Contour Design, Inc. v. Chance Mold Steel Co.

• Decision Date: 04 September 2012
• Docket Number: 12–1185.,Nos. 12–1110,s. 12–1110
• Citation: 693 F.3d 102
• Parties: CONTOUR DESIGN, INC., Plaintiff–Appellee, v. CHANCE MOLD STEEL COMPANY, LTD., a/k/a Chance Mold Company, Ltd.; EKTouch Company, Ltd., Defendants–Appellants.
• Court: U.S. Court of Appeals — First Circuit

693 F.3d 102

CONTOUR DESIGN, INC., Plaintiff–Appellee,

v.CHANCE MOLD STEEL COMPANY, LTD., a/k/a Chance Mold Company, Ltd.; EKTouch Company, Ltd., Defendants–Appellants.

Nos. 12–1110, 12–1185.

United States Court of Appeals,First Circuit.

Heard July 31, 2012.

Decided Sept. 4, 2012.

Kathryn Grace Spelman, with whom Daniel H. Fingerman, Daniel S. Mount, Kevin M. Pasquinelli, Mount Spelman & Fingerman PC, Peter G. Callaghan, and Preti Flaherty Beliveau Pachios PLLP were on brief, for defendants-appellants Chance Mold Steel Company, Ltd., a/k/a Chance Mold Company, Ltd., and EKTouch Company, Ltd.

Lawrence L. Blacker for plaintiff-appellee Contour Design, Inc.

Before THOMPSON, SELYA, and DYK,^* Circuit Judges.

DYK, Circuit Judge.

In this trade secret misappropriation and breach of contract case, defendant Chance Mold Steel Co. (“Chance”) ¹ appeals from a permanent injunction and from a jury award of damages. The injunction, based on a finding of contract breach, prohibits Chance from selling, displaying, manufacturing, or assisting others in manufacturing a number of ergonomic computer mouse products.² We use the shorthand “selling” or “sale” to refer to the injunction's operative terms. The injunction barred sale of specific products that were materially identical to products Chance had previously manufactured for Contour Design, Inc. (“Contour”) and a new product (not previously manufactured for Contour) known as the ErgoRoller.

Chance challenges the scope of the injunction, arguing that the ErgoRoller should not be enjoined, and the duration of the injunction with respect to the other products. Chance also contends that the jury improperly awarded lost profits damages.³ We reverse the injunction as appliedto the ErgoRoller. We affirm the scope of the injunction as applied to the other enjoined products, and we affirm the damages award. ⁴

I. Background

Plaintiff Contour is a corporation based in New Hampshire (and incorporated in Delaware) that sells ergonomic computer mice. In 1995, Contour and Chance, a Taiwanese manufacturer, entered into negotiations for a contract whereby Chance would manufacture mice for Contour. In connection with the negotiations, Chance and Contour executed a non-disclosure agreement (“NDA”) and a letter of intent on June 15, 1995. In the NDA, in exchange for receiving Contour's confidential information related to ergonomic mice, Chance agreed not to disclose this information to others and not to “duplicate, produce, manufacture or otherwise commercially exploit ... product[s] derived from or based on” Contour's products. J.A. 157–58. The NDA expires on June 15, 2015.

On December 1, 1995, the parties entered into a manufacturing supply agreement, and for the next fourteen years, Chance manufactured mice for Contour, including the RollerMouse Free. As part of product development, Chance would work from a prototype to create electronic files representing its shape, and would use these files to create “molds” for mass production. Over the course of their relationship, Contour paid Chance over $40 million.

Contour stopped placing orders with Chance in 2009, after Chance began to sell its own competing product, the ErgoRoller. Thereafter, in a now-admitted violation of the NDA and trade secret law, Chance sold its existing inventory of Contour products to third parties and manufactured and sold materially identical versions of these products under different names (the “Classic,” “Open,” and “Professional”). Chance also continued to sell the ErgoRoller, but whether this violated the NDA or trade secret law is hotly disputed. In December 2009, Contour sued Chance for trade secret misappropriation under the New Hampshire Uniform Trade Secrets Act (“NHUTSA”), N.H.Rev.Stat. Ann. § 350–B:1 to –B:9, and breach of contract (the NDA), challenging the sale of Contour's preexisting products and the sale of the ErgoRoller.

The district court granted a preliminary injunction, which required Chance to stop selling and recall inventory of the preexisting products and return their molds, but which did not extend to the ErgoRoller. This court affirmed. Contour Design, Inc. v. Chance Mold Steel Co., 649 F.3d 31 (1st Cir.2011). Thereafter, a jury found for Contour on its misappropriation and contract claims and awarded $7.7 million in compensatory damages. The district court then granted exemplary damages for willful and malicious misappropriation as well as attorneys' fees. Contour Design, Inc. v. Chance Mold Steel Co. (“ District Court Findings ”), No. 09–CV–451, 2011 WL 6300622, at *15–17 (D.N.H. Dec. 16, 2011), ECF No. 228. Based on breach of the NDA, the district court also entered a permanent injunction until the expiration of the NDA on June 15, 2015, against the sale of preexisting products and the ErgoRoller. Id. at *17–21, 28–29;Contour Design, Inc. v. Chance Mold Steel Co. (“ Permanent Injunction ”), No. 09–CV–451 (D.N.H. Dec. 16, 2011), ECF No. 229.

Chance timely appealed the permanent injunction, challenging the inclusion of the ErgoRoller and its duration as to other products. We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1). Chance also timely appealed from the final judgment awarding damages, challenging the jury's award of lost profits, over which we have jurisdiction pursuant to 28 U.S.C. § 1291. We consolidated the two appeals. We consider first Chance's appeal of the injunction, and then the damages appeal.

II. Injunction

With respect to the computer mouse products Chance marketed as the Classic, Open, and Professional, there is no question that Chance misappropriated Contour's trade secrets and is liable for that misappropriation; Chance does not appeal the finding of misappropriation, the finding that the misappropriation was willful and malicious, or the entry of an injunction barring sale of the Classic, Open, and Professional (other than challenging its duration). While Chance has clearly engaged in inappropriate corporate behavior in violation of state trade secret law and in breach of the NDA, the fact that some of its conduct was unlawful does not mean that all of its conduct was unlawful. We cannot simply assume that all of Chance's actions are tarred by the same brush.

The central question here is whether Chance's attempted design-around, the ErgoRoller, was properly enjoined. “We review a district court's grant of a permanent injunction for abuse of discretion; we review its underlying conclusions of law de novo and any factual findings for clear error.” The Shell Co. (P.R.) v. Los Frailes Serv. Station, Inc., 605 F.3d 10, 19 (1st Cir.2010). The permanent injunction was based entirely on Contour's breach of contract claims, not its trade secret misappropriation claims. Interpretation of the NDA is governed by New Hampshire law.⁵

This issue arises against the background of Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 156, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989), in which the Supreme Court held that federal preemption under the patent laws requires “that ideas once placed before the public without the protection of a valid patent are subject to appropriation without significant restraint” by state laws. At the same time, the Supreme Court has made clear that state contract law is not generally preempted. “State law is not displaced merely because the contract relates to intellectualproperty which may or may not be patentable.” Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979). Private agreements may create liability for misappropriation of a product that “was not in the public domain” at the time of the agreement. Id. at 263, 99 S.Ct. 1096. Similarly, “because the public awareness of a trade secret is by definition limited, ... ‘the policy that matter once in the public domain must remain in the public domain is not incompatible with the existence of [state law] trade secret protection.’ ” Bonito Boats, 489 U.S. at 155, 109 S.Ct. 971 (quoting Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 484, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974)).

Here, the NDA imposes two obligations related to Contour's “Confidential Information” (defined as Contour's “inventions, designs, methods, samples, market information, concepts and ideas”) and “Product” (defined as “computer mouse products and related materials”). J.A. 157. First, it bars Chance from disclosing, copying, or using the Confidential Information without Contour's consent:

[Chance] agrees (a) that it has maintained and will continue to maintain, and will subject ... the Confidential Information to, processes and procedures designed to prevent the disclosure and protect the confidential nature of the ... Confidential Information, (b) to treat as confidential and preserve the confidentiality of ... all Confidential Information disclosed to [Chance] by [Contour] or otherwise coming into the possession or control of [Chance], (c) to make no use of ... any Confidential Information except in connection with the Evaluation [to evaluate the desirability of entering a manufacturing agreement] without the prior written consent of [Contour], (d) to make no disclosure of ... any Confidential Information to any party without the prior written consent of Owner, and (e) to not disclose ... any Confidential Information to any employee or consultant who has not executed a confidentiality agreement on terms comparable to this Agreement, and (f) not to make copies or replicas of the Confidential Information....

Id.⁶ However, this confidentiality obligation does not apply to information that “now is or later becomes in the public domain other than as a result of a breach by [Chance].” Id. Second, in the NDA Chance “agrees that it will not duplicate, produce, manufacture or otherwise commercially exploit the Product, or develop any other product derived from or based on the Product,” without Contour's written agreement. Id. at 158 (emphasis added). On each of these two theories the...