PENALTY KICK MANAGEMENT LTD., Plaintiff-Appellant, versus COCA COLA COMPANY, Defendant-Appellee.
No. 01-12012
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
January 24, 2003
D. C. Docket No. 97-01821-CV-CAM-1; [PUBLISH]
(January 24, 2003)
Before TJOFLAT and BIRCH, Circuit Judges, and GOLDBERG*, Judge.
_______________________________________
*Honorable Richard W. Goldberg, Judge, United States Court of International Trade, sitting by designation.
Penalty Kick Management Ltd. (“PKM“) brought this lawsuit against the Coca-Cola Company (“Coca-Cola“), seeking legal and equitable relief under theories of conversion, misappropriation of a trade secret, breach of contract, breach of a confidential relationship and duty of good faith, unjust enrichment, and quantum meruit. The district court granted summary judgment in favor of Coca Cola as to all claims, and PKM appeals. We affirm.
I.
A.
In early 1995, PKM‘s Chief Executive Officer, Peter Glancy, conceived of a beverage label marketing and production process known as “Magic Windows.” Magic Windows consisted of the following: a scrambled message on the inside of a beverage container label which could be decoded and read only after the beverage container was emptied. The message would be read through a colored filter printed on a label on the opposite side of the container, directly across from the coded message.
On November 2, 1995, Glancy and Charles Carter of PKM met with representatives of Coca-Cola to demonstrate Magic Windows. Glancy orally
A few months after the meeting, in February of 1996, the parties executed a Non-Disclosure Agreement in which each agreed not to disclose to any third party any confidential information shared during discussions regarding Magic Windows. However, the agreement went on to provide:
[T]here is no obligation to maintain in confidence any information that:
(i) at the time of disclosure is available to the public;
(ii) after disclosure, becomes available to the public by publication or otherwise;
(iii) is in [Coca-Cola‘s or its subsidiaries’ or affiliates’ possession], at the time of disclosure [];
(iv) is rightfully received from a third party; [or]
. . .
(vi) [Coca-Cola] can establish was subsequently developed independently by [Coca-Cola or its subsidiaries or affiliates] independently of any disclosure hereunder.
After the execution of the agreement, PKM and Coca-Cola representatives met again to discuss the possibility of Coca-Cola licensing Magic Windows for its exclusive use. Following several months of discussions, on July 16, 1996, Coca Cola drafted a Development and License Agreement in which, among other things, Coca-Cola proposed to pay PKM $1 million and a per label royalty for a global license giving Coca-Cola the exclusive right to use Magic Windows.2
Concomitant with sending its proposed license agreement, however, Coca Cola undertook an intellectual property review of PKM‘s patent applications to determine, inter alia, whether PKM could actually provide Coca-Cola with exclusivity over the concept embodied in Magic Windows. In the course of that
Accordingly, a month later, on November, 19, 1996, Coca-Cola informed PKM that it would “not pursue [an] exclusivity agreement” w[ith] them,” and terminated all negotiations.
B.
Second, in September of 1996 (while Coca-Cola was still negotiating with PKM), Coca-Cola met with Steve Everett, a salesman with ITW-Autosleeve (ITW), the regular printer for labels used on Coca-Cola‘s products in Argentina, to discuss a windows label promotion in Argentina. At this meeting, Coca-Cola representatives discussed the concept of the window label in general terms, showed Everett a mock-up of a bottle with a label, and asked if ITW was capable of
ITW‘s Graphic Arts Manager, Jeffrey Albaugh, was assigned the task. He was not given any instruction on how to create the sample label. Albaugh independently determined the type of printing press, inks, color sequences, and production processes needed. He alone did the following: constructed the scrambled text on the label; planned the print formula; selected the film to use as a substrate for the label; chose the color to use on the filter; figured how to block the scrambled message from being read from the outside; picked the weight and tone of the ink; established the printing setup; and decided whether to print on the surface or reverse print the label. Albaugh made these decisions based on his experience as a printer. He viewed the task as “simple, everyday printing” that did not require “anything new in technology.” After approximately three weeks, Albaugh completed the bottle label. Coca-Cola subsequently used the label in an Argentinian marketing promotion.
In February of 1997, PKM learned of the Argentinian promotion. After viewing one of the Coca-Cola bottles, PKM was alarmed by (what it perceived to
C.
The complaint in this case is framed in six counts. Count I alleged that Coca Cola converted PKM‘s Magic Label technology for its own use; Count II alleged that Coca-Cola misappropriated trade secrets when it divulged the disclosed information to ITW, who in turn, used that information to develop its label; Count III alleged that Coca-Cola breached the Non-Disclosure Agreement when it disclosed confidential information to ITW; Count IV alleged that Coca-Cola breached its confidential relationship and duty of good faith imposed by
Coca-Cola answered the complaint, denying liability on all counts. In short, Coca-Cola stated that the information revealed by PKM regarding Magic Windows
As part of its defense, Coca-Cola served an interrogatory on PKM asking PKM to identify every element of the Magic Windows technology that PKM contended was misappropriated by Coca-Cola. Plaintiff responded, in pertinent part,
PKM contends that Coke misappropriated a promotional concept referred to as “Magic Windows,” “Clear View Windows,” and “Rear View Windows” that requires purchasers of containers (in the case of Coke, a beverage container) to empty the contents of the container to receive a message or to determine whether they have won a prize which was incorporated in a commercially feasible beverage label printed on a gravure or comparable press
with standard inks onto single-laminate, flexible plastic packaging material using a label production process and color sequences whereby up to eight colors can be utilized to print onto film, as a substrate, or reverse-printed, which leaves the plastic film facing forward and toward the viewer to create a beverage label with a non-embossed, two or three colored encrypted image or message on the inside or reverse side of the label that is visually incoherent which appears approximately opposite or approximately 180° from a colored window filter which is used as a viewing mechanism to decode the image or message in a visually coherent form.
From this response, Coca-Cola had an expert create a chart of the allegedly misappropriated elements:
| Element | Type of Element | |
|---|---|---|
| 1. | A promotional concept referred to as “Magic Windows,” “Clear View Windows” and “Rear View Windows” | Concept |
| 2. | that requires purchasers of containers (in the case of Coke, a beverage container) to empty the contents of the container | Concept |
| 3. | to receive a message or to determine whether they have won a prize | Concept |
| 4. | which was incorporated in a commercially feasible beverage label | Concept |
| 5. | printed on a gravure or comparable press | Production |
| 6. | with standard inks | Production |
| 7. | onto single-laminate, flexible plastic packaging material | Production |
| 8. | using a label production process and color sequences whereby up to eight colors can be utilized | Production |
| 9. | to print onto film, as a substrate, or reverse-printed, which leaves the plastic film facing forward and toward the viewer | Production |
| 10. | to create a beverage label with a non-embossed | Concept |
| 11. | two or three colored | Concept |
| 12. | encrypted image or message | Concept |
| 13. | on the inside or reverse side of the label | Concept |
| 14. | that is visually incoherent | Concept |
| 15. | which appears approximately opposite or approximately 180° | Concept |
| 16. | from a colored window filter | Concept |
| 17. | which is used as viewing mechanism to decode the image or message | Concept |
| 18. | in a visually coherent form | Concept |
PKM‘s expert generally agreed with the chart. Additionally, the district court adopted the chart in a November 30, 2000 Order (in which the court limited PKM‘s trade secret claim to the elements listed in the chart). PKM did not object to the court‘s adoption of the chart.
Several months later, after extensive discovery and many depositions, the court, in a March 28, 2001 Order, granted Coca-Cola‘s motion for summary judgment on all counts of the complaint. As for the misappropriation of trade secrets claim, the court found as a matter of law that although Magic Windows was a trade secret, Coca-Cola had not misappropriated either the concept or the actual printing process of Magic Windows. The court also held that Coca-Cola had not breached the Non-Disclosure Agreement, finding as a matter of law that the Magic Windows concept was rightfully received from BrightHouse, and that ITW independently developed the labels from “simple, everyday printing” techniques. Finally, the court held that the remaining counts - conversion, breach of
PKM appeals each of the district court‘s rulings, contending that (1) there are genuine issues of material fact as to whether Coca-Cola misappropriated confidential information regarding Magic Windows and breached the Non-Disclosure Agreement, and (2) the district court improperly applied Georgia trade secret law regarding both misappropriation and supersession. For these reasons, PKM maintains the district court‘s judgment should be reversed.
Since the heart of this case involves the claim for the misappropriation of trade secrets, we begin our analysis of the district court‘s rulings on that issue.5
II.
A.
Under the Georgia Trade Secrets Act (“GTSA“),
The Act defines “trade secret” as
information, without regard to form, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly known by or available to the public and which information:
(A) Derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(B) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
The district court found that although many elements of PKM‘s Magic Windows were included in the Virtual Image patent application, including the concept of using a coded message on the reverse side of a label requiring that the bottle be emptied so that the coded message can be decoded through a transparent window, many aspects of Magic Windows were unique. For instance, PKM‘s label was non-embossed and utilized ink, while the decoding label detailed in the Virtual Image application was embossed and did not bear ink. Additionally, PKM was able to provide complete image security before the bottle was at least partially emptied, whereas the Virtual Image application indicated that previous colored
Our review of the record supports the findings of the district court. Each of the required statutory elements is satisfied. First, as indicated above, certain aspects of Magic Windows were not “commonly known by or available to the public.” In particular, the production process was unique to PKM and unknown to its competitors. See Salsbury Labs., Inc. v. Merieux Labs., Inc., 908 F.2d 706, 710-11 (11th Cir. 1990). Second, it is clear that PKM‘s information possessed actual or potential economic value; after all, both Coca-Cola and Pepsi International were negotiating with PKM for a potential licensing agreement at the time of the purported misappropriation. Third, Glancy‘s oral insistence on confidentiality at the initial November 5, 1995 meeting (and in its meetings with Pepsi International), as well as the written Non-Disclosure Agreement with Coca-Cola, were certainly reasonable efforts to maintain the secrecy of Magic Windows. We find no legal error in the district court‘s judgment that PKM‘s Magic Windows
Before proceeding, however, we highlight the fact that most of PKM‘s concept elements were covered by the prior art outlined in the Virtual Image patent application, and therefore are not protectable as trade secrets.
B.
Having agreed with the district court that information regarding Magic Windows constitutes a trade secret, we must next determine whether Coca-Cola misappropriated PKM‘s trade secrets when it had ITW develop a label.6 A defendant misappropriates a trade secret when, among other things, it discloses or uses a trade secret of another, without express or implied consent, knowing that at the time of disclosure or use the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.
When the Supreme Court of Georgia recently addressed trade secrets under the GTSA, it relied heavily upon the Restatement (Third) of Unfair Competition (1995) - quoting and adopting two paragraphs from the Restatement to determine the meaning of “trade secret.” See Essex Group, 501 S.E.2d at 503. We therefore think it prudent to consult the Restatement for guidance to determine what constitutes “disclosure” and “use” under the Act. Section 40 provides the answer:
There are no technical limitations on the nature of the conduct that constitutes “use” of a trade secret . . . . As a
general matter, any exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant is a “use” . . . . Thus, marketing goods that embody the trade secret, employing the trade secret in manufacturing or production, [and] relying on the trade secret to assist or accelerate research or development . . . all constitute “use.” The unauthorized use need not extend to every aspect or feature of the trade secret; use of any substantial portion of the secret is sufficient to subject the actor to liability. Similarly, the actor need not use the trade secret in its original form. Thus, an actor is liable for using the trade secret with independently created improvements or modifications if the result is substantially derived from the trade secret. . . . However, if the contribution made by the trade secret is so slight that the actor‘s product or process can be said to derive from other sources of information or from independent creation, the trade secret has not been “used” for purposes of imposing liability
under the rules . . . . The owner of a trade secret may be injured by unauthorized disclosure of a trade secret as well as by unauthorized use. . . . Any conduct by the actor that enables another to learn the trade secret . . . is “disclosure” of the secret.
Restatement (Third) of Unfair Competition § 40 cmt. c (1995) (emphasis added).
To summarize, under the Restatement, a defendant is liable for the misappropriation of a trade secret only if the plaintiff can show that the defendant (1) disclosed information that enabled a third party to learn the trade secret or (2) used a “substantial portion” of the plaintiff‘s trade secret to create an improvement or modification that is “substantially derived” from the plaintiff‘s trade secret. On the other hand, if the defendant independently created the allegedly misappropriated item with only “slight” contribution from the plaintiff‘s trade secret, then the defendant is not liable for misappropriation. These standards suggest that for Coca-Cola to be liable for misappropriating Magic Windows, PKM must prove either that Coca-Cola disclosed information that enabled ITW to learn PKM‘s trade secret or that ITW‘s label was “substantially derived” from PKM‘s
1.
PKM has presented no direct evidence that Coca-Cola disclosed PKM’s trade secrets to ITW. Several Coca-Cola representatives testified that no PKM trade secrets were revealed to ITW. Moreover, employees from ITW, Steve Everett and Jeffrey Albaugh, both testified that ITW alone determined how to develop its bottle label and that they did not utilize any information from Coca-Cola or PKM in the production process.
Faced with a lack of direct evidence that Coca-Cola disclosed PKM’s trade secrets, PKM resorts to relying on various forms of circumstantial evidence to prove Coca-Cola actually disclosed its trade secrets to ITW. First, PKM highlights
Second, PKM points out that the “same [Coca-Cola] employees who received PKM’s disclosures approached ITW to produce the Argentine label.” It again suggests this fact warrants an inference of misappropriation. For the same reason, we decline to draw such an inference. Additionally, we note that it was the job of these Coca-Cola representatives to develop product and marketing promotions. This inevitably requires meeting with more than one entity.
Finally, PKM argues that notes written by Steve Everett, testimony by Jeffrey Albaugh, and a voice mail message left by a Coca-Cola representative who had met with both PKM and ITW all prove that Coca-Cola provided ITW with PKM’s disclosed label and other trade secret information. We disagree. The testimony of Everett, Albaugh, and the Coke representative indicate that the label provided to ITW had red litho paper and was not of professional quality (as was
In sum, we find that PKM has failed to provide evidence that Coca-Cola actually disclosed its trade secrets to ITW.
2.
We must next determine whether PKM has provided evidence that Coca-Cola and/or ITW actually used any Magic Windows trade secrets. To show unauthorized use, PKM must prove that the label developed by ITW was “substantially derived” from the Magic Windows label and not the product of independent development. Our inquiry requires us to compare and contrast the various elements of the two labels. For sake of analytical convenience we will discuss the Magic Windows elements along the two categories proposed by Coca-Cola’s expert: concept and production.
a.
We begin with the five identified production processes, which the parties
Printing press
Magic Windows is printed on a gravure or comparable press. The evidence indicates that the ITW labels were created on flexographic presses.
Inks
Magic Windows is made with standard inks. The evidence provides that Albaugh, with the help of Sun Chemical, decided which inks to use and chose proprietary inks.
Film Material
Magic Windows is printed on a single-laminate, flexible plastic packaging material. The evidence shows that Albaugh alone decided which film to use as a substrate for the label and that he chose a single-ply film that was not laminated.
Color Sequencing
Magic windows uses a label production process and color sequences whereby up to eight colors can be utilized. The evidence indicates that Albaugh alone decided the label production process, including determining the numbers of colors to use and the color sequences. He chose both a
Reverse printing
Magic Windows is printed on a film, as a substrate, or reverse-printed, which leaves the plastic film facing forward and toward the viewer. The evidence provides that Albaugh was responsible for determining whether to print on the surface or to reverse print on the label, and that he used forward printing.
The above comparisons show that none of the five production elements in ITW’s label match those for Magic Windows. Moreover, the evidence also indicates that ITW employee Albaugh alone decided the various production processes. Accordingly, the conclusion is inevitable that the production processes of the ITW label were not derived, much less “substantially derived,” from PKM’s Magic Windows label.
b.
Having determined that Coca-Cola did not use PKM’s production elements, we next consider whether Coca-Cola used PKM’s Magic Windows concepts. A cursory analysis of the two labels indicates that the two labels share nearly
As mentioned above, BrightHouse presented the idea of a bottle label with a scrambled message on the back side of the label and a red decoder filter – called the “Red Zone” – printed on the front of the label. BrightHouse’s Chief Operating Officer, Roger Milks described the concept as follows:
[T]he concept being that the bottle is – as the liquid is consumed and the level drops in the bottle, you could look through the Red Zone and you would see something on the opposite side of the bottle on the inside of the
label, the purpose of that red device being to decode the message. . . .
If you weren’t viewing it through the red [filter], all you would see is a blurred, illegible message. If you look at it through the Red Zone – i.e., the prize is in the Red Zone – you would decode the message and you would either be an instant winner or not.
The color graphic shown to Coca-Cola by BrightHouse at the presentation stated: “Purchasers of 20oz bottle would look through the Coca-Cola Red Zone circle to reveal instant win prizes. The Red Zone is a clear plastic circle that allows consumer to look through the bottle, once the product is gone, to see [the] prize revealed on the inside of the label.” The graphic also contained a label design with a “Red Zone” transparency that revealed a “You Win” message on the inside of the opposite side. The inside message contained three colors: red, white and black.
PKM has presented no evidence refuting this testimony. We find, as did the district court, that the BrightHouse presentation revealed all of PKM’s concepts. Like PKM’s Magic Windows, BrightHouse’s idea is a (1) promotional concept (2)
PKM nonetheless argues that it is irrelevant whether the BrightHouse proposal is similar to the “concept” of PKM’s Magic Windows because Coca-Cola relied on PKM’s sample labels and not the BrightHouse drawing when it asked ITW to develop the labels. PKM contends that Coca-Cola’s inability to demonstrate that it utilized the BrightHouse idea instead of the PKM concept when seeking ITW’s assistance is “fatal to Coke’s defense because it cannot prove that its alleged independent development was done ‘in the absence of any misappropriation.’” We think, however, that PKM is improperly attempting to shift the burden of proof to the defendant; PKM, as the plaintiff, maintains the burden of proving misappropriation. See Capital Asset Research Corp. v. Finnegan, 160 F.3d 683, 685 (11th Cir. 1998).
In short, PKM has failed to demonstrate a fact issue as to whether the label developed by Coca-Cola via ITW was “substantially derived” from any PKM trade secrets.
III.
In part II we held that the district court correctly determined that PKM’s Magic Windows label was a trade secret within the meaning of the Georgia Trade Secrets Act (GTSA). As a consequence of that ruling, we now must decide whether the district court rightly concluded that four of PKM’s remaining claims – conversion, breach of confidential relationship and duty of good faith, unjust enrichment, and quantum meruit – must be dismissed because they are superseded by the Act.
Section 10-1-767(a) provides that the GTSA “supersede[s] conflicting tort, restitutionary, and other laws of [Georgia] providing civil remedies for misappropriation of a trade secret.” Subpart (b) of that section goes on to state, however, that the statute does not affect (1) “contractual duties or remedies,
Specifically, PKM argues that since claims of conversion, breach of confidential relationship and duty of good faith, unjust enrichment, and quantum meruit “are not dependent on the existence of a trade secret,” each claim is not “based” upon the misappropriation of a trade secret, and therefore not preempted. Stated another way, PKM argues that conversion, breach of confidential relationship and duty of good faith, unjust enrichment, and quantum meruit are each distinct theories of civil remedies for the wrongful use of information not rising to the level of a trade secret,10 and thus do not “conflict” with a
In the lone Georgia appellate opinion to signficantly address supersession under the GTSA, the court of appeals held that a claim of conversion is superseded by the GTSA “to the extent” the claim addresses a trade secret. Tronitec, Inc. v. Shealy, 547 S.E.2d 749, 755 (Ga. Ct. App. 2001).12 Unlike the facts in Tronitec, which involved an allegation for the conversion of trade secret information and personal property, PKM’s claims are wholly based upon a trade secret. Indeed, the full extent of each of PKM’s claims, be it conversion, breach of confidential
We therefore agree with the district court’s holding that PKM’s claims for
IV.
We have yet to address PKM’s remaining count – the claim for breach of contract.15 PKM complains that Coca-Cola violated the Non-Disclosure Agreement by disclosing confidential information to ITW which then used the information to make the Magic Windows labels. Coca-Cola responds by arguing that the agreement explicitly negated its obligation of confidence upon the occurrence of certain events. Specifically, Coca-Cola agrees with the ruling of the district court: Coca-Cola did not breach the Non-Disclosure Agreement because, pursuant to the Agreement’s provision allowing it to disclose information that “at the time of disclosure, is available to the public” or “is rightfully received from a third party,” Coca-Cola rightfully received the Magic Windows concept from BrightHouse and used bottle labels independently developed by ITW. The record clearly supports the district court’s ruling.
As we mentioned above, in February of 1996, the parties executed a Non-
V.
For the foregoing reasons, the judgment of the district court is AFFIRMED.
SO ORDERED.
Notes
The rules stated in this Section [addressing the appropriation of trade secrets] are applicable to common law actions in tort or restitution for the appropriation of another’s trade secret, however denominated, including actions for “misappropriation,” “infringement,” or “conversion” of a trade secret, actions for “unjust enrichment” based upon the unauthorized use of a trade secret, and actions for “breach of confidence” in which the subject matter of the confidence is a trade secret.