Refusing to set aside a $73-plus million jury verdict for a small British equipment manufacturer against construction giant Caterpillar, Inc., a Federal court recently examined the contours of the Illinois trade secrets statute and the scope of damages for trade secrets violations.
The plaintiff in Miller UK, Ltd. v. Caterpillar, Inc., 2017 WL 1196963 (N.D.Ill. 2017) manufactured a coupler device that streamlined the earthmoving and excavation process. Plaintiff’s predecessor and Caterpillar entered into a 1999 supply contract where plaintiff furnished the coupler to Caterpillar who would, in turn, sell it under its own name through a network of dealers.
The plaintiff sued when Caterpillar terminated the agreement and began marketing its own coupler – the Center-Lock – which bore an uncanny resemblance to plaintiff’s coupler design.
After a multi-week trial, the jury found for the plaintiff on its trade secrets claim and for Caterpillar’s on its defamation counterclaim for $1 million – a paltry sum dwarfed by the plaintiff’s outsized damages verdict.
The Court first assessed whether the plaintiff’s three-dimensional computerized drawings deserved trade secrets protection.
The Illinois Trade Secrets Act (ITSA), 765 ILCS 1065/1, defines a trade secret as encompassing information, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers that (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.
Misappropriation means “disclosure” or “use” of a trade secret by someone who lacks express or implied consent to do so and where he/she knows or should know that knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use. Intentional conduct, howver, isn’t required: misappropriation can result from a defendant’s negligent or unintentional conduct.
Recoverable trade secret damages include actual loss caused by the misappropriation and unjust enrichment enjoyed by the misappropriator. Where willful and malicious conduct is shown, the plaintiff can also recover punitive damages. 765 ILCS 1065/4.
In agreeing that the plaintiff’s coupler drawings were trade secrets, the Court noted plaintiff’s expansive use of confidentiality agreements when they furnished the drawings to Caterpillar and credited plaintiff’s trial testimony that the parties’ expectation was for the drawings to be kept secret.
The Court also upheld its trial rulings excluding certain evidence offered by Caterpillar. One item of evidence rejected by the court as hearsay was a slide presentation prepared by Caterpillar to show how its coupler differed from plaintiff’s and didn’t utilize plaintiff’s confidential data.
Hearsay prevents a litigant from using out-of-court statements to prove the truth of the matter asserted. An exception to the hearsay rule applies where an out-of-court statement (1) is consistent with a declarant’s trial testimony, (2) the party offering the statement did so to rebut an express or implied charge of recent fabrication or improper motive against the declarant, (3) the statement was made before the declarant had a motive for fabrication, and (4) the declarant testifies at trial and is subject to cross-examination.
Since the slide show was made as a direct response to plaintiff’s claim that Caterpillar used plaintiff’s confidential information, the statement (the slide show) was made after Caterpillar had a motive to fabricate the slide show.
The Court then affirmed the jury’s $1M verdict on Caterpillar’s defamation counter-claim based on plaintiff’s falsely implying that Caterpillar’s coupler failed standard safety tests in written and video submissions sent to Caterpillar’s equipment dealers. The plaintiff’s letter and enclosed DVD showed a Caterpillar coupler bucket breaking apart and decapitating a life-size dummy. (Ouch!) The obvious implication being that Caterpillar’s coupler is unsafe.
The Court agreed with the jury that the plaintiff’s conduct was actionable as per se defamation. A quintessential defamation per se action is one alleging a plaintiff’s lack of ability or integrity in one’s business. With per se defamation, damages are presumed – meaning, the plaintiff doesn’t have to prove mathematical (actual) monetary loss.
Instead, all that’s required is the damages assessed “not be considered substantial.” Looking to an earlier case where the court awarded $1M for defamatory statements in tobacco litigation, the Court found that the jury’s verdict against the plaintiff coupler maker here was proper.
Afterwords:
The wide use of confidentiality agreements and evidence of oral pledges of secrecy can serve as sufficient evidence of an item’s confidential nature for purposes of trade secrets liability. Trade secrets damages can include actual profits lost by a plaintiff, the amount the defendant (the party misappropriating the trade secrets) was unjustly enriched through the use of plaintiff’s trade secrets and, in some egregious cases, punitive damages.
The case also shows that a jury has wide latitude to fashion general damage awards in per se defamation suits. This is especially so in cases involving deep-pocketed defendants.