Bohnsack v. Varco, L.P.

• Decision Date: 23 January 2012
• Docket Number: No. 10–20741.,10–20741.
• Citation: 668 F.3d 262,101 U.S.P.Q.2d 1393
• Parties: Clyde H. BOHNSACK, Plaintiff–Appellee, v. VARCO, L.P., Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

101 U.S.P.Q.2d 1393

668 F.3d 262

Clyde H. BOHNSACK, Plaintiff–Appellee,

v.VARCO, L.P., Defendant–Appellant.

No. 10–20741.

United States Court of Appeals, Fifth Circuit.

Jan. 23, 2012.

Andrew D. Huppert (argued), Steven S. Carey, Carey Law Firm, P.C., Missoula, MT, for Plaintiff–Appellee.

David Wallace Holman (argued), Holman Law Firm, P.C., Gregory L. Maag, Conley Rose, P.C., Houston, TX, for Defendant–Appellant.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES, Chief Judge, and STEWART and SOUTHWICK, Circuit Judges.

CARL E. STEWART, Circuit Judge:

Varco, L.P. (“Varco”) appeals from a jury verdict awarding Clyde H. Bohnsack compensatory damages and punitive damages for fraud and compensatory damages for misappropriation of trade secrets. Because Bohnsack did not prove that he was entitled to damages on his fraud claim, we RENDER a take-nothing judgment on Bohnsack's fraud claim, and we REVERSE the jury's award of punitive damages. Because the verdict for misappropriation of trade secrets was supported by sufficient evidence, we AFFIRM the jury's verdict on Bohnsack's claim for misappropriation of trade secrets.

I.

This dispute is between Clyde Bohnsack, a drilling fluids engineer, and Varco, ¹ a company that cleans drilling fluids. Drawing on several decades of experience in the industry, Bohnsack invented the “Pit Bull,” a machine intended to make the process of cleaning drilling fluids more efficient. Bohnsack and Varco negotiated over the right to manufacture the Pit Bull for several years. After Varco pulled out of these discussions, Bohnsack sued Varco for fraud and for misappropriation of trade secrets. A jury found for Bohnsack on both claims and awarded him compensatory damages and punitive damages. We summarize the relevant facts below.

The Role of Drilling Fluids. Drilling fluids serve two essential functions in oil wells: they lubricate the drill bit and carry solids back up to the surface. As a drill bit tears through the ground and accumulates earth, drilling fluids are pumped down into the well. While in the well, the fluids mix with the drilled cuttings—sand, rock, and clay—ripped up by the drill bit. The mixture of drilling fluid and drilled cuttings, referred to in the industry as drilling mud, returns to the surface through a pipe.

Varco purifies drilling mud so it can be reused. After the drilling fluid returns to the surface as drilling mud that contains drilled cuttings, Varco's machinery cleans the drilling mud by separating the drilled cuttings from the drilling fluid. The separation is done in stages by sending the mud through several machines—shell shakers, desilters, and desanders—located in tanks next to the oil rig.²

A hitch in the process arises, however, when the particles in the drilling mud accumulate in the tanks that hold the shell shakers, desilters, and desanders. Since the mud sits in these tanks until it is ready to be transported to the next stage of the cleaning process, solids pile up in the tanks as the cuttings settle. Because tanks that contain debris cannot be moved, the accumulation of solids becomes inconvenient whenever the drilling of a well is complete and tanks must be transported to a new well. If a tank is loaded down with cuttings, workers must dig out the cuttings before the tank can be moved, at significant time and expense.

The Pit Bull. To alleviate this problem, Bohnsack designed the Pit Bull, a portable pumping machine that reduces the volume of cuttings that remain in tanks after the mud passes through. The Pit Bull contains a Mission 6 x 8 pump with a sixty horsepower motor and a twin-jet designed rotating head. The invention's jetting action causes mud to be pumped to the top of the tank through a hose, and then sends the mud back into the tank. In this way, the Pit Bull uses suction to prevent the drilled cuttings from settling at the bottom of the tank. At trial, a Varco employee estimated that each time a well is completed, the use of the Pit Bull saves workers one or two days that would otherwise be spent digging and hosing drilled cuttings out from the tanks.

Beginning of Negotiations Between Bohnsack and Varco. After negotiations over the Pit Bull with one of Varco's competitors did not progress,³ Bohnsack presented his idea to Varco on July 29, 2003. That same day, Bohnsack entered into a mutual secrecy agreement with Varco requiring Varco to keep secret all information provided by Bohnsack, and providing that such information would remain property of Bohnsack.⁴ Shortly after signing the first mutual secrecy agreement with Varco, Bohnsack spent between two and three weeks working with two employees of Varco to build a prototype of the Pit Bull.

The Patent Application. After Bohnsack said he was interested in seeking a patent for the Pit Bull, Varco began the process of obtaining one. On October 13, 2005, E.J. Kubena, a manager of marketing for Varco, sought permission to apply for a patent from two Varco executives: Kevin McDonough, a vice president of manufacturing and engineering, and Richard Koch, a subordinate of McDonough who was responsible for new product development. Kubena wrote, “We need to cover the device since we will probably market the unit.” He added that Varco was currently testing the unit and that Halliburton wanted four units,⁵ and he described the Pit Bull in positive terms: “The unit reduces overall solids content in the mud system and helps save mud by not having to dump and wash mud pits out.” In response, Koch asked if Bohnsack worked for Varco and wrote that if Varco would be the exclusive owner of the patent, Kubena should attempt to protect Varco's intellectual property rights.⁶

Kubena then asked Guy McClung, an outside lawyer who frequently prepared patents for Varco, to apply for a patent for the Pit Bull. As source material for the application, McClung received from Varco a drawing and written descriptions of the Pit Bull. On October 19, 2005, McClung filed a patent application. McClung had neither seen the Pit Bull nor spoken to Bohnsack about the invention at the time he drafted the application. Nevertheless, the patent application prepared by McClung stated that, because McClung had added ideas to the drawing, McClung was a co-inventor of the Pit Bull. At this point, while the patent application had been submitted, the declaration that accompanies patent applications had not yet been signed by Bohnsack or submitted to the United States Patent and Trademark Office (“Patent Office”). ⁷

On November 8, 2005, Bohnsack traveled to Houston for the purpose of signing the declaration, which stated, among other things, that both Bohnsack and McClung were responsible for the invention. In addition to asking Bohnsack to sign the declaration, Varco also asked Bohnsack to sign a document that would have transferred all of Bohnsack's rights in the Pit Bull to Varco. Bohnsack met with McDonough to discuss the declaration and assignment of rights. McClung was not present at the meeting, but Bohnsack and McDonough spoke to him by telephone. Although Bohnsack was upset that McClung had named himself as inventor, he signed the declaration after speaking with McDonough and McClung. Bohnsack did not sign the document that would have assigned his rights in the Pit Bull to Varco.

Bohnsack quickly developed second thoughts about signing the declaration. Two days after signing the declaration, Bohnsack told McClung by e-mail that he had limited knowledge of patent law and did not understand why McClung was listed as an inventor, and asked to speak with McClung before McClung submitted the declaration. In response, McClung wrote that he was not Bohnsack's lawyer, and advised him that Bohnsack could seek legal counsel; asked Bohnsack to send information regarding Bohnsack's contribution to the Pit Bull; and said that he would not file the declaration until “we have sorted this all out.” Bohnsack wrote back with a letter that seemed to acknowledge certain features of the Pit Bull that Bohnsack had contributed and others that McClung had contributed. Bohnsack testified that he used the letter to express his concerns about McClung's alleged additions because they did not further what Bohnsack was trying to accomplish in the patent. Bohnsack also wrote to McClung, “If [Varco] wants to include these in the application, go for it. I just want to know who made the decision and why.” Bohnsack asked for a telephone conference to discuss the matter further. McClung replied with only the following: “Clyde—I have received [your] materials and will get back to you soon.”

At that point, communication between Bohnsack and McClung ceased. On February 17, 2006, Bohnsack made another attempt to contact McClung to ask how the patent application and search were progressing, but McClung did not respond. On October 4, 2006, Bohnsack again followed up regarding the patent application process, this time with McDonough. He asked McDonough prior to a test of the Pit Bull if “appropriate steps [have] been taken through Guy McClung to protect interests?” On October 6, McDonough replied to Bohnsack's email to confirm that appropriate steps had been taken.

In the months following McClung's final correspondence with Bohnsack, two events of note transpired with respect to the patent application. On December 9, 2005, McClung assigned his rights in the Pit Bull patent to Varco. Then, on March 6, 2006, McClung filed the declaration to the patent application containing Bohnsack's signature. Although he had earlier promised not to file the declaration until “we have sorted this all out” and promised to “get back to [Bohnsack] soon,” McClung neither consulted with Bohnsack before filing the declaration nor informed him after filing it.

Testing of the Pit Bull. Varco set up several tests of the Pit Bull, though more slowly than Bohnsack wished.⁸ The first occurred in Montana on October 3, 2005. After the...