Static Control Components v. Darkprint Imaging

• Decision Date: 09 October 2002
• Docket Number: No. 1:99-CV-00612.,1:99-CV-00612.
• Citation: 240 F.Supp.2d 465
• Court: U.S. District Court — Middle District of North Carolina
• Parties: STATIC CONTROL COMPONENTS, INC., Plaintiff, v. DARKPRINT IMAGING, INC., Defendant.

240 F.Supp.2d 465

STATIC CONTROL COMPONENTS, INC., Plaintiff, v. DARKPRINT IMAGING, INC., Defendant.

No. 1:99-CV-00612.

United States District Court, M.D. North Carolina.

October 9, 2002.

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William L. London, III, Sanford, NC, Jennifer Heisinger, Joseph C. Smith, Jr., Bartlit, Beck, Herman, Palenchar & Scott, Denver, CO, for Plaintiff.

Laurie J. Bremer, Douglas W. Kenyon, Matthew Patrick McGuire, Hunton & Williams, Raleigh, NC, Timothy P. Getzoff, Donald A. Degnan, Chrisopher H. Toll. Holland & Hart, LLP, Boulder, CO, for Defendant.

MEMORANDUM OPINION

TILLEY, Chief Judge.

This case is before the Court on Defendant Darkprint Imaging Inc.'s Motion for Judgment as a Matter of Law Pursuant to Rule 50, or for a New Trial Pursuant to Rules 59 and 60(b)(3) [Doc. # 137], as well as Plaintiff Static Control Components, Inc.'s motion for unfair and deceptive trade practices and for attorney's fees [Doc. # 116]. For the reasons set forth below, Darkprint's motion is GRANTED IN PART and DENIED IN PART and Static Control's motion is GRANTED IN PART.

I.

Static Control is a North Carolina corporation that distributes aftermarket components and toner for businesses that remanufacture spent or worn laser toner cartridges. These parts become substandard through the normal wear and tear of cartridge use. The aftermarket can be contrasted with new toner products developed by original equipment manufacturers (hereinafter "OEMs"). Remanufacturers refurbish used cartridges by replacing defective parts, normally, with aftermarket parts and, then, refilling the cartridges with toner. The type cartridge and the particular parts used in the remanufacture may work extremely well with one or more of the different toners available in the aftermarket and very poorly with others, even when others have been "designated" by its manufacturer for use in that particular type cartridge.

In supplying remanufacturers with toner for use in refurbished cartridges and in order to determine which toners will work best with particular components, Static Control conducts a battery of technical and print tests. Static Control, as well as other distributors, gets its toner from toner manufacturers¹ who sell toner specifically targeted to particular toner cartridges. For example, a manufacturer will produce a toner and sell it for use in an EX toner cartridge, which is one of many cartridges available to remanufacturers. Static Control has determined, however, that the toners a manufacturer may designate for certain cartridges sometimes works better in other types of cartridges. For example, Static Control could find that a toner the manufacturer designates for an EX toner cartridge in fact works best with an SX toner cartridge. Static Control determines information about the chemical and physical properties and traits of toners through scientific testing and exhaustive print testing. Static Control tests numerous toners for each cartridge. Often toners that were "tested but not used"—that is, tested but not adopted by Static Control as the specific toner it will repackage and offer to the market for use with specific cartridges or cartridges using specific components—are identified as good alternative toners in case of a market shift.² Static Control considers its "tested but not used" toner information to be a trade secret because it identifies second-best or next-best alternate toners that could be used in place of the toners Static Control uses at a given time.

Static Control brought suit against Darkprint, alleging that Darkprint misappropriated its trade secrets, tortiously interfered with its employment agreements, and engaged in unfair trade practices. Specifically, Static Control argued that Darkprint hired toner scientist Lauren Hulse in violation of Static Control's noncompetition agreement with Mr. Hulse and thereafter used Mr. Hulse to obtain Static Control's customer, vendor, and technical toner trade secret information. The specific toner trade secret information Static Control claimed at trial was the "tested but not used" information. Pertinent facts of the case will be discussed below in reference to the specific arguments Darkprint has advanced in its motion.

After Darkprint's motions for summary judgment were denied, a bifurcated jury trial was held from October 23, 2001 through November 5, 2001. Because of the complexity of the trade secret misappropriation issues, the jury was provided with a detailed verdict sheet on which to mark whether Darkprint had misappropriated specific trade secret information and whether Darkprint had tortiously interfered with Mr. Hulse's non-competition agreement. The jury found the following: (1) that as to each toner Darkprint offered for sale during the period in question, Darkprint had misappropriated Static Control's "tested but not used" information; (2) that Darkprint had tortiously interfered with Mr. Hulse's non-competition agreement with Static Control; (3) that Darkprint had committed the acts supporting a finding of unfair and deceptive trade practices under North Carolina General Statutes § 75-1.1; and (4) that Darkprint had not misappropriated Static Control's customer information. The jury awarded $346,045.07 in compensatory damages and $985,802.45 in punitive damages.

Darkprint now moves for judgment as a matter of law as to the non-competition agreement, the trade secret misappropriation, and damages. Darkprint also moves for a new trial pursuant to Fed.R.Civ.P. 59 and 60(b)(3) for alleged discovery misconduct, excessive punitive damages, inadequate damages calculations, inappropriate jury instructions, insufficient evidence of misappropriation, and several evidentiary matters.

II.

Darkprint has moved for judgment as a matter of law pursuant to Fed.R.Civ.P. 50 on Static Control's tortious interference claims. Darkprint argues that the noncompetition agreement between Static Control and Mr. Hulse is invalid as a matter of law and was not supported by sufficient evidence at trial. Specifically, Darkprint contends that the non-competition agreement is not reasonably restricted as to time and geographic scope. Darkprint also contends that the non-disclosure agreement between Static Control and Darkprint is invalid because it was not limited to confidential information.

The non-competition agreement states: I agree not to compete directly or indirectly with Static Control Components, Inc. in its manufacturing and/or distribution of supplies to remanufacturers of laser printer cartridges for a period of two (2) years from the date of last compensation from Static Control Components, Inc.

This agreement is not limited to direct competition and is not limited to particular Static Control customers. Instead, the agreement, by its terms, would apply even if Mr. Hulse was determined to compete even indirectly with Static Control.

A.

Darkprint contends that the non-competition agreement between Static Control and Mr. Hulse is invalid for two reasons. First, Darkprint contends that the geographic and temporal scope of the agreement is overbroad. Second, Darkprint contends that Static Control presented insufficient evidence as to the date of Mr. Hulse's last compensation as a consultant. Darkprint also contests the jury's verdict in favor of Static Control on the tortious interference claim because it asserts that it should have been allowed to present evidence of Darkprint's subjective belief that the non-competition agreement was legally invalid.

i.

In order to present a prima facie case for tortious interference under North Carolina law, Static Control must show that: (1) there was a valid contract; (2) Darkprint knew of the contract; (3) Darkprint intentionally induced Lauren Hulse to breach the non-compete agreement, (4) Darkprint had no business justification; and (5) Static Control suffered actual damages. United Labs., Inc. v. Kuykendall, 322 N.C. 643, 661, 370 S.E.2d 375, 387 (1988). For the covenant to be valid, it must be: (1) in writing; (2) a part of the employment contract; (3) based on valuable consideration; (4) reasonable as to time and territory; and (5) advance a legitimate business interest of the employer. Farr Assocs., Inc. v. Baskin, 138 N.C.App. 276, 279, 530 S.E.2d 878, 881 (2000); Hartman v. W.H. Odell & Assocs., 117 N.C.App. 307, 311, 450 S.E.2d 912, 916 (1994). The validity of non-competition agreements is a matter of law to be decided by the court. Farr Assocs., 138 N.C.App. at 279, 530 S.E.2d at 881.

ii

Darkprint's first contention is that the geographic and temporal scope of the non-competition agreement is unreasonable, thus rendering the agreement invalid. As the plaintiff, Static Control has the burden of demonstrating that the non-competition agreement is reasonable. Hartman, 117 N.C.App. at 311, 450 S.E.2d at 916. Covenants not to compete must be reasonable both as to geographical and temporal restrictions, and courts must analyze these two restrictions "in tandem." Precision Walls, Inc. v. Servie, ___ N.C.App. ___, 568 S.E.2d 267, 273 (2002); Farr Assocs., 138 N.C.App. at 280, 530 S.E.2d at 881; Wade S. Dunbar Ins. Agency, Inc. v. Barber, 147 N.CApp. 463, 469, 556 S.E.2d 331, 335 (2001). North Carolina courts have determined that geographic restrictions are reasonable when they are narrowly tailored to protect the employer's business interests and do not work an undue hardship on the employee's later ability to work. Harwell Enters., Inc. v. Heim, 6 N.C.App. 548, 170 S.E.2d 540 (1969), affd in part and rev'd in part on other grounds, 276 N.C 475, 173 S.E.2d 316.

Geographic restrictions are reasonable and not overly broad when the employer can demonstrate where its customers are located and that the geographic limitation is restricted to protect the customer relationships in that geographic area. See Farr Assocs., 138 N.C.App. at 281, 530 S.E.2d at 882. North Carolina...