Actuators are remotely operated mechanized gadgets utilized in quite a lot of functions, comparable to opening and shutting valves. They’re typically operated hydraulically, which requires them to have their very own valves. Sustaining the actuator in a hard and fast place, e.g., holding the managed valve open or closed, sometimes requires steady operation of the hydraulic system to keep up the place of the actuator’s inside valve.
In 2002, engineer Mark Chester was tasked by his then-employer Koso America Inc. with designing a brand new actuator valve. The aim of this venture was to revamp one of many firm’s present merchandise to keep away from paying royalties on a third-party patent underneath which the corporate was licensed. The pre-specified design objectives of the venture weren’t met, however Chester and a colleague in the middle of their work developed a unique actuator by which the valve was supplemented with solenoids, that are electromagnetic gadgets by which a plunger is moved forwards and backwards in response to electrical present flowing by a surrounding coil. The solenoids might keep a hard and fast place, e.g., opened or closed, with extra effectivity than the actuator’s hydraulic valve. One other Koso worker wrote code to regulate operation of the solenoids, and the workforce made a prototype. Nevertheless, the venture was discontinued, the prototype was disassembled, and no additional work was achieved. The whole thing of the venture — from inception to termination — spanned lower than two full months.
The next 12 months, Chester left Koso and was, through the ensuing years, employed by a number of of Koso’s opponents. Amongst them was an organization based by his former supervisor at Koso that additionally employed a number of different former Koso staff. The proof confirmed that Koso administration knew of this firm and thought of it a competitor. At no time, nonetheless, did Koso allege that Chester was in breach of any obligations he owed it.
In 2012, Chester joined MEA Inc. as a senior engineer and commenced work on a brand new solenoid-operated actuator. The MEA actuator was prototyped in 2013, and the corporate filed a patent software in 2014 naming Chester as sole inventor.
In 2017, REXA Inc., which had by no means employed Chester however claimed to be the proprietor by project of Koso’s related mental property, sued Chester and MEA for misappropriation of commerce secrets and techniques underneath the Illinois Commerce Secrets and techniques Act, contending that each the patent software and the brand new MEA actuator had been based mostly on, or integrated, commerce secrets and techniques belonging to REXA that Chester had obtained throughout his employment at Koso. It sought, amongst different issues, possession of the MEA patent software.
District Court docket Proceedings
After the shut of discovery, the U.S. District Court docket for the Northern District of Illinois granted Chester and MEA’s motions for abstract judgment. Referring to the MEA system by its model title “Hawk,” the district court docket contrasted the failure of the Koso venture with the Hawk’s success:
The . . . undisputed and indisputable fact is that the experimental Koso system was an operational failure and deemed unworthy of additional makes an attempt to provide a workable and purposeful actuator. No additional makes an attempt to take action had been ever made by Koso or REXA when it later got here into existence.
Along with the elements of the Hawk differing from Koso’s experimental system, the truth that it by no means labored sufficiently sufficient to go ahead with the experiment suggests materials variations in its composition, talents, and operational efficiencies compared with the Hawk. There will be no materials dispute that Koso’s lower than two-month experiment didn’t describe or produce an invention the equal of or considerably just like MEA’s Hawk.
There isn’t a factual foundation to conclude that the [2002] venture which was aborted inside a few months is identical, or considerably the identical, because the Hawk actuator. Though each tasks mirrored using some frequent elements well-known within the business, the Hawk actuator presents quite a lot of components totally different from, and higher than, these mirrored in Koso’s prototype. . . . The time and experience dedicated to the Hawk’s growth . . . clearly displays the funding in concepts which had been consummated within the Hawk. Distinction these efforts with the relative paucity of time and expense dedicated to the [2002 Koso] prototype.
Rexa, Inc. v. Chester, 17 C 8716, 14-15 (N.D. Unwell. Sept. 10, 2020)
The district court docket additionally awarded Chester and MEA greater than $2.3 million in attorneys’ charges incurred in defending the case, discovering amongst different issues that REXA had falsified displays and engaged in different litigation misconduct. These info are usually not immediately related to the substantive commerce secret points mentioned within the submit, however the district court docket’s opinion awarding charges illustrated additional its view of the deserves of REXA’s case:
The basic premise of the Plaintiff’s lawsuit is {that a} failed experiment . . . produced an concept and system which was the important equal of an actuator designed and developed greater than ten years later by the Defendants. The developed actuator, named the Hawk, has proved its efficacy and industrial value within the market. The 2002 experiment lasted not more than two months, and the system constructed in pursuit of the theories being examined was disassembled.
Said thusly, the Plaintiff’s competition on this lawsuit is that Chester stole secrets and techniques from a failed experiment which grew to become the important equal of a profitable industrial product developed greater than ten years later. The competition is so devoid of advantage that it borders on the ludicrous.
Rexa, Inc. v. Chester, 17 C 8716, 5 (N.D. Unwell. March 2, 2021)
REXA appealed each the district court docket’s grant of abstract judgment to the defendants and its award of attorneys’ charges.
Court docket of Appeals Resolution
The U.S. Court docket of Appeals for the Seventh Circuit affirmed the district court docket’s grant of abstract judgment to the defendants. Along with agreeing with the district court docket’s dedication that REXA had not come ahead with info adequate to defeat abstract judgment on the difficulty of misappropriation, the Seventh Circuit additionally relied on REXA’s failure to show the existence of a commerce secret within the first place.
The Seventh Circuit’s dialogue of REXA’s failure to show the existence of a commerce secret serves as a reminder that commerce secret claimants shouldn’t count on to hold their burden on this problem by counting on generalities. Relatively, existence of a commerce secret could be very tough to show absent the claimant’s identification of particular and concrete components that distinguish the commerce secret from the overall physique of information within the related subject of endeavor.
Right here, for instance, REXA recognized as its purported commerce secret the “2002 Designs,” and using solenoids (which had been identified within the artwork) “together with different elements to create a brand new and beforehand unknown actuator.” REXA, Inc. v. Chester, No. 21-2033, slip op. at 10 (seventh Cir. July 29, 2022). Nevertheless, REXA needed to admit that the 2002 prototype was largely a modification of Koso’s industrial product (the Xpac actuator) with components that had been additionally identified within the subject:
REXA broadly contends that the “2002 Designs” had been commerce secrets and techniques that Chester and MEA misappropriated. REXA tells us that Koso saved a sketch of the 2002 actuator prototype (contained throughout the design file), the supply code, and testing outcomes—although not the prototype itself. With out higher specificity, REXA has not recognized the commerce secrets and techniques. . . . As REXA acknowledges, the Xpac actuator is publicly obtainable and due to this fact not a commerce secret, as anybody is permitted to repeat it. And REXA additional admits that using solenoid valves to carry an actuator in place was identified within the business earlier than 2002. So, neither the Xpac actuator nor using solenoid valves to carry an actuator in place underneath load qualifies as a commerce secret.
No different side of the 2002 actuator prototype has been recognized with adequate specificity to defeat abstract judgment. . . . REXA doesn’t dispute that the actuator prototype was an Xpac actuator with two solenoid valves and modifications to the manifold, tubing, circuit board, and coding. On the similar time, REXA fails to determine proof displaying that the manifold, tubing, or circuit board had been a part of any purported commerce secret. That leaves solely the supply code . . . . Because the defendants be aware, REXA doesn’t argue the supply code was the important thing ingredient supporting the existence of a commerce secret throughout the prototype. So, we conclude that no affordable jury might discover that REXA has recognized a commerce secret underneath the [Illinois Trade Secret Act].
Id., slip op. at 11-13 (citations omitted)
The court docket additional thought-about — assuming arguendo the existence of a commerce secret — if REXA had made a displaying that MEA had wrongfully used (misappropriated) the putative commerce adequate to hold REXA’s burden on abstract judgment. On this problem, REXA argued that there had been two situations of misappropriation, one when MEA filed its patent software with claims that purportedly embraced the 2002 prototype, and a second when it integrated options of the 2002 prototype into MEA’s industrial product, the Hawk actuator.
REXA’s competition with respect to the patent software turned on an modification to the claims that MEA had made throughout prosecution to be able to overcome the patent examiner’s rejection of them based mostly on the prior artwork. Particularly, MEA amended its claims to require that the actuator’s motor might “speed up from zero to most revolutions per minute (RPM) underneath full load.” Slip op. at 5. In accordance with REXA, Chester had admitted at his deposition that this was additionally a characteristic of the 2002 prototype. The Seventh Circuit rejected this argument, observing that Chester’s precise testimony was that he speculated that the 2002 prototype had this functionality, however didn’t know if it truly did as a result of it had by no means been examined. Id. at 14.
Additional, the court docket held, REXA wouldn’t have carried its burden even when Chester had testified because it contended, i.e., that the 2002 prototype in reality had the identical efficiency underneath load as claimed within the patent. As thus far, the court docket held that no inference might be drawn that Chester had used his data of the 2002 prototype given the passage of time, compounded by the truth that he had not retained any Koso paperwork and must have maintained data of the specifics of the 2002 prototype solely in his reminiscence:
[E]ven if the 2002 prototype had met each limitation of the patent software’s allowed declare 3, REXA’s allegations of misappropriation would nonetheless relaxation on a sequence of untenable inferences. Critically, it’s undisputed that eleven years handed between when Chester first labored on the actuator prototype for Koso, and when he began work at MEA on the designs that may later underlie the patent software. As we famous earlier, there’s additionally no dispute that Chester didn’t see [his co-worker’s] sketch of the 2002 prototype, the supply code, or the take a look at outcomes. Chester by no means noticed or bodily took any documentation with him. However REXA asks the court docket to deduce that he in some way retained and preserved for eleven years the data from his work on the shelved 2002 actuator prototype.
Though Chester would have acknowledged that this data was commercially worthwhile, in line with REXA he selected to do nothing with it for the complete interval earlier than 2013. . . . Then, in 2013, Chester supposedly determined to misappropriate his encyclopedic data of the 2002 actuator prototype. Merely put, these inferences are barely “conceivable” and definitely not “affordable,” so they won’t be drawn at abstract judgment. REXA has not directed us to a case the place a court docket inferred that the misappropriation of commerce secrets and techniques might plausibly have occurred regardless of a scarcity of proof in regards to the defendant’s seizure or possession of paperwork. We additionally haven’t positioned such a case. Much more, the eleven-year hole renders the inferences that REXA asks us to attract exceptionally unreasonable.
Id. at 15-16 (citations omitted)
Having rejected REXA’s argument regarding efficiency of the motor underneath full load in its argument in regards to the patent software, the Seventh Circuit made quick work of REXA’s competition based mostly on the design of the Hawk, which included this characteristic as a “central innovation.” Id. at 16. The court docket additionally pointed to REXA’s lack of proof to contradict Chester’s testimony that he had developed the Hawk based mostly on his expertise within the subject courting again to 1976:
Requested when he first conceived of the invention described within the patent software, he responded that the Hawk was “based mostly on a lifetime of labor in hydraulics” and was an “incremental course of” courting again to 1976. REXA doesn’t level to something that contradicts Chester’s assertions about the best way by which the concept for the Hawk got here collectively.
Id. at 18
Lastly, having said above that the district court docket awarded the defendants their attorneys’ charges, this submit can be remiss if it left the reader questioning concerning the Seventh Circuit’s disposition of that side of REXA’s attraction. As to the charge award, it held that the district court docket 1) didn’t err in awarding charges as a sanction for REXA’s litigation misconduct, however 2) fell in need of adequately justifying its determination to award everything of the defendants’ charges with out explaining its rejection of each objection that REXA had made to the specifics of the defendants’ charge software. Accordingly, the Seventh Circuit vacated the charge award and remanded the case to the district court docket to elucidate its determination as to the quantity of charges. Slip op. at 33-35.
