Wednesday, April 7, 2010

Judge Pannell Shoots Down Lockheed's Trade Secrets Verdict for Discovery Abuse

Judge Pannell of the USDC NDGA overturned a $37.3 million trade secrets verdict for Lockheed Martin Corp. and ordered a new trial, after ruling that the company failed to turn over to a defendant competitor documents critical to the defense of the trade secrets claims.   The documents were discovered by the defendant,  L-3 Communications Integrated Systems, when they were produced after the verdict in a companion antitrust case pending in Dallas, Texas. The original article by The Daily Report is  here. In his March 31 order Pannell said it was "probable" that the outcome of the trial would have been different if the jury had been given access to the information that Lockheed withheld. 

Perhaps as painful for Lockheed, in his order Pannell also tossed out Lockheed's motion for a whopping $16 million in legal fees claimd to have been amassed by Lockheed's counsel, Kilpatrick Stockton, during the Atlanta litigation. Five years ago, Lockheed sued L-3 in U.S. District Court in Atlanta over what it claimed was a misappropriation of trade secrets associated with the design and construction of Lockheed's anti-submarine bomber, which is used by navies around the world. 

"Evidence that Lockheed allowed another company to utilize its proprietary data is important because failure to maintain the secrecy of such data results in the termination of trade secret status," Pannell wrote. "The main thrust of L-3's defense in this case was that the data it utilized was no longer a trade secret because it had not been properly protected by Lockheed."  L-3 claims that Lockheed waived the trade secret status of the information at issue by allowing another company, CASA, to use the information without proper protections in place to keep it secret under the law.  The documents not produced clearly had to do with Lockheed's dealings with CASA and the treatment of the key information at issue in the L-3 case.

According to Pannell's order, L-3 also contended that internal company e-mails Lockheed withheld would have shown that a letter of assurance from CASA that Lockheed relied on at the trial "was actually meaningless and was created by Lockheed to cover the fact that it had allowed its trade secrets to be used without compensation. Lockheed used this letter at trial to buttress its claims that it had taken all necessary steps to protect its trade secrets."

Pannell noted in his order that "the fact that Lockheed, not CASA, drafted the letter is an important fact that L-3 could have presented to the jury in arguing that the steps Lockheed took to protect its trade secrets had been all form and no substance." What the e-mails at issue showed, according to the judge's order, was that "at some point, Lockheed employees knew or believed that CASA was planning to illegally utilize Lockheed's data and that Lockheed intended to allow this to happen."
Lockheed contended it did not produce the e-mails in question because "they were not clearly responsive" to L-3's discovery requests. Pannell clearly found this excuse to be bogus. However, he declined to dismiss the case entirely, saying L-3 had not made the case that a lesser sanction -- in this case a new trial -- would fail to repair the harm caused by Lockheed's abuse of the discovery process.

"While the court is puzzled by the fact that Lockheed provided certain emails related to the P-3 data rights with respect to the Brazil program and even emails within the same email 'tree' while withholding the emails at issue here, the court is hesitant to find that the documents at issue were intentionally withheld for the purpose of obtaining an advantage in this litigation, particularly in light of the voluminous amount of documents that were exchanged in this matter," the judge wrote in his order.

But, he added, "The point is that L-3 should have had the opportunity to make these arguments to the jury. ... Therefore, the court concludes that it is more than possible, and is even probable, that the outcome of the jury trial would have been different in this case if Lockheed had properly turned over the documents."

The Atlanta case is Lockheed Martin Corp. v. L-3 Communications Integrated Systems, No. 1:05-cv-0902. The Dallas case is L-3 Communications Integrated Systems v. Lockheed Martin Corp., No. 3:07-cv-0341.

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