Legal Reporter Explains the Lockheed Trade Secret Post-Trial Situation: Excellent Analysis

We first blogged about the extraordinary remedy taken in the $37 million trade secret verdict obtained by Lockheed Martin here: http://wombletradesecrets.blogspot.com/2010/04/lockheed-martins-37-million-trade.html. A new trial was ordered in light of significant discovery and disclosure abuses.

Now, in a twist that should make all trade secret litigators take note, Law.com is reporting that the court has granted the request of the Fulton County Daily Report and ordered the release of certain litigation documents previously filed under seal. And the online legal news agency has done some excellent work deconstructing the issues in the case and how things went so utterly wrong. Here's a long snippit of this fine piece of legal reporting by R. Robin McDonald:

Last month, after reviewing the sealed pleadings, Pannell ordered a new trial, saying Lockheed had failed to turn over e-mails that would have shown it knowingly allowed a competitor to use its proprietary data in performing a contract for Brazil to upgrade Lockheed P-3 aircraft -- the bomber at the heart of the trade secrets case -- that the U.S. Navy intended to sell as surplus to Brazil in 2004.

According to L-3 pleadings, Lockheed was bested in the Brazilian bid by a Spanish company, EADS-CASA, that previously had refurbished Lockheed P-3s for the Spanish government. When it won the Brazilian bid, CASA didn't have a license to use proprietary engineering data that Lockheed asserted was critical to safely refurbish and modify the planes.

"Early on in the Brazil program we informed the Brazilian govt [sic] that either they or their selected subcontractor would have to secure permission to use LM [Lockheed Martin] proprietary data. Our standard fee for this is 7.5 percent of the contract value," stated one Lockheed e-mail. Brazil, according to the e-mail, subsequently notified all the bidders that they were responsible for securing the proprietary data needed to complete the contract.

But CASA, according to an e-mail from Lockheed executive Richard Kirkland, took the position "that they have enough data thru [sic] other sources that they do not need an agreement with LM [Lockheed Martin]. We knew all along that they were planning to use (without legal permission) all the data they have gathered from performing maintenance on the Spanish Air Force P-3s. Hence after Brazil ... selected CASA as the winner, we formally re-reminded them of the fact that CASA had not secured permission to use our data. Our line is the sand is pretty firm. They need to pay in some way for the usage of our data."

Internal Lockheed e-mails also showed that a CASA executive had threatened Lockheed over the company's trade secret claims and its insistence that it be paid royalties, saying he would make certain that the American aircraft company "paid a price here in Spain" if Lockheed didn't back off.

At the time Lockheed had a large sale pending with the Spanish government that, according to one of Lockheed's internal e-mails, "has been politically difficult and highly visible."
Citing the internal Lockheed e-mails, L-3 attorneys argued in their new trial motion that Lockheed's solution to its Spanish dilemma "was to draft a sham letter for CASA to send back to Lockheed making it appear as though Lockheed was protecting its P-3 data when in fact it was doing no such thing."

In an e-mail chain that included Katz, Lockheed's in-house lawyer "reveals that, in order to give the impression that Lockheed was protecting its data rights, Lockheed actually drafted the CASA letter to send back to Lockheed making it appear as though CASA was not misusing P-3 data," L-3 attorney Ross Cunningham, a partner at Rose Walker in Dallas, wrote in an affidavit included in the unsealed pleadings.

During the Atlanta trial, Lockheed introduced the letter -- which offered written assurances, but no independent documentation, that CASA was not using Lockheed's proprietary data -- and testimony, based upon the letter, that Lockheed had sufficiently protected its proprietary data, thereby maintaining its trade secret status.

"It was Lockheed -- not CASA -- who drafted the CASA letter, knowing that it was a fig leaf designed to conceal Lockheed's intentional release of its P-3 trade secrets in order to accommodate a foreign government who might purchase Lockheed's products and services in the future," one L-3 pleading stated.

That pleading also claimed that the e-mails L-3 discovered after the Atlanta trial showed that Lockheed executives who testified at the trial "knew that the sham CASA letter did not represent the good-faith diligence to protect its P-3 trade secrets that they testified about at trial."

L-3 also claimed that while Katz testified as to how Lockheed diligently protected its trade secrets by requiring the vendors, contractors, subcontractors and competitors who used them under licenses to execute non-disclosure agreements, "he failed to tell the jury, however, that Lockheed violated the same processes and procedures in its dealings with CASA."

Cunningham wrote in his affidavit that, during the Atlanta trial, "Katz did not mention his involvement in the CASA letter, and L-3 did not know to cross-examine Katz regarding the CASA letter because Lockheed withheld evidence of Katz's involvement."

Cunningham argued that those omissions "affected the trial in its entirety," and would have been "instrumental" in L-3's opening statement and closing argument.