Monday, November 20, 2017

To the spoliator does not go the victory in corporate betrayal case

OmniGen Research, LLC v. Wang, No. 16-cv-268, 2017 WL 5505041 (D. Or. Nov. 16, 2017)

After OmniGen successfully moved for a default judgment in its favor due to spoliation of evidence, the court awarded damages on OmniGen’s trade secret, false advertising, and related claims.  Default means that the factual allegations of the complaint, other than those about damages, will be taken as true.

While working for OmniGen, which makes feed addditives that improve the health of dairy cows and other animals, defendant Wang breached his contracts by secretly creating an OmniGen-clone Chinese business based on stolen OmniGen research and information, forming at least two entities, Bioshen and Mirigen.  He also applied for a Chinese patent that covers a knockoff of an OmniGen product, and had fellow individual defendant Zheng—who is Wang’s wife and ... does not have a background in biological sciences—listed as an inventor in his place, and employed similar tactics with the contact information for Bioshen and Mirigen.  He presented an OmniGen Research slide presentation (whose copyright OmniGen registered) as if it was his own at a large scientific conference in China, with many slides altered only to add the Mirigen logo.  At the conference, which was attended by over a thousand people, including academics, government officials, and business leaders, defendants’ marketing materials claimed to employ “the most advanced modern green agricultural technology from the United States.”  Wang represented the material copied from OmniGen’s slides as Mirigen’s and Bioshen’s, as well the innovations described therein.  [This seems to be Dastar-barred at least as a §43(a)(1)(A) claim, but in a default situation, don’t expect that to matter.]  His acts also led to the dissemination of confidential OmniGen research notes at the conference and elsewhere.  Bioshen and Mirigen also submitted a paper falsely describing research as part of their participation in the conference: the paper described a study conducted with pigs by Bioshen and Mirigen using their feed additive, when in fact the studies were conducted by OmniGen on sheep and dairy cattle using its feed additive. 

Unsurprisingly, the court found for OmniGen on its breach of contract, intentional interference with economic relations, and trade secret misappropriation claims.  As for false advertising, the court also found for OmniGen, including for stating that OmniGen’s slides were defendants’ work, for falsely describing the study, and for falsely claiming that Mirigen and Bioshen were affiliated with a ‘professor’ at Oregon State University.” The court accepted the complaint’s allegations that these statements were material because “they lend credibility to Wang, Bioshen, and Mirigen, giving them the appearance of relying on original scientific research and thinking.” The court further accepted that the statements were made in commercial advertising or promotion, and that the parties competed around the world, including in China.  Finally, and perhaps of greatest interest, the court accepted that defendants’ conduct affected interstate commerce because “Bioshen promotes itself as a U.S. company, attendees at the conference included people who do business in the U.S. and who represent companies that do business in the U.S., and people who review and comment on U.S. scientific research.”

The court also found that Wang breached his fiduciary duties to OmniGen, including, along with the above acts, intentionally sabotaging an OmniGen study he was assigned to work on, and fabricating or falsifying data.  OmniGen therefore repeated the work he was assigned to do.

As to damages, they must be proved to a reasonable degree of certainty, but where a defendant’s conduct makes damages difficult to determine, courts allow “broad latitude” in quantifying damages. Defendants’ $821,000 initial investment in Mirigen reflected OmniGen’s expectation interest under its agreements with Wang: if Wang had fully performed, “the Chinese patent would have been assigned to OmniGen and the investment garnered by that patent and other confidential information would have accrued to Plaintiffs rather than Wang’s competing business entity. These are concrete, certain, and quantifiable injuries under a contractual theory of recovery.” OmniGen didn’t seek a separate award for the intentional interference with economic relations.

On the trade secret claim, $821,000 was likewise reasonably certain and a conservative valuation of what was misappropriated.  OmniGen was also entitled to punitive damages due to Wang’s willful and malicious misappropriation, to a maximum of twice actual damages; the court determined that this was warranted, resulting in a total award of $2,463,000.  For copyright infringement, the court accepted that infringement occurred post-registration, entitling OmniGen to statutory damages.  Although the court was required to accept that infringement occurred post-registration, it wasn’t required to accept that the infringement was willful, as this wasn’t alleged in the complaint, and thus the court awarded the statutory minimum of $750.

Under the Lanham Act, OmniGen was entitled to damages, including profits, but defendants’ discovery abuse and spoliation of evidence related to damages prevented a precise calculation of Defendants’ profits.  The court found it equitable to award OmniGen the $821,000 as the value of Mirigen. Treble damages could be awarded “if the allegations in the complaint support it.”  OmniGen was harmed by defendants’ knowingly false statements, and “[a]s is common in such false advertising cases, quantifying damages is difficult (especially where evidence has been systematically destroyed by the defendant).”  The court nonetheless declined to award OmniGen an estimated $80,000 based on defendants’ head start/avoided costs of conducting its own studies, finding them an improper measure of actual damages, and one that would be punitive rather than compensatory. Nonetheless, the $821,000 was a conservative proxy of damages, and so the court enhanced it to $2,463,000, as justified by defendants’ intentional/willful conduct, especially in destroying evidence.  Enhancing damages would capture otherwise evanescent measures of goodwill, as well as deter defendants and others similarly situated from engaging in unfair and deceptive behavior.

Damages from Wang’s breaches of fiduciary duty were the costs to re-create or repeat research projects because of Wang’s breaches of fiduciary duty, or $252,000, as well as the recovery of all compensation paid during his period of disloyalty as damages, or $92,000.

Because OmniGen was limited to a single recovery, the total was $821,000 for breach of contract, misappropriation of trade secrets, and false advertising; $344,000 for Wang’s breach of fiduciary duty;  $750 for copyright infringement; and $1,642,000 for enhanced damages under the Lanham Act/punitive damages under state trade secret law.  [The language of the Lanham Act that enhanced damages can’t be punitive seems not to do a lot of work, given how the cases come out.]

The court likewise granted a permanent injunction.  The disclosure or threatened disclosure of trade secrets or even non-trade secret confidential information was sufficient to meet the irreparable injury requirement for a preliminary injunction, as was the consumer confusion, loss of good will, and increased market place barriers which can result, and, in this case, did result, from false advertising.  [Not clear whether this is entirely consistent with Herb Reed.]  Damages/legal remedies were also inadequate because the injuries were difficult to quantify, and they were also ongoing and could worsen without an injunction.

However, the court would not enjoin defendants from working for certain types of feed industry businesses; that was too much of a restraint on trade, as well as unfairly limiting defendants’ ability to satisfy the judgment in this case. The defendants were enjoined against further use of confidential information and false advertising, and also required to assign to OmniGen all their interest in the Chinese patent and application, as well as register the assignment with the Chinese government.

The court’s injunction was worldwide, given that defendants’ wrongful actions included conduct in China.

The court also awarded attorneys’ fees and costs pursuant to the Lanham Act, the Oregon Trade Secrets Act, and Fed. R. Civ. P. 37(b)(2)(C) (relating to spoliation of evidence).  As for the Lanham Act, the complaint’s allegation of intentional and willful false advertising was, “on its own, sufficient to establish the substantive weakness of Defendants’ litigation position.”  Defendants also litigated in an unreasonable manner, including Wang’s attempt to evade service by lying to the process server, an initial default, discovery violations, and a destruction of evidence “beyond anything previously witnessed by this Court.” The award of attorneys’ fees pursuant to the Oregon Trade Secrets Act and Lanham Act applied to the entire action and not just the individual claims under which the fees are authorized, because the claims all involved a common core of facts and were interrelated. Fees awarded were nearly $990,000.

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