Using Inventorship Challenges to Facilitate the Resolution of Misappropriation of Trade Secrets Claims

Goodyear Tires & Inventorship Challenge

Coda Development S.R.O., v Goodyear Tire & Rubber Company (Fed. Cir. 2019), presents an interesting case: the use of an inventorship challenge to facilitate the resolution of an alleged misappropriation of trade secrets following unsuccessful negotiations.

Coda sought inventorship correction in several patents filed by Goodyear involving self-inflating tire (“SIT”) technology, including US No. 8,042,586 (“ ‘586”), and compensation for the misappropriation of SIT trade secrets.  The District Court (N.D. Ohio) dismissed Coda’s complaint for failing to state a claim upon which relief could be granted and denied Plaintiffs’ leave to amend the complaint.  Plaintiffs appealed both the dismissal and the denial to the Federal Circuit of the Court of Appeals.  The Federal Circuit vacated the District Court’s dismissal and remanded for further proceedings consistent with the opinion.

The Facts Alleged in the Complaint

Mr. Hrabal, Coda’s CEO, invented certain SIT technology.  Goodyear contacted Coda to set up a meeting.  Before the first meeting, the parties executed a nondisclosure agreement restricting the use of disclosed information to cooperation between the parties regarding the development of SIT technology.  The first meeting occurred in 2009, during which Coda shared novel proprietary and confidential information concerning its SIT technology.  Some Goodyear representatives expressed skepticism based on previous investments in failed inflating technology, which Coda addressed. Goodyear also requested a second meeting, this time with access to and alone time with a working prototype, which was granted.  Mr. Benedict, a Goodyear employee, inspected and photographed the prototype, the latter without permission.

Following the second meeting, Coda’s subsequent attempts to continue negotiations with Goodyear failed, although a Goodyear employee, in preparation for an internal meeting, made repeated status inquiries to Coda. Subsequently, and unbeknownst to Coda, Goodyear applied for a patent entitled “Self-inflating Tire Assembly”, the ‘586. The ‘586 issued on October 25, 2011 and named Benedict and Losey, Goodyear employees present at the Coda meetings, as inventors. Between 2012 and 2015, Coda alleges that eleven other patents related to Coda’s SIT technology were issued to Goodyear.

Meanwhile, Coda believed that Goodyear’s silence indicated a lack of interest in Coda’s SIT technology. An unsolicited email from a retired Goodyear employee alerted Coda to the fact that Goodyear had copied and patented Coda’s SIT technology.

Dismissal for Failure to State a Claim upon which Relief could be Granted

To survive, a complaint merely needs to allege sufficient facts to support that a claim to relief is plausible.  Plausibility exists when the alleged facts allow a court to draw a reasonable inference that defendant is liable for the misconduct alleged.  The appellate court reviews the determination based on judicial experience and common sense.  The alleged facts in the complaint are considered in a light most favorable to the plaintiff, accepting factual allegations as true and drawing all reasonable inferences in their favor.

The Federal Circuit found the plaintiffs’ claims for correction of inventorship were plausible based on the alleged facts: Goodyear’s prior failures with inflation technology; the two meetings requested and initiated by Goodyear seeking technical information on the SIT; Benedict, a named inventor, attending the meetings, inspecting and taking photographs of the prototype; and the termination of communication after Goodyear acquired the information. The Federal Circuit found the alleged facts suggested the plausibility of the relief requested – the correction of inventorship – met the statutory requirement.

The Federal Circuit indicated that District Court’s contrary conclusion rested on a procedural error – namely the District Court considered and relied upon Goodyear’s late submission of a document written by Hrabal from 2008. The District Court did not give Coda the opportunity to address the document and denied Coda’s sur-reply request without explanation. In addition, the Federal Circuit found the District Court erred when it denied Coda’s motion for leave to file an amended complaint; motions for leave to amend a complaint should be freely given, and the District Court failed to provide a reason for such denial.

Trade Secret Misappropriation Claims

The Federal Circuit also found that the District Court erred in dismissing Plaintiffs’ trade-secret misappropriation claim as time barred. Ohio’s trade secret act requires a claim of misappropriation be brought within four years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.

Defendants’ argued the Plaintiffs were not reasonably diligent for two reasons. First, given Coda’s activity in the SIT space and the purported ease of discovering new patents and patent applications with today’s technology Coda should have found the ‘586 patent when it published in June of 2011.  Second, Defendants urged that the facts set forth in the complaint necessitated as the only reasonable conclusion that something was amiss, Coda should have an expectation of a patent filing by Goodyear, and therefore Coda was on constructive notice of potential misappropriation claims in 2009. The District Court did not adopt the Defendants’ reasoning, but adopted a different theory of the events, to which Plaintiffs did not have an opportunity to respond.

The Federal Circuit disagreed again, and offered alternative reasonable inferences by the Plaintiffs, including Goodyear lost interest in the technology given its previous failed investments, and Goodyear would honor the nondisclosure agreement.  The Federal Circuit found the Plaintiffs were not put on notice by the alleged facts, and remanded the case.

Conclusions

The case reminds us of the power of inventorship challenges as a corrective tool under the appropriate circumstances.  The fact patterns where the tool would be valuable extends to more situations than those described in the case. With inventorship comes ownership rights, and the assertion of these rights can result in restoring or improving bargaining positions.