Co-author Sonya Reddy
Defendants accused of stealing trade secrets often claim that publicly available information can’t constitute a trade secret. Sometimes yes, but mineral ownership that can be determined from the public record only after lengthy, expensive, and labor-intensive research in the county courthouse can have trade-secret protection, according to Eagle Oil & Gas Co. v. Shale Exploration, LLC.
It began like a routine exploration venture …
In 2011 Orion and Black Pearl agreed to develop the Jayhawk Prospect in Daniels County, Montana. Orion would develop the geology; Black Pearl would market the deal; and Shale Exploration (owned by Orion) would acquire the leases. Shale researched the public records and used the results to acquire oil and gas leases for the prospect.
Black Pearl identified Eagle Oil & Gas as a potential development partner. Shale presented the prospect to Eagle in meetings in which it disclosed leases it already had and a so-called “treasure map” showing targets for future leasing.
The trade didn’t work out, so Orion, Black Pearl and Shale approached Apache. Shale and Orion went their separate ways; Shale promised to acquire 300,000 acres within six months and Apache would buy the leases at $800 per acre.
Meanwhile, a company wholly-owned by Eagle hired a landman to acquire leases in the area covered by the treasure map and assign the leases to the Eagle company. Shale intervened in a suit against Eagle by Orion and Black Pearl for theft of its trade secrets.
The plaintiff wins big at trial
After a trial, a jury awarded Shale $14.3 million in lost profits, $4 million for leases acquired by Eagle that prevented Shale from acquiring and reselling to Apache, $10.3 million for Shale’s increased lease costs because of Eagle’s competition, and $4.5 million in punitive damages.
The court of appeals says …
The economic loss rule (barring recovery in tort for economic losses caused by breach of a contract) didn’t apply. Breach of a confidential relationship can give rise to independent claims for breach of contract and misappropriation of trade secrets, and lost profits are recoverable for both.
The information constituted trade secrets …
The trial was a swearing contest. There was sufficient evidence that the map and presentation materials were trade secrets. The fact that identification and compilation of mineral owners within the prospect was derived from publicly available information didn’t foreclose trade secret status. Difficulty in obtaining and compiling information that provides a competitive advantage is an important factor. Also, disclosure of anticipated royalty and bonuses was a trade secret.
There was sufficient evidence for the jury to find that the information was subject to an executed confidentiality agreement or an expectation of confidentiality even if there was no written agreement. There was testimony that Eagle signed a confidentiality agreement. (In other words, somebody lost a very important document.)
… that were misused
There was also sufficient evidence of unauthorized use. Shale’s president testified that the landman who acquired leases for Eagle showed him a copy of the “treasure map”. Eagle’s witnesses conceded that no one outside Orion or Shale made presentations, and neither Eagle nor its landman did title work on their own despite the highly fractionized mineral ownership in the area..
Good news for bad actors?
The court reversed the exemplary damage award because Eagle’s intentional misappropriation was not legally sufficient evidence of malice. Otherwise, “exemplary damages would be recoverable as a matter of course in every misappropriation case, rather than the exceptional case involving egregious misconduct and injury.”
A dissenting opinion disagreed, reasoning that the majority required a plaintiff seeking exemplary damages to not only demonstrate malice, but also that it sustained some compensable injury distinct from its underlying misappropriation claim. That is contrary to the purpose of exemplary damages, which is not to compensate, but to punish.
Given the Supreme Court’s penchant for depriving lower-court winners of large recoveries, one would expect Eagle to seek comfort in the care of that lofty institution.