Damages for Misappropriation of Idea Limited to “Head-Start” Damages
On July 14, 2021, on appeal of a jury award in the District Court for the District of New Jersey in Nite Glow Industries Inc., I Did It, Inc., and Marni Markell Hurwitz v. Central Garden & Pet Company and Four Paws Pet Company, the U.S. Court of Appeals, Federal Circuit, reversed the jury’s $11 million award for misappropriation of idea, a common law tort under New Jersey law.
The defendants Central Garden & Pet Company (“Central”) and Four Paws Pet Company (“Four Paws”) appealed a judgment awarding the plaintiffs Nite Glow Industries Inc., I Did It, Inc., Marni Markell Hurwitz (“Ms. Markell”) approximately $11 million for misappropriation of idea. The jury also awarded the plaintiffs $825,450 in damages for breach of contract and $825,450 in damages for infringement of Ms. Markell’s patent – an award totaling $12,656,900.
At a May 2009 meeting with representatives of defendant Four Paws, Ms. Markell presented her idea for an applicator (the “Applicator”) for the administration of flea and tick medicine directly to an animal’s skin. At the outset of the meeting, Ms. Markell and Four Paws entered into a confidentiality agreement identifying Ms. Markell as the owner of the confidential information. During the meeting, Ms. Markell presented her idea for the Applicator and presented drawings and a prototype.
Following their meeting, Central pursued a project referred to as “Project Speed” focusing on designing its own flea and tick medicine applicator. The kickoff meeting for Project Speed occurred in November 2009, approximately six months following Ms. Markell’s May 2009 meeting with Four Paws, and Central concentrated on “‘a treatment dispensing system’ with long-term focus on ‘potential solutions for spot on application.’” (Citations omitted.) Ultimately, Project Speed resulted in a new applicator designed in August 2010.
Ms. Markell had filed an application for a patent for the Applicator in October 2008. Her patent was published on April 8, 2010, disclosing the Applicator to the public, and her patent application was granted on November 15, 2011.
In March 2012, based on its August 2010 applicator design for Project Speed, Central launched its “Smart Shield” product line, i.e., applicators for flea and tick medicine. Upon seeing the Smart Shield products at the Global Pet Expo in Orlando, Florida, Ms. Markell concluded that Central had stolen her idea for a flea and tick medicine applicator.
The plaintiffs brought claims for misappropriation of idea and confidential information, breach of the confidentiality agreement, and infringement of Ms. Markell’s patent. After a full trial, the jury ruled in the plaintiffs’ favor on all three claims and awarded $11,006,000 in damages for misappropriation of idea, $825,450 in damages for breach of contract, and an additional $825,450 in damages for patent infringement.
Following the jury’s award, the defendants filed a post-trial motion seeking judgment as a matter of law on the plaintiffs’ infringement claim, as well as a post-trial motion seeking elimination of the damages awarded to the plaintiffs for breach of contract as duplicative of the misappropriation award. The district court granted both motions.
The plaintiffs filed a post-trial motion seeking specific performance of the provisions of the confidentiality agreement requiring the defendants to assign their intellectual property to the plaintiffs. The district court denied the plaintiffs’ request for specific performance.
The defendants appealed and the plaintiffs cross-appealed.
On appeal, the defendants asserted that “because Ms. Markell’s idea became publicly known when the patent application was published on April 8, 2010, it was no longer confidential as of that date . . . [and therefore] damages could only be awarded for [the] ‘head start’ that defendants received over competitors because of their use of Ms. Markell’s idea before it became public, and that plaintiffs did not establish entitlement to damages for a head-start period.” (Citation omitted.)
The Federal Circuit Court of Appeals held that “where, as here, there is a claim for misappropriation of idea and the idea at issue becomes public after it has been misappropriated through no fault of the defendant, the New Jersey Supreme Court would restrict [] damages to the ‘head start’ period, at least where defendants’ action did not prevent plaintiffs from entering the market.” (Citation omitted.)
The Court of Appeals defined the “head start” period as:
“the period in which information is entitled to protection” as a novel idea, “plus the additional period, if any, in which a misappropriator retains an advantage over good faith competitors because of misappropriation.” [Citation omitted.]
As a result, the Court of Appeals reversed the jury’s award of $11,006,000 for misappropriation of idea anAs a result, the Court of Appeals reversed the jury’s award of $11,006,000 for misappropriation of idea and remanded the case to the district court for a new trial on “head-start” damages, i.e., damages for misappropriating Ms. Markell’s idea during the period prior to the disclosure of the patent application to the public. The Court of Appeals affirmed the district court’s denial of the plaintiffs’ request for specific performance and the district court’s grant of the defendants’ post-trial motion for judgment as a matter of law on non-infringement.
On appeal, the plaintiffs argued that, based on the terms of the confidentiality agreement, which required the defendants “to disclose and assign to Ms. Markell inventions and discoveries ‘resulting from or arising out of [the defendants’] activities hereunder” (i.e., inventions and discoveries resulting from or arising out of the confidential information), the defendants were contractually obligated to assign three design patents and a utility patent application to the plaintiffs. (Citation omitted.) The Court of Appeals affirmed the district court’s ruling that “plaintiffs adduced insufficient evidence that these specific patents and patent application[] bear the required nexus to activities under the confidentiality agreement.” (Citation omitted.) The Court of Appeals further noted that “[t]he jury verdict did not indicate that the jury found breach based on a failure to disclose and assign the specific design patents and utility patent application.” (Citation omitted.)
With regard to Ms. Markell’s patent infringement claim, the district court was “persuaded by the prosecution history that the only way in which [Ms. Markell] was granted the ‘445 Patent [was] by specifying rubber of a certain thickness to differentiate the material from plastic’”, and, therefore, Ms. Markell had specifically disavowed plastic from the scope of her patent. (Citation omitted.) Because the allegedly infringing products are made of a material that was outside the scope of Ms. Markell’s patent, the district court held that, as a matter of law, there was insufficient evidence of patent infringement. The Court of Appeals agreed noting that Ms. Markell specified in her patent application “an applicator base with a chamber made of rubber [and] [i]t is clear that there was a disavowal of plastic.” (Citation omitted.)
To review the Federal Circuit’s decision, please click here.
