ATOM Instrument Corp. v. Petroleum Analyzer Co. (In re ATOM Instrument Corp.)

• Decision Date: 07 August 2020
• Docket Number: No. 19-20151,C/w : 19-20371,19-20151
• Citation: 969 F.3d 210
• Parties: In the Matter of: ATOM INSTRUMENT CORPORATION, doing business as Excitron Corporation, Debtor ATOM Instrument Corporation, doing business as Excitron Corporation; Franek Olstowski, Plaintiffs - Appellants v. PETROLEUM ANALYZER COMPANY, L.P., Defendant - Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

969 F.3d 210

In the Matter of: ATOM INSTRUMENT CORPORATION, doing business as Excitron Corporation, Debtor

ATOM Instrument Corporation, doing business as Excitron Corporation; Franek Olstowski, Plaintiffs - Appellants

v.PETROLEUM ANALYZER COMPANY, L.P., Defendant - Appellee

No. 19-20151

C/w : 19-20371

United States Court of Appeals, Fifth Circuit.

FILED August 7, 2020

REVISED September 17, 2020

Dylan B. Russell, Hoover Slovacek, L.L.P., Houston, TX, for Plaintiffs-Appellants.

Steven Jon Knight, Christine Kirchner, Esq., Trial Attorney, Chamberlain, Hrdlicka, White, Williams & Aughtry, Houston, TX, Alan Shane Nichols, Ana Kim, Esq., Alston & Bird, L.L.P., Atlanta, GA, for Defendant-Appellee.

Before ELROD, SOUTHWICK, and HAYNES, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

The plaintiff corporation filed for bankruptcy. It brought an adversarial proceeding against a former employer of the founder of the bankrupt, claiming misappropriation of trade secrets, unfair competition, and civil theft. The district court withdrew the reference to the bankruptcy court, held a bench trial, and entered a take-nothing judgment. The court also awarded attorneys’ fees to the defendant. We AFFIRM the judgment and fee award, and we REMAND to allow the district court to make the initial determination and award of appellate attorneys’ fees to Petroleum Analyzer.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Franek Olstowski once worked for the defendant Petroleum Analyzer Co., L.P., where he was a research and development consultant. While working there in 2002, Olstowski developed an excimer lamp using krypton-chloride to detect sulfur with ultraviolet fluorescence. There is no dispute that Olstowski developed the technology on his own time and in his own laboratory, but he also performed tests and generated data for the technology using Petroleum Analyzer resources. In 2003, and again in 2005, Olstowski and Petroleum Analyzer entered into non-disclosure agreements regarding the technology. The parties never were able to agree on licensing. During the period of the discussions, Olstowski applied for a patent for his technology, then twice amended it. The Patent and Trademark Office rejected his first application and his first amendment but accepted his second amended application. ATOM Instrument Corp. was started in 2004 by Olstowski to assist him in the failed licensing discussions with Petroleum Analyzer.

In 2006, Petroleum Analyzer filed a lawsuit in the 269th District Court of Harris County, Texas, seeking a declaratory judgment that Petroleum Analyzer is the owner of the technology Olstowski developed. The state court ordered the claims to arbitration because the 2005 non-disclosure/non-use agreement contained an arbitration clause. The arbitration panel declared that Olstowski is the owner of:

a. the technology and methods embodied in the patent applications styled "Improved Ozone Generator with Duel Dielectric Barrier Discharge," Improved Close-Loop Light Intensity Control and Related Fluorescence Application Method;" and "Excimer UV Fluorescence Detection";

b. all of the accompanying drawings, blueprints, schematics and formulas created or drawn by either Olstowski or Virgil Stamps of the application identified in or in support of ((a) and (b) hereinafter referred to as the "Excimer Technology"); and

c. Issued Patents and/or Patent Applications pending entitled: Ozone Generator with Dual Dielectric Barrier Discharge and Methods for Using Same, Improved Closed-Loop Light Intensity Control and Related Fluorescence Application Method, and Excimer UV Fluorescence Detection (as amended).

The panel also concluded that the "[t]echnology and intellectual property embodied within the technology set forth in paragraph 5 (a)–(c) above are trade secrets of Olstowski." Accordingly, the panel enjoined Petroleum Analyzer from claiming or using the technology. On November 6, 2007, the state court confirmed the arbitral award. A Texas appellate court upheld the confirmation order. Petroleum Analyzer Co. v. Olstowski , No. 01-09-00076-CV, 2010 WL 2789016, at *1 (Tex. App.—Houston [1st Dist.] July 15, 2010, no pet.).

In 2009, Petroleum Analyzer partnered with a German company to develop its own sulfur-detecting excimer lamp called a MultiTek, which also used krypton-chloride to detect sulfur with ultraviolet fluorescence. Petroleum Analyzer manufactured and sold the MultiTek between November 2009 and October 2011.

In December 2010, upon learning that Petroleum Analyzer was selling the MultiTek, Olstowski and ATOM filed a motion in state court to hold Petroleum Analyzer in contempt because Petroleum Analyzer violated the order enjoining it from using Olstowski's technology. Petroleum Analyzer responded that the confirmation order had ambiguously defined the technology that Petroleum Analyzer was enjoined from using. In August 2011, Olstowski and ATOM again moved to enforce the injunction, and in December 2011 they filed a second contempt motion. The state court granted the motion in part merely to clarify the meaning of the confirmation order. The state court concluded that the phrase "technology developed by Olstowski" as used in the confirmation order "means technology using an excimer light source that uses Krypton-Chloride specifically to measure sulfur using ultraviolet fluorescence." The state court, though, denied the contempt motion due to mootness: Petroleum Analyzer had ceased selling the MultiTek sometime between September and October of 2011. Significantly, the state court never decided whether Petroleum Analyzer's MultiTek used Olstowski's technology as defined by the arbitration panel and confirmation award.

In February 2012, ATOM filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Two months later, Olstowski and ATOM initiated an adversary proceeding against Petroleum Analyzer, in which they alleged misappropriation of trade secrets, unfair competition, and civil theft. On the bankruptcy court's recommendation, the district court withdrew the reference to the bankruptcy court and asserted jurisdiction under 28 U.S.C. § 1334. In August 2014, the district court entered partial summary judgment for Olstowski and ATOM, holding that Petroleum Analyzer "will be liable for using the trade secrets of Franek Olstowski and ATOM Instrument, LCC, if it used his technology in its MultiTek."

Four years later, the district court held a six-hour bench trial to determine if Petroleum Analyzer had used any of Olstowski's protected technology. The court entered a judgment in favor of Petroleum Analyzer and later awarded attorneys’ fees to Petroleum Analyzer.

Olstowski and ATOM filed two appeals, which we have consolidated. In one, they argue the district court made a legal error in holding that Petroleum Analyzer did not use Olstowski's technology. In the other, they challenge the district court's award of attorneys’ fees to Petroleum Analyzer.

DISCUSSION

Olstowski and ATOM argue the district court made two errors: (1) finding that Petroleum Analyzer did not use Olstowski's trade secrets in Petroleum Analyzer's MultiTek and (2) awarding Petroleum Analyzer attorneys’ fees under the Texas Theft Liability Act. We consider the issues in that order.

I. Whether Petroleum Analyzer used Olstowski's technology

Because this "appeal requires the review of the district court's ruling following a bench trial, we review the district court's findings of fact for clear error and legal issues de novo ." Texas Capital Bank N.A. v. Dallas Roadster, Ltd. (In re Dallas Roadster, Ltd.) , 846 F.3d 112, 127 (5th Cir. 2017). "We will reverse under the clearly erroneous standard only if we have a definite and firm conviction that a mistake has been committed." Id. (quotation marks omitted). "If the district court made a legal error that affected its factual findings, remand is the proper course unless the record permits only one resolution of the factual issue." Id. (quotation marks omitted).

The district court's findings and conclusions primarily addressed "whether the MultiTek used what the panel decided was Olstowski's technology." The district court rejected Olstowski and ATOM's assertion "that Olstowski's technology is any device using an excimer light source that uses krypton-chloride specifically to measure sulfur using ultraviolet fluorescence," reasoning that the use of krypton-chloride "does not define the technology but rather describes its function." The district court found that Olstowski and ATOM failed to show "the MultiTek's excimer lamp was sufficiently similar to Olstowski's excimer lamp to be his technology."

In explaining that there was insufficient similarity between the MultiTek and Olstowski's technology, the district court focused on three contrasting physical characteristics of the two excimer lamps:

The MultiTek's inner electrode is hollow — an aluminum spiral. Olstowski's is solid — a rod of some conductive metal. The MultiTek does not have an emission aperture; Olstowski's does. The emission aperture concentrates the output. Not having one allows the maximum output. Both lamps use krypton and chloride

in some proportion. Whether they use those gases in the same proportion is unknown, because Olstowski did not tell Petroleum Analyzer what ratio of krypton and chloride he used.

Accordingly, the district court found that "Petroleum Analyzer did not use Olstowski's technology in its MultiTek."

Olstowski and ATOM first argue that the district court made a legal error by misconstruing what the arbitration panel declared Olstowski's trade secrets included. A proper construction of the arbitration panel's award, they argue, would indicate that the three physical differences highlighted by the district court are irrelevant as a matter of law. According to the arbitration panel's award, Olstowski's trade secrets include the "the technology and methods embodied in the patent applications styled ... ‘Excimer UV Fluorescence Detection.’ " Olstowski and ATOM...