IP Law Daily, TRADE SECRETS—S.D. Ohio: Personal jurisdiction lacking in popcorn manufacturer’s misappropriation suit against flavor developer, (Apr 17, 2017)

By Thomas Long, J.D.

An Ohio manufacturer of flavored food products for the concessions industry failed to establish that personal jurisdiction existed in Ohio with regard to trade secrets misappropriation and contract claims against an Illinois-based food and beverage flavorings developer and a former employee who went to work for the Illinois company, the federal district court in Cincinnati has ruled. The former employee, while working for the Illinois company, allegedly used the Ohio company’s confidential business information to help a Chinese manufacturer develop a flavored glazed popcorn product that competed with the Ohio manufacturer’s Glaze Pop® product. The Illinois company lacked contacts with Ohio, and the employee’s actions while employed in Ohio could not be imputed to it. Nor did the employee’s actions constitute breach of a separate confidentiality agreement between the companies, the court determined. However, the Ohio company adequately pleaded breach of contract and promissory estoppel claims against the former employee, based on promises he allegedly made not to reveal the company’s trade secrets (Gold Medal Products Co. v. Bell Flavors and Fragrances, Inc., April 14, 2017, Dlott, S.).

Plaintiff Gold Medal Products Co. made a popcorn product called Glaze Pop®. Glaze Pop® recipes included multiple separate flavor ingredients that the company combined in specific ratios to create one overall flavor. The specific ingredients and the ingredient ratios in each recipe were trade secrets that Gold Medal had closely guarded.

Defendant Todd Sunderhaus, formerly the sole food technologist at Gold Medal, allegedly promised orally not to disclose Gold Medal’s confidential information. Sunderhaus also allegedly agreed in writing to comply with policies and procedures stated in a company handbook. Defendant Bell Flavors and Fragrances, Inc., developed flavors for beverages and food products, including bakery, confections, dairy, and savory products.

At an unspecified date prior to March 2014, Gold Medal engaged Bell Flavors to help develop flavors for certain food products. During the companies’ business relationship, Bell Flavors had access to Gold Medal’s confidential information but was subject to a written confidentiality agreement entered into by the companies. In March 2014, Sunderhaus left Gold Medal and went to work for Bell Flavors as a savory flavorist. Bell Flavors assigned Sunderhaus to work with a Chinese competitor of Gold Medal. After the Chinese company introduced a caramel-flavored popcorn glaze product to compete with Glaze Pop®, Gold Medal filed suit against Sunderhaus and Bell Flavors for misappropriation of trade secrets in violation of the Defend Trade Secrets Act (DTSA) and the Ohio Uniform Trade Secrets Act, breach of contract and promissory estoppel against Sunderhaus, and breach of contract against Bell Flavors. Both defendants moved to dismiss the claims.

Trade secrets misappropriation—personal jurisdiction. The defendants alleged that the court could not exercise personal jurisdiction over Bell Flavors because Bell Flavors had insufficient contacts with Ohio. The court agreed. Bell Flavors had no direct contacts with Ohio giving rise to trade secrets claims. The fact that Gold Medal felt the effect of Bell Flavors’s allegedly tortious conduct in Ohio could not provide a basis for personal jurisdiction against Bell Flavors, the court said. The trade secrets counts were not based on Bell Flavors’s performances of services for Gold Medal, the court noted. Rather, they were based on alleged conduct by Sunderhaus after he left employment with Gold Medal and began working for Bell Flavors. Sunderhaus’s conduct in Ohio (that is, the acquisition of confidential information, as opposed to the alleged wrongful disclosure or use of that information), before he was an employee of Bell Flavors, was not attributable to Bell Flavors. Bell Flavors was not alleged to have traveled to Ohio to recruit, interview, or hire Sunderhaus, and Sunderhaus was not alleged to have taken actions in Ohio as Bell Flavors’s agent. Gold Medal did not assert that Bell Flavors hired Sunderhaus for the purpose of obtaining Gold Medal’s confidential business information or for the purpose of helping Gold Medal’s competitors formulate competing food products. Therefore, the trade secrets claims against Bell Flavors were dismissed. Gold Medal conceded that Bell Flavors was an indispensable party as to those claims; therefore, the claims against Sunderhaus were also dismissed.

Breach of contract and promissory estoppel claims against Sunderhaus. The court decided that Gold Medal’s allegations were sufficient to state claims for breach of contract and promissory estoppel against Sunderhaus. Although the defendants argued that the Gold Medal company handbook could not give rise to contract claims because it contained a contractual disclaimer and a provision allowing Gold Medal to unliterally modify it, the claims were based in part on oral promises that Sunderhaus had made. Gold Medal alleged that it relied on those promises and provided consideration to Sunderhaus in the form of his continued employment. These allegations were enough to withstand a motion to dismiss.

Breach of contract against Bell Flavors. Gold Medal failed to plead a breach of contract claim against Bell Flavors. Gold Medal alleged that Bell Flavors had breached its obligations under the written confidentiality agreement between the parties. The court rejected Gold Medal’s argument that the confidentiality agreement was intended to bar Bell Flavors from using or disclosing confidential information that Sunderhaus separately learned during his employment at Gold Medal. The agreement made several references to the fact that it related to "services" Bell Flavors provided to Gold Medal. Sunderhaus’s alleged disclosure or use of confidential information did not constitute a breach of Bell Flavor’s separate written agreement with Gold Medal.

The case is No. 1:16-cv-00365-SJD.

Attorneys: John Francis Bennett (Ulmer & Berne LLP) for Gold Medal Products Co. David A. Eberly (Eberly McMahon LLC) for Bell Flavors and Fragrances, Inc., and William Todd Sunderhaus.

Companies: Gold Medal Products Co.; Bell Flavors and Fragrances, Inc.

Cases: TradeSecrets OhioNews