To the spoliator does not go the victory in corporate betrayal case

OmniGen Research, LLC v. Wang, No. 16-cv-268, 2017 WL
5505041 (D. Or. Nov. 16, 2017)
After OmniGen successfully moved for a default judgment in
its favor due to spoliation of evidence, the court awarded damages on OmniGen’s
trade secret, false advertising, and related claims.  Default means that the factual allegations of
the complaint, other than those about damages, will be taken as true.
While working for OmniGen, which makes feed addditives that
improve the health of dairy cows and other animals, defendant Wang breached his
contracts by secretly creating an OmniGen-clone Chinese business based on
stolen OmniGen research and information, forming at least two entities, Bioshen
and Mirigen.  He also applied for a
Chinese patent that covers a knockoff of an OmniGen product, and had fellow
individual defendant Zheng—who is Wang’s wife and … does not have a
background in biological sciences—listed as an inventor in his place, and
employed similar tactics with the contact information for Bioshen and Mirigen.  He presented an OmniGen Research slide
presentation (whose copyright OmniGen registered) as if it was his own at a
large scientific conference in China, with many slides altered only to add the
Mirigen logo.  At the conference, which
was attended by over a thousand people, including academics, government
officials, and business leaders, defendants’ marketing materials claimed to
employ “the most advanced modern green agricultural technology from the United
States.”  Wang represented the material
copied from OmniGen’s slides as Mirigen’s and Bioshen’s, as well the
innovations described therein.  [This
seems to be Dastar-barred at least as
a §43(a)(1)(A) claim, but in a default situation, don’t expect that to
matter.]  His acts also led to the
dissemination of confidential OmniGen research notes at the conference and
elsewhere.  Bioshen and Mirigen also
submitted a paper falsely describing research as part of their participation in
the conference: the paper described a study conducted with pigs by Bioshen and
Mirigen using their feed additive, when in fact the studies were conducted by
OmniGen on sheep and dairy cattle using its
feed additive. 
Unsurprisingly, the court found for OmniGen on its breach of
contract, intentional interference with economic relations, and trade secret
misappropriation claims.  As for false
advertising, the court also found for OmniGen, including for stating that
OmniGen’s slides were defendants’ work, for falsely describing the study, and
for falsely claiming that Mirigen and Bioshen were affiliated with a
‘professor’ at Oregon State University.” The court accepted the complaint’s
allegations that these statements were material because “they lend credibility
to Wang, Bioshen, and Mirigen, giving them the appearance of relying on
original scientific research and thinking.” The court further accepted that the
statements were made in commercial advertising or promotion, and that the
parties competed around the world, including in China.  Finally, and perhaps of greatest interest,
the court accepted that defendants’ conduct affected interstate commerce
because “Bioshen promotes itself as a U.S. company, attendees at the conference
included people who do business in the U.S. and who represent companies that do
business in the U.S., and people who review and comment on U.S. scientific
research.”
The court also found that Wang breached his fiduciary duties
to OmniGen, including, along with the above acts, intentionally sabotaging an
OmniGen study he was assigned to work on, and fabricating or falsifying
data.  OmniGen therefore repeated the
work he was assigned to do.
As to damages, they must be proved to a reasonable degree of
certainty, but where a defendant’s conduct makes damages difficult to
determine, courts allow “broad latitude” in quantifying damages. Defendants’ $821,000 initial investment in Mirigen reflected OmniGen’s
expectation interest under its agreements with Wang: if Wang had fully
performed, “the Chinese patent would have been assigned to OmniGen and the
investment garnered by that patent and other confidential information would
have accrued to Plaintiffs rather than Wang’s competing business entity. These
are concrete, certain, and quantifiable injuries under a contractual theory of
recovery.” OmniGen didn’t seek a separate award for the intentional interference
with economic relations.
On the trade secret claim, $821,000 was likewise reasonably certain
and a conservative valuation of what was misappropriated.  OmniGen was also entitled to punitive damages
due to Wang’s willful and malicious misappropriation, to a maximum of twice
actual damages; the court determined that this was warranted, resulting in a total
award of $2,463,000.  For copyright
infringement, the court accepted that infringement occurred post-registration,
entitling OmniGen to statutory damages. 
Although the court was required to accept that infringement occurred
post-registration, it wasn’t required to accept that the infringement was
willful, as this wasn’t alleged in the complaint, and thus the court awarded
the statutory minimum of $750.
Under the Lanham Act, OmniGen was entitled to damages,
including profits, but defendants’ discovery abuse and spoliation of evidence
related to damages prevented a precise calculation of Defendants’ profits.  The court found it equitable to award OmniGen
the $821,000 as the value of Mirigen. Treble damages could be awarded “if the
allegations in the complaint support it.” 
OmniGen was harmed by defendants’ knowingly false statements, and “[a]s
is common in such false advertising cases, quantifying damages is difficult
(especially where evidence has been systematically destroyed by the defendant).”  The court nonetheless declined to award
OmniGen an estimated $80,000 based on defendants’ head start/avoided costs of
conducting its own studies, finding them an improper measure of actual damages,
and one that would be punitive rather than compensatory. Nonetheless, the
$821,000 was a conservative proxy of damages, and so the court enhanced it to $2,463,000,
as justified by defendants’ intentional/willful conduct, especially in
destroying evidence.  Enhancing damages
would capture otherwise evanescent measures of goodwill, as well as deter
defendants and others similarly situated from engaging in unfair and deceptive
behavior.
Damages from Wang’s breaches of fiduciary duty were the
costs to re-create or repeat research projects because of Wang’s breaches of
fiduciary duty, or $252,000, as well as the recovery of all compensation paid during
his period of disloyalty as damages, or $92,000.
Because OmniGen was limited to a single recovery, the total
was $821,000 for breach of contract, misappropriation of trade secrets, and
false advertising; $344,000 for Wang’s breach of fiduciary duty;  $750 for copyright infringement; and $1,642,000
for enhanced damages under the Lanham Act/punitive damages under state trade
secret law.  [The language of the Lanham
Act that enhanced damages can’t be punitive seems not to do a lot of work,
given how the cases come out.]
The court likewise granted a permanent injunction.  The disclosure or threatened disclosure of
trade secrets or even non-trade secret confidential information was sufficient
to meet the irreparable injury requirement for a preliminary injunction, as was
the consumer confusion, loss of good will, and increased market place barriers
which can result, and, in this case, did result, from false advertising.  [Not clear whether this is entirely
consistent with Herb Reed.]  Damages/legal remedies were also inadequate
because the injuries were difficult to quantify, and they were also ongoing and
could worsen without an injunction.
However, the court would not enjoin
defendants from working for certain types of feed industry businesses; that was
too much of a restraint on trade, as well as unfairly limiting defendants’
ability to satisfy the judgment in this case. The defendants were enjoined against further use of confidential information and false advertising, and also required to assign to OmniGen all their interest in the
Chinese patent and application, as well as register the assignment with the
Chinese government.
The court’s injunction was worldwide, given that defendants’
wrongful actions included conduct in China.

The court also awarded attorneys’ fees and costs pursuant to
the Lanham Act, the Oregon Trade Secrets Act, and Fed. R. Civ. P. 37(b)(2)(C)
(relating to spoliation of evidence).  As
for the Lanham Act, the complaint’s allegation of intentional and willful false
advertising was, “on its own, sufficient to establish the substantive weakness
of Defendants’ litigation position.” 
Defendants also litigated in an unreasonable manner, including Wang’s
attempt to evade service by lying to the process server, an initial default,
discovery violations, and a destruction of evidence “beyond anything previously
witnessed by this Court.” The award of attorneys’ fees pursuant to the Oregon
Trade Secrets Act and Lanham Act applied to the entire action and not just the
individual claims under which the fees are authorized, because the claims all
involved a common core of facts and were interrelated. Fees awarded were nearly
$990,000.

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