Startup Wins $115 Million From Walmart in Trade Secrets Case
Walmart Maliciously Stole Startup’s Trade Secret Grocery-Freshness System, Says Jury
In true David v. Goliath fashion, a jury delivered a definitive victory to San Antonio-s Zest Labs, a food tech startup that invented the trade secret system.
The jury found Walmart acted willfully and maliciously, entitling Zest to $50 million in punitive (exemplary) damages in addition to the $60 million in compensatory damages and $5 million for breach of contract.
The case is an excellent example of the power of trade secrets protection.
It is particularly significant for companies who innovate but rarely pursue patents.
In this post we’ll go over the case, what you can learn from it, and how you can take action today to improve your company’s intellectual property portfolio, without even hiring a lawyer.
The Eden System and Walmart’s Fall From Grace
Zest Labs invented a trade-secret shelf-management system to for keeping groceries fresh on the shelf. It sought a grocery-retailer Goliath to permit it to prove its technology and, presumably, sign up for a lucrative license arrangement when the Goliath sees the benefits of Zest’s technology in practice. Zest and Walmart courted for a few years, from 2014 through 2018, during which time they signed a few different Non-Disclosure Agreements (commonly known as “NDAs”) and a work contract for the pilot program.
In 2017, under one of the NDAs with Walmart, Zest launched a pilot program to demo its trade secret system in select Walmart stores. Zest spent millions of its own money to roll out the Walmart pilot and signed a work agreement with Walmart, presumably believing its payday was at hand.
Instead, Walmart surprised the Arkansas startup by walking away, saying it was not interested in the Zest system. At the same time, Walmart launched its own system – the Eden system.
The Eden system predicts the exact date produce will spoil, information expected to save Walmart $15 billion over the next 10 years. Walmart’s system accomplishes this miraculous prediction by collecting data from tracking devices attached to produce at the farms. The devices track the food from the farm through each point in the supply chain until it reaches the Walmart shelf.
In 2018, Zest sued Walmart, accusing Walmart of integrating the trademark Zest system into the Eden system. On April 12, the jury agreed, awarding Zest $115 million in compensatory and punitive damages.
The jury award included $60 million for misappropriation (theft) of Zest’s trade secret technology, plus $50 million to punish Walmart for conduct the jury found was willful and malicious, and $5 million for Walmart’s breach of the NDA. In addition, the jury found Walmart fraudulently induced Zest to sign the 2018 work contract.
What’s Happening Next
Zest plans to move to recover its attorney fees and costs, and Walmart plans to appeal.
What This Means For You
Key takeaway: Before deciding to patent or copyright an invention or original work, ask yourself if it or any part of it can be kept secret. If so, consider trade secret protection.
Once the secret is disclosed in a patent application or copyright deposit material it can no longer qualify as a trade secret. Ever.
Key takeaway: Do not take your trade secrets for granted.
Key takeaway: The only way to protect trade secrets is to keep them secret. That means limiting access and using NDAs when you must disclose them.
Key takeaway: Use NDAs when evaluating potential opportunities. Read and understand what you are signing before you sign.
Key takeaway: If something is not explicitly stated in the NDA but you expect it from the arrangement, get it into the NDA even if the other party tells you they expect it, too. In court, an agreement includes only what’s within the four corners of the agreement – nothing else counts.
What You Can Do Now
If your company has not done a trade secret assessment or has not documented its trade secrets, take a moment to think about each product or service you offer. Ask yourself whether key innovative aspects of the product production or delivery can be kept secret.
What is the value of each secret by virtue of being secret? Put another way, if your competitors all knew the secret, how would that affect your bottom line?
Don’t forget about internal policies, procedures, reports, models or systems – they are likely to be trade secrets
Inventory and document your trade secrets and the efforts made to keep them secret.
Ensure that only those who have signed Non-Disclosure Agreements or are otherwise bound by confidentiality have access to them.
Don’t forget about what’s in the minds of your employees, particularly those who have been with the company a long time.
Do any employees possess key knowhow or institutional knowledge that might be trade secrets belonging to your company?
This can be difficult to assess, but the starting point is to recognize the value of undocumented knowhow so you can get it documented before those employees move on to a competitor or the great beyond.
If Zest Labs had not had an NDA in place with Walmart and had proceeded with the pilots on a “handshake deal,” they most likely would not have won this award. Even worse, if they had disclosed their unpatented technology without having an NDA in place, they likely would have destroyed their trade secret protection by failing to keep it a secret. Fortunately for them, this tech startup armed itself – not with a patent but just with a contract. And it turned out to be enough.
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