The Fifth Circuit Court of Appeals recently affirmed a jury verdict awarding $26.2 million in compensatory damages and $18.2 million in punitive damages for trade secret misappropriation of software that enabled oil and gas companies to “plan, procure and pay for complex services” online. See Wellogix, Inc. v. Accenture, LLP, Case No. 11-20816 (5th Cir. May 15, 2013). The Fifth Circuit stated: “Had we sat in the jury box, we may have decided otherwise. ‘But juries are not bound by what seems inescapable logic to judges.’ Morissette v. United States, 342 U.S. 246, 276 (1952).”
The case highlights the importance of taking steps to protect the secrecy of confidential and proprietary business information, including securing confidentiality agreements before sharing such information with other parties such as investors, customers and marketing partners. Because the plaintiff — Wellogix, Inc. — established that it had disclosed its proprietary software and technology to the defendant subject to a confidentiality agreement, it was able to meet its burden of showing that it had taken sufficient measures to guard the secrecy of its software and that the defendant had improperly relied on Wellogix’s software to pursue another business opportunity in breach of the parties’ confidential relationship.
The case also is a reminder to businesses that receive confidential information from other parties as part of a prospective deal or partnering relationship that they should take steps to protect themselves against future claims of misappropriation. A business should take care to keep track of the confidential information it receives from the other party and then return or destroy that information after their relationship has ended. This safeguard can help defend against a claim that the business received certain information and used it for another unauthorized purpose.
Wellogix developed “complex services” software for oil and gas companies before any other companies offered this type of software. The software featured “dynamic templates” that adjusted cost and supply estimates based on “intelligence built into” the underlying source code, a “workflow navigator” that provided a framework for planning and procuring services, and “electronic field tickets” that allowed suppliers to record information about orders.
To promote its software, Wellogix entered into six marketing agreements with the defendant — Accenture, LLP — beginning in 2000. Wellogix also participated in pilot projects with oil companies. Wellogix shared its source code and provided access to its technology with both Accenture and the oil companies, subject to confidentiality agreements.
One of the oil companies that Wellogix worked with was BP America, Inc. After Wellogix worked with Accenture on a pilot project for BP called “eTrans,” BP sought to implement global software with broader functionality than just complex services. BP instructed Accenture to select a software provider for the new pilot project.
Without notifying Wellogix, Accenture and software provider SAP began developing the complex services component for the new BP software project. SAP had previously agreed to integrate Wellogix’s complex services software into SAP’s accounting software, and SAP had even made a joint presentation with Wellogix for the new BP project.
After Wellogix learned that Accenture and SAP were developing the complex services component without it, Wellogix sued Accenture, SAP and BP in the Southern District of Texas for trade secret misappropriation and other claims. The court dismissed SAP from the action for improper venue. BP agreed to arbitrate the claims asserted against it, and Wellogix lost those claims in the arbitration. The claims against Accenture proceeded to a jury trial.
During the nine-day trial, Wellogix introduced evidence showing that SAP had accessed Wellogix’s “dynamic templates” source code while SAP and Accenture worked together on the complex services component and that Accenture prepared a document referencing the “creation of … complex service templates” and then stating below, “Use Wellogix content.” Accenture wrote in the same document that the templates “better deliver similar or better functionality than Wellogix or we may have a problem.” Other Accenture documents also referenced Wellogix’s templates.
The evidence also showed that Accenture stated it could “easily replicate[ ]” and “[l]ift Wellogix technology and that Accenture “harvested[ed]” Wellogix technology while engaged in confidential partnerships with Wellogix. Accenture also recognized that “[w]e may be at risk if Wellogix claims that we used knowledge of their product through involvement in eTrans to design and develop a solution for BP.” Moreover, a BP employee told Wellogix that the company should “sue Accenture … [b]ecause Accenture was utilizing [Wellogix’s] confidential information and building out [its] functionality.”
Based on this evidence, the jury awarded $26.2 million in compensatory damages and $68.2 million in punitive damages. Wellogix accepted the trial court’s remittitur of the punitive damages award to $18.2 million. Accenture appealed.
Trade Secret Misappropriation Claim
Wellogix’s trade secret misappropriation claim against Accenture was decided under Texas common law, as Texas just adopted the Uniform Trade Secrets Act on May 2, 2013. Under Texas law, Wellogix had to prove that
- a trade secret existed;
- the trade secret was acquired through a breach of a confidential relationship or discovered by improper means; and
- Accenture’s use of the trade secret without authorization from Wellogix.
In defense of the claim, Accenture argued that Wellogix’s software was not secret because Wellogix disclosed it to the public in patents and patent applications. “[A] patent destroys the secrecy necessary to maintain a trade secret only when the patent and the trade secret ‘both cover the same subject matter.’” Wellogix, slip op. at 6. Accenture did not introduce Wellogix’s patents into evidence. It simply argued that it was Wellogix’s burden to show that the patents did not cover the same subject matter. The Fifth Circuit rejected this argument and held that the jury could have concluded that Wellogix’s patents did not reveal its trade secrets based on the evidence submitted to it.
Accenture also argued that it had not acquired Wellogix’s trade secrets. The Fifth Circuit rejected this argument and concluded that there was sufficient evidence that Accenture improperly acquired Wellogix’s trade secrets because “a jury could have inferred that Accenture gained such access by entering into six confidentiality agreements with Wellogix.” Wellogix, slip op. at 9.
Accenture also argued that it did not use Wellogix’s trade secrets. The Fifth Circuit stated that “the standard for finding ‘use’ is not whether Accenture’s templates contained Wellogix templates, but whether Accenture ‘rel[ied] on trade secret[s] to assist or accelerate research or development’ of its templates.” Wellogix, slip op. at 10. Accordingly, the Fifth Circuit concluded that there was sufficient evidence for the jury to find that Accenture relied on Wellogix’s templates to develop its own templates.
Having concluded that there was sufficient evidence to support the jury’s finding of trade secret misappropriation, the Fifth Circuit also upheld the jury’s award of compensatory damages. Emphasizing that a “flexible approach” is used to calculate damages for trade secret misappropriation, the Fifth Circuit stated that the following evidence supported the jury’s award of $26.2 million in compensatory damages: Wellogix was valued at $27.8 million at the time of the misappropriation; an Accenture employee believed the BP work could generate annual fees in excess of $20 million if Accenture controlled Wellogix; no other company had technology like Wellogix from 2000 to 2005; the misappropriation put Wellogix at a competitive disadvantage; this disadvantage caused Wellogix to lose out on potential deals with other oil and gas companies; and this disadvantage caused Wellogix’s value to drop to “zero.”
Finally, the Fifth Circuit applied the guideposts articulated by the United States Supreme Court in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996), to review the jury’s award of punitive damages. The Fifth Circuit concluded that the “ratio” guidepost strongly favored Wellogix because the ratio of punitive to compensatory damages was less than 1:1, and that the “reprehensibility” guidepost was neutral. The Fifth Circuit also concluded that there was sufficient evidence for the jury to conclude that Accenture acted with malice.