Quoting Section 40, comment c, of the Restatement (Third) of Unfair Competition, the Fifth Circuit Court of Appeals held recently that “Any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant” constitutes a “use” giving rise to liability for misappropriation (emphasis added). So, when Varco, LLP filed its own patent application with respect to another person’s invention which had been disclosed to Varco in confidence, Varco “used” the trade secret. Although no patent ever was issued, the jury’s compensatory damages award of $600,000 against Varco and in favor of the inventor was warranted. Bohnsack v. Varco, LLP, No. 10-20741 (5th Cir., Jan. 23, 2012).

After Varco executed a confidentiality agreement, Bohnsack disclosed his invention of a machine to clean tanks used in oil drilling. Negotiations ensued regarding Varco’s payment for use of the invention, but ultimately they were abandoned. During the course of the negotiations, Varco asked its attorney, McClure, to prepare a patent application. He did so, but he included a declaration that he and Bohnsack were co-inventors. At McClure’s request, Bohnsack executed the declaration. After signing, however, he had second thoughts which he communicated to McClure who assured him that the declaration would not be filed until the matter was “sorted out.”   Nevertheless, McClure proceeded to file the application and declaration. 

McClure assigned to Varco his rights in the invention. But Varco already had a product that performed the cleaning task cheaper, and so it decided not to use the invention, withdrew the patent application, and relinquished all rights to Bohnsack. He then developed the invention without patent protection. 

Varco sued Bohnsack in a Texas federal district court, seeking a declaration that it had done nothing wrong. It stressed that McClure was not a Varco employee, and so respondeat superior did not apply to his misconduct. Bohnsack counterclaimed for trade secret misappropriation and for the fraud McClure had committed. Varco’s motions for judgment were denied, and the case was submitted to the jury. It rendered a verdict for Bohnsack and against Varco, awarding him compensatory damages of $600,000 on both counts and punitive damages on the fraud claim. 

The appellate court affirmed the trade secret misappropriation compensatory damages verdict but held that Bohnsack was entitled to a “take-nothing” judgment for fraud and to no punitive damages. Rejecting Varco’s argument that Bohnsack had not proved an injury caused by the misappropriation, the Fifth Circuit reasoned that Varco knew about McClure’s misconduct, and that a $600,000 award was proper because it approximated the minimum fair market value of the trade secret since Varco had offered to buy the invention for that much and more.

This case teaches, first, that filing a patent application covering someone else’s invention may constitute a “use” of the invention and, therefore, an applicant who fails to obtain the inventor’s unequivocal consent may be found guilty of trade secret misappropriation. The second lesson is that juries and judges are not sympathetic to miscreants.