REXA, Inc. v. Mark Chester
42 F.4th 652
7th Cir.2022Background
- In 2002 Koso (later reorganized as REXA) authorized RFD 02-122 to design a replacement flow‑matching valve; engineers Chester and Enos produced a prototype actuator that was shelved and never commercialized.
- Chester worked for Koso from 1998–2003 (no signed assignment/confidentiality agreement shown for him); he left in 2003 and later joined MEA in 2012.
- From 2013–2014 Chester and MEA developed the commercially successful "Hawk" actuator and filed a patent application; the PTO ultimately allowed claims focusing on a motor accelerating from zero to max RPM under load.
- REXA sued Chester and MEA for trade secret misappropriation (ITSA) and breach of an implied‑in‑fact obligation to assign patent rights; district court granted summary judgment to defendants and awarded ~$2.357M in fees as sanctions for REXA’s litigation misconduct.
- On appeal the Seventh Circuit affirmed summary judgment (no identifiable trade secret; Chester not specifically directed to invent the Hawk), affirmed sanctionable misconduct findings (document manipulation at deposition), but vacated the fee amount and remanded for a more detailed fee analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether REXA identified a trade secret with sufficient specificity under the Illinois Trade Secrets Act | The "2002 Designs" (sketch, source code, test results, prototype) are trade secrets and the combination was novel | The allegations are vague; elements (Xpac, use of solenoid valves) were public/known and REXA failed to isolate concrete secrets | No — REXA failed to identify a concrete, specific trade secret; summary judgment for defendants affirmed |
| Whether Chester/MEA misappropriated any trade secret by filing the patent / building the Hawk | Chester’s deposition shows the 2002 prototype met the allowed claim limitations, so the patent disclosed the 2002 Designs | Chester never saw key documents, 11‑year gap, the Hawk materially differs (motor timing/acceleration, different code/hardware) | No — unreasonable to infer retention/use of specific secret over 11 years; no genuine issue of misappropriation |
| Whether Chester owed an implied‑in‑fact obligation to assign patent rights to Koso/REXA (Mass. law) | REXA contends Chester was directed to invent as part of RFD 02‑122 and any implied duty transferred to REXA as successor | RFD sought a replacement valve (not a new actuator); Chester wasn’t specifically directed to invent the Hawk; successor‑transfer issue disputed | No — Chester was not specifically directed to invent the Hawk; summary judgment for Chester affirmed (court declines to decide transferability of implied obligations under MA law) |
| Whether district court properly sanctioned REXA and whether fee award was reasonable | REXA says documents were produced as kept in ordinary course; no hearing required; fee award excessive | Defendants show deceptive production/combined exhibit used to mislead at deposition; sanctions justified; but district court failed to explain fee calculation sufficiently | District court did not abuse discretion finding misconduct; but vacated the fee award and remanded for a more detailed, itemized reasonableness analysis of fees |
Key Cases Cited
- IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581 (7th Cir. 2002) (plaintiff must identify concrete trade secrets, not a bundle of documentation)
- Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263 (7th Cir. 1992) (trade‑secret claim requires specificity; courts should not "hunt" through details to find secrets)
- Mangren Rsch. & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937 (7th Cir. 1996) (products substantially derived from a trade secret may constitute misappropriation)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991) (district court’s inherent authority to sanction bad‑faith litigation conduct)
- Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178 (U.S. 2017) (limits on sanctions: fees awarded must compensate the victim, not punish)
- Steranko v. Inforex, Inc., 362 N.E.2d 222 (Mass. App. Ct. 1977) (employer owns inventions when employee specifically directed to develop new machinery/processes)
- Farmers Edge Inc. v. Farmobile, LLC, 970 F.3d 1027 (8th Cir. 2020) (analysis for whether employee was "specifically directed" to invent)