I Thought We Broke Up Years Ago! Why You Should “Throw Out” Trade Secrets As Soon As A Business Relationship Ends

by Orrick - Trade Secrets Group

The Fifth Circuit’s affirmance last week of a $44.4 million trade secrets award in the Wellogix v. Accenture case is a weighty reminder of the power of circumstantial evidence in trade secrets cases, and the importance of getting rid of your collaborator’s trade secrets after a co-development or joint venture project ends.

Although the oil and gas industry spends billions of dollars a year to construct oil wells, oil companies apparently clung to their practice of using paper records to track project costs.  Wellogix tried to modernize this practice by developing a computerized system for planning, procuring, and paying for “complex services” involved in such projects.  But it still needed others to perform accounting and marketing services, so it collaborated with two other companies: SAP and Accenture.

As with the most successful relationships, Wellogix remembered to share (it shared its source code with its collaborators), care (it cared about its trade secrets), and protect (it protected itself with multiple confidentiality agreements).  But as in many love triangles, two of the lovers ran off together:  “[w]ithout notifying Wellogix, Accenture and SAP began developing the complex services component of the global software for BP.”

In 2008, Wellogix sued Accenture, SAP, and BP in Texas state court [01] for misappropriation of trade secrets and a host of other common law claims that were available before Texas adopted the UTSA.  The defendants removed the case to federal court.  SAP was dismissed for improper venue, and BP successfully compelled arbitration.

Wellogix’s suit against Accenture went to trial.  After a nine-day trial, the jury concluded that “Accenture used the trade secret[s] without authorization from Wellogix,” an element of trade secret misappropriation under Texas law, and returned a verdict [02] in Wellogix’s favor.  The jury awarded Wellogix compensatory damages of $26.2 million and punitive damages of $68.2 million.  (The trial court later reduced the punitive damages to $18.2 million on a remittitur that Wellogix accepted.)

On May 15, 2013, the Fifth Circuit issued its decision affirming the verdict.  The Fifth Circuit did not reference any direct evidence that Accenture relied on Wellogix’s trade secrets, or any technical analysis that proved that Accenture used Wellogix’s trade secrets.  Instead, the court explained:

“the standard for finding ‘use’ is not whether Accenture’s templates contained Wellogix trade secrets, but whether Accenture ‘rel[ied] on the trade secret[s] to assist or accelerate research or development’ of its templates.”

In other words, there doesn’t need to be a cut-and-paste of trade secrets for there to be liability; “using” the trade secrets indirectly, by referring to or relying on them without incorporating them, can be enough.

The court found that circumstantial evidence and inference of such reliance was enough to uphold the $44.4 million verdict.  Specifically, the Fifth Circuit referenced:

  • an Accenture document that discussed the “creation of . . . complex service templates” and contained the statements, “[u]se Wellogix content” and “better deliver similar or better functionality than Wellogix or we may have a problem”;
  • an Accenture email that referenced “harvesting IP” from Wellogix;
  • evidence that a BP employee advised Wellogix to sue Accenture because Accenture was utilizing Wellogix’s confidential information.

The Fifth Circuit even intimated that the jury could have found the “use” element satisfied by inferring reliance from just a single Accenture email that suggested Accenture should “[u]se Wellogix for content.”

This decision reminds us that “use” in misappropriation claims can be demonstrated by much less than a “smoking gun” or forensic evidence that a company implemented or directly copied confidential information, and that this determination can be supported by inferences from a single email.

In a world where business relationships involving the sharing of confidential technology begin and end so frequently, it’s important to be especially careful to purge your company of your collaborator’s trade secrets to avoid any suggestion that you are relying on them in your business.  Remember to take additional precautions when handling confidential information in a co-dependent environment:  return, destroy, and confirm destruction of it once a relationship ends.  Hanging onto fragments of past relationships is not advised in business any more than it is in affairs of the heart.

[01] Texas state court complaint

[02] View  the jury verdict form


Written by:

Orrick - Trade Secrets Group

Orrick - Trade Secrets Group on:

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