Court Affirms $31 Million Verdict for Trade Secret Theft

Hallmark-300x122The Eighth Circuit Court of Appeals has affirmed a $31 million verdict in a case involving the misappropriation of PowerPoint presentations created for Hallmark Cards.

The court held that a jury could property conclude that the information contained in the PowerPoints included Hallmark’s trade secrets.

Hallmark, the greeting card company, hired Monitor, a consulting firm, to do research about consumer behavior in the greeting card industry.  Monitor created several PowerPoint presentations to show its findings.

The confidentiality agreements entered into between Hallmark and Monitor prohibited the consulting firm from sharing its findings with any third parties.

Monitor was associated with Clipper, a private equity firm.  Clipper’s investment strategy was “explicitly predicated on harnessing Monitor’s network of consulting clients.”

Shortly after Hallmark hired Monitor, Clipper became interested in acquiring RPG, another greeting card company.  Clipper asked several Monitor consultants to provide the research on the greeting card market that Monitor had compiled for Hallmark.

The consultants provided five of the PowerPoint presentations, and Clipper used that information to price its bid for RPG and to finance its bid.

Clipper told investors:

[T]hrough [Monitor’s] unparalleled experience in the greeting cards industry including the work they have done with Hallmark, [Clipper] can derive growth and produce high cash flow from RPG that others cannot.

After Clipper bought RPG, Hallmark became suspicious that Monitor had disclosed the proprietary research.  Hallmark then initiated arbitration.

Because Monitor and Clipper had taken pains to cover their tracks, there was only limited evidence available of how they had shared information.

The arbitrator initially found that Monitor had used Hallmark’s information “carelessly, although without bad motive” and awarded Hallmark $4.1 million in damages.  (This amount was the $3.2 million fee Hallmark had paid Monitor for its work, plus $900,000 to account for the risk that Hallmark’s other trade secrets might be compromised in future due to Monitor’s breach of the NDA.)

The arbitrator also ordered Monitor to hire an independent forensic investigator to search its computer logs for Hallmark’s proprietary information.

This search turned up emails containing five of the PowerPoint presentations, and this showed that Monitor had willfully provided the information to Clipper.

The court re-opened the arbitration.  Hallmark and Monitor eventually settled for $16.6 million.

Hallmark then sued Clipper in federal court.  A jury awarded it $21.3 million in compensatory damages and $10 million in punitive damages.

Clipper argued on appeal that the PowerPoints did not meet the Missouri definition of trade secrets, but the Eight Circuit disagreed.

The lesson here?  Just because you’re a sophisticated private equity firm, don’t assume that you’re smart enough to get away with trade secret theft – especially when you’re dealing with a beloved American brand and a jury in its home state.

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