Gibraltar Lubricating Services, Inc. v. Pinnacle Resources, Inc. ( 2016 )

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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