Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—WashCtApp: Product Design Company Failed to Allege Washington Consumer Protection Act Claim Against Manufacturer , (Mar 14, 2013)

By Peter Reap, J.D., LLM

Northwest Product Design Group, LLC (NPDG), failed to state a valid claim against manufacturer Homax Products, Inc., for violation of the Washington Consumer Protection Act (CPA) because NPDG failed to establish the public interest element of a CPA violation, a Washington appellate court has decided (Northwest Product Design Group, LLC v. Homax Products, Inc., March 11, 2013, Schindler, J.).

In addition, NPDG failed to adequately assert a claim for fraud and misrepresentation against Homax, and NPDG was not entitled to an award of damages under the Uniform Trade Secrets Act after a jury found that Homax misappropriated a trade secret from NPDG. Thus, the rulings by a Washington state trial court were affirmed in all respects.

Background. Robert Cameron is an inventor and the president of NPDG. Cameron individually, and in association with others, invented several clips used to secure tarps. In 2000, a non-party entity affiliated with Cameron entered into an exclusive licensing agreement with Homax for one of these clips, the Crocodile Clip.

Homax began working on a modification of the Crocodile Clip in 2002 and developed the Cinch Tite Clip. Homax patented the Cinch Tite Clip in 2004.

On January 8, 2007, NPDG and another entity (collectively NPDG) filed a complaint against Homax. NPDG claimed that the patent Homax obtained for the Cinch Tite Clip contained protected information about other clips NPDG had developed. NPDG alleged Homax misappropriated trade secrets to obtain design and manufacturing information for its own use and benefit, and to prevent NPDG from marketing the competing tarp clips.

The trial court dismissed NPDG’s claims for violation of the CPA, fraud and negligent misrepresentation, and it denied NPDG’s motion to file an amended complaint to re-assert a CPA claim based on newly discovered information. The jury found that although Homax misappropriated trade secrets, NPDG did not prove that it was entitled to damages for misappropriation.

NPDG appealed, challenging the dismissal of its CPA and fraud and misrepresentation claims, and contending that it was entitled to damages under the Uniform Trade Secrets Act.

Washington Consumer Protection Act claim. The CPA prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." RCW 19.86.020. To establish a CPA violation, NPDG must prove that (1) Homax engaged in an unfair or deceptive act or practice, (2) in trade or commerce, (3) that impacts the public interest, (4) resulting in injury to business or property, and (5) a causal link between the unfair or deceptive practice and the injury suffered.

The parties disputed whether the allegations in the complaint established the public interest element, the court noted. The public interest element of a CPA claim required a finding that the allegations show that Homax's unfair or deception act injured the public interest. Moreover, To establish that an act or practice affects the public interest, there must be a real and substantial potential for repetition.

In determining whether an alleged deceptive act or practice affects the public interest, a court evaluates four factors: (1) whether the alleged acts were committed in the course of defendant's business; (2) whether the defendant advertised to the public in general; (3) whether the defendant actively solicited this particular plaintiff, indicating potential solicitation of others; and (4) whether the plaintiff and defendant have unequal bargaining positions. These factors are not exclusive, no one factor is dispositive, and it is not necessary that all be present.

NPDG’s complaint alleged that Homax "solicits ideas, trade secrets and patent rights from individuals and entities;" that its "business depends on solicitation of the public for ideas, trade secrets and patent rights;" that Homax advertises to the general public; and the parties "occupied unequal bargaining positions."

However, the complaint did not allege a causal connection between these conclusory allegations and the alleged unfair and deceptive act or practice, the court determined. To the contrary, the complaint alleged that Cameron contacted Homax based on their prior successful agreement. Further, there were no allegations that the alleged "representations and assurances" of Homax representatives that Homax was interested in "doing business" with NPDG in order to obtain trade secrets was part of a pattern or generalized course of conduct creating a real and substantial potential for repetition of defendant's conduct.

The complaint also does not establish unequal bargaining power, according to the court. The allegations showed NPDG had a history of business experience and were not representative of bargainers subject to exploitation and unable to protect themselves. Even accepting the material allegations of the complaint as true, NPDG did not plead sufficient facts to establish the public interest element of a CPA violation. The trial court properly dismissed NPDG's CPA claim.

Furthermore, the proposed second amended complaint alleged newly discovered evidence showing that from March 2000 until December 2005, Homax solicited the general public by advertising on web sites. Homax argued there was no connection between the web site advertising and the business relationship between the parties.

The trial court did not abuse its discretion in denying the motion to file the second amended complaint to re-assert the CPA claim, the appellate court reasoned. The undisputed evidence showed that Cameron contacted Homax because of the previous successful distribution and licensing agreement between the parties, and not advertising on the web site.

Fraud and misrepresentation claim. In the complaint, NPDG alleged that Homax wrongfully obtained information about two new clips it had developed with the intent to deceive, and NPDG relied upon the misrepresentations. While NPDG alleged that Homax assured NPDG it would execute a copy of the confidentiality agreement, other allegations in the complaint showed that NPDG did not rely on that assurance, the appellate court stated. None of the other allegations amounted to an affirmative misrepresentation of an existing fact necessary to support a cause of action for fraud. Thus, the trial court properly dismissed the claim.

Jury verdict. NPDG contended that after the jury found Homax misappropriated the Jaws Clip trade secret, as a matter of law, NPDG was entitled to an award of damages under the Uniform Trade Secrets Act. However, neither the Uniform Trade Secrets Act nor the jury instructions in this case supported NPDG's argument, the court reasoned. Under the Uniform Trade Secrets Act, a plaintiff "may recover damages for the actual loss caused by misappropriation," and "may recover for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss." RCW 19.108.030(1).

NPDG did not object to the jury instructions or the special verdict form. Under the law of the case doctrine, if not objected to, the instructions given to the jury by the trial court shall be treated as the applicable law, according to the court. Here, the jury instructions did not require the jury to award damages upon finding Homax misappropriated the trade secret.

The case is No. 67278-0-1.

Attorneys: Donald H. Mullins (Badgley Mullins Law Group PLLC) for Northwest Product Design Group, LLC. Mark J. Lee (Brownlie Evans Wolf & Lee LLP) for Homax Products, Inc.

Companies: Northwest Product Design Group, LLC; Homax Products, Inc.

Cases: StateUnfairTradePractices WashingtonNews