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Emerson wins new trial from 9th Circ. in $77 mln trade-secret case

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Emerson Electric Co is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., January 13, 2020. REUTERS/Brendan McDermid

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  • BladeRoom accused Emerson of copying data-center technology
  • Emerson allegedly breached NDA, stole trade secrets
  • Lower court misinterpreted contract before jury decided case

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The 9th U.S. Circuit Court of Appeals vacated a $77 million verdict for BladeRoom Group Ltd against Emerson Electric Co on Monday, finding a California federal court misread the companies' non-disclosure agreement before the jury found Emerson breached its contract and misused BladeRoom's trade secrets.

U.S. District Judge Stephen Murphy, sitting by designation, wrote for a unanimous three-judge panel that letting the verdict stand would be a "legally unjustified windfall to BladeRoom and a miscarriage of justice" and ordered a new trial.

Emerson's attorney Carter Phillips of Sidley Austin said he was "very pleased" with the decision that the district court wrongly "took away from the jury's consideration the heart of Emerson's defense."

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Emerson declined to comment.

BladeRoom and its attorney Stephanie Skaff of Farella Braun & Martel didn't immediately respond to a request for comment.

Cheltenham, UK-based BladeRoom and St. Louis-based Emerson both design and build data centers. They had discussed the possibility of Emerson buying BladeRoom in 2011, and signed an NDA under which their confidentiality obligations would survive "the termination of any discussions or negotiations ... provided that this agreement shall terminate on the date two years from the date hereof."

After the deal fell through, both companies pitched Facebook on a design for a new data center in Sweden. Facebook selected Emerson's design, and BladeRoom sued both companies in California federal court, alleging Emerson copied its technology.

The case went to trial in 2018. Facebook and BladeRoom settled during trial, and the jury awarded BladeRoom $30 million in damages against Emerson. U.S. District Judge Edward Davila later added $30 million in punitive damages, $17.4 million in prejudgment interest, as well as $18.5 million in attorneys' fees.

Emerson challenged several aspects of the verdict on appeal, arguing among other things that the NDA had expired before Emerson and Facebook signed their contract and that BladeRoom's claims would "crumble" if Davila hadn't interpreted the agreement differently and barred Emerson from making that argument to the jury.

Murphy, joined by U.S. Circuit Judges Johnnie Rawlinson and Patrick Bumatay, agreed Monday, finding the district court misinterpreted the agreement.

Murphy said the relevant clause "unambiguously terminated the NDA and its confidentiality obligations two years after it was signed."

The panel rejected BladeRoom's argument that the clause only required that the parties' "discussions or negotiations" be terminated after two years, not Emerson's confidentiality obligations.

Murphy said BladeRoom's interpretation "not only twisted the ordinary meaning of words, but it also spawned absurdity."

"If, for example, either party stopped negotiating within two years, then the party would have breached the NDA," Murphy said. "Similarly, if the parties kept negotiating after two years, then both parties would have breached the NDA."

The 9th Circuit knocked out the jury awards because there was "no way to know" if it would have returned the same verdict "if the district court had allowed Emerson to present its chief defense."

The appeals court also vacated the fee award, given the new trial.

The case is BladeRoom Group Ltd v. Emerson Electric Co, 9th U.S. Circuit Court of Appeals, No. 19-16583.

For Emerson: Carter Phillips of Sidley Austin and Rudy Telscher of Husch Blackwell

For BladeRoom: Stephanie Skaff of Farella Braun & Martel

(CORRECTION: This story has been changed to correct the names of the attorneys representing the companies.)

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Blake Brittain reports on intellectual property law, including patents, trademarks, copyrights and trade secrets. Reach him at blake.brittain@thomsonreuters.com

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