$605M for Trade Secret Theft of ‘Innovative Approach to Selling Renewable Fuels’

The jury also found that the trade secret theft was willful and malicious, allowing the Court to potentially triple the total damages!

Choose your partners carefully.

You are flattered when Big Co who also happens to provide your major route to market offers to buy your business. It has been 13 years of hard slog and you might now have the opportunity to realise the true value of your business. You sign an NDA and share over 1,000 documents including trade secrets with your would be acquirer. Less than a year later said acquirer abruptly terminates discussions and immediately sets up a competing business, based on your trade secret business model!

Just like that! Those 13 years of hard work evaporate as your competitive advantage is copied and executed by the big dog in your industry.

An algorithm providing competitive advantage lies at the heart of the theft

Propel Fuels, a fast-growing retailer of ethanol and biodiesel, developed a successful and innovative approach to selling renewable fuels in California, a state which incentivises low-carbon fuels. Propel Fuels created proprietary methods for customer targeting, site selection, pricing, and operations based on extensive data collection and analysis.

Propel developed a proprietary and unique algorithm, which identified optimal locations for renewable fuel sales; this is a key trade secret that was allegedly stolen.

Energy company Phillips 66  researches, manufactures and sells petrol products, diesel, jet fuel, and lubricants. It is alleged that throughout the ‘acquisition’ process Phillips 66 obtained detailed information about Propel’s business strategies, financial data, and trade secrets. Having promised Propel that they would not enter the California renewables market, they entered the market as competitor having terminated the acquisition in August 2018.

What value do you attribute to your confidential information and trade secrets?

The lawsuit alleges that Philips 66 stole confidential data, proprietary strategies and business intelligence developed by Propel over 13 years at a cost to Propel of hundreds of millions of dollars.

Propel alleges Phillips 66 gained unjust enrichment through unauthorised use of Propel’s trade secrets causing lost profits, diminished market share, and erosion of Propel’s competitive advantage. Propel’s CEO projected $1 billion in EBITDA by mid-decade and potentially $2 billion by decade’s end, driven largely by Propel’s misappropriated trade secrets.

Additional leverage

Propel also relied on Phillips 66 outlets to retail its fuel and when these distribution routes were closed by Phillips 66 after the end of their acquisition talks, this further damaged Propel.

Were the trade secrets readily ascertainable through proper means?

The case hinged on whether Phillips 66 could have reasonably developed the algorithm and other trade secrets independently and without the information obtained from Propel Fuels.

After a five-week trial, the jury that Phillips unjustly enriched itself by stealing trade secrets, including financial and sales data, operating model and projections of Propel Fuels’ renewables business in violation of California’s Uniform Trade Secrets Act.

This will not be the end of the case as there will be further appeals but it is a very significant case and one where a smaller innovator company stood upto a giant and stuck at it through a two year process to assert its rights.

California courts have a strong reputation for trade secrets cases with more cases being prosecuted in California that any other state. In part this is because California abandoned non compete clauses in employment contracts over 150 years ago and hence companies have become more familiar with using trade secrets to defend access to their valuable and sensitive information.

What are the key messages for your business?

1. Trade secrets are valuable business assets recognised and defended by court systems around the world.
2. Innovative and growing companies will inevitably have to share valuable and sensitive information (trade secrets) with other (larger) companies, suppliers, customers, distributors and investors throughout their life cycle.
3. You are highly likely to experience trade secrets theft (often without realising it) and on the other hand to be accused of trade secrets theft at some stage.
4. Identifying sensitive information assets and understanding how they contribute to your competitive advantage is essential.
5. Developing strategies to reduce and manage risks when sharing information is crucial.
6. A trained workforce is a workforce that will identify, protect and defend your valuable information and trade secret assets.
7. Developing a trade secrets programme to manage all of the above is not something to put off until tomorrow it is a do now action.

I am John Pryor, making IP accessible and valuable for your business.

The Benefit of Hindsight Upfront^TM

Innovation Without IP Is Charity

IP Provides Defence From Unlicensed Offence Leads To Secure Revenue. The Best Defence Is A Good Offence.

Intellectual Property Is A Business Construct To Enable The Sharing Of Ideas And Other Creations Of The Mind

A Strong And Integrated IP Strategy Puts You On The Front Foot In All Commercial And Financial Interactions

IP Supports Competitive Advantage, Drives Growth, Maintains Cash Flows, Secures Investment, Provides Monetisation Opportunities

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I am a strategy consultant focussed on intellectual property and dedicated to helping people and business to make the best use of all available IP to compete and win in the marketplace.

My aim is to increase people’s understanding of Intellectual Property, so that they can successfully and cost effectively use it in their business, to help achieve a higher valuation.

Book: The Innovation Handbook, 2nd Edition 2010. chapter:  How to maximize the value of your intellectual property.

ABOUT MY YOUTUBE VIDEOS: In these videos I explain some of the most important aspects of intellectual property in ways that make it relevant and accessible to business people.

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