We’ve previously written about the disputes that can arise when an employee leaves a job to start a competing company, such as claims that the employee has misappropriated trade secrets or breached confidentiality provisions.  Sometimes the employer wins these cases.  And sometimes, they lose in a big way – as the American Chemical Society (ACS) found out in a case that went all the way to the Ohio Supreme Court.  Am. Chem. Soc’y v. Leadscope, Inc., Slip Opinion No. 2012-Ohio-4193. That court's recent decision serves as a caution to employers: if you don’t have reliable evidence that anything’s been stolen, but you sue your employees’ new business anyway, you can end up on the wrong end of a large verdict.

The background of the ACS case is not atypical.  ACS is a non-profit that maintains databases of information containing millions of patents and pieces of literature.  In 1997, ACS employees Paul Blower, Glenn Myatt, and Wayne Johnson developed a software product to help organize all that information.  But ACS suspended their project: disappointed, the three left to start their own software business, which they called Leadscope.  In 2002, when ACS learned of their efforts, it threatened and then filed a lawsuit to protect its claimed intellectual property.  Leadscope counterclaimed for unfair competition (based on “malicious litigation”) and defamation (based on a statement by ACS in which it said Leadscope was using its property improperly).  After six years of discovery and a trial, a jury awarded Leadscope $26.5 million on its claims.

On appeal, the Ohio Supreme Court first held that the jury had been incorrectly instructed on the elements of Leadscope’s unfair competition claim.  To prove such a claim, a party must prove “that the legal action is objectively baseless and that the opposing party had the subjective intent to injure the party’s ability to be competitive.”  But the instructions to the Leadscope jury did not focus on this standard; instead, they allowed the jury to find unfair competition based solely on ACS’s intent.  In most other cases, this holding would result in reversal of the verdict and a remand for a new trial.  Here, however, the court addressed the merits on its own accord and found that ACS’s claims must have been “objectively baseless” because ACS wasn’t able to offer any evidence of theft that it had actually relied on in bringing its lawsuit.

ACS did win something, though: the court held that its public statements about Leadscope were not defamatory, because they merely provided information about the substance of a non-confidential court proceeding.  Further, there was no evidence that ACS had told its attorneys to speak publicly about the case.  A dissent criticized these holdings, pointedly noting that 70% of the jury’s damages award was for the defamation claim and that the majority had “excuse[d] ACS for its published lies to the scientific community and financial community because it had first lied to a federal court.”

Hat tip to Eugenie Samuel Reich of the Nature News Blog, who wrote about the convoluted history of the case and noted that ACS has published financial statements in which it said that it was hoping the Ohio Supreme Court would reduce the judgment to a level it could satisfy with insurance.  Based on the court's ruling on Leadscope's defamation claim, its dream may have come true