Jury Award for Software Trade Secrets Theft Affirmed by Fifth Circuit

Wellogix sued Accenture (and other parties) for misappropriating trade secrets related to software that helped manage the process of constructing an oil well. A jury awarded $26.2 million in compensatory damages, and $68.2 million in punitive damages, the punitive award having subsequently been reduced to $18.2 million by a remittitur. On appeal, the Fifth Circuit affirmed the jury’s verdict that Wellogix’s trade secrets had been misappropriated, and also affirmed the damages awards. Wellogix, Inc. v. Accenture, L.L.P., No. 11-20816 (5th Cir. May 15, 2003).

Facts

In 2005, Wellogix entered into an agreement with SAP to integrate its software with SAP’s accounting software. Under that agreement, Wellogix provided its source code to SAP. Wellogix also entered into marketing agreements with Accenture. Further, Wellogix conducted pilot programs with oil companies and Accenture.  In the pilot programs, subject to confidentiality agreements, Wellogix shared its technology, including source code, with the oil companies and Accenture. Later, in developing a component for software for BP, Accenture and SAP “apparently accessed Wellogix technology—including flow diagrams, design specifications, and source code critical to Wellogix’s software.”

Wellogix sued BP and SAP in addition to Accenture. SAP was dismissed for lack of proper venue, and claims against BP were resolved in an arbitration. The arbitrator, a judge, “found that Wellogix’s source code was a trade secret, but that BP did not use the code.” The arbitrator further “found that BP breached its confidentiality agreement with Wellogix by making Wellogix’s confidential information accessible to Accenture and SAP.” A jury trial of Wellogix’s claims against Accenture resulted in a “verdict for Wellogix,” and an award of “$26.2 million in compensatory damages and $68.2 million in punitive damages.”

Trade Secrets Analysis

Accenture made a number of arguments on appeal. First, Accenture argued that it was entitled to judgment as a matter of law. The court did not agree. The court began by noting that Texas law concerning trade secret misappropriation required proving “(a) a trade secret existed; (b) the trade secret was acquired through a breach of a confidential relationship or discovered by improper means; and (c) use of the trade secret without authorization from the plaintiff.”

Whether a trade secret existed was a question of fact predicated on six factors, including the extent to which the trade secret had been maintained and protected, the value of the information to others, and the ease with which it could be protected. In this case, Wellogix sufficiently showed that its “technology contained trade secrets.” For five years, it was the only company offering its type of software. That software resulted in a valuation of $27 million. Moreover, Wellogix had taken steps to protect the technology.

The court rejected Accenture’s argument “that Wellogix’s technology was not ‘secret’ because Wellogix disclosed it to the public in patents and patent applications.” The District Court had properly instructed the jury that “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 had opposed introducing patent documents into evidence, arguing they would be prejudicial. Further, the court saw no law to support Accenture’s argument that showing that the patent documents did not contain trade secrets was Wellogix’s burden.

In addition, there was sufficient evidence to support the argument that Wellogix possessed its trade secrets. This evidence included expert testimony that a website available to Accenture included the trade secrets. The expert did not need firsthand knowledge, but could testify based on his industry experience. Moreover, Wellogix’s CEO’s testimony was not overly vague; the jury could have inferred that Accenture obtained Wellogix’s trade secrets from the six confidentiality agreements into which the parties entered. Accenture could have satisfied the requirements to “use” Wellogix’s technology by relying on that technology, even if Accenture’s technology did not contain Wellogix’s trade secrets.

Damages for Trade Secrets Misappropriation

Reviewing the compensatory damages, the court found that testimony by Wellogix’s damages expert concerning Wellogix’s valuation in 2005 supported the damage award. Venture capital groups had apparently valued Wellogix at $27.8 million, the amount on which the jury evidently based its award. Further, there was evidence that this valuation dropped to zero after the misappropriation of trade secrets.

After reviewing, and affirming, the District Court’s decision to reject Accenture’s motion for a new trial, the court turned to the question of punitive damages. Here, although Wellogix’s CEO gave testimony about a positive relationship with Accenture, there was also evidence that Accenture “harvested” Wellogix’s technology. The court declined to “re-weigh” the evidence. Further, the punitive damage award did not violate due process; the ratio of punitive damages to compensatory damages, at approximately .7 to 1, was well within constitutional bounds.

Share this page:
Facebook Linkedin Twitter Email