Virginia Lawyers Weekly VA Lawyers Weekly
The inventor of a portable drain cleaning tool has sued its former distribution partner, alleging it breached a nondisclosure agreement and used confidential information to develop a competing product.
Background
Plaintiffs C. Charles Gallo, CDC Products Inc. and Quality Innovations LLC filed the present action against DiversiTech Corporation asserting multiple counts, including breach of a nondisclosure agreement, or NDA. Gallo alleges he entered into a licensing agreement with DiversiTech in 1998 to market and distribute Gallo’s then-new design for a portable drain cleaning tool.
In April 2017, Gallo allegedly disclosed certain “trade secrets” to DiversiTech “with an understanding that DiversiTech would keep the Trade Secrets confidential as required by the NDA.” The complaint alleges that DiversiTech misappropriated the trade secrets and used it to manufacture, market and distribute a 20-gram CO2 cartridge tool embodying the designs disclosed under the NDA.
DiversiTech has filed a motion to dismiss the breach of NDA count.
Duty
DiversiTech first argues that the plaintiffs have not adequately pleaded that DiversiTech owed an enforceable obligation under the NDA because the allegedly “Confidential Information” that Gallo provided DiversiTech was publicly known and thus not “confidential.”
While Gallo’s patents noted that “it should be readily understood that various changes and/or modifications can be made” to Gallo’s drain gun design, the court cannot, at this time, conclude that the patents readily disclosed the use of a 20-gram CO2 cartridge. As the plaintiffs point out, the patents make no mention of “the recommended size of the miniature, pre-charged CO2 cartridge or ‘container’ for the apparatus, how the size of the cartridge could affect the design requirements for the chamber, or how the product should be redesigned to accommodate a different sized CO2 cartridge.”
Indeed, the fact that the patents disclose the “general design of the Charles Gallo Gun . . . does not mean that all possible upgrades, modifications, and configurations around the patent disclosure were also ‘public knowledge’ by implication.” The court notes that nothing in the text of either patent mentions outright a 20-gram CO2 cartridge, and whether the patents readily contemplated such a modification is a question of fact better addressed at summary judgment or trial than at the Rule 12(b)(6) stage.
The amended complaint alleges that based on their industry knowledge and research, the plaintiffs designed a new drain gun utilizing a 20-gram cartridge and “improved durable components,” along with a new marketing and business strategy. The amended complaint also alleges that the plaintiffs kept these planned improvements secret before their disclosure at the April 17, 2017, meeting. The court therefore concludes that the plaintiffs have adequately pleaded an enforceable obligation by DiversiTech under the NDA to keep such information confidential.
Breach
DiversiTech next argues that even if the plaintiffs have adequately pleaded an enforceable obligation under the NDA, they have not shown that DiversiTech breached the obligation. The court disagrees.
The amended complaint alleges that DiversiTech improperly “used” the information the plaintiffs disclosed in the April 17, 2017, meeting, and “began manufacturing, marketing and distributing a 20 gram CO2 cartridge tool that embodies the designs disclosed under the NDA,” and which DiversiTech named “the Big Shot.” The amended complaint also alleges that DiversiTech’s “Big Shot” product “resulted from DiversiTech’s unauthorized use of the Confidential Information,” that “DiversiTech misappropriated the Confidential Information and used it to make the ‘Big Shot,’” and that “DiversiTech breached the NDA by disclosing and using the Confidential Information in its rollout of the ‘Big Shot.’” Against this backdrop, the court concludes that the amended complaint adequately pleads breach of the NDA.
Damages
The amended complaint alleges lost sales and irreparable harm to the plaintiffs’ reputations, brand recognition and goodwill, all sufficient to plead damages suffered due to DiversiTech’s alleged misconduct. The amended complaint further points to “irreparable harm to Plaintiffs’ ability to reap the commercial benefits of using its next generation design and business plan for the Charles Gallo Gun and from enjoying the commercial benefits of this novel design, Confidential Information, and business plans and intellectual property rights.” The court therefore finds no merit in DiversiTech’s assertion as to damages.
Defendant’s partial motion to dismiss denied.
Gallo v. DiversiTech Corporation, Case No. 7:20-cv-00313, Feb. 10, 2021. WDVA at Roanoke (Conrad). VLW 021-3-054. 15 pp.
