Misappropriation of Trade Secrets

DAVID VS. GOLIATH JURY VERDICT FOR BERG-NELSON COMPANY IN TRADE SECRET CASE

Highlights

  • Chevron Corp., an integrated worldwide energy company, ranked No. 3 on the Fortune 500, settled before trial.
  • Jury verdict returned in favor of Berg-Nelson Company, Inc. The defendant, Advanced Sealing and Supply Co., Inc., was ordered to pay substantial damages.
  • The jury endorsed Cummins & White’s argument that Berg-Nelson hoses did not need to be protected by confidentiality or written non-disclosure agreements in order to constitute a trade secret.

Attorneys

Case Study

In March 2009, Cummins & White, LLP successfully represented Berg-Nelson Company, Inc., a Plaintiff in litigation brought against a competitor claiming misappropriation of trade secrets. After a four-week jury trial presented in Los Angeles County Superior Court in Torrance, CA, the jury ordered the defendant, Advanced Sealing and Supply Co., Inc., to pay substantial damages. Chevron Corp., also named as a defendant in the original lawsuit, settled before trial.

Background

Berg-Nelson Company, Inc., designs and fabricates rubber and metal hoses, belting, valves, and fittings. For approximately 10 years, the company worked with Chevron Corp. developing quality control and safety procedures for using flexible high-pressure hoses and specially designed couplings for a number of different uses within Chevron’s El Segundo, CA, refinery. Berg-Nelson also designed and fabricated proprietary, specialized fuel injection hoses for turbine generating units at the refinery. These “co-gen” hoses were sold to Chevron based on individual purchase orders.

In its lawsuit, filed in December 2006, Berg-Nelson alleged that Advanced Sealing and Supply, a competitor, misappropriated trade secrets by wrongfully obtaining a technical drawing from a former Berg-Nelson employee and a sample of the co-gen hose, as well as confidential price lists from Chevron employees with whom it had a longstanding relationship. This disclosure allowed Advanced Sealing and Supply to reverse engineer the hose and avoid the expense and time involved with its own product development.

The claim also alleged that, armed with Berg-Nelson’s confidential designs and pricing information, Advanced Sealing and Supply interfered with Berg-Nelson’s contract and non-contractual business relationship with Chevron (though this part of the complaint was later dismissed).

Berg-Nelson sought damages based on the loss of business (past and future) with Chevron resulting from Advanced Sealing and Supply’s wrongful conduct.

Legal Strategy

Cummins & White, LLP pursued a variety of legal theories in order to protect Berg-Nelson. The major dispute in this case was whether the Berg-Nelson hoses designed for Chevron constituted trade secrets. Berg-Nelson contended that the design and make-up of the hoses was not known to the general public or even to Chevron, which had previously requested the information without success. During the trial, Charles Spagnola, lead trial counsel from Cummins & White, argued that the Berg-Nelson hoses did not need to be protected by a written non-disclosure or confidentiality agreement in order to constitute a trade secret. Mr. Spagnola provided compelling evidence supporting the claim of misappropriation of trade secrets, including the fact that Berg-Nelson’s complaint was filed and served on Advanced Sealing and Supply before it had even started selling the hoses to Chevron. The fact that Advanced Sealing and Supply proceeded to sell the hoses with actual knowledge of the allegations after the complaint was filed showed willful and malicious behavior.

Mr. Spagnola focused on Chevron’s written corporate policies regarding the exchange of proprietary information and secrets. As part of its business dealings with Chevron, Berg-Nelson went to extraordinary lengths to clarify Chevron’s position regarding other contractors at the refinery and potential improper disclosure of trade secrets. Chevron has written corporate policies in place to protect proprietary information of its business partners and provided a written statement of hiring practices upon which Berg-Nelson, in part, based its decision to enter into a services agreement with Chevron.

Result/Implication

After a four-week trial, the jury awarded $242,000 to Berg-Nelson. Craig Nelson, president of Berg-Nelson, said the verdict would lead to fundamental changes in how business is conducted in the industrial hose industry, particularly in regard to copying competitor’s products in order to gain an unfair advantage. “This will change the way our industry does business,” Mr. Nelson said. “We believe the verdict sends a message to others in the industry—suppliers and buyers alike—that Berg-Nelson’s products are valuable and protected.”

According to Mr. Spagnola, the successful plaintiff verdict was a ringing endorsement of the legal strategy pursued by Cummins & White. “This was a real life David vs. Goliath story, showing the struggles of a small company doing business with a multinational corporation,” he said. “The verdict was an indictment of the way Chevron and Advanced Sealing and Supply did business, disregarding Chevron written corporate policies in place for years to protect the interests of business partners such as Berg-Nelson.”