In Hallmark Cards, Inc. v. Monitor Clipper Partners, LLC, 2014 WL 3408853 (8th Cir. 2014), the Eighth Circuit affirmed a $31.3M dollar jury verdict in favor of the greeting card giant against a private equity firm that used Hallmark’s confidential market research.
Hallmark hired a consultant to research consumer behavior as it relates to greeting cards. Hallmark had the consultant sign non-disclosure agreements that strictly prohibited it from sharing the research findings. The contracts also contained broad consequential damages disclaimers.
Hallmark sued under trade secrets law when it learned the consultant surreptitiously disclosed Hallmark’s data to the defendant who used the data to try to buy a Hallmark competitor.
The jury awarded Hallmark a more than $30M judgment against the defendant equity firm including $10M in punitive damages.
Held: Verdict affirmed.
Reasons:
Missouri’s trade secrets statute (Mo.Rev.Stat. s. 417.450, 454) broadly defines a trade secret as (1) information, including (2) non-technical data, that’s (3) sufficiently secret to derive monetary value from not being known to competitors and (4) that’s subject to efforts to maintain the information’s secrecy.
Misappropriation covers both acquisition of and subsequent use of a trade secret and occurs where a defendant (1) acquires a trade secret that defendant knows or has reason to know was obtained by improper means or (2) discloses or uses the trade secret without the secret’s owner’s express or implied consent. (*5).
The court held that the PowerPoint slides qualified as trade secrets under the statute in view of the lack of market research available in the greeting cards market. The scarcity of data on the subject led the appeals court to affirm the jury’s finding that the research data compiled for Hallmark met the elements of a protectable trade secret under Missouri law.
The court also found there was evidence of the defendant’s misappropriation of the trade secrets. (**3-5).
Upholding the damage award, the court rejected defendant’s argument that Hallmark obtained improper double recovery. In Missouri, a party can’t recover twice for the same injury.
Here, the Court found there were two separate injuries: (1) the consultant’s transmission of the secret data to the defendant; and (2) defendant’s (own) use of the market data. (*4). Since the injuries were separate, Hallmark could recover separate damage amounts for each injury.
Finally, the Court affirmed the $10M punitive damage award. Punitive damages under Missouri law are allowed where conduct is outrageous, reprehensible and shows an evil motive or reckless indifference to others’ rights.
Defendant exhibited reckless indifference by its stealthy campaign of document destruction to cover its tracks once Hallmark learned of the defendant’s plan to buy Hallmark’s rival.
The court found the defendant’s conduct reckless and sufficiently reprehensible to support the punitive damage award. The Court also noted that the punitive damage award was “only” one-half of the compensatory award and that this damage ratio met due process standards. (*8).
Afterwords:
Even something as nebulous and innocuous as consumer buying trends research in the greeting card market can qualify for trade secret protection (at least in Missouri).
Hallmark Cards also shows that a trade secrets plaintiff can recover separately for both (1) disclosure of a trade secret and (2) subsequent use by a third party without violating contract law double-recovery restrictions.