Lockheed Martin's $37 Million Trade Secrets Verdict Against L-3 Communications Tossed: New Trial Ordered Based on Allegedly Withheld Evidence

We first reported this massive misappropriation of trade secrets verdict here: http://wombletradesecrets.blogspot.com/2009/05/lockheed-martin-wins-3728-million-trade.html.

Law.com is reporting that a federal judge has tossed out a $37.3 million trade secrets verdict for Lockheed Martin Corp. and ordered a new trial after finding that the aircraft company failed to turn over to a defendant competitor documents critical to the case. This is a major-league trade secrets story, folks, including the rejection of Lockheed Martin's $16 million fee request. The basis for the court's order is outlined below in bold - but the court apparently believed that evidence exists proving that Lockheed Martin did not treat the information L-3 allegedly stole as a trade secret because it permitted a competitor to utilize that information without necessary licensing or contractual protections in place.

U.S. District Judge Charles A. Pannell Jr. on March 31 ordered the new trial at the request of Texas military contractor L-3 Communications, the defendant in the five-year-old case. Pannell said it was "probable" that the outcome of the trial would have been different if the jury had been given access to the information that Lockheed withheld.

In his order, Pannell also tossed out Lockheed's motion for more than $16 million in legal fees.
Five years ago, in a race to the courthouse, Lockheed sued L-3 in U.S. District Court in Atlanta over what it claimed was a misappropriation of trade secrets associated with the design and construction of Lockheed's anti-submarine bomber, which is used by navies around the world. Lockheed has large aircraft plants in Marietta and Warner Robins.

L-3, in turn, filed a separate antitrust suit against Lockheed in U.S. District Court in Dallas, claiming that Lockheed had filed the Atlanta suit to stifle competition. That case is pending.
The dueling cases are the result of a high-stakes feud between the two international defense contractors over a growing international market: the refurbishment of military aircraft, many of them originally designed and built by Lockheed, that are owned by governments around the world.

In May 2009, after a three-week trial, a federal jury in Atlanta $37 million and unspecified "reasonable" legal fees and litigation expenses. The jury found that L-3 -- a subsidiary of L-3 Communications Corp., the sixth-largest defense company in the United States -- had misappropriated proprietary information belonging to Lockheed while it was a subcontractor for Korean Aerospace Industries. The jury also found that L-3 breached licensing contracts with Lockheed through which L-3 had been given access to some of the proprietary data at the heart of the suit.

The allegations against L-3 involved a $427 million contract awarded to L-3, over Lockheed, by the South Korean government to refurbish eight of the Lockheed planes.

L-3 lawyers first accused Lockheed of intentionally withholding evidence critical to its defense last August, claiming the violation "undoubtedly changed the outcome of the trial."

The evidence that forms the basis of L-3's allegations are apparently detailed in 12 pleadings and more than 100 exhibits, including the defendant's initial motion to dismiss the case and Lockheed's response, that have all been filed under seal.

The only information available to the public as to why Pannell ultimately overturned the $37 million verdict is in his 8-page order issued this week.

On Thursday, however, the judge issued another order saying that he had "received an inquiry from the media as to [the] basis for the sealing of the motion, the briefs in support and in opposition, and all the exhibits filed in relation to this motion." That inquiry was from the Daily Report.

Pannell gave Lockheed and L-3 lawyers 10 days to show cause as to why the pleadings and all attachments that led to his new trial order should not be unsealed by the court.

"The court recognizes the need for maintaining alleged trade secrets under seal," Pannell wrote in the order. "However, much of what is filed with regard to the motion for new trial could not be considered trade secret."

Lockheed counsel William H. Boice, a partner at Kilpatrick Stockton in Atlanta, declined comment Thursday on the new trial order, saying, "The company has a policy of not commenting on ongoing litigation."

Boice co-counsel James F. Bogan III, who could not be reached for comment Thursday, told the Daily Report last October, after the new trial motion was filed, that he could not talk about the issue because, "There is a protective order in place."

Neither a Lockheed spokesman nor lead defense counsel Martin E. Rose, a partner at Rose Walker in Dallas, could be reached for comment.

NEW EVIDENCE?

But in an emergency motion filed last August that was not sealed, Martin and his co-counsel contended that long after the May verdict, they had uncovered "critical evidence ... that directly contradicts Lockheed's witnesses' sworn testimony."

The new evidence was obtained from Lockheed in response to a discovery request in the ongoing Dallas case, according to the emergency motion.

In a housekeeping motion filed Sept. 28, L-3 lawyers contended that the newly discovered evidence "goes to the core of the issues raised at trial and undermines the foundation for the jury's award."

In Wednesday's order, Pannell outlined the allegations against Lockheed, saying it was "undisputed" that Lockheed had failed to turn over certain documents that would have shown that Lockheed knowingly allowed a competitor -- CASA-EADES, known as CASA -- to use its proprietary data without a license in performing a contract for Brazil to upgrade P-3 aircraft, the Lockheed bomber at the heart of the trade secrets case.

"Evidence that Lockheed allowed another company to utilize its proprietary data is important because failure to maintain the secrecy of such data results in the termination of trade secret status," Pannell wrote. "The main thrust of L-3's defense in this case was that the data it utilized was no longer a trade secret because it had not been properly protected by Lockheed."

According to Pannell's order, L-3 also contended that internal company e-mails Lockheed withheld would have shown that a letter of assurance from CASA that Lockheed relied on at the trial "was actually meaningless and was created by Lockheed to cover the fact that it had allowed its trade secrets to be used without compensation. Lockheed used this letter at trial to buttress its claims that it had taken all necessary steps to protect its trade secrets."

Pannell noted in his order that "the fact that Lockheed, not CASA, drafted the letter is an important fact that L-3 could have presented to the jury in arguing that the steps Lockheed took to protect its trade secrets had been all form and no substance."

What the e-mails at issue showed, according to the judge's order, was that "at some point, Lockheed employees knew or believed that CASA was planning to illegally utilize Lockheed's data and that Lockheed intended to allow this to happen."

Lockheed contended it did not produce the e-mails in question because "they were not clearly responsive" to L-3's discovery requests.

Pannell disagreed. But he declined to dismiss the case entirely, saying L-3 had not made the case that a lesser sanction -- in this case a new trial -- would fail to repair the harm caused by Lockheed's abuse of the discovery process.

"While the court is puzzled by the fact that Lockheed provided certain emails related to the P-3 data rights with respect to the Brazil program and even emails within the same email 'tree' while withholding the emails at issue here, the court is hesitant to find that the documents at issue were intentionally withheld for the purpose of obtaining an advantage in this litigation, particularly in light of the voluminous amount of documents that were exchanged in this matter," the judge wrote in his order.

Although L-3 lawyers have argued that the jury's verdict would have been different if the e-mails had been presented at trial, Pannell found that such a determination "is very difficult to make in hindsight."

But, he added, "The point is that L-3 should have had the opportunity to make these arguments to the jury. ... Therefore, the court concludes that it is more than possible, and is even probable, that the outcome of the jury trial would have been different in this case if Lockheed had properly turned over the documents."

We'll continue reporting on this one for you. This is perhaps the most interesting trade secrets story of 2010.