C&F Packing Co. v. IBP Inc.

• Decision Date: 25 August 2000
• Citation: 224 F.3d 1296,55 USPQ2d 1865
• Parties: (Fed. Cir. 2000) C&F PACKING CO., INC., Plaintiff-Appellant, v. IBP, INC., Defendant-Appellant, and PIZZA HUT, INC., Defendant-Appellee. 99-1312,-1313 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1296

224 F.3d 1296 (Fed. Cir. 2000)

C&F PACKING CO., INC., Plaintiff-Appellant, v. IBP, INC., Defendant-Appellant, and PIZZA HUT, INC., Defendant-Appellee.

99-1312,-1313

United States Court of Appeals for the Federal Circuit

DECIDED: August 25, 2000

Appealed from: United States District Court for the Northern District of Illinois

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Raymond P. Niro, Niro, Scavone, Haller & Niro, of Chicago, Illinois, argued for plaintiff-appellant. With him on the brief were William L. Niro, John C. Janka, and Paul K. Vickrey.

Constantine L. Trela, Jr., Sidley & Austin, of Chicago, Illinois, argued for defendant-appellant, IBP, Inc. With him on the brief were D. Cameron Findlay, andJoseph S. Miller.

Patricia J. Thompson, Schiff Hardin & Waite, of Chicago, Illinois, argued for defendant-appellee. With her on the brief were Roger Pascal, Julie L. Brown, and Lisa A. Brown.

Before PLAGER, CLEVENGER, and RADER, Circuit Judges.

RADER, Circuit Judge.

The Northern District of Illinois awarded C&F Packing Co., Inc. extensive damages and prejudgment interest against IBP, Inc. for misappropriation of trade secrets. Because the district court correctly applied the law of trade secret misappropriation and damages, this court affirms these decisions against IBP. This court vacates, however, the district court's award of prejudgment interest to C&F, reverses the dismissal of C&F's claims against Pizza Hut for failure to state a claim, and remands.

I.

C&F is an Illinois corporation that makes and sells meat products. Since the early 1970s, C&F had supplied uncooked sausage to pizza vendors, including Pizza Hut outlets. In this business, C&F perceived a need for national distribution of precooked sausage. After years of research, C&F developed a process for making and freezing precooked sausage for pizza toppings. This product had the appearance, taste, and other characteristics of freshly cooked sausage. C&F's product surpassed other precooked products in price, appearance, and taste.

On August 6, 1985, C&F filed an application for a patent on its process. This application matured into U.S. Patent No. 4,731,006 (the '006 patent) for specially designed equipment to make the sausage, and U.S. Patent No. 4,800,094 (the '094 patent) for the process itself. C&F continued to improve its process after submitting its patent application, and kept its new developments as trade secrets.

In 1985, Pizza Hut agreed to buy C&F's precooked sausage on the condition that C&F divulge its process to several other Pizza Hut suppliers, ostensibly to assure that back-up suppliers were available to Pizza Hut. In exchange for the process, Pizza Hut promised to purchase a large amount of precooked sausage from C&F. Under this agreement, C&F disclosed its process to several of Pizza Hut's suppliers. C&F entered written confidentiality agreements with these entities. C&F also leased its specialized equipment to these suppliers and invested $4.5 million in a new plant to meet Pizza Hut's needs. By early 1986, Pizza Hut's other suppliers had learned how to duplicate C&F's results. At that time, Pizza Hut told C&F that it would not purchase any more sausage without drastic price reductions.

In 1989, Pizza Hut entered into discussions with IBP about the purchase of pre-cooked sausage pizza toppings. IBP was one of Pizza Hut's largest suppliers of meat products other than sausage. Pizza Hut furnished IBP with a "specification and formulation" for sausage toppings. IBP signed a confidentiality agreement with Pizza Hut concerning this information. Pizza Hut transferred information to IBP about the sausage process in document form, and in personal discussions with IBP employees. IBP also hired a former supervisor in C&F's sausage plant as a production superintendent. IBP fired this employee five months later, by which time it had established its sausage-making process. By early 1991, Pizza Hut was buying precooked sausage topping from IBP.

On March 17, 1993, C&F sued IBP for infringement of the '094 patent. On March 22, 1993, C&F amended its complaint to add charges of inducement of infringement against Pizza Hut. In its Second Amended Complaint of May 14, 1993, C&F added claims under state law against Pizza Hut and IBP. The new claims against Pizza Hut included fraud, breach of fiduciary duty, unfair competition, unjust enrichment, tortious interference with business expectancy, and trade secret misappropriation. Count VIII of the trade secret claim, entitled "Violation of Illinois Trade Secrets Act Against Pizza Hut," consisted of a list of asserted facts. Paragraph 55 on page 21 of C&F's complaint ^* stated: "The confidential information which C&F entrusted to Pizza Hut included trade secrets protected by the Illinois Trade Secrets Act, 75 Ill. Comp. Stat. 1065/1, et seq." The first 54 paragraphs of the complaint listed facts which, C&F alleged, buttressed the four paragraphs describing its specific legal complaint against Pizza Hut.

IBP counter-claimed, charging that the '094 patent was invalid, unenforceable, and not infringed. For its part, Pizza Hut moved to dismiss C&F's Second Amended Complaint on the grounds that some of the claims were pre-empted by "the applicable trade secrets statute," that the claims were barred by "at most" a five-year statute of limitations, and that C&F had failed to state a claim of trade secret misappropriation against Pizza Hut because the claim had been brought under Illinois law, whereas the law of Kansas should apply.

On January 26, 1994, the District Court for the Northern District of Illinois disposed of C&F's misappropriation claim against Pizza Hut by ruling that "[b]ecause the court has determined that Kansas law governs C&F's misappropriation claims, this count is dismissed for failure to state a claim upon which relief can be granted." C&F Packing Co. v. IBP, Inc., & Pizza Hut, Inc., No. 93-C1601, 1994 WL 30540, at *5 (N.D. Ill. Feb. 1, 1994) (C&F). The Kansas Uniform Trade Secret Act, Kan. Stat. Ann. § 60-3320 (1999) (KUTSA), has a three-year statute of limitations period; its Illinois equivalent has a five-year statute of limitations period. While this was enough for the district court to dismiss C&F's complaint against Pizza Hut, the court also noted that C&F should have known of misappropriation by Pizza Hut "as early as March 1986," so that "[e]ven if Pizza Hut had properly brought its claim under the Kansas . . . Act . . . the claim would be barred by the applicable statute of limitation [sic]." Id. The court also dismissed C&F's common law claims of fraud, breach of fiduciary duty, unfair competition, and unjust enrichment against Pizza Hut as preempted by the applicable law, KUTSA. On cross motions for summary judgment on the remaining claims, the district court granted summary judgment to IBP on the claims of tortious interference and unfair competition, leaving pending the trade secret claim against IBP and patent claims against both defendants. On March 30, 1998, the district court found that the '094 patent was invalid under 35 U.S.C. § 102(b) (1994) because the invention had been on sale more than one year before the patent application date. The trade secret claim against IBP proceeded to trial.

In December 1998, a jury determined that IBP had misappropriated C&F's trade secrets and awarded C&F $10.9 million in damages for unjust enrichment. The district court further awarded C&F $5.1 million in prejudgment interest. IBP moved for Judgment as a Matter of Law (JMOL) in its favor. The district court denied IBP's motion; IBP appeals.

Upon dismissal of its state law claims against Pizza Hut, C&F moved the district court for leave to file a Third Amended Complaint, asking the court to reconsider its ruling that Kansas, not Illinois, law applied, and also arguing for the first time that even if Kansas law governs, the Illinois Borrowing statute (735 Ill. Comp. Stat. 5/13-210 (West 1992)) requires the application of Illinois' five-year Statute of limitations period. Without ruling on the applicability of the Illinois Borrowing statute the district court repeated its holding that C&F's claims would have been time-barred even under a five-year statute of limitations.

C&F appeals to this court the district court's dismissal of its state law complaint against Pizza Hut, arguing that "the district judge erred in summarily dismissing C&F's non-patent claims against defendant Pizza Hut as barred by the statute of limitations." C&F also appeals the district court's finding "that C&F's fraud claim was preempted by the Kansas Uniform Trade Secret Act."

II.

This court reviews a district court's decision on a motion for JMOL, such as that which IBP appeals, by reapplying the JMOL standard. See Markman v. Westview Instruments, Inc., 52 F.3d 967, 975, 34 USPQ2d 1321, 1326 (Fed. Cir. 1995) (en banc).

In the Seventh Circuit, a district court applies state, not federal, standards for JMOL. See Reboy v. Cozzi Iron & Metal, Inc., 9 F.3d 1303, 1307 (Ill. App. Ct. 1993). Under Illinois law, a motion for JMOL should be granted only if all the evidence, "analyzed in the light most favorable to the nonmovant, so clearly favor[s] the movant that no fair-minded individual could dispute the movant's right to judgment in his or her favor." Bryant v. Glen Oaks Med. Ctr., 650 N.E.2d 622, 628-29 (Ill. App. Ct. 1995). An Illinois court will not set aside a jury verdict "unless there is a lack of a reasonable basis for the verdict," Slowik v. Schrack, 395 N.E.2d 753, 756 (Ill. App. Ct. 1979) (citation omitted), i.e., unless it was "palpably erroneous and wholly unwarranted." Kasovic v. Preston Trucking Co., 497 N.E.2d 1301, 1304 (Ill. App. Ct. 1986) (citation omitted).

The jury's verdict against IBP turned on its finding that C&F possessed a trade secret which could have been misappropriated. IBP argues that a trade secret holder must corroborate the existence of a...