Eastman’s divestment of its PET business in the EU to Indorama ended up in Delaware federal court as the licensor’s patent infringement action.  Eastman Chemical Company v. AlphaPet Inc. et al. (09-CV-971).  Named as defendants are the Indorama licensees, and affiliates, and a U.S. subsidiary, AlphaPet.

The complaint raises interesting problems about a licensor suing licensees for patent infringement along with a trade secret breach by the licensor’s employees. It underscores the importance of a well thought out forum selection clause that extends to all the licensees and affiliates.

The divestment included a Technology Licensing Agreement, and the transfer of assets and Eastman employees to the licensees. The license limited Indorama to making PET only in its EU facilities. Trade secrets too were licensed, and allegedly, “with a few exceptions” the use was “restricted” to the EU plants. Later, Indorama set up a plant in Alabama, where its subsidiary Alpha Pet operated a “melt-to-resin PET manufacturing process.” The Complaint alleges on “information and belief” that former Eastman employees disclosed trade secrets “relating to the manufacture of PET during the design, start-up and/or operation” of the AlphaPet plant in Alabama. These former employees allegedly knew about the licensed PET technology, as well as other un-licensed IntegRex™ technology for PET.

It is not pleaded whether the allegedly infringed patents were licensed or not, or whether any of the pleaded patents cover the Eastman IntegRex technology.  (Note: Eastman’s IntegRex™ webpage offers “licensing opportunities, patent protection and technical support on a global basis”).

When employees breach an agreement or duty of confidentiality with their employer, the claim against the receiving party, for misuse of the confidential information, can be complicated. In general, notice of the breach, or some other ‘knowing’ misconduct by the recipient, must be proven. The Uniform Trade Secrets Act refers to acquisition by one “who knows or has reason to know that the trade secret was acquired by improper means,” which it defines to include “breach of a duty to maintain secrecy.”

Sure, the employee can be sued, but taking action against the recipient involves proving “improper means.” This can be more difficult when the recipient is a licensee, since a license sometime provides a complete defense. It is part a technical problem – sorting the licensed from the unlicensed technology – and part a problem of proving different elements of distinct business torts.

A further complication arises when an issued patent discloses the alleged trade secrets, or it teaches the essential technology transferred to the licensee. What the patent makes publicly known no longer is a trade secret. Water Tech. v. Calco, 850 F.2d 660 (Fed. Cir. 1988) (“patents issued … before Gartner’s disclosure … so that the information ‘misappropriated’ could not possibly be a trade secret”). Even against a non-licensee, public disclosure can be a complete defense to a trade secret claim. See, Ultimax Cement v. CTS, 587 F.3d 1339, 1354 (Fed. Cir. 12/3/09). Again, sorting out the licensed, from the patented, from the secret technology can be difficult to do, and even harder to explain in a courtroom.

Also, the suit reminds of how important a choice of forum clause can be. The licensed Indorama defendants are in several EU countries, with a U.S. subsidiary in Alabama, and the ultimate parent IRP being a Thailand company.

The parent, IRP, was not a signatory to the license, nor was the U.S. subsidiary AlphaPet. (Alpha Pet has no connection to the 2006 film, Alpha Dog, but it too dealt with a $$$ dispute). IRP is alleged to have “affiliate status” under the terms of the license, and so maybe hooked into the Delaware forum selection clause. By foresight or happenstance, AlphaPet is a Delaware corporation.

Check the last clause you reviewed to see whether it extends to affiliates who get access to the technology from the named licensee.

Today’s post is by Guest Barista Lee Thomason, an IP strategist and former FBT-er who teaches IP law at the UK College of Law.

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  1. […] This post was mentioned on Twitter by Barista/Coffee Video, PriorSmart. PriorSmart said: Interesting piece from patentbaristas.com: Licensor, Sue Thy Own, For Thy Secrets – http://cli.gs/NWD6s #japan #patent […]

  2. To complicate things, isn’t whether the employee breached a duty not to disclose usually covered by the law of the state in which they are/were employed? That is, in my experience, employment agreements are a matter of state law, and these employment agreements will have the employee’s obligations to maintain confidentiality in them. Yes, you can say it is a matter of Delaware law, but that may not be standard procedure in such agreements–or if it is the state’s public policy may not allow that to occur: why would an employee be subject to a far-flung jurisdiction with respect to local employment matters?