The state Superior Court has vacated a $1.4 million verdict against a manufacturer of cryogenic research machines because it was unclear whether the trial court incorrectly doubled the damages in the case.
A three-judge panel ruled March 21 in Advanced Research Systems v. ColdEdge Technologies that the judgment against employees of ColdEdge—sued for violating the Pennsylvania Uniform Trade Secrets Act in connection with using confidential materials belonging to the plaintiff—be sent back to the Lehigh County Court of Common Pleas for reconsideration.
The bench verdict of about $1.4 million included a total of about $1.1 million for harm to plaintiff Advanced Research Systems (ARS) and unjust enrichment to ColdEdge, $235,525 in attorney fees and a $100,000 civil contempt fine against ColdEdge.
President Judge Susan Peikes Gantman wrote in the Superior Court’s opinion that the Lehigh County judge was not clear as to which portion of the $1.1 million was allotted to the actual loss suffered by ARS and to compensation for the unjust enrichment of ColdEdge.
“In light of the confusion as to which dollar amount refers to which type of monetary damages, and the ambiguity as to whether any record evidence supports ‘actual loss’ to ARS,” Gantman said, “we must vacate and remand with directions to the trial court to reconsider its award of damages.”
Gantman added, “Because the $100,000 civil contempt fine is intertwined with the total accounting of monetary damages and/or exemplary damages as well as attorneys’ fees, we direct the trial court to reconsider the monetary award as a whole.”
The founders of ColdEdge—defendants Terrence Rufer, Ajay Khatri, Jeff Romig and Eric Lecher—created the company after their employment with ARS had ended in 2008.
The defendants executed confidentiality agreements upon leaving ARS, stating, among other things, that ARS’s confidential “cryostat” machine schematics and customer lists entrusted to the defendants would remain ARS’s property and, upon the defendants’ termination, would be returned to ARS, Gantman said.
On Khatri’s last day at ARS, he removed six boxes from his office, the contents of which were unknown, according to Gantman. ARS’s president testified that engineering textbooks were missing, as well as a backup hard drive provided to Rufer and Khatri to preserve their work.
Additionally, ARS discovered that Rufer had ceased adding client contact information or customer leads in the ARS database. According to Gantman, a forensic examination of the defendants’ computers showed that they had used ARS’s database to contact ARS customers before and after their respective terminations claiming ColdEdge could beat ARS’s prices on cryostats.
In 2008, ARS sued the defendants for breach of contract, unjust enrichment and misappropriation of trade secrets, civil conspiracy, and violation of the Pennsylvania Uniform Trade Secrets Act. In 2011, the trial court ruled in favor of ARS. The final judgment of $1.4 million against the defendants was entered Jan. 25, 2013.
The defendants argued on appeal that the court’s calculation of ARS’s lost profits was “speculative and illogical” and that “ARS could not have lost profits from contracts for which it did not compete,” Gantman said.
The defendants also argued that the record didn’t support the trial court’s estimation of damages and that the court improperly awarded double damages, according to Gantman. The trial court explained that it awarded $569,000 for actual loss and $500,000 for use and misappropriation of trade secrets.
Elsewhere in the court’s opinion, however, the trial court flipped the numbers, Gantman said, explaining that the defendants should disgorge their unjust enrichment in the amount of $569,000 while devoting $500,000 to ARS for “‘damages suffered.’”
“Elsewhere still, the court described one award as for the ‘unlawful use’ and described the second as for the ‘use and misappropriation’ of trade secrets,” Gantman said, “which appear on the face of it to be identical harms.”
Describing the trial court’s damages award as ambiguous, Gantman said her court could not determine whether the judge had conducted a double counting of actual loss and unjust enrichment.
Furthermore, “The trial court made no finding that ARS’s revenue decreased during the period of misappropriation. Thus, to the extent the trial court implies ARS proved ‘actual loss’ with reasonable certainty, further clarification is necessary,” Gantman said.
In addition to the questions raised over damages, the defendants argued that the devices ARS manufactures are not trade secrets and can be reverse-engineered after public purchase. As for the customer lists, Gantman noted, the defendants maintained that the lists were not subject to trade-secret protection because the information they contained was easily obtainable from outside sources, such as trade journals and phone listings.
Gantman said that while ARS’s finished cryostats were widely known outside of the company, its engineering drawings, noted by the trial court to be expensive and difficult to replicate, were not.
Regarding the lists, Gantman said the information contained in them was not known outside of the company and they were covered by ARS’s confidentiality agreement.
Fitzpatrick Lentz & Bubba attorney Joshua A. Gildea represented the defendants and did not return a call seeking comment.
Patrick J. Reilly of Allentown, Pa.-based Gross McGinley represented ASR.
“The legal decisions were affirmed. It was only the question of damages that needed clarifying,” Reilly said. “So I’m pleased with the ruling.”
(Copies of the 19-page opinion in Advanced Research Systems v. ColdEdge Technologies, PICS No. 14-0418, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •