Plaintiff’s Trade Secret Lawsuit Backfires!

by Orrick - Trade Secrets Group
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https://jdsupra-html-images.s3-us-west-1.amazonaws.com/eaa4ee33-a172-43c1-aa1d-97750c6a73f7-boomerang_200x150-200x150.jpgWe recently reported on good things (big verdicts) coming to trade secret plaintiffs that endure lengthy lawsuits.  But good things don’t always come to those who wait.  One trade secrets plaintiff received a starkly less favorable result after battling for ten years over misappropriation of its alleged trade secrets and related claims.  On June 18, Eaton Corporation and Triumph Group announced they settled their decade-long dispute arising from Eaton’s claims that its former employees stole trade secrets and used them at competitor Frisby Aerospace (later acquired by Triumph). Though the exact terms of the settlement are confidential, Eaton will reportedly pay about $135 million to Triumph and $12 million to be split among its former employees.

Eaton and Frisby competed in the hydraulic pump and motor industry.  In 2002, six engineers resigned from Eaton to join Frisby. A former Frisby employee, Milan Georgeff, contacted Eaton claiming the six engineers were using Eaton drawings and schematics while working for Frisby. Eaton contacted the FBI, which conducted a raid of Frisby’s office. The raid turned up Eaton materials and, in July 2004, Eaton sued the six former-employees and Frisby alleging trade secret misappropriation among a host of other claims. Frisby denied the allegations and later sued Eaton, claiming Eaton was engaging in anti-competitive behavior.

Considering the FBI raid revealed that Frisby was in possession of some Eaton documents, Eaton’s case seemed to have promise. How did things go so wrong?  Two key tactical decisions derailed Eaton’s case. First, Eaton hired attorney Ed Peters, who had a long personal and professional history with the judge in the case, Judge Bobby DeLaughter. A Special Master concluded that Peters engaged in inappropriate ex parte communications with Judge DeLaughter on Eaton’s behalf. (Judge DeLaughter recused himself and later plead guilty to obstruction of justice in a different case where Peters was hired to influence DeLaughter.) Second, Eaton signed a consulting agreement with Milan Georgeff, the former Frisby employee who provided the initial intelligence that led to the trade secret allegations. Eaton agreed to pay Georgeff for his assistance in the case, but tried to conceal their relationship. Based on these improprieties, in 2010 the Court imposed a severe sanction: dismissal of all of Eaton’s claims with prejudice. In November 2013, the Mississippi Supreme Court affirmed, leaving only Triumph’s counterclaims to resolve. With no affirmative claims and facing allegations of anti-competitive behavior, Eaton agreed to settle.

Though Eaton’s Chairman Alexander Culter characterized the settlement as “in the best interests of our shareholders” and touted the successful return of Eaton’s information and documents as part of the settlement, this is almost certainly not the result Eaton hoped for or expected when it sued to protect its trade secrets ten years ago.

 

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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