About the author: PJ Kee is an associate at the Jones Walker law firm in New Orleans. He and a few colleagues recently launched Trade Secret Insider, which chronicles legal insights on trade secrets, non-competes, computer fraud and confidential data theft. This article was originally posted on tradesecretsinsider.com.
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The recent decision in Wellogix, Inc. v. SAP America, Inc., No. 14-0741 (S.D. Tex. Nov. 10, 2014), demonstrates that federal courts can rely on contractual forum selection clauses to dismiss or transfer trade secret theft cases. It’s a reminder to weigh how these clauses could impact litigation strategies and to consider the specific language negotiated during contract talks.
Background: Wellogix and SAP AG/SAP America, Inc. (SAP) entered into a cooperative relationship to develop software for oil and gas operators. That relationship soured shortly after a client pitch. Wellogix, who had shared its trade secret technology with SAP through a cooperation agreement, believed that SAP misappropriated those trade secrets to develop software solutions for a client—without notifying Wellogix and excluding Wellogix from the deal.
In 2008, Wellogix sued SAP (and the companies who benefited from SAP’s alleged misconduct) for breach of contract, trade secret theft, and various other business torts. But Wellogix’s claims against SAP were dismissed because the cooperation agreement contained a forum selection clause that called for a German forum. Wellogix could not have been too upset, though, since its trade secret claim against a co-defendant resulted in a multi-million-dollar jury verdict.
A dispute between SAP and Wellogix nevertheless reemerged in 2010. SAP sued Wellogix, seeking a judgment concerning Wellogix’s patents. Wellogix responded by filing counterclaims—reasserting its trade secret theft claims previously dismissed in 2008. SAP opposed the counterclaims and sought to dismiss them based on the forum selection clause relied on in the 2008 litigation.
Rationale: The court first considered whether SAP waived its right to enforce the forum selection clause by bringing the patent action. After examining choice-of-law questions and various approaches to waiver, the court reasoned that SAP had not waived its right to enforce the clause, even though it had sued Wellogix in the Texas court.
The court then moved to the ultimate question—whether the forum selection clause applied to Wellogix’s trade secret claims. The court focused on the clause’s language and found that, under federal law, it must be construed broadly to encompass both contract claims and trade secret claims. Rather than using narrow language—like disputes “arising out of” the contract—the cooperation agreement used the phrase— disputes “arising in connection with” the contract. The court noted that this phrase reaches “every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the contract.” Because the trade secrets were shared through the cooperation agreement, the court reasoned that Wellogix’s claims had a significant relationship to and stemmed from the cooperation agreement. And thus, the forum selection clause applied to Wellogix’s trade secret claims.
But that did not end the court’s analysis. Since the clause called for a non-federal forum, the court could not simply “transfer” the case. That is, the court could only dismiss it. And in Atlantic Marine Construction Co., Inc., the Supreme Court recently instructed lower courts confronted with this scenario to undertake a traditional forum non conveniens analysis to decide whether dismissal is appropriate. That’s what the court did and ultimately dismissed the case—with the caveat that it “may reassert jurisdiction upon timely notification if the courts of Germany refuse to accept jurisdiction.”
Take Away: The decision reminds us that forum selection clauses can significantly impact trade secret litigation and strategy. It also underscores the need to seriously consider a forum selection clause’s language during contract negotiations—focusing specifically on how narrowly or broadly a court will interpret phrases like “disputes arising out of” as opposed to “disputes arising in connection with.”