Opinion
NO. 3-01-CV-1532-M
May 19, 2003
FINDINGS AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE [REDACTED VERSION]
At the request of DDI, the Findings and Recommendation of the United States Magistrate Judge issued on May 9, 2003 has been placed under seal. This redacted version, which will be filed of public record, deletes the putative trade secret information that DDI claims is entitled to legal protection. The FBI parties have agreed to the redactions.
Plaintiffs Frosty Bites, Inc., Nicholas Angus, and Thomas R. Mosey ("FBI" or "FBI parties") have filed a motion for partial summary judgment with respect to the counterclaims of Defendant Dippin' Dots, Inc. ("DDI") for misappropriation of trade secrets and trade dress infringement. DDI has filed a motion for summary judgment with respect to alleged antitrust violations arising out of the enforcement of its trade secret rights. For the reasons stated herein, both motions should be granted.
I.
DDI is the exclusive licensee of a utility patent for making flash frozen ice cream beads. (U.S. Patent No. 5,126,156 or "the `156 Patent"). This novelty product consists of small colorful spheres of ice cream that can be poured, spooned, or scooped into a container because of their free flowing characteristics. (FBI MSJ App., Exh. 4 at 25-27, Exh. 7 at 82 Exh. 46 at 857). DDI distributes its product through a nationwide network of retail dealers operating out of kiosks or stands at amusement parks, sporting venues, and shopping malls. ( Id., Exh. ¶ at 80-81). To identify itself at these locations, DDI has a distinctive logo made up of several elements. A circle of blue, yellow, and pink spheres of different sizes frame the logo. The product name "dippin' dots," in blue letters, runs through the middle of the circle. The word "dots" falls below and to the right of "dippin'." Below the circle of spheres lies a tag line touting Dippin' Dots as the "Ice Cream of the Future." Three spheres, which are also blue, yellow and pink, are located on both sides of the tag line. ( Id., Exh. 46 at 857; DDI MSJ Resp. App., Exh 48 at 1662).
The first claim of the `156 patent contains six steps for making flash frozen, free flowing ice cream beads:
1. Preparing an alimentary composition for freezing;
2. Dripping the alimentary composition into a freezing chamber;
3. Freezing the dripping alimentary composition into beads;
4. Storing the frozen beads at a temperature at least as low as -20° F so as to maintain the beads in a free flowing state for an extended period of time;
5. Bringing the beads to a temperature between substantially -10° F and -20° F prior to serving; and
6. Serving the beads for consumption at a temperature between substantially -10° F and -20° F so that the beads are free flowing when served.
(DDI MSJ Resp. App., Exh. 44 at 1600, col. 6, In. 41-57).
In October 1999, DDI offered its then-current dealers an opportunity to franchise their operations. (DDI Am. Countercl. ¶ 5). Eight dealers who did not accept the franchise offer subsequently entered into negotiations with Nicholas Angus and Thomas R. Mosey to establish a facility in Deerfield Beach, Florida to manufacture a competing ice cream product called "Frosty Bites." ( Id. ¶¶ 6, 9, 10, 18). During the course of these discussions, the dealers allegedly provided Angus and Mosey with confidential and proprietary information regarding DDI manufacturing, distribution, and storage techniques. ( Id. ¶¶ 8-17). On March 16, 2000, the dealers terminated their contracts with DDI. Just one day later, they began selling Frosty Bites products. ( Id. ¶ 22).
As part of this action, DDI also sued the eight former dealers. The claims against F. Robert Esty, Jr., Victor Bauer, Jack Miller, James Perez, Jeanine Matone, Daniel Kilcoyne, Shawn P. Kikoyne, and Daniel Dopko were dismissed for lack of personal jurisdiction. See Frosty Bites, Inc. v. Dippin' Dots, Inc., 2002 WL 1359704 (N.D. Tex. Jun. 20, 2002).
FBI also produces and distributes a cryogenically frozen ice cream product. However, unlike the DDI's ice cream, FBI's product contains a mixture of both beads and irregularly shaped nuggets. (DDI MSJ Resp. App., Exh. 34 at 1405-06). To identify itself, FBI has a distinctive logo which is placed at vendor locations and on product containers. The logo consists of an ice-like background, with the word "Frosty Bites" written on the ice in blue letters shadowed in pink. The word "Bites" is centered under the word "Frosty." The "o" in "Frosty" is the torso of a portly penguin cartoon character holding a cup of yellow, green, blue, and red ice cream nuggets. The penguin is dressed in a red scarf and a green hat. Below the words "Frosty Bites" is a tag line promoting the product as "The Ultimate Ice Cream Sensation!" (DDI MSJ Resp. App., Exh. 52 at 1684, 1689, 1691). See also In re Dippin' Dots Patent Litigation, ___ F. Supp.2d ___, 2002 WL 32072485 at *24 (N.D. Ga. Mar. 31, 2003).
Beginning in April 2000, DDI filed a series of lawsuits against former FBI dealers and distributors around the country alleging, inter alia, misappropriation of trade secrets and trademark and trade dress infringement. Those cases were transferred to the Northern District of Georgia by the Judicial Panel on Multidistrict Litigation for consolidation with In re Dippin' Dots, Inc. Patent Litigation, MDL 1377. On August 8, 2001, the FBI parties filed suit in this court seeking a declaratory judgment that they have not misappropriated any trade secrets or infringed any enforceable trade dress rights. DDI answered the complaint and counterclaimed for misappropriation of trade secrets, statutory and common law trademark and trade dress infringement, unfair competition, injury to business reputation, and breach of contract. Thereafter, FBI added an antitrust claim under the Sherman Act, 15 U.S.C. § 2, alleging that DDI asserted a trade secrets claim in bad faith for the purpose of monopolizing interstate commerce in the cryogenically frozen ice cream market. The case is before the court on cross-motions for summary judgment. The motions have been fully briefed by the parties and are ripe for determination.
The MDL proceeding consists of eight related actions. In five of those cases, DDI and its founder Curt Jones, sued various FBI manufacturers and distributors for patent infringement, trademark and trade dress infringement, misappropriation of trade secrets, and breach of contract. The other three actions were brought by former FBI manufacturers and distributors seeking a declaratory judgment that the `156 patent is invalid and unenforceable. See In re Dippin' Dots Patent Litigation, ___ F. Supp.2d ___, 2002 WL 32072485 at *1 (N.D. Ga. Mar. 31, 2003). On December 20, 2002, the instant case was conditionally transferred to the Northern District of Georgia for possible consolidation with the MDL proceeding. However, after the FBI parties objected, the MDL Panel vacated its conditional transfer order on April 10, 2003.
II.
Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Thurman v. Sears, Roebuck Co., 952 F.2d 128, 131 (5th Cir.), cert. denied, 113 S.Ct. 136 (1992). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Matter of Gleasman, 933 F.2d 1277, 1281 (5th Cir. 1991).
A movant who does not have the burden of proof at trial must point to the absence of a genuine fact issue. Duffy v. Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir. 1995). The burden then shifts to the non-movant to show that summary judgment is not proper. Duckett v. Cedar Park, 950 F.2d 272, 276 (5th Cir. 1992). The parties may satisfy their respective burdens by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 113 S.Ct. 82 (1992). All evidence must be viewed in the light most favorable to the party opposing the motion. Rosado v. Deters, 5 F.3d 119, 122 (5th Cir. 1993); Reid v. State Farm Mutual Automobile Insurance Co., 784 F.2d 577, 578 (5th Cir. 1986). However, conclusory statements, hearsay, and testimony based merely on conjecture or subjective belief are not competent summary judgment evidence. Topalian, 954 F.2d at 1131.
III.
The FBI parties move for summary judgment with respect to DDI's counterclaims for misappropriation of trade secrets and trade dress infringement. The court will address each counterclaim in turn.
A.
DDI alleges that the FBI parties misappropriated trade secrets and confidential information regarding the manufacture, distribution, and storage of cryogenically frozen ice cream products. FBI contends that DDI cannot prevail on this claim because: (1) none of the information furnished to Angus and Mosey by the former DDI dealers is entitled to trade secret protection; (2) there is no evidence of misappropriation; and (3) DDI did not take reasonable measures to protect its alleged trade secrets.
1.
As a threshold matter, the court must determine whether this claim is governed by the Florida Uniform Trade Secrets Act ("FUTSA"), as FBI contends, or by Texas common law, as suggested by DDI. A federal court sitting in diversity must apply the choice-of-law rules of the forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); In re Air Disaster at Ramstein Air Base, Germany, 81 F.3d 570, 576 (5th Cir.), cert. denied, 117 S.Ct. 583 (1996). Texas has adopted the "most significant relationship" test in tort cases. Mitchell v. Lone Star Ammunition, Inc., 913 F.2d 242, 249 (5th Cir. 1990), citing Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 420-21 (Tex. 1984). In determining which state law applies, the court must consider: (1) the place where the injury occurred; (2) the place where the conduct causing the injury occurred; and (3) the place where the relationship between the parties is centered. CPS International, Inc. v. Dresser Industries, Inc., 911 S.W.2d 18, 29 (Tex.App.-El Paso 1995, writ denied), citing RESTATEMENT (SECOND) CONFLICT OF LAWS § 145 (1971). The domicile, residence, nationality, place of incorporation, and place of business of the parties are also relevant considerations. Maxus Exploration Co. v. Moran Brothers, Inc., 817 S.W.2d 50, 53 (Tex. 1991), citing RESTATEMENT (SECOND) CONFLICTS OF LAW § 188 (1971). The number of contacts with a particular state is not outcome determinative. Rather, the selection of applicable law depends on the qualitative nature of the contacts. See Mitchell, 913 F.2d at 249, citing Gutierrez v. Collins, 583 S.W.2d 312, 319 (Tex. 1979).
Although the parties invoke federal subject matter jurisdiction pursuant to 28 U.S.C. § 1331, DDI's trade secrets claim does not arise "under the Constitution, laws, or treaties of the United States." Therefore, the court must use traditional conflicts of law principles in determining which state law governs this claim.
The gravamen of DDI's trade secrets claim is that eight former dealers misused confidential and proprietary information regarding the manufacture, distribution, and storage of cryogenically frozen ice cream to establish a competing business. The new business venture, FBI, is a Florida corporation headquartered in Deerfield Beach, Florida. (Plf. First Am. Comp. at 2, ¶ 2). The trade secrets were allegedly communicated to Angus and Mosey through a series of conversations and meetings with former DDI dealers, which occurred primarily in New York and Florida. (DDI MSJ Resp. App., Exh. 1 at 107-09, 121-22, Exh. 21 at 709 Exh. 30 at 1323, 1330, 1350-51). In response, DDI contends that Texas law should govern its trade secrets claim because "Frosty Bites filed this action in the Northern District of Texas . . ." (DDI MSJ Resp. Br. at 6). However, the mere fact that the FBI parties elected to proceed in this forum is insufficient to make Texas law applicable. Florida is the state with the most significant relationship to the litigation.
The court notes that none of the parties to this action reside in Texas. DDI is an Illinois corporation with its principal place of business in Paducah, Kentucky. Nicholas Angus is a British citizen who lives in Nottingham, United Kingdom. Thomas R. Mosey resides in Mystic, Connecticut.
2.
Under the FUTSA, a "trade secret" consists of information that:
(a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
FLA. STAT. ANN. § 688.002(4). Only information that meets this statutory definition is entitled to protection under the Act. See Lovell Farms, Inc. v. Levy, 641 So.2d 103, 104-05 (Fla.Dist.Ct.App. 1994). Information that is generally known or readily accessible to third parties does not qualify as a trade secret. American Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1410 (11th Cir. 1998), citing Bestechnologies, Inc. v. Trident Environmental Systems, Inc., 681 So.2d 1175, 1176 (Fla.Dist.Ct.App. 1996). Moreover, an employer may not preclude its former employee from "utilizing contacts and expertise gained during his former employment." Id., quoting Templeton v. Creative Loafing Tampa, Inc., 552 So.2d 288, 290 (Fla.Dist.Ct.App. 1989). In a trade secrets action, the party seeking relief must prove both that the information at issue is secret and that it has taken reasonable steps to protect this secrecy. Id., citing Lee v. Cercoa, Inc., 433 So.2d 1, 2 (Fla.Dist.Ct.App. 1983).
3.
DDI contends that modifications and refinements to its manufacturing, packing, storage, shipping, and distribution techniques over the years encompass "approximately 100 different combinations of trade secrets." (FBI MSJ App. at 559). Among these alleged trade secrets are:
[TEXT REDACTED BY THE COURT]
( Id. at 560-62). Notwithstanding DDI's assertion that this information is worthy of trade secret protection, the summary judgment evidence shows that employees routinely discarded storage bags and boxes in public trash bins with no restrictions on the methods of disposal. (FBI MSJ App., Exh. 13 at 190-92, Exh. 14 at 218-22 Exh. 16 at 254-56). DDI also disseminated a corporate videotape and had a temporary internet posting which revealed its manufacturing, packaging, storage and transportation methods, including the use of [TEXT REDACTED BY THE COURT]. ( Id., Exh. 21 at 446-47 Exh. 46 at 857). Similar information was published by DDI through written disclosures, plant "roll-outs," and general unrestricted observance. ( Id., Exh. 13 at 172-88 Exh. 16 at 250-52; DDI MSJ Resp. App., Exh. 26 at 1143-45 Exh. 27 at 1146-47). Prior to 1998, DDI did not have a confidentiality agreement with its dealers. (DDI MSJ Resp. App., Exh. 77 at 2629). Even after DDI distributors and franchisees were required to sign contracts with a trade secret confidentiality clause, the agreements did not identify what constituted a trade secret. ( Id., Exh. 24 at 984).
In a recent decision based on nearly identical evidence, the MDL court determined that DDI "did not use reasonable means to protect their putative trade secrets, and thus, the information is not protected by the Uniform Act." In re Dippin' Dots Patent Litigation, 2002 WL 32072485 at *25. The court also rejected DDI's argument that its former dealers had an implied duty to maintain the secrecy of protected information because "the doctrine of implied duty . . . comes out of a line of cases which, unlike the instant case, did not arise under the [UTSA]." Id. at 26. Even assuming that an implied duty can arise in a Uniform Act case, the court held such a duty did not exist on the facts presented:
The MDL court based its decision on the Kentucky Uniform Trade Secrets Act, which is identical in all material respects to the FUTSA. Compare KENT. REV. STAT. ANN. § 365.880 with FLA. STAT. ANN. § 688.002.
When the relationship between the parties is one of manufacturer and distributor, as in this case, there is no implied duty to maintain confidences, even in common law situations. (Citations omitted). This is especially true when, as in this case, [DDI] failed to identify their allegedly protected information to [the distributors].Id. at *26.
This court finds the reasoning of the MDL court compelling and persuasive. DDI's failure to use reasonable means to maintain the secrecy of its putative trade secrets is fatal to its claim for misappropriation under the FUTSA. Accordingly, the FBI parties are entitled to judgment as a matter of law.
The summary judgment record in this case contains additional evidence that was not before the MDL court. This evidence consists mainly of information and packaging materials provided to Angus and Mosey by two former DDI dealers, Victor Bauer and Barry Bass. ( See FBI MSJ App. at 475-77, ¶¶ 19-30). However, as the FBI parties correctly note, none of this evidence is material to the issue of whether DDI took reasonable measures to protect its putative trade secrets.
B.
DDI claims trade dress protection for: (1) the shape, size, and color of its ice cream product; and (2) its logo consisting of a brand name inside a multi-colored, circular shaped pattern with a tag line underneath. FBI counters that neither DDI's product nor its logo is entitled to legal protection.This precise issue was also decided by the MDL judge. After discussing the relevant case law and the elements of DDI's trade dress claim, the court determined that every part of the alleged product trade dress is functional. The first test for functionality is whether the trade dress is "essential to the use or purpose of the article, or if it affects the cost or quality of the article." Id. at *20, quoting TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 32, 121 S.Ct. 1255, 1261, 149 L.Ed.2d 164 (2001). The MDL court concluded that the colorful nature of DDI's ice cream product is functional because it identifies the flavor of the ice cream served. The small size of the beads is also functional in terms of how the ice cream is served, how it is packaged, and how it tastes. As the court noted:
As for service of [DDI's] ice cream, the product is free flowing and is maintained as such through serving, according to the `156 patent. Larger spheres of ice cream would flow differently from [DDI's] small beads, thus affecting how the ice cream is served. Such a change in service affects the quality of the ice cream, since the novelty of eating a free flowing product and the speed with which it can be served would be affected by a diminished free flowing nature. Novelty and speed of service were both qualities which [DDI] stressed to the patent examiner. (Record citation omitted). Thus, the smallness of [DDI's] product is functional because it affects the service qualities of the ice cream.
Altering the size of the individual pieces of [DDI's] ice cream will change qualities of the product relating to packaging. Larger pieces of ice cream would result in differing packaging characteristics because there would be more room for air between pieces than with [DDI's] small beads. More room for air between the pieces of ice cream means lowered packaging efficiency since more space would be wasted in the bags of ice cream. This in turn means that in order to get the same amount of ice cream when pieces are larger, a manufacturer would have to provide distributors with more or larger ice cream containers. Providing more or larger ice cream containers will affect how the ice cream is shipped, and how much can be shipped at one time. Thus, the small size of the beads in [DDI's] ice cream is functional because it has an effect on its packaging and shipping qualities.
Finally, the small size of the beads in [DDI's] ice cream affects its quality since it produces a creamier product than conventional ice cream. This creamier product is the result of less ice crystal formation since the product is flash frozen quickly. (Record citation omitted). Larger pieces of ice cream would take longer to freeze, thus affecting the quality of the finished produce since ice crystals would make the product less smooth and creamy. Even [DDI] has indicated it was the "tiny dot" and the "small beads" of ice cream which allowed quick freezing and the benefits associated therewith. (Record citations omitted). As both the small pieces and color involved in [DDI's] product trade dress are functional, there is no trade dress protection.Id. at *21.
The second test for functionality is whether exclusive use of the trade dress would put competitors at a "significant non-reputation based (sic) disadvantage." Id., citing TrafFix, 121 S.Ct. at 1261-62. Under this test, the MDL court held that DDI's product trade dress is functional because:
There are several ways that giving [DDI] the trade dress protection they seek would result in a non-reputation based disadvantage for competitors. The small dot nature of the flash frozen ice cream results in a creamier product with enhanced serving, packaging and waste reduction qualities. (Record citation omitted). Preventing competitors from making a product with these qualities would place them at a disadvantage unrelated to reputation. Also, [DDI's] assertion that [FBI] should market only a clear or all white ice cream is absurd. This Court takes judicial notice that consumer expectations align certain colors with certain flavors of ice cream. Requiring [FBI] to make all their ice cream one color or no color, regardless of flavor, would place them at a significant nonreputation based disadvantage because they would be forced to violate the norms of flavor-color association. Such a disadvantage is also unrelated to reputation. Finally, [DDI's] suggestion that [FBI] can serve free flowing soft serve ice cream is not an alternative, for as [DDI] readily admits, flash frozen ice cream is in a different market from more traditional forms of ice cream. (Record citation omitted).Id. at *22.
The MDL court also determined that DDI's product trade dress is functional under the Morton-Norwich test utilized by the Federal Circuit. See In re Morton-Norwich Products, Inc., 671 F.2d 1332, 1340-41 (CCPA 1982). The Morton-Norwich factors are: (1) the existence of a utility patent disclosing the utilitarian advantage of the design; (2) advertising materials in which the originator of the design touts the design's utilitarian advantages; (3) the availability to competitors of functionally equivalent designs; and (4) facts indicating that the design results in a comparatively simple or cheap method of manufacturing the product. Id. In its opinion, the MDL court held that the first, second, and third factors weighed heavily in favor of a finding that DDI's trade dress is functional. In re Dippin' Dots Patent Litigation, 2002 WL 32072485 at *22-23.
Finally, the MDL judge determined that DDI's logo, which consists of a product name inside a circular shape with a tag line underneath, is not entitled to trade dress protection because there is no likelihood of consumer confusion with FBI's logo:
The logos of [DDI] and [FBI] are strikingly different. [FBI's] logo consists of an icy background with blue letters shadowed in pink. The font used in [FBI's] logo is noticeably different from [DDI's]. The brand name, "Frosty Bites" is capitalized and both words are centered on the icy background. The tag line proclaims "Frosty Bites" to be "The Ultimate Ice Cream Sensation." Most importantly, the "o" in "Frosty Bites" is a cartoon of a rotund penguin dressed in red and green, consuming clumps of ice cream intended to be [FBI's] product . . . These logos are so distinguishable that it is impossible for [DDI] to show a likelihood of confusion between them.Id. at *24.
The thorough and well-reasoned analysis of the MDL court informs this court's decision regarding DDI's trade dress infringement claim. Because the features of DDI's product are functional and there is no likelihood of confusion between the DDI and FBI logos, summary judgment should be granted in favor of FBI.
Although the FBI parties do not address DDI's counterclaims for breach of contract, statutory and common law trademark infringement, and unfair competition in their motion for summary judgment, the court sua sponte questions whether these claims remain viable in light of the resolution of the trade secrets and trade dress claims.
IV.
In its amended complaint, FBI sues DDI for violating the Sherman Act by asserting a trade secrets claim in bad faith "with the purpose and intent of injuring [FBI] and of monopolizing interstate commerce in the market for cryogenically frozen pieces of ice cream." (Plf. Am. Compl. at 5, ¶¶ 16-17). DDI seeks summary judgment with respect to this claim based on Noerr-Pennington immunity and because FBI has failed to provide a reasonable market definition.A.
The Sherman Act prohibits the monopolization, or attempted monopolization, of "any part of trade or commerce among the several States . . ." 15 U.S.C. § 2. However, those who engage in legitimate efforts to influence the government to take potentially anti-competitive actions are protected from antitrust liability. See Eastern R.R. Presidents Conference v. Noerr Motor Freight, 365 U.S. 127, 136, 81 S.Ct. 523, 529, 5 L.Ed.2d 464 (1961); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965). This constitutional immunity, which flows from the First Amendment right to petition the government for redress, includes attempts to influence the judicial branch by way of litigation activities. See California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 510, 92 S.Ct. 609, 611, 30 L.Ed.2d 642 (1972).
Noerr-Pennington immunity does not extend to "sham litigation." See Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 56, 113 S.Ct. 1920, 1926, 123 L.Ed.2d 611 (1993). In Professional Real Estate Investors, the Supreme Court announced a two-part test to determine whether litigation is a sham:
First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham exception must fail. Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. Under this second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals "an attempt to interfere directly with the business relationships of a competitor" through the "use of the governmental process — as opposed to the outcome of that process — as an anticompetitive weapon."Id., 113 S.Ct. at 1928 (emphasis in original), quoting Noerr, 81 S.Ct. at 533 and Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 380, 111 S.Ct. 1344, 1354, 113 L.Ed.2d 382 (1991). See also Credit Counseling Centers of America v. National Foundation for Consumer Credit, Inc., 1997 WL 160180 at *4 (N.D. Tex. Apr. 1, 1997). Thus, the mere filing of suit with the intent to harm a competitor does not defeat Noerr-Pennington immunity. See Professional Real Estate Investors, 113 S.Ct. at 1927. Only if the court finds that the lawsuit is objectively baseless does the subjective intent of the litigant come into play. Id.
In their summary judgment brief, the FBI parties posit that "[w]hen trade secret allegations are made with knowledge that no trade secrets exist, they are made in bad faith, and constitute an antitrust violation." (FBI MSJ Resp. Br. at 2, citing CVD, Inc. v. Raytheon Co., 769 F.2d 842, 851 (1st Cir. 1985), cert. denied, 106 S.Ct. 1198 (1986)). However, some legal commentators have questioned the continued viability of CVD and its progeny, which seem to employ a purely subjective test to determine bad faith, after Professional Reals Estate Investors. See Robert H. Lande Sturgis M. Sobin, Reverse Engineering of Computer Software and U.S. Antitrust Law, 9 HARV. J.L. TECH. 237, 281 n. 156 (1996); Daniel M. Wall, A Bright Line for Sham Litigation Claims, 7 ANTITRUST 47 (1993). But see Richard M. Brunnell, Sham Litigation Claims May Yet Survive Columbia Pictures, 8 ANTITRUST 33, 36 n. 29 (1994) (suggesting that CVD may be consistent with Professional Real Estate Investors since it defines "bad faith" as an assertion of a trade secret with knowledge that no trade secrets exist)
B.
The court has already determined that DDI cannot prevail on its trade secrets claim because it did not use reasonable means to protect the secrecy of its alleged trade secrets. However, this does not necessarily make the claim "objectively baseless." Regarding the impact of a litigant's lack of success in the underlying lawsuit on Noerr-Pennington immunity, the Supreme Court has stated:
A winning lawsuit is by definition a reasonable effort at petitioning for redress and therefore not a sham. On the other hand, when the antitrust defendant has lost the underlying litigation, a court must "resist the understandable temptation to engage in post hoc reasoning by concluding" that an ultimately unsuccessful "action must have been unreasonable or without foundation." . . . The court must remember that "[e]ven when the law or the facts appear questionable or unfavorable at the outset, a party may have an entirely reasonable ground for bringing suit."Id. at 1928 n. 5. (internal citations omitted) (emphasis added).
Incredibly, neither party addresses the first prong of the Professional Real Estate Investors test or even cites to this seminal case in their summary judgment pleadings. Nor is there any evidence in the record to merit a finding that DDI's trade secrets claim is "objectively baseless." All the evidence relied on by FBI goes to DDI's subjective intent, or bad faith, in bringing such a claim. As the party with the burden of proof at trial, FBI must bring forth specific evidence to show that DDI did not have "an entirely reasonable ground for bringing this suit." The court is unable to reach such a conclusion on the state of the current record. For this reason alone, DDI is entitled to summary judgment based on Noerr-Pennington immunity.
In support of its "bad faith" argument, FBI relies on much of the same evidence that was used to show that DDI failed to use reasonable means to protect its trade secrets. More particularly, FBI points out that DDI employees routinely discarded storage bags and boxes in public trash bins with no restrictions on the methods of disposal. (FBI MSJ App., Exh. 13 at 190-92 Exh. 14 at 218-22). DDI also disseminated a corporate videotape and had a temporary internet posting which revealed its manufacturing, packaging, storage and transportation methods, including the use of [TEXT REDACTED BY THE COURT]. ( Id., Exh. 21 at 446-47 Exh. 46 at 857). Additionally, FBI suggests that DDI knew that its [TEXT REDACTED BY THE COURT]. were smaller than FBI's, but withheld this information from its experts. ( Id., Exh. 19 at 365, Exh. 61 at 981 Exh. 62 at 982). This evidence, even if viewed in the light most favorable to FBI, does not establish that DDI's trade secrets claim was "objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits." Professional Real Estate Investors, 113 S.Ct. at 1928.
C.
Assuming arguendo that FBI has met the first prong of the "sham litigation" test, even objectively baseless litigation does not defeat Noerr-Pennington immunity unless it conceals "an attempt to interfere directly with the business relationships of a competitor, through the use [of] the governmental process — as opposed to the outcome of that process — as an anticompetitive weapon." Id. at 1928 (internal quotations omitted) (emphasis in original). No such evidence exists in this case. FBI has failed to articulate a plausible theory, or any theory at all, as to how DDI has used the process of this litigation, as opposed to the outcome, as an "anticompetitive weapon." Id. Moreover, merely filing suit with the intent to harm a competitor is not enough to overcome the constitutionally-based right of access to the courts that the Noerr-Pennington doctrine was created to protect. Id. at 1927 ("[W]e have repeatedly reaffirmed that evidence of anticompetitive intent or purpose alone cannot transform otherwise legitimate activity into a sham."); see also Hydro-Tech Corp. v. Sunstrand Corp., 673 F.2d 1171, 1175 (10th Cir. 1982) (filing of lawsuit cannot be "transformed into a `sham' merely because the primary intent of the lawsuit's instigator is to do harm to the business of a competitor"); Collins Aikman Corp. v. Stratton Industries, Inc., 728 F. Supp. 1570, 1579 (N.D. Ga. 1979) ("One thing is certain, the intention to harm a competitor is not, alone, sufficient grounds for the Court to find that a suit is a sham.") (emphasis in original). Accordingly, summary judgment should be granted in favor of DDI.
RECOMMENDATION
The FBI parties' motion for partial summary judgment with respect to DDI's counterclaims for misappropriation of trade secrets and trade dress infringement should be granted. DDI's motion for summary judgment with respect to FBI's antitrust claim should be granted. These claims should be dismissed with prejudice.