The Prospect Generator’s Case, A Second Look

by Gray Reed & McGraw
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There is more to learn from Southwestern Energy Production Co. v. Berry-Helfand and Muncey, discussed in a recent post.

Damages – With Room to Run, the Expert Scores.

Courts are entitled to be “flexible and imaginative” when determining damages for misappropriation. The methods could include value of the plaintiff’s lost profits, the defendant’s actual profits from the use of the trade secret, the value that a reasonably prudent investor would have paid for the trade secret, development costs that the defendants avoided, and a “reasonable royalty”.

This approach allows a plaintiff to recover even if she suffers no loss herself.

Ms. Helfand’s expert reservoir engineer calculated the present value of  the revenues Sepco could reasonably be expected to gain from its exploitation of the trade secret and determined the fraction of those revenues that should be apportioned to Helfand, using as a guide a Sepco prospect agreement for the same properties. That, he said, was Helfand’s damages. Helfand was also entitled to three percent of Sepco’s $355M sale of its deep rights, based on what she testified was her typical override on her prospects. He put her total damages at $45M. The jury, accepting some of his conclusions but not others, found the damages to be $11M. So  maybe it was a field goal.

Limitations – I Smell a Rat. When Must I Set the Trap?

Ms. Helfand had three years from when she discovered, or by the exercise of reasonable diligence, should have discovered the trade secret theft, to bring her suit. In May 2005 she expressed her fear in emails that her “concepts and I had spent years in developing are now being used by entitled parties.” Shortly thereafter, though, Sepco returned her materials and assured her it had retained nothing. It turns out, her intuition was correct.  She was aware later that Sepco had the opportunity to steal her data but relied upon Sepco’s assurances that it kept nothing. The jury (and appellate court) concluded that she had no objective reasonable basis for further inquiry into Sepco’s conduct until January 2009, when she actually discovered the misappropriation.

Disgorgement – When is it Available?

The court reversed a $23M award for disgorgement of profits on the basis that the equitable remedy is only for breach of a fiduciary duty. As discussed before, Sepco owed no such duty to Ms. Helfand.

Takeaways

• You might suspect you’ve been cheated, but until you have an objective basis for filing suit you can be protected by the discovery rule. The concept is simple, but you still have to convince the jury.

• Sepco made a wholehearted but unsuccessful challenge to the methodology, assumptions, inconsistencies and projections by Helfand’s expert. 

• Speaking of experts, looming over Ms Helfland’s  verdict and judgment like Jadeveon Clowney on third-and-long is a defendant’s BFF – the Texas Supreme Court. Among that court’s favorite targets are experts. Did he jump through every methodological, analytical, logical, scientific and peer-reviewed hoop necessary to satisfy the picky court?  You can see that the defendant focused on this.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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