Fifth Circuit affirms $44.4 million judgment to oil, gas software company over stolen trade secrets

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by Eric Pearson

The oil and gas industry spends billions each year to construct oil wells. Yet, in the past, oil companies typically planned such projects over “coffee and doughnuts,” using paper records to track and pay costs. See Wellogix, Inc. v. Accenture, L.L.P., No. 11–20816 (5th Cir.) (opinion revised January 14, 2013). To the extent that they employed computer software, they relied on “basic tools” such as Excel. Due, in part, to this “paper process,” oil companies struggled to estimate certain well construction costs—known as “complex services.” Even modest improvements in how companies estimated such costs could save “[h]undreds of millions of dollars.”

Wellogix, Inc., whose motto is “making the complex simple,” sought to modernize this process by developing software that allowed oil companies to “plan, procure, and pay for complex services”—all online. The software featured “dynamic templates” that adjusted cost and supply estimates based on “intelligence built into” the underlying source code; a “workflow navigator” that provided a framework for planning and procuring services; and “electronic field tickets” that allowed suppliers to record information about orders.

Wellogix’s software relied on other companies’ software to perform core accounting functions. Thus, Wellogix entered into an agreement in 2005 with the software company SAP which allowed Wellogix to integrate its complex services software with SAP’s accounting software. As part of the agreement, Wellogix provided its source code to SAP.

To promote its software, Wellogix entered into six marketing agreements with the consulting firm Accenture, L.L.P. Wellogix also participated in pilot projects with oil companies. Wellogix shared source code and access to its technology with both Accenture and the oil companies, subject to confidentiality agreements.

As part of a Wellogix pilot project, BP implemented Wellogix software at two well sites. BP also hosted a confidential online portal that allowed Wellogix to share files and information with BP employees.

After the Wellogix pilot was discontinued, BP sought to implement global software that “was not just for complex services, but was for [its] entire . . . system.” To that end, BP sponsored a new pilot and instructed Accenture to select a software provider. SAP and Wellogix pitched their integrated software to Accenture in May 2005. As part of the pitch, Wellogix described the software’s dynamic templates.

Meanwhile, without notifying Wellogix, Accenture and SAP began developing a complex services component of the global software for BP. As they developed the component, Accenture and SAP apparently accessed Wellogix technology—including flow diagrams, design specifications, and source code critical to Wellogix’s software—that had been uploaded to the confidential portal.

Wellogix sued BP, Accenture and SAP in district court, alleging that they had stolen and misappropriated Wellogix trade secrets. The court dismissed SAP from the lawsuit for lack of venue. The claims against BP were resolved in arbitration.

Wellogix’s suit against Accenture proceeded to trial. The jury returned a verdict for Wellogix, awarding $26.2 million in compensatory damages and $68.2 million in punitive damages. The trial court suggested a remittitur of the punitive damages award to $18.2 million—the amount Wellogix sought at trial. Wellogix accepted the remittitur, and the district court entered final judgment. Accenture appealed. The Fifth Circuit has affirmed the judgment. Wellogix, Inc. v. Accenture, L.L.P., No. 11–20816.

Trade secret misappropriation under Texas law is established by showing: (a) a trade secret existed; (b) the trade secret was acquired through a breach of a confidential relationship or discovered by improper means; and (c) use of the trade secret without authorization from the plaintiff. Courts have described a “trade secret” as any formula, pattern, device, or compilation of information used in one’s business, and which gives an opportunity to obtain an advantage over competitors who do not know or use it.” To determine whether a trade secret exists, courts consider six factors, weighed “in the context of the surrounding circumstances”:

(1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of the measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others

Wellogix, Inc. v. Accenture, L.L.P., quoting In re Bass, 113 S.W.3d 735, 739-40 (Tex. 2003) (quoting RESTATEMENT OF TORTS § 757 cmt. B. (1939)).

The court of appeals determined that Wellogix presented sufficient evidence and testimony to support the jury’s finding that Wellogix’s technology contained trade secrets. Wellogix showed that, because it was the only company offering complex services software from 2000 to 2005, its software—and, in particular, the underlying proprietary source code—gave it “an opportunity to obtain an advantage over competitors.” Wellogix also showed that the six Bass factors weighed in its favor. For example, Wellogix introduced evidence that it guarded the secrecy of its technology by placing its software behind a firewall and sharing it only pursuant to confidentiality agreements. Wellogix also introduced evidence that its technology had value because other companies partnered with Wellogix, and, as discussed below, third-party investors valued Wellogix at more than $27 million.

The court also found that Wellogix presented sufficient evidence and testimony to support the jury’s finding that Accenture improperly acquired Wellogix’s trade secrets. Wellogix showed that it entered into six confidential agreements with Accenture; that, through the marketing agreements, Accenture had access to Wellogix trade secrets; that Accenture also had access to Wellogix trade secrets uploaded to the confidential eTrans portal; and that an Accenture email referenced “harvesting IP” from Wellogix. Together, this evidence and testimony supported the “legitimate inference” that Accenture acquired Wellogix’s trade secrets.

Wellogix also presented sufficient evidence and testimony to support the jury’s finding that Accenture used its trade secrets. Wellogix showed that Accenture joined with SAP to develop a complex services component for BP’s P2P pilot; that, around the time that Accenture and SAP partnered, they were able to access Wellogix’s dynamic templates source code that had been uploaded to the confidential eTrans portal; that an Accenture document referenced the “creation of . . . complex service templates,” and then “right below” stated: “Use Wellogix content”; that the same document provided that the templates “better deliver similar or better functionality than Wellogix or we may have a problem”; that other Accenture documents referenced Wellogix’s templates, and that, as the pilot progressed, a BP employee told Wellogix that the company should: “sue Accenture . . . [b]ecause Accenture was utilizing [Wellogix’s] confidential information and building out [its] functionality.” The Fifth Circuit concluded that this evidence and testimony, considered together, supported the “legitimate inference” that Accenture used Wellogix’s trade secrets.

The court of appeals next found that Wellogix presented sufficient evidence to support the jury’s $26.2 million compensatory damage award. Expert testimony was offered showing that that the company was worth $27.8 million in 2005. Wellogix also showed that an Accenture employee believed that “BP work alone could generate annual fees . . . in excess of $20 million if Accenture controlled Wellogix”; that other companies viewed Wellogix’s technology as valuable; that this value derived from Wellogix’s complex services technology; that no other company had such technology from 2000 to 2005; that, as discussed above, Accenture misappropriated Wellogix’s trade secrets to develop complex services technology; that this misappropriation created a competitive disadvantage; that this disadvantage caused Wellogix’s value to drop to “zero”; and that this disadvantage also caused Wellogix to lose out on potential deals with other oil and gas companies.

As to punitive damages, the Fifth Circuit found that Wellogix introduced sufficient evidence and testimony to support the jury’s finding that Accenture acted with malice. Wellogix showed that Accenture stated that it could “easily replicate[ ]” and “[l]ift” Wellogix technology; that Accenture “harvest[ed]” Wellogix technology while engaged in confidential partnerships with Wellogix; that Accenture CEO Peggy Kostial wrote in a May 2006 email that “[o]ne can only hope” that SAP would no long “sponsor” Wellogix; that Accenture, in an apparent attempt to interfere with Wellogix’s business relationship with SAP, warned Wellogix of SAP’s “bleed the knowledge tactics;” that Accenture “acknowledge[d] its responsibility for patent infringement caused by products created by Accenture during those previous phases of the [P2P] project;” and that Accenture recognized that “[w]e may be at risk if Wellogix claims that we used knowledge of their product through involvement with eTrans to design and develop a solution for BP.” Against the backdrop discussed above—Accenture’s decision to develop the P2P pilot without Wellogix, and then apparently to “[u]se Wellogix content” for the “creation of . . . complex services” templates for the pilot—this evidence and testimony was sufficient to support the jury’s malice finding. In addition, the court of appeals found that the amount of the punitive damages award was not grossly excessive. As a result, the court of appeals held that the district court did not err by refusing to set aside the punitive award.

Intellectual Property Law and Heygood, Orr & Pearson

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson are all Board Certified in Personal Injury Trial Law — Texas Board of Legal Specialization.

** Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2014.