Court Opinion

ID: 3183814
Source: CourtListenerOpinion
Date Created: 2016-03-09 15:17:11.711995+00
Date Added: 2024-06-11T12:19:15.197427
License: Public Domain

Cite as 2016 Ark. App. 156

                 ARKANSAS COURT OF APPEALS
                                         DIVISION II
                                        No. CV-15-469

                                                   Opinion Delivered   March 9, 2016
GIBRALTAR LUBRICATING
SERVICES, INC.                                     APPEAL FROM THE WHITE
                   APPELLANT                       COUNTY CIRCUIT COURT
                                                   [NO. CV-12-233]
V.
                                                   HONORABLE TOM HUGHES,
                                                   JUDGE
PINNACLE RESOURCES, INC.
                      APPELLEE                     REVERSED AND REMANDED

                             M. MICHAEL KINARD, Judge

       In this trade-secrets case, appellant Gibraltar Lubricating Services, Inc. (GLS), appeals

from a summary judgment in favor of appellee Pinnacle Resources, Inc. (Pinnacle). Because

genuine issues of material fact remain to be decided, we reverse and remand for further

proceedings.

       Our standard of review is well established. Summary judgment should be granted only

when it is clear that there are no genuine issues of material fact to be litigated, and the moving

party is entitled to judgment as a matter of law. Akers v. Butler, 2015 Ark. App. 650, 476
S.W.3d 183. On appeal, we view the evidence in the light most favorable to the party against

whom the motion was filed, resolving all doubts and inferences against the moving party. Id.

With this standard in mind, we turn to the evidence presented by the parties in their affidavits

and other documents filed in connection with the summary-judgment motion.
                                 Cite as 2016 Ark. App. 156

                                           II. Facts

       GLS provides lubricants to industrial customers who use large compressors. The

lubricants contain a blend of oils and additives that inhibit rust and corrosion and reduce the

foaming generated by compressor churning. GLS hires outside contractors to blend its

lubricants based on precise formulas.

       The formulas at issue in this case were developed more than thirty-five years ago by

a man named Glen Majors, owner of C.E.S. Associates, Inc. In 1991, Mr. Majors formed

GLS with James and Linda Bass and purchased C.E.S.’s assets, including its formulas and

blending instructions, for $38,500. In 1993, Mr. and Mrs. Bass bought out Majors and

became the sole owners of GLS. They operated from an office in Beebe, Arkansas, with one

employee, Veronica Craven. The company produced the same lubricants using the same

trusted blenders as in the past. Mr. Bass kept the formulas locked in a cabinet or safe, to

which Mrs. Bass and Ms. Craven had access.

       In 2008, Pinnacle, a custom blending company, contacted Mr. Bass with hopes of

becoming a blender for GLS. During a meeting at the Beebe office, Bass explained to

Pinnacle’s salesman, John Bethel, that he was nervous about disclosing the lubricant formulas.

Bethel assured Bass that Pinnacle would maintain the formulas’ secrecy.

       Thereafter, Mr. Bass provided Pinnacle with documents containing a particular

lubricant formula. One of the documents bore a stamp prohibiting copying or duplicating

of its contents. Bass also sent Bethel an email, asking him to “please keep a tight grip on the

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formulas,” to which Bethel replied, “Absolutely.” Several months later, Bass wrote the

following to Bethel:

       I know we have talked about it before, do you have our formulas in a safe place, it
       would be terrible if [certain other companies] got hold of them some way. That has
       always concerned me and is the reason we have been so careful on who got our
       formula.

Bethel responded that the formulas were “in a very safe place” and were “kept in locked

secured areas at night.”

       Pinnacle eventually began blending GLS lubricants, and was asked to blend a synthetic

lubricant that had been blended for GLS by another company. At some point, GLS’s largest

customer, Kinder Morgan, became interested in the synthetic product. Pinnacle offered to

be the blender, but Pinnacle insisted that, for quality-control purposes, it would have to be

the sole supplier to the Kinder Morgan facility. GLS rejected this exclusive arrangement, and

the two companies stopped doing business together.

       Thereafter, Pinnacle developed and marketed a new synthetic lubricant, which Kinder

Morgan allegedly put into use. GLS subsequently lost Kinder Morgan as a customer.

       In 2012, GLS sued Pinnacle in White County Circuit Court for misappropriation of

trade secrets.1 The complaint alleged that Pinnacle had improperly used GLS’s formulas in

developing the new lubricant and that Pinnacle was selling the new lubricant to GLS’s

established customers. Pinnacle denied using the GLS formulas and denied that the formulas

constituted trade secrets.

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        GLS also sued Pinnacle for breach of contract and conversion. Those counts were
dismissed by the circuit court and are not relevant to this appeal.

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                                    III. Summary Judgment

       Pinnacle moved for summary judgment on the ground that GLS’s formulas did not

meet the definition of a trade secret contained in Arkansas Code Annotated section 4-75-

601(4) (Repl. 2011). That statute defines a trade secret as information, including a formula,

pattern, compilation, program, device, method, technique, or process, that:

       (A) Derives independent economic value, actual or potential, from not being generally
       known to, and not being readily ascertainable by proper means by, other persons who can
       obtain economic value from its disclosure or use; and

       (B) Is the subject of efforts that are reasonable under the circumstances to maintain its
       secrecy.

(Emphasis added.) Pinnacle contended that, because the GLS formulas were “generally

known” and “readily ascertainable,” they were not trade secrets. In support of its argument,

it submitted the affidavit of Dr. David Wooten, an analytical chemist with expertise in

tribology, the science of friction, lubrication, and wear.

       Dr. Wooten described the GLS formulas as “simple, unsophisticated lubricants,” whose

ingredients were “readily detectable by widely available laboratory testing protocols.” He said

that the formulas’ ingredients could be identified by performing two hours of testing on each

lubricant, plus another six hours to ascertain the ingredients’ relative weights, all at a cost of

$3,000 to $4,500 per lubricant. Wooten stated that the testing would involve “reverse

engineering” of the GLS formulas—a process of starting with a known product and working

backward to find the method by which it was developed.

       Dr. Wooten also offered his opinion that GLS’s formulas were generally known in the

lubrication industry. Attached to his affidavit were over 100 pages of articles, book excerpts,

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and advertisements that discussed numerous ingredients capable of achieving rust protection,

corrosion protection, defoaming, and other attributes touted by GLS in its lubricants.

According to Dr. Wooten, the ingredients mentioned in those publications were the same as

those used by GLS. Dr. Wooten additionally described certain lubricating-oil patents, which

he said contained the same ingredients, within the same weight ranges, as the GLS lubricants.

       In response, GLS submitted the affidavit of a chemist, John Cicoria. Mr. Cicoria

characterized GLS’s formulas as “unique” and “not easily ascertainable.” He detailed a five-

step process for reverse engineering a GLS lubricant, which would require “many hours, if

not days or weeks to replicate the sample formula provided to the chemist” and would cost

much more than Dr. Wooten had estimated.

       GLS additionally provided affidavits from James Bass, Linda Bass, and Veronica

Craven. Mr. Bass stated that, “since 1991, the identity of the [GLS] additive package and the

proper mixture was kept highly confidential.” He said that the formula for the additive

package was never discussed with customers or seminar/trade-show attendees and had only

been disclosed to a few, trusted blenders. He also said that the formulas were not readily

ascertainable and, to his knowledge, had never been reverse engineered by others. Mrs. Bass

and Ms. Craven echoed that the formulas were not generally discussed and were kept secret.

       Following a hearing, the circuit court granted summary judgment in favor of Pinnacle.

In doing so, the court cited Dr. Wooten’s “great credibility based on the specificity of his

conclusions, his background, and his area of expertise.” The court particularly noted that Dr.

Wooten’s affidavit, unlike Mr. Cicoria’s, contained the actual cost that would be

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incurred—$3,500 to $4,000—in reverse engineering each GLS lubricant. Relying on those

figures, the court found that the cost of reverse engineering was “so small” that the GLS

formulas were readily ascertainable and, therefore, not trade secrets. GLS appeals the

summary-judgment order.

                                  IV. Arguments on Appeal

       GLS argues that the summary-judgment order should be reversed because the circuit

court engaged in improper credibility determinations. We agree for the following reasons.

       The question of whether information meets the definition of a trade secret is fact

intensive. Bradshaw v. Alpha Packaging, Inc., 2010 Ark. App. 659, 379 S.W.3d 536. Here, the

central issue before the court was whether the GLS formulas were readily ascertainable, such

that they did not qualify as trade secrets. Relative to this issue, the circuit court received

affidavits from two expert witnesses, each of whom offered an opinion on the matter, with

the focus being the expense and difficulty involved in reverse engineering the GLS lubricants.

Dr. Wooten regarded the GLS formulas as simple compositions that could be reverse

engineered in a matter of hours for a specific price. Mr. Cicoria referred to the formulas as

unique, and he explained the time-consuming process that would be involved in reverse

engineering them. The court resolved this issue by favoring the conclusions drawn by

Pinnacle’s expert, Dr. Wooten, based on Dr. Wooten’s “great credibility.” Summary

judgment should not be granted if it is necessary to weigh the credibility of statements to

resolve an issue. See Turner v. Northwest Arkansas Neurosurgery Clinic, 84 Ark. App. 93, 133
S.W.3d 417 (2003); Adams v. Wolf, 73 Ark. App. 347, 43 S.W.3d 757 (2001). We cannot

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help but conclude that the circuit court placed significant weight on Dr. Wooten’s credibility

in this instance. Summary judgment was therefore improperly granted.

       We likewise agree with GLS that the circuit court made improper factual findings in

granting summary judgment to Pinnacle.         Factual findings are not appropriate at the

summary-judgment stage. See Po-Boy Land Co., Inc. v. Mullins, 2011 Ark. App. 381, 384
S.W.3d 555. In this case, the court not only found that Dr. Wooten was the more credible

expert but also found that his estimated cost to reverse engineer each GLS lubricant was so

small that the lubricant formulas could be deemed readily ascertainable. Reasonable minds

could differ as to whether a price of $3,500 to $4,000 per lubricant was small enough to

render the formulas readily ascertainable. Thus, summary judgment was improper for this

reason as well.

       Pinnacle argues that Mr. Cicoria’s opposing affidavit was not specific enough to call

Dr. Wooten’s conclusions into question. On the contrary, Cicoria detailed the process, the

number of steps, and the length of time it would take to reverse engineer a GLS lubricant.

After stating these matters, he opined that the cost of reverse engineering would be much

higher than Dr. Wooten had predicted. This is not a case of Mr. Cicoria’s affidavit being

entirely conclusory. See Swindle v. Lumbermens Mutual Casualty Co., 315 Ark. 415, 869
S.W.2d 681 (1993) (recognizing that a party cannot create a fact question by submitting a

conclusory affidavit).

       Pinnacle also claims that the mere fact that the GLS formulas were capable of being

reverse engineered made them generally known to, and readily ascertainable by, third persons.

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However, a formula or product may maintain its status as a trade secret, even though it can

be reverse engineered, if the process of reverse engineering is too difficult or costly. See

Restatement (Third) Unfair Competition § 39 cmt. f (1995); Avidair Helicopter Supply, Inc. v.

Rolls-Royce Corp., 663 F.3d 966 (8th Cir. 2011). As stated above, a fact question remains as

to the cost or difficulty of reverse engineering the GLS formulas.

       Pinnacle additionally points to the publications and patents attached to Dr. Wooten’s

affidavit as evidence that the ingredients in GLS’s formulas were generally known. However,

none of those items purport to contain the actual GLS formulas. Even where information

about a product or its ingredients is publicly available, such as through a patent, it may be the

combination of characteristics and components that offers a competitive advantage. See

Restatement (Third) Unfair Competition § 39 cmt. f; Minnesota Mining & Manufacturing Co.

v. Pribyl, 259 F.3d 587 (7th Cir. 2001). Here, Mr. Bass stated that the GLS lubricants have

had years of proven success in the industry and that he considers the composition and

formulation of GLS’s additive package to be a trade secret.

       Finally, Pinnacle asks that we affirm the grant of summary judgment on alternative

grounds not expressed in the circuit court’s order, i.e., that GLS did not engage in reasonable

efforts to protect the secrecy of its formulas, and that GLS did not offer proof of the money

or effort it had expended to develop its formulas. See Ark. Code Ann. § 4-75-601(4)(B);

Saforo & Associates, Inc. v. Porocel Corp., 337 Ark. 553, 991 S.W.2d 117 (1999). Without

belaboring the point, we decline to uphold the summary judgment on these grounds, given

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the factual questions involved. As with the other issues discussed herein, they are better suited

to resolution in trial.

       Reversed and remanded.

       WHITEAKER AND HIXSON, JJ., agree.

       Millar Jiles, LLP, by: Daniel C. Brock, and Edwards & Freeman, P.A., by: Rodney A.

Edwards, pro hac vice, for appellant.

       Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., by: John Keeling Baker and

Clayborne S. Stone, for appellee.

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