We have discussed trade secrets in some of our recent posts. A federal lawsuit alleging misappropriation of trade secrets involving the manufacturing processes of Costco dog food bags has been filed in the U.S. District Court in the Western District of Missouri, reports the News Tribune in Jefferson City.
The Costco dog-food bag dispute
Gateway Packaging manufactures flexible packaging products at its Kansas City, Missouri factory. Diamond Pet Foods of Meta approached Gateway to develop a new pet-food bag for Kirkland Costco dog food. The previous bag supplier was Morris Converting of Jefferson City, but Gateway sought a different source after Costco complained that Morris' bags were easily punctured by shopping carts.
After a two-year development process that cost $2 million, Gateway began supplying bags to Diamond for Costco dog food. According to the News Tribune, Gateway says its revenues grew from $400,000 in 2014 to a level of $4.6 million the next year.
Diamond terminated the relationship with Gateway as of March 1, 2018. On March 6, Gateway filed a 35-page complaint alleging that prior Diamond employees, who had been hired by the parent company of Morris Converting, had misappropriated trade secrets about Diamond's manufacturing processes for the dog food bags and given them to Morris to develop a similar bag.
The article reports that the complaint asserts that Diamond and Morris conspired to talk the two employees into leaving Gateway.
The two prior Gateway employees had received internal Gateway emails that included the bag specifications and the "technical data sheet," says the News Tribune, citing the complaint. They had signed nondisclosure agreements that prevented them from revealing trade secrets during employment and for two years after they left.
The lawsuit reportedly alleges that the employees could not have "viably functioned" in their new jobs without Gateway trade secrets and Morris could not have "so quickly engineered and produced" a competing bag without the secrets.
The News Tribune states that the defendants filed a motion to dismiss the case because the information used to manufacture the bag was already widely known in the industry, so it could not have been the subject of a trade secret. The defendants also say that the lawsuit does not describe the specific secrets allegedly revealed nor facts to support the alleged conspiracy.
The article says that Gateway sued Diamond's parent company, Morris Converting and its parent company, as well as the two former employees. The plaintiff seeks almost $10 million in actual damages, the same amount for unjust enrichment, exemplary (punitive, designed to punish) damages, plus royalties.
We will keep an eye on this suit as it evolves, with trial scheduled for October 2019.