TURBON NOT BACKING DOWN IN LAWSUIT AGAINST HP

[Anonymous]

TURBON NOT BACKING DOWN IN LAWSUIT AGAINST HP

Earlier this month, in the U.S. District Court for the Southern District of New York, Hewlett-Packard (HP) was handed a favorable ruling in Turbon International’s lawsuit against the OEM and Hewlett-Packard (Thailand), Ltd. On March 8, Judge Victor Marrero granted HP’s motion to dismiss Turbon’s charges of misappropriation of trade secrets, unfair competition, and false advertising by HP, leaving the allegations of tortious interference and fraudulent inducement by HP still to be resolved (see Actionable Briefing, “HP Scores Important Win in Turbon v. HP Lawsuit”). Turbon, however, recently filed a motion for reconsideration of this decision and a memorandum of law in support of this motion. We do not have any statistics about the likelihood of success for such motions, which are different from a formal appeal, and much will obviously depend on the merits of Turbon’s arguments. However, the motion would seem to signify that the remanufacturer is not backing down in this legal battle against the printer giant. HP, for its part, is aggressively defending itself. We have yet to see any response from the OEM to Turbon’s motion, although we would expect that HP will oppose it. HP did, however, file a couple of interesting documents in the case since we last reported on this lawsuit.
Lose the Battle but Win the War?

Turbon’s memorandum in support for its motion for reconsideration requests that the court deny the defendants’ motion to dismiss the misappropriation of trade secrets and unfair competition charges. The remanufacturer is apparently not contesting the court’s ruling dismissing the false advertising complaint.

Turbon says, “Pursuant to Local Rule 6.3, a court should grant a motion for reconsideration where the moving party can point to controlling decisions or facts the court overlooked and that might reasonably be expected to alter the conclusion reached by the court,” adding, “Turbon is entitled to relief because the Court overlooked both controlling law and factual matters in its Order.”

Turbon’s lawyers find fault with the case law the judge relied on in dismissing the trade secret misappropriation and unfair competition charges and say the court analyzed Turbon’s misappropriation claim under an improper standard. In his March 8, ruling, Judge Marrero found Turbon’s complaint lacked facts establishing that HP used Turbon trade secrets. Turbon is apparently arguing that it is not required to detail the defendant’s use of these secrets, saying, “New Jersey courts have recognized the futility of forcing a plaintiff to plead with specificity the manner by which a defendant ‘used’ the trade secrets, as the Court required in its Order.”

Turbon also argues that it has sufficiently pleased a cause of action for trade secret misappropriation under New Jersey law (the parties have agreed that Turbon’s claims for misappropriation of trade secrets and unfair competition are governed under New Jersey law). The remanufacturer says, “That HP acquired knowledge of Turbon’s trade secrets is uncontroverted. The question facing the Court at present is whether Turbon has set forth facts ‘indicating’ that HP used Turbon’s trade secrets to its detriment.”

In his March 8 ruling, Judge Marrero found that Turbon’s allegation of trade secret misappropriation centered on HP’s effort to expand its empties-collection program thus reducing the number of empty print cartridges available to Turbon to remanufacture. Because HP’s empty cartridge collection program predated its relationship with Turbon, the judge found it “undermines any claim that the program exploits Turbon’s secret information.” The judge wrote, “To find that HP’s recycling program could establish use of Turbon’s secret information, the Court would have to find the ‘very idea’ of refilling empty printer cartridges for sale is a trade secret.”

Turbon addresses this perceived weakness of its case, saying that the expansion of HP’s empties collection program does indeed “support an indication of HP’s use [of trade secrets].” Turbon explains:

Contrary to the Court’s interpretation, however, the fact that companies in the remanufactured toner cartridge business use empty print cartridges is not the trade secret. But rather, the reverse-logistics, manufacturing and re-distribution processes that HP reviewed so diligently over the course of the year are the trade secrets. That HP reviewed Turbon’s highly confidential material, determined from its review that Turbon is a viable threat to its business, and then subsequently used its knowledge of Turbon’s trade secrets and its position in the industry to potentially destroy Turbon by increasing its collection of empty print cartridges, plausibly demonstrates “misuse” of Turbon’s trade secrets.

Although the court has dismissed the allegations of false advertising, Turbon points out that HP’s advertising campaign against remanufactured toner cartridges and HP Thailand’s alleged actions in attempting to interfere with Turbon’s bid at a Thailand hospital also support the argument that HP used trade secrets. The firm says:

HP only undertook these actions after it reviewed Turbon’s trade secrets. There is an obvious connection between HP’s knowledge of Turbon’s secret manufacturing processes and HP’s action: HP would have no reason to publish these advertisements or make these disparaging remarks specifically about Turbon’s products had they not reviewed Turbon’s trade secrets and determined that Turbon was a competitive threat.

Turbon’s final argument on the use of trade secrets issue is that “all other evidence of ‘use’ is squarely within HP’ s knowledge and custody and many questions therefore remain unanswered.” The firm’s lawyers point out that HP informed Turbon it never actually used any of the remanufactured cartridges that Turbon supplied and say this suggests that HP never intended to use Turbon’s cartridges for its managed print services business. Turbon concludes:

Why would HP have gone through the year-long process of reviewing Turbon’s most intricate trade secrets if it never intended to “use” any of that information against Turbon? The mere fact that HP decided to denigrate Turbon and the industry immediately after reviewing Turbon’ s business certainly suggests that it based that decision on its review of Turbon’s trade secrets. This is information that can be, and should be, explored through the discovery process.

Compared with previous court documents we have seen, Turbon’s motion provides a more complete glimpse into how the firm believes HP used the information it gleaned during the two firms’ agreement. It will be interesting to see how HP responds to this motion for reconsideration, and, of course, how the court ultimately rules on it. We are not lawyers and cannot say whether the motion is likely to succeed or is a long shot. Still, the remanufacturer’s March 22 motion suggests that Turbon is hoping that while it may have lost one battle, it may still win the war and ultimately prevail in this case.
HP Answers Complaint

On March 22, the same day that Turbon filed its motion, HP filed its answer to Turbon’s amended complaint. HP’s response addresses the allegations made in the amended complaint paragraph by paragraph.  Unfortunately, we do not have access to Turbon’s amended complaint as it is under seal. (It was filed under seal because HP sees Turbon’s complaint itself as a breech of the confidential disclosure agreements, or CDAs, it had with Turbon. While Turbon and its lawyers disagree with this interpretation, they filed their amended complaint under seal “out of an abundance of caution.”) However, Turbon’s original complaint was made public. HP’s response does not line up paragraph by paragraph with the original complaint, but, to some degree, it is possible to make out what HP is responding to in the amended complaint from the original complaint.

In general, HP’s response makes for some dry reading, as it does not correspond exactly to a document we can access and it consists mainly of a long list of denials of various allegations, although HP admits that it and Turbon HP did enter into a business relationship. Still, a few interesting tidbits can be gleaned.

Apparently, in the amended complaint, Turbon added the charge of false advertising and added HP Thailand as a defendant, accusing the firm of tortious interference in relation to a bid by Turbon to supply Remathibodi Hospital in Thailand with remanufactured cartridges. HP and HP Thailand have argued that the court does not have jurisdiction over HP Thailand. Apparently, the court is undertaking discovery to determine if it has jurisdiction. In its answer to Turbon’s complaint, HP reiterates this position, saying, “Defendants deny that this Court has jurisdiction over HP-Thailand.” The OEM also claims to “lack sufficient knowledge or information to form a belief” about Turbon’s claims that HP Thailand interfered with it getting the Remathibodi Hospital deal. In its answer to the amended complaint, HP states, “neither HP-Thailand not its employees are agents of HP.”  HP filed a disclosure statement on March 22, saying that Hewlett-Packard Puerto Rico B.V. is the parent company of Hewlett-Packard (Thailand).

We also found it interesting that HP brought up the CDAs once again as its “fourteenth affirmative defense,” saying, “The provisions of the Confidential Disclosure Agreements preclude Turbon’s fraud claims.” As we speculated in our initial article on this lawsuit, we cannot help but wonder if HP is planning a countersuit in regard to breech of the CDAs.

HP concludes its answer to the complaint by requesting a judgment in the defense’s favor, legal and court costs, “together with such other and further relief as may be appropriate and equitable.”

Industry’s Big Aftermarket versus OEM Showdown
We will continue to report on developments related to this lawsuit, which represents one of the few recent examples of an aftermarket firm filing suit against an OEM. There are other examples, such as the seemingly endless legal battle between Static Control Components and Lexmark and Green Project’s lawsuit against Epson, but we have heard that the latter two firms are working on a settlement agreement (see News Briefing, “Zhuhai Gree Defaults and Green Project May Settle in Epson Inkjet Cartridge Patent-Infringement Lawsuit”). Most of the industry’s lawsuits that pit OEM against aftermarket firms are patent-infringement complaints brought by OEMs against non-OEM supplies makers and distributors. And at least two of the bigger of these lawsuits, including Canon’s complaint against Ninestar and Lexmark’s against Print-Rite, Ninestar, and the Jawah companies, are ending with little courtroom drama, with the OEMs scoring victories through settlement and default.

This particular lawsuit is fascinating not only because it pits one of the industry’s biggest remanufacturers against the biggest printer OEM, but because it provides a behind-the-scenes glimpse at how changes in industry dynamics, such as MPS, can force firms that were once competitors to become partners, as well as a look at how these agreements can go awry. This is one case that has us on the edge of our seats, waiting for the latest developments.

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April 6, 2011 at 9:16 AM