Anatomy of a Trade Secret Case

                We recently prosecuted a case on behalf of a firm client in the building materials business that resulted in a settlement with a value in cash and other considerations to the client of over $1.43 million. 

The client, CHRYSO, Inc. is based in Dallas, Texas, and manufactures and sells specialty chemical additives that improve the performance properties of plastic and hardened concrete, such as workability, set time control and strength gain, among other things.  Our client is the U.S. subsidiary of a French corporation.  They divide the U.S. into three regions for business purposes, and on January 12, 2015, the head of the eastern region abruptly emailed the President at 11:46 p.m. resigning, effective at midnight.  In the following days it emerged that he and other employees were going into business in direct competition with the client, and were going to be selling the admixtures of a direct competitor.   

                The sales manager had an employment agreement that included a noncompete, nonsolicitation, nondisclosure, and other terms.  The other side vehemently disputed the enforceability of the restrictive covenants.  It is important to note, however, that trade secret and computer fraud claims generally do not depend on the enforceability of a noncompete. Moreoever, the other employees that went with him, including an independent sales representative, did not have contracts and therefore had no restrictions.  Moreover, the manager was in possession of a company laptop and smart phone that he was refusing to return unless unspecified expenses were paid.  Immediately, several customers informed company management that they were “going with” the manager to the competition.  Obviously, this appeared to be a well-planned exit. 

We were retained and immediately wrote demand letters for the return of all information, that they cease competing and using company confidential information, and added “litigation hold” language to preserve all evidence.  Ultimately, a lawsuit was filed in federal court alleging 14 counts, including violation of the Computer Fraud and Abuse Act and the North Carolina Trade Secrets Act, seeking an injunction, actual and punitive damages, treble damages under the North Carolina Unfair Trade Practices Act, and attorneys’ fees.  Also, a Motion for Expedited Discovery was filed and argued, which the judge ultimately partially granted.  With our suggestion, the client retained top tier local counsel in North Carolina to assist with the case.

Before returning the laptop, the former manager deleted numerous files.  Immediately, forensic experts were hired to closely examine the activity on the laptop, what was missing, and what had been copied from the laptop.  We ascertained that much of the data had been removed to a hard drive and demanded the return of the hard drive.  While much of the data on the laptop was not recoverable, we were able to see the file names and what files had been copied to the hard drive.  Just prior to the hearing on the motion for expedited discovery, a copy of the hard drive image was produced, and a trove of evidence became available.  An expedited and intensive search using discovery and document management software revealed key information about the timing and sequence of the events, and what had happened.  We contended that this constituted “smoking gun” evidence of misappropriation, and although the Defendants denied it and denied liability, a mediation was discussed and scheduled. 

               Within a few months of filing suit, the parties mediated the case.  Before the mediation, with the client’s assistance, we prepare an extensive analysis of damages.  It was clear that the Defendants would not cease their activities and the evidence appeared to show that the departure had been in the works for nearly a year.  We made it clear that we had significant damages and that monetary value would be the key to a resolution before the mediation took place.  Fortunately, the Defendants were ably represented by counsel to advise them, apparently, of the lengthy and expensive process such a major lawsuit would entail and the risks associated with the case.  Moreover, the competitor appeared eager to resolve the dispute and avoid lengthy litigation. 

Ultimately, the parties were able to resolve the case by creating a combination of cash and other equivalents that had a cash value of $1.43 million for the Plaintiff.  Moreover, certain protections for remaining customers were put in place to add more value.  CHRYSO was willing to invest in an aggressive pursuit of its rights and thorough forensic work by an expert, to sift for key evidence and learn everything about what happened and how it had happened.  The clients dedication to aggressive investigation and litigation ended up saving them time and money.  Thanks to the quick settlement the client was able to recover far more than was spent on the litigation and move forward.