$44 Million Misappropriation Award Upheld Despite Coexistence of Patents, Trade Secret

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By Tamlin H. Bason  

If a plaintiff in a trade secret dispute has patents that possibly relate to the asserted trade secret then it is the defendant's burden to demonstrate that the patent covers the same subject matter as, and therefore discloses, the trade secret, the U.S. Court of Appeals for the Fifth Circuit held May 15 (Wellogix Inc. v. Accenture L.L.P., 5th Cir., No. 11-20816, 5/15/13).

In this case, the patent documents were not disclosed to the jury because the plaintiff feared prejudice. The defendant argued that it was the plaintiff's duty to demonstrate that the patents did not cover the same subject matter as the trade secret, but the appeals court found no support for this argument. Indeed, the only case that is on point--a 1999 unpublished opinion from the U.S. Court of Appeals for the Federal Circuit--suggests that “it is for the defendant, once a plaintiff makes a prima facie case for the existence of a trade secret, to show that disclosure destroys the secret,” the court said.

The court said that it may have ruled differently, but it nonetheless found the jury's verdict, which awarded the plaintiff $26 million in compensatory damages and an additional $18 million in punitive damages, supported by the record. It thus affirmed.

Secrets Claimed on Software for Oil Well Management

Wellogix Inc. developed software that allowed oil companies to more efficiently manage the costs associated with the construction of oil wells. Wellogix claims that it was the first company to begin offering oil companies complex software to manage and keep track of costs associated with producing new wells. Prior to this software, Wellogix said that oil companies were using simpler tools such as Microsoft Excel to track well costs.

Wellogix claims that its software allowed companies to “plan, procure, and pay for complex services” online. The software, Wellogix said, featured “dynamic templates” that allowed its clients to easily adjust costs and supply estimates based on “intelligence built into” the source code. Wellogix uses both patents and trade secrets to protect its products.

Wellogix's software is not a comprehensive product and so, between 2000 and 2005, the company partnered with various accounting firms to offer oil companies wide-ranging solutions. In one such agreement, Wellogix partnered with SAP America Inc. and provided the firm with its source code.

In order to reach more clients, Wellogix during this time period entered into numerous marketing arrangements with the consulting firm Accenture L.L.P. Wellogix also participated in a number of pilot projects with oil companies. Accenture and the oil companies were granted access to the source code. That access was governed by confidentiality agreements.

In 2004, Wellogix worked with BP America Inc. on a pilot project called “eTrans.” Accenture was not a consultant on this project.

BP discontinued the eTrans project in 2005. BP then contacted Accenture and asked it to select a software provider for a new BP project. Wellogix and SAP pitched their integrated software for that project.

Separately, and unbeknownst to Wellogix, Accenture and SAP also at this time began collaborating to develop their own software that they intended to pitch for the BP project. As they developed this software, Accenture and SAP apparently accessed, through the eTrans portal, Wellogix's flow diagrams, design specifications, and source code.

In 2008, Wellogix filed a lawsuit against SAP, Accenture, and BP in the U.S. District Court for the Southern District of Texas. The claims against SAP were dismissed for lack of jurisdiction and BP and Wellogix agreed to arbitrate. Wellogix's misappropriation of trade secrets claim against Accenture proceeded to trial where the jury found in favor of Wellogix, awarding $26.2 million in compensatory damages and $68.2 million in punitive damages. The district court reduced the punitive award to $18.2 million.

Defendant Must Show Patents Destroy Trade Secrets

On appeal, the court had to determine if the jury's verdict was supported by substantial evidence. The first issue the court looked at was whether the jury's finding that Wellogix had trade secrets was supported by the record.

Wellogix argued that it was the first company to offer complex software to oil companies between 2000 and 2005. This software, and specifically the underlying source code, gave Wellogix a competitive advantage during this time period, and thus the company argued that the software contained trade secrets.

Accenture, on the other hand, argued that Wellogix cannot have any trade secrets in the software because patents that Wellogix has on the same software necessarily disclose to the public any potential secrets. The district court, however, instructed the jury that a patent only destroys a trade secret if they “both cover the same subject matter.”

The parties disagreed over whose duty it was to demonstrate whether the patents and the trade secrets related to the same subject matter. Neither party introduced the subject patents, and Wellogix in fact argued against their introduction, fearing that the documents would be prejudicial.

“Although Accenture maintains that it was Wellogix's burden to show that the patents did not cover the same subject matter, Accenture does not cite, nor we could we find, case law imposing such a burden,” Judge Stephen A. Higginson said. “Further, another circuit, in an unpublished opinion, held that it is for the defendant, once a plaintiff makes a prima facie case for the existence of a trade secret, to show that disclosure destroys the secret,” the court said, referencing Injection Research Specialists Inc. v. Polaris L.P., No. 97-01516, 48 U.S.P.Q.2d 1719 (Fed. Cir. 1998, unpub).

“Here, Wellogix presented sufficient evidence and testimony to support the jury's finding that Wellogix's technology contained trade secrets,” the appeals court said. Accenture failed to demonstrate that the patents destroyed those trade secrets, and thus the court upheld the jury's finding as to the existence of trade secrets.

Remainder of Verdict Supported by Evidence

The jury's determination that Accenture improperly acquired the trade secrets was also supported by the record, the court said. The court found relevant the fact that Wellogix required its partners to sign nondisclosure agreements before being permitted to use the subject software.

Moreover, the record demonstrated that Accenture had access to the confidential eTrans portal. “Together, this evidence and testimony supports the 'legitimate inference[,]' that Accenture acquired Wellogix's trade secrets,” the court said, quoting Reeves v. Sanderson Plumbing Products Inc., 530 U.S. 133, 150 (2000).

The jury's determination that Accenture used Wellogix's trade secret--the final showing necessary to demonstrate misappropriation under Texas law--was also supported by the record, the court said. The finding was supported by evidence and testimony showing that Accenture had access to, and intended to use, Wellogix's source code in order to build a competing product for BP, the court said.

“Had we sat in the jury box, we may have decided otherwise,” the court said, but nonetheless it determined that the jury's findings were supported by the record. It thus affirmed the verdict, and also upheld the compensatory and punitive damage awards.

Judges Harold R. DeMoss Jr. and Leslie H. Southwick joined the opinion.

Wellogix was represented by Richard Russell Hollenbeck of Wright & Close, Houston. Accenture was represented by Maria Wyckoff Boyce of Baker Botts, Houston.

 


Text is available at http://www.bloomberglaw.com/public/document/Wellogix_Inc_v_BP_America_Inc_Docket_No_1120816_5th_Cir_Nov_14_20.