Theft of Trade Secrets

Minnesota Supreme Court Upholds Half-Billion Arbitration Award



Seagate Technology LLC and Western Digital, along with a former Seagate employee, Sining Mao, were involved in a long legal battle regarding a claim of theft of trade secrets. Seagate alleged that when Mao left the company, he improperly took trade secrets with him to Western Digital, a competitor.

Initially, Seagate brought a suit against both Western Digital and Mao. Western Digital invoked the arbitration clause of Mao’s employment agreement. Prior to the arbitration, Seagate alleged that Mao had inserted additional PowerPoint slides to a previous presentation he had given in order to support his claim that some of the trade secrets had already been publicly disclosed, therefore defeating Seagate’s claim that those trade secrets qualified for protection. The arbitrator awarded compensatory damages of $525,000,000 and granted Seagate’s request that as a sanction Western Digital was precluded from providing any evidence or defense regarding the trademarks that were subject to the fabricated evidence.

Western Digital brought a motion before Hennepin County District Court wherein the District Court determined that the arbitrator had exceeded their ability to impose sanctions beyond attorney’s fees, thus vacating a portion of the award. Seagate appealed and the Court of Appeals concluded that the arbitration agreement gave the arbitrator inherent authority to impose punitive sanctions. The Minnesota Supreme Court granted review of Western Digital’s appeal.

In its opinion, the Minnesota Supreme Court held that an arbitrator’s ability to issue punitive sanctions is controlled by the arbitration agreement. The arbitration agreement at issue stated that the arbitrator could settle “any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach” of the employment agreement, and the agreement states that “[t]he arbitrator may grant injunctions or other relief in such dispute or controversy.” Specifically, the Minnesota Supreme Court held,

We first look at the language in the arbitration agreement authorizing the arbitrator to grant injunctions or other relief in any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of the employment agreement. Relief is defined as the redress or benefit, especially equitable in nature (such as an injunction or specific performance), that a party asks of a court. Here, the punitive sanctions issued requested by Seagate as a redress for the wrongs committed by Western Digital and Mao when Mao fabricated the evidence. In addition, although punitive sanctions are issued in large part to punish one party, because they also benefit the other party, they are appropriately categorized as a form of relief. The legislature has also categorized punitive damages as a form of relief, such as when discussing the authority of an arbitrator to award punitive damages or other exemplary relief. These sources confirm that punitive sanctions qualify as injunctions or other relief as authorized by the arbitration agreement.

The Minnesota Supreme Court upheld the arbitrator’s award.

The main take away from this case is to make sure that an arbitration clause or the arbitration agreement specifically outlines and defines the scope of the arbitration. Here, it was the language of the itself that allowed for the punitive damages.