict Vacated in Flooring Tech Trade Secrets Row
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 and not the post-verdict motion for JMOL. It reasoned that the district court may defer the consideration of personal jurisdiction until trial (and did so here), and that the district court heard evidence supporting a finding of personal jurisdiction at trial, which supported the denial of the JMOL on personal jurisdiction grounds. Regardless, since Silikal had not even appealed the denial of JMOL on personal jurisdiction grounds, the Court found the issue had been waived.
As to misappropriation, Silikal did appeal from the denial of JMOL, and the 11th Circuit reversed the judgment. Under Georgia law, a misappropriation claim requires that the secret was “acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.” The Court reasoned that AC-USA had to show that “(1) Silikal owed AC-USA a duty to maintain the formula’s secrecy or limit its use, and (2) that this duty arose at the time Silikal acquired the formula” (original emphasis). Silikal had acquired the formula for 1061 SW in 1987, long before AC-USA even existed, and long before the 2010 GSA, which gave rise (for the first time) to any duty that Silikal incurred to AC-USA. Because the duties arose contractually much later than the time Silikal acquired the trade secret, the Court concluded that AC-USA could not maintain a claim for trade secret misappropriation, and reversed the judgment on misappropriation and vacated the punitive damages award.
On the contract claim, Silikal argued on appeal that AC-USA had failed to prove any cognizable damages and therefore the $1.5 million judgment must be vacated. The 11th Circuit sustained the judgment of breach of contract but vacated the award, holding that AC-USA was only entitled to nominal damages. The Court explained that AC-USA had only proven consequential damages from Silikal’s course of conduct, and while such damages were cognizable under the misappropriation claims, they were not cognizable under the contract claim because such damages had not been proven with sufficient specification, nor had they been proven to have been in the contemplation of the parties at the time of contract. Accordingly, the Court vacated the damages award and remanded for a determination of the amount of nominal damages, as provided by Georgia law. Because AC-USA remained the prevailing party on the contract claim, the Court upheld AC-USA’s entitlement to attorneys’ fees but remanded for a proper determination of the amount (i.e., excluding fees relating to the misappropriation claim on which AC-USA is no longer the prevailing party).
Practice Note: Procedure matters. The outcome on personal jurisdiction may have been different had Silikal not waived the issue. Had AC-I been a plaintiff, the misappropriation claim—and the punitive damages award that made up the largest single component of the judgment—may well have been sustained.