Court Opinion

ID: 3018536
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:19:20.281586+00
Date Added: 2024-06-11T09:12:05.238381
License: Public Domain

United States Court of Appeals

                             FOR THE EIGHTH CIRCUIT

                                _______________

                                  No. 96-2172
                                _______________

American Airlines, Inc.,              *
                                      *
       Plaintiff-Appellant,     *    Appeal from the United States
                                      *    District Court for the
  v.                                  *    District of Minnesota
                                      *
KLM Royal Dutch Airlines,       *
Inc.,                                 *
                                      *
       Defendant-Appellee.           *

                                _______________

                      Submitted:     December 13, 1996

                             Filed:    May 16, 1997
                                 _______________

   Before McMILLIAN and MAGILL, Circuit Judges, and WEBBER,1 District
Judge.
                            _______________

WEBBER, District Judge.

       American Airlines, Inc. (American), appeals from the order of the
United States District Court2 granting summary judgment in favor of KLM
Royal Dutch Airlines, Inc. (KLM).         This court has jurisdiction under 28
U.S.C. § 1291.   We affirm.

       1
     The Honorable E. Richard Webber, United States District Judge
for the Eastern District of Missouri, sitting by designation.
       2
     The Honorable David S. Doty, United States District Judge for
the District Court of Minnesota.
                                           I.

       Prior to “deregulation” of the airline industry in 1978, airlines
offered few fare classes to patrons and all airlines charged very similar
rates for flights between the same origins and destinations.                Resulting
competition   arising      after   1978,   among   airlines   invited   imaginative
approaches to enhance revenues, including expanding class fares and rates.
A concept known as “yield management,” in the parlance of the industry,
evolved.     Airlines developed yield management models, which sought to
balance airline passenger capacity with demand for service in such a
fashion that the most profitable fare class utilization can be maximized.

       These yield management models are highly sophisticated and are quite
expensive to develop.      The models involve analyzing and applying financial,
logistical, and market data in an effort to maximize revenue, or yield,
from   a   flight.   The   models   utilize      computer   systems   and   elaborate
mathematical equations, algorithms, and constants to simulate and forecast
supply and demand.    There are many mathematical “elements” in the airline
industry which are widely used and recognized in the public domain as
significant factors in development of an effective yield management system.
A company that can most effectively match demand with the most profitable
class fares through its yield management system is assured a competitive
advantage.

       American, over a period of several years, dedicated substantial
resources in the development of a unique yield management system known as
DINAMO, an acronym for Dynamic Inventory and Maintenance Optimizer.            DINAMO
contains five specific

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individual elements.3     American maintains that its yield management system
is unique and is entitled to protection as a trade secret.

        Northwest Airlines Inc. (Northwest), a competitor of plaintiff, is
aligned with KLM’s respective business operations.       Disputes arising from
employment of American personnel by Northwest resulted in a lawsuit
originally initiated by Northwest against American.           The suit drew a
counterclaim by American alleging, in part, that Northwest unlawfully
misappropriated American’s trade secrets relative to its yield management
model.      That suit has been delayed pending resolution of the issues in this
case.       In a similar fashion as in the Northwest litigation, American
asserts that KLM has also misappropriated American’s trade secrets by KLM’s
alleged receipt of American’s trade secrets from Northwest.

        In a deposition on August 2, 1993, Barry C. Smith, Vice President of
American Airlines Decision Technologies, a division of American with
primary responsibility for American’s yield management system, testified
as   an     expert witness for American.      Smith testified that the five
“elements” (also referred to as concepts and factors) used by American,
when combined in specific algorithms and formulae, comprise its yield
management system DINAMO.       He testified that these five elements, while
known at the conceptual level in the airline industry and in the public
domain, have not been successfully mixed with algorithms and formulae
except by American, and it is the combination and implementation of these
elements by American in DINAMO that comprises a unique model which is not
publicly available, and that therefore, American’s unique model is a
proprietary business trade secret entitled to

        3
       The five elements are contained in the parties briefs which
are filed under seal. Accordingly, the Court will not reveal the
elements in this opinion.

                                       -3-
protection under the Minnesota Uniform Trade Secrets Act (MUTSA), Minn.
Stat. §§ 325C.01-325C.08.

     American alleges that Northwest gained this proprietary material
after Northwest hired many former American employees.   As to the defendant
in this case, KLM, American alleges that, as a result of the close business
ties between Northwest and KLM, this proprietary material was then passed
from Northwest to KLM.   However, there is no allegation, nor any evidence,
that documents outlining algorithms and formulae of American passed to KLM,
nor that more than four of the five “elements” in DINAMO passed to KLM.

     On November 19, 1993, American filed suit against KLM claiming
misappropriations of trade secrets in violation of MUTSA.   American alleged
that KLM had received from Northwest trade secrets which had previously
been unlawfully obtained from American.       After American deposed KLM
officials, KLM requested dismissal from the suit with prejudice.    American,
willing to dismiss the suit against KLM without prejudice, conceded, among
other things, that KLM did not receive the detailed demand forecasting
algorithms contained in the American documents which were allegedly
misappropriated by Northwest; that, based on information allegedly received
from Northwest, KLM could not develop a yield management system similar to
American’s; that KLM had no knowledge of how American’s system worked and
had not received from Northwest any documents describing the details of
American’s system; and that KLM changed its demand forecasting system in
mid-1994, to one based upon a Boeing model.        KLM would not agree to
American’s offer of dismissal without prejudice.
     On May 5, 1995, KLM filed a motion for summary judgment.      Before the
motion for summary judgment was filed, Barry C. Smith had testified by
deposition as an expert for American in the American-Northwest litigation.
Smith testified that American’s

                                    -4-
trade secret was defined as the unique combination of the five “elements”
and their implementation into algorithms, formulae and equations.          After
the motion for summary judgment was filed by KLM and it was known that KLM,
at most, had only four of the five elements without knowledge of the
algorithms or formulae, Smith, at a subsequent deposition, testified, “In
my opinion, four elements, not including a specific alpha value, would
constitute a trade secret.”

     In moving for summary judgment, KLM maintained that no genuine issue
of material fact existed because American had manufactured the appearance
of a dispute after the filing of KLM’s motion for summary judgment by
changing its testimony regarding the content of its alleged trade secret.
KLM urged the district court to ignore Smith’s later testimony because of
the “sham exception” to the usual standards for summary judgment.              The
district court agreed,     and determined that American’s trade secret was
“the combination and implementation of the five demand forecasting elements
as incorporated in DINAMO through specific algorithms and formulae.” The
district court granted KLM summary judgment because the record conclusively
established that KLM had not received any detailed algorithms or formulae
describing    how   the   five   demand   forecasting   elements   were   to    be
incorporated, but had only received four of the general elements at the
conceptual level without information as to        how the concepts were to be
combined.    American maintains that the “sham exception” was inappropriately
applied.

                                    II.
     We review a grant of summary judgment de novo, applying the same
standard as the district court.      Disesa v. St. Louis Community College.,
79 F.3d 92, 94 (8th Cir. 1996).           We will affirm the district court’s
decision if we find there is no genuine issue of material fact and the
moving party is entitled to judgment as a

                                      -5-
matter of law.   Id.    Fed.R.Civ.P. 56(c).   To successfully oppose a motion
for summary judgment, the nonmoving party must present evidence of a
genuine dispute of material fact.      Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 250 (1986).    The nonmoving party must present admissible evidence
from which a reasonable jury could return a verdict in its favor.       This
requires more than a scintilla of evidence, and there must be specific
facts set forth showing that there is a genuine issue for trial.    Davis v.
Fleming Cos., Inc., 55 F.3d 1369, 1371 (8th Cir. 1995).

     Parties to a motion for summary judgment cannot create sham issues
of fact in an effort to defeat summary judgment.     RSBI Aerospace, Inc. v.
Affiliated FM Ins. Co., 49 F.3d 399, 402 (8th Cir. 1995).    Courts must not
deprive juries from their role in deciding genuine disputes of material
fact, however, parties should not be permitted to fashion a dispute of
material fact solely to impede a lawful exercise of granting a motion for
summary judgment.      Wilson v. Westinghouse Elec. Corp., 838 F.2d 286, 289
(8th Cir. 1988).

      While district courts must exercise extreme care not to take
      genuine issues of fact away from juries, a party should not be
      allowed to create issues of credibility by contradicting his
      own earlier testimony. Ambiguities and even conflicts in a
      deponent’s testimony are generally matters for the jury to sort
      out, but a district court may grant summary judgment where a
      party’s sudden and unexplained revision of testimony creates an
      issue of fact where none existed before. Otherwise, any party
      could head off a summary judgment motion by supplanting
      previous depositions ad hoc with a new affidavit, and no case
      would ever be appropriate for summary judgment.
Wilson, 838 F.2d at 289 (internal citations and quotations omitted).       In
Wilson, a terminated employee testified in a deposition that his supervisor
said he was being terminated.      Then, after a motion for summary judgment
was filed, the employee filed an affidavit stating that he was told his
position was being

                                      -6-
eliminated but he would remain on the company rolls until a new job could
be found for him.    A crucial question was whether his supervisor told him
he was being terminated on a specific date, thus impacting the timeliness
of the employee’s action.    In affirming that summary judgment, this Court
concluded that the employee’s revised account did not create a genuine
issue of fact on which a jury would reasonably find that the limitations
period in question was tolled because it was offered as a sham in direct
contradiction to the employee’s prior position simply as an attempt to
counter a summary judgment motion.

        This Court also affirmed granting of a motion for summary judgment
upon application of the “sham exception” doctrine in Camfield Tires, Inc.
v. Michelin Tire Corp., 719 F.2d 1361 (8th Cir 1983).         There a person
testified by deposition that he issued a check telling the payee not to
deposit it until a certain date.     Subsequently, the same person supplied
an affidavit in which he attested that the issued check was to be returned
to his place of business for payment and was not to be presented to the
bank.    This Court held that the issues injected by the subsequent affidavit
were not genuine “because the circumstances do not suggest legitimate
reasons for [the] filing of the inconsistent affidavit.”        Id. at 1365.
This Court found the filing of the affidavits was “expressly for the
purpose of opposing summary judgment . . . .”         Id.   In Camfield, we
concluded,

        The very purpose of summary judgment under Rule 56 is to
        prevent the assertion of unfounded claims or the interposition
        of specious denials or sham defenses. If a party who has been
        examined at length on deposition could raise an issue of fact
        simply by submitting an affidavit contradicting his own earlier
        testimony, this would greatly diminish the utility of summary
        judgment as a procedure for screening out sham issues of fact
        . . . The district courts should examine such issues with
        extreme care, and only in circumstances . . . where the
        conflicts between the deposition and affidavit raise only

                                     -7-
     sham issues should summary judgment be granted. Under these
     circumstances it is incumbent upon the district court to
     articulate with care its reasons in resolving such conflicts.

Id. at 1365-1366.

     There is no genuine disputed issue of a material fact in the record
of this case.   During sworn testimony, American’s expert testified that the
specific combination of all five elements constituted a trade secret.     It
is undisputed that KLM never received all five elements.          American’s
expert’s subsequent testimony, after KLM’s filing of a motion for summary
judgment, that four of those same five elements at the conceptual level
constituted a trade secret was offered solely to avoid summary judgment.
After careful examination of American’s expert’s testimony we agree with
the district court’s conclusion that American attempted to manufacture a
material issue of fact just to evade the impact of summary judgment by
inexplicably changing his testimony.      Thus, the district court correctly
disregarded the subsequent manufactured contradictory testimony of American
and concluded that no factual issue for trial existed for the reason that
KLM never received any trade secret of American’s.

     The judgment of the district court is affirmed.

     A true copy.

           Attest:

                  CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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