IP Law Daily, TRADE SECRETS—D. Or.: Summary judgment denied in water contaminant detector dispute, (Nov 20, 2024)

By Kevin M. Finson

Claims for trade secret misappropriation and other misconduct in a dispute between an inventor and purchaser of intellectual property were not suitable for resolution on summary judgment due to a great many disputed facts.

An inventor of a device for detecting water contamination was not entitled to summary judgment against a purchaser of his company’s intellectual property, the U.S. District Court in Portland has held. Genuine disputes of material fact existed as to whether the inventor had turned over or was misappropriating trade secrets and other intellectual property which had been sold in a receivership proceeding, (ZAPS Technologies LLC v. Klinkhammer, No. 6:20-cv-00760-IM (D. Or. Nov. 18, 2024)).

This case centered around a device known as the LiquID Station (LID), which was used to detect contaminants in water, and which was developed by Dr. Gary Klinkhammer and protected by several patents. Dr. Klinkhammer founded ZAPS Technologies, Inc. (ZTI) to develop and market the LID. ZTI eventually encountered financial and governance problems and was placed in receivership. Cheever Capital Management (CCM) purchased ZTI’s intellectual property, including trade secrets. CCM assigned the intellectual property to G6Nine, LLC, and G6Nine LLC created a new company, ZAPS Technologies LLC (ZAPS LLC), to be the operating entity. ZAPS LLC entered into employment contracts with Dr. Klinkhammer and others. These employees eventually left ZAPS LLC. ZAPS LLC brought suit alleging that Dr. Klinkhammer and the other employees failed to turn over the trade secrets which had been purchased in the receivership sale and that they had formed a new company to market a similar product using those trade secrets. Klinkhammer, the other employees, and the new company moved for summary judgment on all claims.

Pleading issues. The court began by noting that the parties’ “Joint Statement of Agreed Material Facts” was filed late, and despite being limited by local rule to five pages, it amounted to 62 pages plus thousands of pages of exhibits. The court also found that nearly all of the “undisputed” facts were in fact disputed, and that the defendants had simply marked their version of events as “undisputed” and included the plaintiff’s response disputing those very facts. The defendants also filed several thousand pages of exhibits and failed to comply with the local rule’s mandatory certification requirement. The court explained that the massive record was not to defendants’ benefit and that further non-compliant filings would be rejected.

Trade secrets. Klinkhammer argued that ZAPS LLC failed to sufficiently identify the claimed secrets and that the claimed secrets were publicly known, either through patent filings, the well-known science of spectrophotometry, or by the ease of reverse-engineering the LID product. The court determined that genuine questions of material fact existed as to all of these issues in the form of conflicting deposition testimony and expert opinions.

Fraud claims. The court found that questions of material fact existed in the form of voluminous conflicting testimony as to whether the representations made by Dr. Klinkhammer were false, whether ZAPS LLC had a right to rely on them, and whether ZAPS LLC ought to have been aware of the false statements that were outside the statute of limitations.

Breach of contract. For the same reasons as set out above, the court said genuine questions of material fact also existed as to whether Dr. Klinkhammer and the other employees breached the confidentiality provisions of their contracts. The court did find that summary judgment was appropriate as to an alleged oral agreement to reduce certain trade secrets to writing. The written contracts were fully integrated according to their terms, so evidence of the oral agreement was excluded under the parole evidence rule.

Good faith and fair dealing. The court found that ZAPS LLC had failed to point to any term of the contract which was frustrated by Dr. Klinkhammer and the other employees’ acting contrary to the contract’s purpose and to ZAPS LLC’s reasonable expectations, so summary judgment was granted as to this claim.

The court denied the motion to dismiss as to all claims except those for breach of the alleged oral contract and breach of the duty of good faith and fair dealing.

The Case is No. 6:20-cv-00760-IM.

Judge: Immergut, K.

Attorneys: Douglas R. Ricks (Sussman Shank, LLP) for ZAPS Technologies LLC, Cheever Capital Management LLC, and G6Nine LLC. Eliot M. Harris (Williams Kastner) for Dr. Gary P. Klinkhammer, Christopher J. Russo, Nathan W. Klinkhammer, Roger A. Morrison, and Electron Path LLC.

Companies: ZAPS Technologies LLC; Cheever Capital Management LLC; G6Nine LLC; Electron Path LLC

Cases: TradeSecrets OregonNews