In a sweeping 70-page opinion issued late yesterday, U.S. District Court Judge Robert Payne imposed a breathtaking injunction against Kolon in its long-running and contentious trade secret dispute with DuPont, barring Kolon from making Heracron, the synthetic fiber that DuPont contended was inextricably built with its trade secrets for the fiber Kevlar, for 20 years.  The opinion is significant not only because of its breadth and scope, but also because of its reasoning, reasoning that could make it significantly easier for trade secret claimants to secure permanent injunctive relief compared to patent, copyright and trademark claimants.  (A PDF copy of the opinion can be found below).
Background:  DuPont secured a $920 million jury verdict last September against Kolon, a South Korean competitor, for stealing its trade secrets.  According to DuPont, Kolon had failed to come up with a synthetic fiber that could compete against DuPont’s Kevlar, a para-aramid technology that is used in, among other things, law enforcement and military body armor.  In his opinion, Judge Payne found that, having failed to develop or perfect Heracron, Kolon set upon a deliberate path to steal DuPont’s trade secrets, and did so by approaching a number of former DuPont employees, including Michael Mitchell, to gather and forward DuPont’s trade secrets to Kolon.  Mitchell later pleaded guilty to the theft of DuPont’s trade secrets and admitted to serving as a conduit for the theft of those secrets from other DuPont employees.
After DuPont sued Kolon, it discovered a number of screenshots that indicated that managers and other employees in South Korea had deliberately deleted, overwrote or destroyed a substantial number of documents regarding the development of Heracron and communications with Mitchell and others.  Judge Payne ultimately found that Kolon’s employees intentionally destroyed approximately 17,000 email files and documents and he sanctioned Kolon by providing an adverse inference instruction to the jury that they could find that this was done to conceal damaging evidence.  After the jury’s verdict, he awarded $350,000 in punitive damages to DuPont as well as its attorneys fees and denied Kolon’s motions to set aside the verdict.
Key Holdings in Judge Payne’s Opinion:
1.  The U.S. Supreme Court’s decision in eBay does not apply to trade secret injunctions.  As many readers know, in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), the U.S. Supreme Court found that irreparable injury had to be proven in a request for a permanent injunction in post-trial proceedings involving a patent.  Irreparable injury is the critical element in any request for an injunction and it generally means that a party must show that it needs relief that it could not secure through a traditional money damages dispute (i.e., damages are difficult to measure, the injury cannot be cured by money, the defendant cannot satisfy a money judgment).  In eBay, the Supreme Court emphasized that patent cases are no different than any other federal civil claim and that there should be no presumption of irreparable injury, even though a jury or judge may have found patent infringement.  The eBay decision has since been applied to trademark and copyright injunctions and it is generally believed that decision has caused a marked decrease in the number of permanent injunctions for those types of intellectual property.

Judge Payne was apparently troubled by the issue of whether DuPont was still being irreparably harmed, and as a result, whether the U.S. Supreme Court’s decision would apply or whether Virginia law should apply, since DuPont’s trade secrets claim arose under Virginia’s Uniform Trade Secrets Act (UTSA).  Frankly, I am not quite sure why he was so concerned about this issue, as he ultimately found  that the elements of irreparable injury were present later in his opinion. Nevertheless, in an exhaustive analysis of case law and academic articles as to which law should apply, Judge Payne found that eBay only applied to federal statutes (patent, trademark and copyright) and that Virginia’s version of the UTSA should govern. 

After deciding that the Virginia UTSA applied, Judge Payne then proceeded to find that DuPont was irreparably damaged when he balanced the harm that any injunction might have against Kolon against the harm to DuPont if it was not granted.  He rejected Kolon’s argument that DuPont had been made whole by the $920 million judgment since Kolon had acknowledged it might not be able to satisfy that judgment and that it was having difficulty securing a bond in support of its appeal from that judgment.  Judge Payne also held that discerning the trade secrets’ value might still be difficult.  Both of these rulings are consistent with traditional findings associated with irreparable injury.  Finally, he was troubled by Kolon’s continued ability to benefit from the fruits of its crime, particularly since that injury could impact the next generation of para-aramid technology.
2.  Kolon’s misconduct and Judge Payne’s distrust of Kolon played a critical role.  As noted above, the theft of trade secrets and destruction of evidence had a profound effect upon Judge Payne’s decision on the scope of the injunction.  Judge Payne considered, and rejected, an injunction barring Kolon from simply using the trade secrets.  He emphasized that Kolon had demonstrated that it could not be trusted and that it could evade a “use” injunction without detection by the court.  Judge Payne emphasized one fact on several occasions:  that Kolon had surreptitiously copied the contents of Mitchell’s computer during a lunch recess when he was debriefing them on what he had collected.  In other words, Kolon stole trade secrets from the consultant that it engaged to steal trade secrets from DuPont. 

Judge Payne therefore concluded that the only way that DuPont could be sure that its stolen trade secrets were not used was imposing a ban on the production of body armor products.  He noted that DuPont had presented “persuasive evidence obtained from inspection of Kolon’s manufacturing facilities and from Kolon’s own documents that showed how Kolon had incorporated the stolen DuPont trade secrets into Kolon’s own operations, including evidence that Kolon even had copied machine configurations that DuPont had used solely because of its need to fit machinery into limited space in its plant.”  As a result, he found that the use of the stolen trade secrets was integral and essential to Kolon’s manufacture of Heracron.

In addition, Judge Payne ruled that Kolon would have to return any information regarding those trade secrets, under his supervision.  While the order is not specific about how that will be implemented, given the contentious history of this case, and Kolon’s poor relationship with Judge Payne (it requested that he step aside earlier this year), there will certainly be fireworks during that process.

3.  How did he come up with the 20 years?  Judge Payne noted that Kolon had unsuccessfully tried to develop Heracron over a period of 20 years and that it was only as a result of the theft of DuPont trade secrets that it was able to refine and perfect that fiber.  Using that time estimate as a baseline, Judge Payne imposed a 20 year ban.

Twenty years.  To put that in context, my three year old will be in graduate school (hopefully) by the time Kolon can begin any effort to re-enter this market.  Simply put, this injunction effectively puts Kolon so far behind DuPont that it amounts to a permanent ban on the development of any body armor product.

Why is this opinion potentially very important?  Leaving aside the fact that it is an extraordinary injunction in one of the highest profile trade secret cases in recent memory, this opinion could have tremendous implications throughout the U.S. and worldwide.  Let me explain. 

Like every state except Massachusetts, New York and Texas, Virginia is a Uniform Trade Secrets Act jurisdiction, meaning that states adopting the UTSA have done so for, among other reasons, uniformity.  Consequently, to the extent that the highest court in a state has not spoken on this issue, courts in other states who are considering this question under their versions of the UTSA are likely to look for guidance from this thorough and well-reasoned opinion. 

In addition, this decision has important extra-territorial implications.  Even though the misappropriation took place overseas, Judge Payne found that it had a substantial impact on a company based in the U.S.  Judge Payne noted that in the existing global economy, some foreign actors have not respected the IP rights of American companies and that it might be necessary to impose an injunction to protect those rights here in the U.S.  He also noted that foreign companies that submit to jurisdiction in the U.S. and cause injury to American companies can and should be subject to the laws of the U.S.

In sum, this means that in the context of a permanent injunction, courts applying the law of the 47 states that have adopted the UTSA may elect to dispense with the requirement of irreparable injury and could impose a ban on the manufacture of the production of competing products overseas.  This is a significant advantage, as many federal courts that have applied eBay have found that an underlying money award is adequate relief and have therefore declined to find irreparable injury and grant a permanent injunction.  This decision provides a substantial advantage in favor of trade secret protection, and is yet another sign that trade secret protection may be preferable to patent protection for some IP.

DuPont v. Kolon Permanent Injunction.pdf (2.35 mb)