AG Systems, Inc. v. United Decorative Plastics Corp.

• Decision Date: 08 June 1995
• Docket Number: No. 93-1232,93-1232
• Citation: 35 USPQ2d 1048,55 F.3d 970
• Parties: AG SYSTEMS, INCORPORATED, Plaintiff-Appellant, v. UNITED DECORATIVE PLASTICS CORPORATION; Ron Buck; Robert F. Williams, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 970

55 F.3d 970

35 U.S.P.Q.2d 1048

AG SYSTEMS, INCORPORATED, Plaintiff-Appellant, v. UNITED DECORATIVE PLASTICS CORPORATION; Ron Buck; Robert F. Williams, Defendants-Appellees.

No. 93-1232.

United States Court of Appeals, Fourth Circuit.

Argued Feb. 9, 1994.

Decided June 8, 1995.

ARGUED: Kathy Ellen Manning, Smith, Helms, Mulliss & Moore, Greensboro, NC, for appellant. Gary Hamilton Clemmons, Stubbs, Perdue, Chesnutt, Wheeler & Clemmons, P.A., New Bern, NC, for appellees. ON BRIEF: Dayna J. Kelly, John J. Korzen, Smith, Helms, Mulliss & Moore, Greensboro, NC, for appellant.

Before WIDENER, WILKINSON, and MICHAEL, Circuit Judges.

Affirmed by published opinion. Judge WIDENER wrote the opinion, in which Judge WILKINSON and Judge MICHAEL joined.

OPINION

WIDENER, Circuit Judge:

Appellant AG Systems, Incorporated appeals from a judgment on a special verdict by way of interrogatories to the jury in favor of Defendants-Appellees United Decorative Plastics Corporation, Ron Buck, and Robert Williams (collectively, defendants) in this diversity action alleging violations of the North Carolina Trade Secrets Protection Act, N.C.Gen.Stat. Secs. 66-152 to 66-162, and the North Carolina unfair-trade-practices statute, N.C.Gen.Stat. Sec. 75-1.1. AG Systems also appeals the court's denial of AG Systems' motion for judgment as a matter of law. For the reasons set forth below, we affirm.

AG Systems develops and distributes products for sale in the automotive after-market (paraphernalia added after the production of a car), including the product that is the subject of this case, a chromefoiled plastic laminate that is attached to the side panels of vehicles to enhance the vehicles' appearance. AG Systems, together with Transfer Print, a chrome-foil manufacturer with which AG Systems had previously worked, invested significant research and development efforts in creating the laminate, which required precise specifications in order to satisfy the needs of AG Systems' customers. Transfer Print agreed prior to beginning the research and development that resulted in the laminate that it would be AG Systems' proprietary product. The laminate did not exist in the automotive after-market prior to its conception and manufacture by AG Systems and Transfer Print.

Buck, a Transfer Print employee at the time, was intimately involved in the research and development of the laminate. He signed an agreement with AG Systems, on behalf of Transfer Print, that the product would be AG Systems' proprietary product. After manufacture of the laminate had begun, Buck resigned from his position at Transfer Print and began working at United, which was principally owned by appellee Williams. Buck then negotiated an agreement on behalf of United whereby it would manufacture AG Systems' product. AG Systems would retain its proprietary interest in the product. In 1991, AG Systems learned that United was selling a plastic laminate the same or very similar to its proprietary product to Innovative Creations, Incorporated. AG Systems demanded that United stop selling the laminate to Innovative Creations, but United refused.

AG Systems instituted this diversity action in May 1992, alleging misappropriation of trade secrets, breach of contract and fiduciary duties, and unfair and deceptive trade practices under North Carolina law. The defendants answered, and United counterclaimed for payment of amounts owed to it for the authorized manufacture of AG Systems' product under the agreement negotiated by Buck. After a jury trial, presided over by a magistrate judge with the consent of the parties, in October 1992, the jury found that AG Systems did have trade secrets and that Buck and United did owe to AG Systems a fiduciary duty as well as a duty under the secrecy agreements. Nonetheless, the jury returned verdicts for defendants on AG Systems' claims. The court denied AG Systems' post-verdict motions for judgment as a matter of law and for new trial and entered judgment for the defendants. This appeal followed.

On appeal, AG Systems contends that the court erred in formulating its special verdict interrogatories and in giving instructions to the jury by: (1) charging the jury that AG Systems had the burden of proving a violation of the trade secrets act by a preponderance of the evidence rather than by the production of "substantial evidence"; (2) charging the jury that the disclosure or sale of a trade secret violates the act, thus omitting the possibility that the use of another's trade secret may constitute a violation; and (3) charging the jury that the product sold by the appellees must have been the same as the product created by AG Systems in order to find an unfair trade practice under North Carolina law. Largely because of these alleged errors, AG Systems also contends that the court erred in denying its motion for judgment as matter of law.

I. The Burden of Proof

AG Systems assigns as error the jury instruction that it was required to prove a violation of the trade secrets act by a preponderance of the evidence, rather than by "substantial evidence," as allegedly required by N.C.Gen.Stat. Sec. 66-155. Not only did AG Systems fail to object to this instruction, it invited error when it proposed the preponderance-of-the-evidence instruction.

We have never held in this court that an appeal may lie from an invited error, see United States v. Herrera, 23 F.3d 74, 75 (4th Cir.1994); Wilson v. Lindler, 8 F.3d 173 (4th Cir.1993) (en banc); American Ins. Co. v. Vann, 118 F.2d 1004, 1005 (4th Cir.1941) (per curiam); 9A Wright & Miller, Federal Practice & Procedure Sec. 2558, at 470-71 (1995), but AG Systems now asks us to make an exception to this rule by applying a plain-error doctrine to invited errors such as that allegedly made by the court in this case.

AG Systems cites Stewart v. Hall, 770 F.2d 1267, 1271 (4th Cir.1985), for the proposition that "the omission of the ordinary scheme of proof for an essential element of the cause of action is fundamental error undermining the integrity of the trial." It contends that because N.C.Gen.Stat. Sec. 66-155 mentions "substantial evidence," the ordinary scheme of proof was omitted in this case, and it was thus forced to prove its case by a higher standard of proof than the statute requires. However, it is by no means clear that the ordinary scheme of proof was omitted in this case. And Stewart was not a case of invited error.

Section 66-155 of the trade secrets act states, "[m]isappropriation of a trade secret is prima facie established by the introduction of substantial evidence that the person against whom relief is sought" knew or should have known of the trade secret and had the opportunity to, or did, acquire, disclose, or use the secret without the consent of the owner. AG Systems argues that this statutory scheme imposes upon it only the burden of persuading the jury by substantial evidence that defendants misappropriated a trade secret, upon which, absent satisfactory rebuttal, it is entitled to relief.

Even if the use of the words "substantial evidence" in the North Carolina statute refers to a burden of persuasion rather than the quantum of evidence necessary to sustain a holding that a prima facie case has been established, the argument of AG Systems that a prima facie case requires a result is simply incorrect. In North Carolina "a prima facie case simply carries the case to the jury for determination and no more." E.g., Owens v. Kelly, 240 N.C. 770, 84 S.E.2d 163, 166 (1954). The federal rule is the same, regardless of which applies. Wright v. Rockefeller, 376 U.S. 52, 57, 84 S.Ct. 603, 605-06, 11 L.Ed.2d 512 (1964). We do not hold that there is an exception to the invited error rule. And in all events, even should there be an exception to the invited error rule, and even if the words "substantial evidence" as used in the statute refer to a burden of persuasion, we do not think that the substitution of the words "preponderance of the evidence," defined by the court at the instance of AG Systems to be "a belief that what is sought to be proved is more likely true than not true," is an error of so great a magnitude in the face of acknowledged invited error that correction is necessary to preserve the integrity of the judicial process or prevent a miscarriage of justice. Herrera, 23 F.3d at 76.

II. Omission of the Word "Use"

Under N.C.Gen.Stat. Sec. 66-152(1), misappropriation of a trade secret is defined as the "acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent," unless the secret was derived independently, by reverse engineering, or from a person with the authority to disclose it. At trial, the court both read and submitted to the jury a number of interrogatories. Of these, interrogatories 2a, 3a, and 4a all asked of the jury the following question with regard to each of the three defendants respectively:

Did the defendant ... know or should have known [sic] of AG Systems' trade secrets and disclose or sell AG Systems' trade secrets without the express or implied authority or consent of AG Systems? (emphasis added).

The jury answered "No" to questions 2a, 3a, and 4a, and the district court accordingly found that defendants did not misappropriate AG Systems' trade secrets. Although at trial AG Systems failed to object to interrogatories 2a, 3a, and 4a, it now argues that the magistrate committed plain error in formulating jury instructions that were contrary to section 66-152(1).

Initially, we are of opinion that in this circuit, there is no plain-error exception to a party's failure to object to the form of special interrogatories, and thus that AG Systems has waived this challenge on appeal. Deadwyler v. Volkswagen of America, Inc., 884 F.2d 779, 782 (4th Cir.1989), cert. denied, 493 U.S. 1078, 110 S.Ct. 1131, 107 L.Ed.2d 1037 (1990), so held: " '[A] party who fails to object to the form of special interrogatories...