By Jef Feeley and Christie Smythe, Bloomberg News
RICHMOND, Va. (April 8, 2014) — Kolon Industries Inc. won reversal of a $920 million jury award to Dupont Co. over the alleged theft of trade secrets for the making of Kevlar, wiping out the third-largest U.S. verdict of 2011.
South Korean chemical maker Kolon was wrongfully barred at trial from presenting evidence that some of DuPont’s trade-secret claims for the anti-ballistic fiber used in police and military gear were invalid, the U.S. Court of Appeals in Richmond, Virginia, ruled April 3. The court granted Kolon a new trial and said the case should be reassigned to another judge.
Prosecutors said the ruling doesn’t affect a criminal case against Kolon and some of its employees over the Kevlar data.
The decision is a setback for DuPont, the largest U.S. chemical company by market value. Aramid products such as Kevlar accounted for 37 percent of the DuPont safety and protection unit’s $3.88 billion in sales in 2012, according to the company’s website. The safety and protection unit brings in almost 11 percent of the company’s revenue.
A report last year by the Commission on the Theft of American Intellectual Property, a U.S. research group, found the U.S. economy suffers about $300 billion in losses annually from such thefts. In a separate case, a California engineer was convicted in March of stealing DuPont’s secrets for making white pigment found in plastics and in the creamy filling for Oreo cookies and selling the data to a Chinese company.
The appeals panel said in the April 3 ruling that “the trial court abused its discretion and acted arbitrarily” in barring Kolon’s evidence that DuPont had already made public some material related to its trade-secrets claims.
“We will continue to vigorously pursue Kolon to hold them accountable and are confident that we will prevail,” Thomas Sager, DuPont’s general counsel, said in an emailed statement.
After the trial, U.S. District Judge Robert Payne in Richmond prohibited Kolon from making a competing product to Kevlar for 20 years. That ban was put on hold by the appeals court and never took effect.
“The new trial should allow Kolon to present strong evidence in support of its defenses which had been erroneously excluded from the jury during the original proceedings,” Jeff Randall, a Paul Hastings L.L.P. lawyer who represented the manufacturer at trial, said in an e-mailed statement.
Tires, armor, helmets
DuPont began selling the Kevlar material in 1965. It’s used in tires, body armor, military helmets, ropes and cables. Kolon began making its version in 2005. Wilmington, Delaware-based DuPont sued in February 2009, alleging the Korean company stole confidential data.
Jurors concluded in 2011 that Kolon and its U.S. unit had wrongfully obtained DuPont’s proprietary information by hiring some of the U.S. company’s former engineers and marketers.
The next year, Kolon and five of its executives were charged in federal court in Richmond with conspiring to steal trade secrets from DuPont and Osaka, Japan-based Teijin Ltd., maker of para-aramid product Twaron.
According to an indictment made public in October 2012, Kolon obtained confidential information about aspects of the Kevlar manufacturing process in 2002, spurring its leadership to develop a multi-phase plan to secure additional secrets from its competitors.
The U.S. alleged Kolon hired at least five former DuPont employees as consultants as part of the scheme. Kolon is also accused of attempting to recruit a former employee of Teijin subsidiary Teijin Twaron.
Kolon was charged with trade secrets theft as well as conspiracy and obstruction of justice. The individual defendants were charged with conspiracy and obstruction of justice for deleting information from their computers.
None of the defendants have been arraigned or extradited, according to Assistant U.S. Attorney Kosta Stojilkovic in Alexandria, Virginia. Kolon has raised procedural objections to the case, Mr. Stojilkovic said in a phone interview.
The indictment includes a forfeiture claim seeking at least $225 million in alleged criminal proceeds from Kolon. The conspiracy and theft charges carry maximum 10-year prison terms while the obstruction charge carries a maximum 20-year penalty.
Separately, in March 2010, Michael Mitchell, who worked as an engineer and salesman for more than 25 years at a DuPont-owned plant in Richmond, was sentenced to 18 months in prison after pleading guilty to stealing Kevlar data to give it to Kolon’s officials.
The case is E.I. du Pont de Nemours & Co. v. Kolon Industries Inc., 12-01260, U.S. Court of Appeals for the Fourth Circuit (Richmond). The criminal case is U.S. v. Kolon Industries, 12-cr-00137, U.S. District Court, Eastern District of Virginia (Richmond).
Bloomberg News reporter Jef Feeley is based in Wilmington, Delaware; Christie Smythe is in Brooklyn, N.Y.