GTAT Corporation v. Fero
ORDER. IT IS ORDERED that GTAT's request for a preliminary injunction is DENIED. The temporary restraining order originally entered May 3, 2017, and extended May 16, 2017, is LIFTED. Signed by Judge Donald W. Molloy on 5/25/2017. (NOS)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MAY 25 2017
Clertt, u.s Courts
District Of Montana
On May 3, 2017, Plaintiff GTAT Corporation's ("GTAT") received a
temporary order restraining former employee Defendant Chad Fero ("Fero") from
accessing, using, disclosing, or making available to any person or entity other than
GTAT, any of GTAT's confidential, proprietary, or trade secret documents, data,
or information. (Doc. 8.) On May 16, 2017, a hearing was held on whether that
temporary restraining order should be turned into a preliminary injunction.
(See Minute Entry, Doc. 18.) At that hearing, the parties presented testimony and
evidence and the temporary restraining order was extended for ten days pending a
judicial determination on the issuance of a preliminary injunction.
GTAT has not shown, for the purposes of a preliminary order, that Fero
likely used its trade secrets and that an injunction is warranted while the case
GTAT is a technology company that offers equipment and technology in the
solar and electronics industries. (Compl., Doc. 1 at~ 5.) Part of GTAT's business
is devoted to technology and equipment utilized in the polysilicon process, a raw
material used primarily in the solar industry. Hearing Tr. 15 (Gum). The
polysilicon portion of its business is based out of Missoula, Montana. Hearing Tr.
14 (Gum). The defendant, Fero, began working for GTAT in 2006 as an engineer
and eventually as a director of both the technology and development divisions.
Hearing Tr. 155 (Fero). In his position, Fero was involved with the research and
development of GTAT's polysilicon technology. Id.
While general processes for producing polysilicon are generally known, see
Hearing Tr. 23 (Gum), over the last decade GTAT has engaged in research and
development to create its own proprietary polysilicon process. The two primary
components of the polysilicon process are hydrochlorination, or turning of
metallurgical-grade silicon into gas, and chemical vapor deposition ("CVD"), the
purification and redeposition of that gas. Hearing Tr. 16-17 (Gum). GTAT is a
market leader in hydrochlorination technology, and about half of the world's
polysilicon is made from trichlorosilane made from GTAT's technology. Hearing
Tr. 17 (Gum). In the context of relative capacity, GTAT's technology and
equipment has a capacity of approximately 250,000 metric tons of trichlorosilane
per year while the closest leading competitor is on the order of 150,000 metric
tons. Id. Similarly, in relation to CVD, the products marketed and sold by GTAT
are capable of approximately 1,000 metric tons of polysilicon production per year
and the closest competition is around 600 to 700 metric tons. Hearing Tr. 18
According to Jeffery Gum, Director of Global Sales for GTAT, it took
GTAT almost a decade and millions of dollars to develop the knowledge and
equipment used in its polysilicon process. Hearing Tr. 19-26 (Gum); Ex. 1. With
its knowledge and expertise, GTAT offers its clients complete "basic engineering
packages" ("BEPs"), or blueprints, and equipment packages for the establishment
ofpolysilicon plants. Hearing Tr. 27 (Gum); Exs. 2, 3 (sealed). Although GTAT
does not manufacture the equipment, it works with fabricators around the world to
produce equipment that is provided directly to the client. Hearing Tr. 30 (Gum).
GTAT treats all of the information, materials, and equipment surrounding
its polysilicon process as confidential and proprietary, and requires sales material
be labeled accordingly. Hearing Tr. 46-47 (Gum). As described by Mr. Gum, the
alleged trade secrets at issue here fall into three "buckets," the ( 1) materials of
construction, (2) internal components, and (3) specific processes involved in the
polysilicon process. Hearing Tr. 33-34; see also Doc. 21 (sealed).
At the time he was hired, Fero signed a Confidentiality Agreement, agreeing
to keep confidential technical and business information acquired by GTAT, even
after his employment ended. (See Doc. 5-2 at 3-8.) Fero was also aware of the
GTAT' s Code of Conduct, which specifies that employees must protect the
confidentiality of GTAT's intellectual property and proprietary information. See
Hearing Tr. 46 (Gum explaining that Fero would review his sales presentations to
ensure they did not contain confidential information).
In September 2016, Fero left his employment with GTAT. Hearing Tr. 159
Shortly after his employment ceased, he entered into a consulting
agreement with GTAT and worked in that capacity until early January 2017.
Hearing Tr. 53 (Gum). No exit interview was performed. Hearing Tr. 160 (Fero).
Since leaving GTAT, Fero has been operating a polysilicon technology business
under the name "Ferosilicon." See Hearing Tr. 170 (Fero). While Fero is not
bound by a non-compete provision, GTAT alleges that Fero could not have
"independently developed the chemical processes, equipment designs, and
engineering specifications he is now offering without using any of GTAT's trade
secret information." (Doc. 1 at~ 30.)
GTAT presents various evidence in support of its belief that Fero
misappropriated its trade secrets, focusing primarily on a $10 million deal with a
Chinese company that had been in development since October 2015 and was
expected to close in April 2017. See Ex. 4 (sealed). When Mr. Gum arrived to
close the deal he was informed by the Chinese company that it could no longer
proceed at the $10 million price because Fero had offered "essentially the same
technology and equipment at a much lower price." Hearing Tr. 60 (Gum). GTAT
was only able to make a sale of a BEP, not an entire technology and equipment
package, for approximately $750,000. Hearing Tr. 80-81 (Gum).
A party seeking a preliminary injunction "must establish that [it] is likely to
succeed on the merits, that [it] is likely to suffer irreparable harm in the absence of
preliminary relief, that the balance of equities tips in [it]s favor, and that an
injunction is in the public interest." Winter v. Natural Res. Def Council, Inc., 555
U.S. 7, 20 (2008). A plaintiff only need raise "serious questions going to the
merits" so long as the balance of hardships tips sharply in the plaintiffs favor and
the remaining two Winter elements are met. Alliance for the Wild Rockies v.
Cottrell, 632 F .3d 1137, 1131 (9th Cir. 2011 ).
GTAT raises the following claims: (1) misappropriation of trade secrets
under the Defend Trade Secrets Act, 18 U.S.C. § 1836, et seq.;
(2) misappropriation of trade secrets under the Montana Uniform Trade Secrets
Act, Mont. Code Ann.§ 30-14-401, et seq.; (3) breach of the Confidentiality
Agreement; (4) breach of the implied covenant of good faith and fair dealing;
(5) intentional interference with business relations; and (6) punitive damages.
(Doc. 1.) GTAT's request for a preliminary injunction appears to rest solely on its
claims for misappropriation of trade secrets and breach of the Confidentiality
Agreement. Regardless, GTAT fails to make the necessary preliminary showing
of likelihood of success to justify the issuance of a preliminary injunction.
Likelihood of Success on the Merits
Trade Secrets Claims
Under Federal law, "[a]n owner of a trade secret that is misappropriated may
bring a civil action" so long as the product or service is used in or is intended to be
used in interstate commerce. 18 U.S.C. § 1836(b)(l). Pursuant§ 1839(3):
the term "trade secret" means all forms and types of financial, business,
scientific, technical, economic, or engineering information, including
patterns, plans, compilations, program devices, formulas, designs,
prototypes, methods, techniques, processes, procedures, programs, or
codes, whether tangible or intangible, and whether or how stored,
compiled, or memorialized physically, electronically, graphically,
photographically, or in writing if-(A) the owner thereof has taken reasonable measures to keep such
information secret; and
(B) the information derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable through proper means by, another person who can obtain
economic value from the disclosure or use of the information[.]
See also Mont. Code Ann.§ 30-14-402(4) (providing a similar definition under
Montana law). A person misappropriates such information if, inter alia, he or she
used improper means to acquire knowledge of the trade secret or, at the time of
disclosure, knew or had reason to know of a duty to maintain its secrecy. See 18
U.S.C. § 1839(5)(B); § 30-14-402(1), (2)(b)(I). To prevail on its trade secrets
claims, GTAT must show that: (1) it took reasonable measures to keep the
information secret, (2) the information derives independent economic value from
not being generally known or readily ascertainable, and (3) the information was
misappropriated by Fero. Such a showing has not been made at this stage.
The primary challenge here is determining where GTAT's confidential
information and trade secrets end and where Fero's experience and ability begin.
It is undisputed that Fero has nearly two decades of experience in the polysilicon
industry, including over seven years' experience before being hired by GTAT in
2006. Hearing Tr. 152-153 (Fero). He was then intimately involved with the
creation ofGTAT's polysilicon division. Hearing Tr. 155 (Fero). Separating the
man from the secrets at this preliminary stage is therefore no easy task.
It is also undisputed that Fero can compete with GTAT in the polysilicon
market and can even solicit GTAT's own clientele. See Hearing Tr. 98 (Gum).
Fero's original employment contract with GTAT indicates his desire to be able to
leave and consult freely in the industry. Ex. 7. And, GTAT was aware he was
thinking of leaving the company in 2011, but convinced him to stay. See Ex. 8
(sales compensation incentive). Accordingly, GTAT's reliance on his registry of
a domain for his company, his formation of that limited liability company, Hearing
Tr. 199-200 (Fero), and the purchase of corrosion machinery to pursue
independent research and development, Hearing Tr. 219-20 (Fero )-all during his
employment with GTAT-does not evidence a threat of misappropriation. Nor
can GTAT shoehorn in a non-compete requirement through its misappropriation
claim based on the fact that Fero approached an existing client of GTAT. See
Hearing Tr. 95-96 (recognizing non-compete provision is unenforceable).
Turning to the elements of a "trade secret," GTAT has presented evidence
as to the reasonable measures it takes to protect its trade secrets, such as the use of
physical and electronic security, carefully marking sales materials as
"confidential," and having employees sign confidentiality agreements. See
Hearing Tr. 46-47 (Gum). While that evidence is largely undisputed by Fero,
testimony revealed that some of the security measures GTAT had in place may not
have been regularly enforced, raising the question as to whether having a policy
but failing to enforce it is sufficient to meet the "reasonable measures" standard.
Such evidence includes the fact Fero did not have an exit interview, Hearing Tr.
160 (Fero), the lack of effort to recover Fero's 2011-2016 Panasonic Toughbook
laptop, Hearing Tr. 142 (Carroll), employees using DropBox despite GTAT
policy, see Hearing Tr. 162-63 (Fero); Hearing Tr. 139 (Carroll), and employees
using USB drives despite GTAT policy, Hearing Tr. 139 (Carroll); Hearing Tr. 50
(Gum). Even assuming GTAT made the requisite showing, however, it has not
demonstrated a likelihood of success as to the remaining requirements of its claim.
GTAT must show the trade secrets derive independent economic value by
not being widely known. GTAT has shown it holds a market advantage, see
Hearing Tr. 17-18 (Gum), but admits that much of the polysilicon process is
generally known, see Hearing Tr. 23 (Gum). As was recently articulated in
Waymo LLC v. Uber Technologies, Inc., "it would be wrong to allow any company
to leverage a single solution into a broad swath of other solutions .... To do so
would be to allow monopolization of broad scientific and engineering concepts
and principles." 2017 WL 2123560, at *7 (N.D. Cal. May 15, 2017).
As mentioned above, GTAT identified trade secrets that fall into three
general "buckets": (1) materials of construction, (2) internal components, and (3)
specific processes involved in the polysilicon process. Hearing Tr. 33-34 (Gum).
Since the May 16 hearing, GTAT has provided the Court with a sealed document
specifically identifying that information that it believes to be trade secrets. Fero
reviewed that filing and submitted a response. Those filings indicate many of the
trade secrets GTAT identifies may either be known by others in the field,
disclosed in patent applications, or previously disclosed by GTAT itself. Of the
over 60 items identified, Fero agrees that only 8 may in fact be trade secrets. Like
Waymo, it appears GTAT attempts to cut too broadly a swath. Assuming without
deciding that more than the 8 items identified by Fero qualify as trade secrets,
GTAT has failed to make a preliminary showing as to misappropriation.
At the time the temporary restraining order was issued, the information Fero
was alleged to have taken on two USB drives established a threat of
misappropriation. That evidence is no longer persuasive given that one of the
USB drives was in GTAT' s possession and the directory for the other shows no
sign of GTAT confidential information. See Giftango, LLC v. Rosenberg, 925 F.
Supp. 2d 1128, 1139 (D. Or. 2013) (noting change in facts known from temporary
restraining order to preliminary injunction).
During the hearing GTAT presented a few additional theories to support its
belief that Fero has, or had the ability, to take GTAT information with him when
he left. First, Fero allegedly never returned his 2011-2016 work laptop, a
Panasonic Toughbook, that could contain confidential and proprietary
information. Hearing Tr. 51(Gum);131, 141 (Carroll). Second, Fero established
a DropBox account in 2013 affiliated with his work email account. Hearing Tr.
133 (Carroll); Ex. 10. That DropBox account was then deleted in October 2016,
after Fero left GTAT. Hearing Tr. 136 (Carroll); Ex. 11. According to Gabe
Carroll, Manager of Corporate IT Services at GTAT, GTAT implemented a noDropBox policy in 2013. Hearing Tr. 145-46.
Fero testified that he had believed he had returned the Toughbook to GTAT.
Hearing Tr. 161 (Fero). He also testified that was not aware he was not allowed to
have a DropBox account and that his use was personal. Hearing Tr. 162-63.
Although GTAT provides grounds for speculation and suspicion as to what Fero
could have uploaded onto DropBox or taken on the Panasonic laptop, it is not
able, at least at this time, to show any information was actually taken by either
means. Compare with Waymo, 2017 WL 2123560 (containing record evidence
that engineer absconded with over 14,000 files). Given that GTAT never did an
exit interview, Hearing Tr. 160 (Fero), never requested return of the Panasonic
laptop, Hearing Tr. 142 (Carroll), and there are disputes as to the enforcement and
knowledge regarding GTAT's no-DropBox policy, see Hearing Tr. 162-63 (Fero),
such evidence is insufficient to establish a sufficient threat of misappropriation.
Finally, GTAT presented evidence as to Fero's business offerings
themselves, specifically as demonstrated in Fero's April 2017 dealings with a
Chinese company. See, e.g., Hearing Tr. 54-68 (Gum). GTAT insists the offer
shows misappropriation because Fero proposed essentially the same technology as
GTAT, the stage ofFeroSilicone's development is not sufficient to support the
proposal Fero gave, and the lack of expertise ofFero's alleged partners. GTAT
insists that the comprehensive BEP presented by Fero to the Chinese company
contained detailed chemical, technical, and engineering information which Fero
could not have developed on his own in a matter of months without using GTAT' s
proprietary technology. See Hearing Tr. 68, 70, 72 (Gum); Exs. 6, 12, 16.
In response, Fero testified that he had invested over $70,000 in his
company, see Ex. 16, set up his own corrosion lab, Hearing Tr. 170, relied
extensively on publicly-available articles, see Exs. 13, 14, 15, was planning to
partner with a leading expert in the polysilicon field, Hearing Tr. 193-94, and was
not offering the same type of comprehensive BEP as that offered by GTAT,
Hearing Tr. 165. While further discovery may show that Fero's business was not
proceeding with organic information, the existing record does not persuasively
show otherwise. Through Fero's testimony, the expert declaration submitted by
his partner Keith Adams, and his response to GTAT' s identified trade secrets, Fero
presents plausible explanations for both his knowledge and the BEP offered.
While the table of contents for Fero' s BEP is facially similar to that of GTAT, it
omits portions of GTAT's offering. See Hearing Tr. 165-66 (Fero). It also reflects
the BEP previously used and offered by Mr. Adams. (See Doc. 27-1
It may be that with further discovery GTAT can make the requisite showing
of misappropriation to warrant a permanent injunction down the road. GTAT has
not made the requisite preliminary showing of likelihood of success on this claim.
Breach of Contract
Similarly, GTAT fails to make a preliminary showing of likelihood of
success on its breach of contract claim. As part of the Confidentiality Agreement,
Fero agreed, inter alia, to (1) keep confidential any technical or business
information he learned while employed at GTAT, and (2) to return all materials
relating to GTAT' s confidential information upon leaving. See Ex. 7. GTAT fails
to present persuasive evidence showing Fero violated either duty at this stage.
"Every contract contains a covenant of good faith and fair dealing. A
breach of the implied covenant constitutes a breach of the contract." Hardy v.
Vision Serv. Plan, 120 P.3d 402, 405 (Mont. 2005) (internal citation omitted). The
implied covenant of good faith and fair dealing requires honesty in fact and
observance of reasonable commercial standards of fair dealing in the trade. Mont.
Code Ann. § 28-1-211. The nature and extent of the obligations of good faith and
fair dealing are measured by the parties' justifiable expectations. Hardy, 120 P.3d
at 405. "Expectations that contradict an express term of the contract are per se
unjustifiable." Forsman v. United Fin. Cas. Co., 966 F. Supp. 2d 1091, 1105 (D.
Mont. 2013). Although GTAT has presented evidence that Fero attempted to
solicit a Chinese client, Fero was not precluded from competing. GTAT has
therefore not made the requisite showing of likelihood of success on this claim.
Interference with Business Relations
A claim for intentional interference with business relations or intentional
interference with prospective economic advantage requires a showing of acts that:
"(1) are intentional and willful; (2) are calculated to cause damage to the
plaintiffs business; (3) are done with the unlawful purpose of causing damage or
loss, without right or justifiable cause on the part of the actor; and (4) result in
actual damages or loss." Maloney v. Home & Invest. Ctr., Inc., 994 P.2d 1124,
1132 (Mont. 2000). Once again, the only relevant evidence GTAT presents is the
Chinese deal discussed above. It is undisputed that Fero was not bound by a noncompete provision and could solicit any customers he wanted, including the
Chinese company. GTAT has not made the requisite showing as to this claim.
GTAT has presented no evidence of actual malice as required by Montana
Code Annotated§ 27-1-221. GTAT has not made the requisite showing of
likelihood of success on this claim.
Even if GTAT as to able to show a likelihood of success, it has not shown
irreparable harm such that warrants injunctive relief. Although a plaintiff is not
required to show actual harm at the preliminary injunction stage, a plaintiff "must
establish that irreparable harm is likely, not just possible." Alliance for the Wild
Rockies, 632 F.3d at 1131. The likely harm must be supported by a "clear
showing," Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (per curiam), and
speculative injury is insufficient, Go/dies Bookstore, Inc. v. Superior Court, 739 F.
2d 466, 472 (9th Cir. 1984).
Although the diminution in the value of trade secrets and confidential
information cannot generally be addressed through the payment of damages, see
Wellness Coaches USA, LLC v. MGM Resorts Int'l, 2015 WL5146701, at *6 (D.
Nev. Sept. 1, 2015), the degree and imminency of the harm alleged here is
circumspect. GTAT points to a single deal with a Chinese supplier as evidence of
the harm it faces in the absence of an injunction. However, that alleged damage
has already occurred and there is a clear monetary measure of loss for that deal.
See Ex. 4 (sealed). Other than to speculate as to Fero's continued activity, it is
unclear what remaining harm GTAT faces in the status quo, or that such harm
could not be remedied by monetary damages. Moreover, it is undisputed that even
absent an injunction Fero is precluded from using GTAT's trade secrets in his
business. GTAT fails to show that harm is not only possible, by likely. Alliance
for the Wild Rockies, 632 F.3d at 1131.
Balance of Equities and the Public Interest
The balance of the equities and consideration of the overall public interest
in this case weighs against granting preliminary relief as requested by GTAT.
GTAT' s interest in preventing disclosure of its trade secrets must be weighed
against both Fero and the public's interest in competition and development in the
industry. As discussed above, Fero is precluded in the status quo from using and
disclosing GTAT's trade secrets. A fact Fero concedes and understands. Hearing
Tr. 215 (Fero). Although the parties' filings show they disagree as to what
qualifies as a trade secret, GTAT presents no evidence that Fero has possession of
any of its confidential documents or disclosed its trade secrets to others. 1 At this
stage, enjoining Fero's use of the all of the information identified by GTAT would
be disproportionate to GTAT's limited showing of misappropriation by Fero. That
said, if ajury finds that GTAT's trade secrets have been wrongly incorporated into
Fero's BEPs or further offerings, Fero may not be protected from a permanent
injunction stripping those trade secrets from the offending technology and
equipment. See Waymo, 2017 WL 2123560, at n.8.
Although GTAT may be able to prove its claims based on further discovery
and evidence, it has not done so on the present record as to warrant preliminary
injunctive relief. Based on the issues discussed above, the case warrants an
expedited schedule to both timely and thoroughly address the parties' concerns.
At the pretrial conference set for June 29, 2017, the parties should be prepared to
discuss, and make their respective proposed pre-trial deadlines address, a trial
This is not to say that the Court is convinced by all of Fero' s challenges to
those items identified by GTAT as trade secrets. For example, Fero cites a
passage to indicate that certain temperature information is in a published article
but the passage included does not reference temperature. Fero is advised to tread
cautiously in his use or disclosure of those items identified by GTAT.
timeline of approximately 90-120 days. (See Doc. 26.)
IT IS ORDERED that GTAT's request for a preliminary injunction is
DENIED. The temporary restraining order originally entered May 3, 2017, and
extended May 16, 2017, is LIFTED .
Dated this 2~ day of May, 2017.
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