PPG Industries Inc v. Jiangsu Tie Mao Glass Co Ltd

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 21-2288
_______________
PPG INDUSTRIES INC, a Pennsylvania corporation
v.
JIANGSU TIE MAO GLASS CO. LTD, a Chinese company;
BENHUA WU, an individual;
MEI ZHANG, an individual,
Appellants
_______________
On Appeal from the United States District Court
For the Western District of Pennsylvania
(D.C. No. 2-15-cv-00965)
District Judge: Honorable Mark R. Hornak
_______________
Argued
June 28, 2022
Before: JORDAN, PORTER, and PHIPPS, Circuit Judges
(Filed: August 30, 2022)
_______________
Kenneth M. Argentieri
Duane Morris
625 Liberty Avenue – Suite 1000
Pittsburgh, PA 15222
Andrew R. Sperl [ARGUED]
Duane Morris
30 South 17th Street
Philadelphia, PA 19103
Randal M. Whitlatch
Dinsmore & Shohl
Six PPG Place – 13th Floor
Pittsburgh, PA 15222
Counsel for Appellants
Ingrid A. Bohme
Robert M. Linn
Dentons Cohen & Grigsby
625 Liberty Avenue – 5th Floor
Pittsburgh, PA 15222
William A. Burck
Alexander J. Merton [ARGUED]
Derek Shaffer
Quinn Emanuel Urquhart & Sullivan
1300 I Street, N.W. – Suite 900
Washington, DC 20005
Counsel for Appellee
_______________
OPINION OF THE COURT
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2
JORDAN, Circuit Judge
It’s been said that 80 percent of success is showing up. 1
One can quibble about the percentage, but it’s a good bet that
refusing to show up, especially when you’re being sued, is a
recipe for failure. That’s a lesson that Jiangsu Tie Mao Glass
Co. Ltd. (“TMG”) should have taken to heart. By its failure to
appear in this lawsuit until practically the end, TMG
effectively conceded the allegations of the complaint that PPG
Industries, Inc. (“PPG”) had served on it. And those
allegations – now accepted as fact – are damning. As
recounted herein, TMG got a former PPG employee to turn
over valuable trade secrets belonging to PPG. Then, with those
misappropriated trade secrets, TMG took steps to compete with
PPG in a particular product line. When the misappropriation
came to light and PPG sued TMG, the latter watched from
overseas rather than litigate. As a consequence, PPG asked the
District Court to enter default judgment and award damages in
the amount that TMG was unjustly enriched. Only then did
TMG decide it was worth coming to court, but its protestations
were and are too little and much too late. We will affirm.
The adage is most often attributed to Woody Allen.
1
Showing Up Is 80 Percent of Life, Quote Investigator (June 10,
2013), https://quoteinvestigator.com/2013/06/10/
showing-up/.
3
I. BACKGROUND
A. Factual Background 2
PPG is a Pittsburgh-based company that manufactures
coatings, specialty materials, glass, and fiberglass products. In
one of its lines of business, it makes specialized windows,
windshields, and “transparent armor” for uses in automobiles,
trains, and aircraft. (App. at 114.) Like many manufacturers,
PPG invests in research and development (“R&D”), and it
takes steps to ensure that its confidential R&D information
does not fall into competitors’ hands. One of those competitors
is TMG, a China-based manufacturer of like products for the
same or similar customers.
Of special relevance here, PPG invested heavily in the
development of a new kind of plastic for airplane windows. It
called that new technology “Opticor™.” (App. at 155.) TMG
evidently wanted the Opticor technology and set about getting
it. In March 2013, it asked a former PPG employee, Thomas
Rukavina, about his ability and willingness to turn over
Opticor trade secrets. Rukavina had spent thirty-five years at
PPG, during which he played an active role in several R&D
projects, including the development of Opticor. He had signed
a number of nondisclosure agreements with PPG over the
years, and one was in place when his employment ended in
2012. Nevertheless, he agreed in early 2014 to share PPG’s
2
The following rendition of facts derives from
undisputed facts and the allegations in PPG’s complaint,
allegations taken as true because of the default judgment.
DIRECTV, Inc. v. Pepe, 431 F.3d 162, 165 n.6 (3d Cir. 2005).
4
proprietary information with TMG, in exchange for
employment and a signing bonus. He was retained, and that
summer he met with TMG leaders, among whom were the
company’s chairman and CEO, Benhua Wu, and an
engineering and purchasing agent named Mei Zhang. They
discussed the materials and equipment needed to manufacture
new products, like Opticor plastic, and Rukavina later emailed
Wu and Zhang a treasure trove of trade secrets: a proprietary
PPG report detailing the Opticor technology (the “Proprietary
Report”). Soon after, he sent another email summarizing
additional trade secrets he could deliver to TMG.
Using the Proprietary Report, TMG began making plans
to produce Opticor quality windows. In February 2015, Zhang
took the surprisingly bold step of sending an email to the PPG
subcontractor that made molds for Opticor windows, asking it
to manufacture for TMG “the same molds” that it did for PPG.
(App. at 120.) Attached to the email were photographs and
drawings that came straight out of the Proprietary Report, the
only change being the removal of PPG’s logo and a “PPG
Proprietary” header. (App. at 122.) Understandably
suspicious, the subcontractor requested more details about the
origin of the drawings. Rukavina, rather than Zhang,
responded. He falsely stated that he was a “Senior Research
Associate” and “project leader” at PPG and that PPG was
transferring the Opticor technology to TMG. (App. at 121.)
He asked the subcontractor to fabricate the same products it
had previously “shipped to us” (i.e., to PPG), which TMG
would use in a new production facility in China that he said
was under construction. (App. at 121.)
The subcontractor did not fulfill the order. Instead, it
alerted PPG, which in turn notified the FBI of the apparent theft
5
of its proprietary information. The FBI then obtained and
executed warrants to search Rukavina’s email account and
residence. Rukavina was arrested and charged with criminal
theft of trade secrets. 3
B. Procedural History
PPG filed this civil action against TMG, Wu, and Zhang
in July of 2015. 4 It brought claims for violations of the federal
Racketeering Influenced and Corrupt Organizations Act, 18
U.S.C. § 1962(c)-(d); Pennsylvania’s Uniform Trade Secrets
Act, 12 Pa. Cons. Stat. §§ 5301-5308; and Pennsylvania
common law.
Despite being served with process, TMG did not make
any effort to participate in the litigation. It did not file an
answer or any other response to the complaint, nor did it
answer the requests for admissions that PPG served.
Eventually, well over a year after TMG should have appeared
but failed to, the District Court’s clerk entered a default.
PPG later moved for default judgment on its claim
under Pennsylvania’s version of the Uniform Trade Secrets
Act. It asked for a permanent injunction; exemplary damages
for TMG’s “willful and malicious” misappropriation, 12 Pa.
Cons. Stat. § 5304(b); and attorneys’ fees. PPG’s calculation
3
He committed suicide shortly thereafter, while he was
released on bond.
For convenience, we refer hereafter to TMG, Wu, and
4
Zhang collectively and in the singular as “TMG.”
6
of its actual damages was “at least $9,909,687.31 … , which
include[d] the cost of creation as well as research and
development costs” for the Opticor technology. 5 (App. at 159.)
That calculation was supported by a declaration from PPG’s
global director of engineering and technology. An exhibit to
his declaration included a table tallying the Opticor
development costs, with some terms and costs left
unexplained. PPG also presented evidence showing TMG’s
planning of a production facility “for [Rukavina’s] new
plastic[,]” including plans to hire other ex-PPG employees to
help design the facility’s layout. (App. at 227.)
Four months later, TMG finally appeared in the case.
With the Court’s permission, it moved to set aside the entry of
default, and it filed an opposition to PPG’s motion for default
judgment. 6 After receiving further briefing and hearing oral
argument, the District Court declined to set aside the default. 7
As to the motion for default judgment, the Court granted
it in part and deferred ruling in part. It held that PPG had
alleged facts sufficient to establish TMG’s liability under the
Uniform Trade Secrets Act, and it reasoned that the test we laid
out in Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir.
5
That put the requested damages, once trebled as a
function of the request for exemplary damages, at
$29,729,061.93.
6
Although the basis TMG asserted for setting aside the
default was that the District Court lacked personal jurisdiction,
TMG did not file a motion to dismiss.
7
TMG has not challenged that decision on appeal.
7
2000), pointed in favor of granting the default judgment. 8 It
further held that PPG was entitled to treble damages; a
permanent injunction preventing TMG from any further
misappropriation of PPG’s trade secrets; an order that TMG
return all such trade secrets; and attorneys’ fees, costs, and
expenses. Concerning damages, the Court held that evidence
of PPG’s R&D costs “provide[d] an appropriate measure of
[TMG’s] unjust enrichment, and therefore [of] PPG’s
damages,” but the evidence furnished by PPG was not specific
enough. (App. at 32.) The Court was concerned, in particular,
by certain cost and man-hour estimates made by PPG’s director
of engineering and technology, as well as some of the
unexplained terms in the table of costs. It sent the parties to
mediation to resolve those outstanding issues before coming
back to the Court for approval of a final damages calculation. 9
8
That test asks district courts to consider three factors:
“(1) prejudice to the plaintiff if default is denied, (2) whether
the defendant appears to have a litigable defense, and (3)
whether defendant’s delay is due to culpable conduct.”
Chamberlain, 210 F.3d at 164.
9
The District Court also thought the request for
attorneys’ fees, costs, and expenses was vague in certain
respects – in particular, the descriptions of individual
attorneys’ tasks, costs, and expenses – so it ordered a
supplemental petition and accepted the parties’ briefing on
those points. While this appeal was being briefed, the District
Court issued an order resolving some issues but allowing
further briefing on others. That order is not at issue in this
appeal.
8
Mediation proved unsuccessful, so the Court ordered
new briefing on the issue of damages. In its supplemental
briefing, PPG claimed actual damages of $9,866,637.30, a bit
less than its prior calculation. That number was supported by
a new declaration from the same global director of engineering
and technology, with a new exhibit containing more detailed
data. After thoroughly scrutinizing the new PPG figures, the
District Court found that $8,805,929 of the claimed actual
damages were supported by sufficient evidence. Trebling that,
as had previously been found appropriate, the Court entered
judgment in favor of PPG for $26,417,787. TMG timely
appealed.
II. DISCUSSION 10
The question before us is relatively narrow. TMG does
not dispute its liability or challenge the District Court’s denial
of its motion to set aside the entry of default. Nor does it
contest the District Court’s entry of default judgment in some
amount. It does, however, dispute the amount the Court
arrived at. TMG argues that PPG’s evidence was insufficient
to establish actual damages of $8,805,929.
When a district court enters a default judgment, “the
factual allegations of the complaint, except those relating to the
10
The District Court had jurisdiction under 28 U.S.C.
§§ 1331, 1332, and 1367. We have jurisdiction pursuant to 28
U.S.C. § 1291. We review for abuse of discretion a district
court’s entry of a default judgment. Farzetta v. Turner &
Newall, Ltd., 797 F.2d 151, 153 (3d Cir. 1986); Hritz v. Woma
Corp., 732 F.2d 1178, 1180-81 (3d Cir. 1984).
9
amount of damages, will be taken as true.” Comdyne I, Inc. v.
Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990); 10A Charles Alan
Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice
and Procedure § 2688.1 (4th ed. 2016) (footnotes omitted). As
for damages, the district court must determine the amount if it
is not for “a sum certain or a sum that can be made certain by
computation[.]” Fed. R. Civ. P. 55(b); accord Comdyne I, 908
F.2d at 1149. Under Pennsylvania law, the plaintiff bears the
burden of proving damages, even when “the defendant by his
own wrong has precluded a more precise computation of
damages.” Witherspoon v. McDowell-Wright, 241 A.3d 1182,
1188 (Pa. Super. Ct. 2020) (quoting Penn Elec. Supply Co. v.
Billows Elec. Supply Co., 528 A.2d 643, 645 (Pa. Super. Ct.
1987)). Those “damages need not be proved with
mathematical certainty, but only with reasonable certainty, and
evidence of damages may consist of probabilities and
inferences.” Bailets v. Pa. Tpk. Comm’n, 181 A.3d 324, 336
(Pa. 2018). The damages award is entitled to significant
deference; it “will not be upset on appeal unless it is so
excessive as to shock the conscience of the court or it is clearly
based on partiality, prejudice or passion.” Id.The District Court determined the amount of damages
by starting, quite appropriately, with the statute under which
PPG obtained default judgment: Pennsylvania’s Uniform
Trade Secrets Act. Under that Act, “[d]amages can include
both the actual loss caused by misappropriation and the unjust
enrichment caused by misappropriation that is not taken into
account in computing actual loss.” 12 Pa. Cons. Stat.
§ 5304(a). The parties agree that PPG did not demonstrate
actual loss from TMG’s misappropriation. It did not, for
example, come forward with evidence that TMG had won a
contract to supply products containing the Opticor technology.
10
Cf. Advanced Fluid Sys., Inc. v. Huber, 295 F. Supp. 3d 467,
491-92 (M.D. Pa. 2018) (crediting evidence of how much
plaintiff would have profited had it been awarded contracts that
instead went to a competitor that misappropriated trade
secrets). Rather, PPG’s focus was on proving that TMG was
unjustly enriched.
PPG argues that TMG’s unjust enrichment can be
measured by the costs TMG would have incurred to develop
its own version of the Opticor technology without guidance
from the Proprietary Report and other misappropriated trade
secrets. One way to estimate those development costs, the
argument goes, is to look at what PPG itself had to spend to
develop the Opticor technology. The District Court agreed
with that reasoning and held that “PPG’s research and
development costs provide an appropriate measure of [TMG’s]
unjust enrichment, and therefore [of] PPG’s damages[.]”
(App. at 32.) TMG disputes that logic, but none of its
arguments has merit.
First, it says that it “obtained no commercial benefit
from any use of PPG’s trade secrets,” so there was no unjust
enrichment. (Opening Br. at 20.) True enough, there was no
evidence that TMG sold products containing the Opticor
technology, but that does not mean TMG was not unjustly
enriched. Under Pennsylvania law, unjust enrichment
“requires that the defendant pay to plaintiff the value of the
benefit conferred.” Schenck v. K.E. David, Ltd., 666 A.2d 327,
328-29 (Pa. Super. Ct. 1995). And, as authorities elsewhere
establish, that benefit need not be a profit that was realized; it
can be a cost that was avoided. See Bohnsack v. Varco, L.P.,
668 F.3d 262, 280 (5th Cir. 2012) (“Damages in
misappropriation cases can take several forms[, including] …
11
the development costs the defendant avoided incurring through
misappropriation[.]”); Restatement (Third) of Restitution and
Unjust Enrichment § 42 cmt. f, illus. 5 (2011) (“The value of
the use [of intellectual property] may be measured … by the
costs that Competitor would have incurred to acquire or create
equivalent materials by legitimate means.”). The District
Court was thus on firm ground in considering costs that TMG
would have incurred to develop its own version of the Opticor
technology but which it avoided because it had the Proprietary
Report and other confidential PPG material. 11
But, protests TMG, there is no evidence here of a “nexus
between the amount of damages and the value of the
misappropriated material.” (Opening Br. at 24.) Relying on
an excerpt from Deltak, Inc. v. Advanced Systems, Inc., 767
F.2d 357 (7th Cir. 1985), TMG insists that it “merely
possess[ed]” PPG’s trade secrets without putting them to any
use. (Opening Br. at 26.) In Deltak, a copyright infringement
case, the Seventh Circuit saw no reason to tie the damages
calculation to “the number of copies the infringer produced, at
least where that number differs from the number of copies used
by the infringer.” 767 F.2d at 361 (emphasis added).
11
The District Court did not, as TMG argues, hold PPG
to a “lower evidentiary standard.” (Opening Br. at 14.) The
District Court’s observation that the lack of evidence was
largely attributable to TMG’s refusal to participate in litigation
– and its concern that crediting TMG’s late-arriving arguments
would incentivize such problematic litigation behavior – was
entirely appropriate. The District Court could still rely, as it
did, on the costs that TMG avoided, even without evidence of
a profit.
12
The problem for TMG is that there is ample support for
the conclusion that it did use the misappropriated trade secrets,
so Deltak is wholly inapposite. TMG just stripped PPG’s name
and logo from drawings in the Proprietary Report and then
asked PPG’s subcontractor to use those drawings and related
specifications to manufacture “the same molds” that it did for
PPG. (App. at 120.) Rukavina also told the subcontractor that
TMG was already building a production facility for the
products, an assertion corroborated by evidence that TMG had
specific plans for such a facility. In other words, TMG was
able to skip the R&D process completely and begin preparing
for production without developing anything like the Opticor
technology on its own. That amounts to use of the trade
secrets. See Oakwood Lab’ys LLC v. Thanoo, 999 F.3d 892,
909 (3d Cir. 2021) (agreeing with the Fifth Circuit that “relying
on [a] trade secret to assist or accelerate research or
development … constitute[s] ‘use’” under the federal Defend
Trade Secrets Act). 12
To figure out how much money TMG saved by skipping
the R&D process, the District Court looked to what PPG had
spent on developing the Opticor technology. TMG argues that
12
This case is thus factually distinguishable from cases
on which TMG relies, where courts found a paucity of
evidence that the defendants had avoided costs or otherwise
benefited from the misappropriated trade secrets. DF Inst.,
LLC v. Dalton Educ., LLC, No. 19-CV-452-JDP, 2020 WL
4597122, at *6-8 (W.D. Wis. Aug. 11, 2020); Inteum Co., LLC
v. Nat’l Univ. of Sing., 371 F. Supp. 3d 864, 885 (W.D. Wash.
2019).
13
was error too. It says that the Uniform Trade Secrets Act does
not allow PPG to recover “its own cost of developing the
Opticor product.” (Opening Br. at 20.) Unjust enrichment
damages are indeed a measure of “the benefit conferred” upon
the defendant, Schenck, 666 A.2d at 328-29, so “any costs the
plaintiff may have incurred are generally irrelevant” to unjust
enrichment damages, Epic Sys. Corp. v. Tata Consultancy
Servs. Ltd., 980 F.3d 1117, 1129 (7th Cir. 2020) (internal
quotation marks omitted), cert. denied, 142 S. Ct. 1400 (2022).
But that is beside the point.
The District Court did not look to PPG’s R&D costs to
reimburse PPG. Rather, it looked to those costs as indicative
of the costs PPG’s competitor, TMG, avoided by
misappropriating the fruits of PPG’s work. 13 As other courts
have agreed in similar circumstances, that inference is a
13
Accordingly, TMG’s reliance on HealthCare
Advocates v. Affordable Healthcare Options, Civil No. 09-
5839, 2010 WL 4665956, at *2 (E.D. Pa. Nov. 18, 2010), is
misplaced. The court there stated only that the plaintiff’s
development costs were irrelevant to the plaintiff’s lost profits.
It said nothing about how development costs might be
indicative of unjust enrichment.
Also misplaced is TMG’s reliance on Molex Co., LLC
v. Andress, 887 F. Supp. 2d 1189, 1196 (N.D. Ala. 2012),
where the court did not consider a plaintiff’s development costs
to be strong evidence of what a “reasonable royalty” might
have been. The District Court here did not consider PPG’s
R&D costs as indicative of what PPG might have charged
TMG in royalties; it considered the costs as indicative of the
development costs TMG avoided.
14
perfectly permissible way to find a damages amount with the
requisite “reasonable certainty[.]” Bailets, 181 A.3d at 336. In
short, “[t]he costs a plaintiff spent in development … can be a
proxy for the costs that the defendant saved.” GlobeRanger
Corp. v. Software AG U.S., Inc., 836 F.3d 477, 499 (5th Cir.
2016); see also Bourns, Inc. v. Raychem Corp., 331 F.3d 704,
709-10 (9th Cir. 2003) (affirming district court’s damages
award of $9 million after relying on evidence that the plaintiff’s
development cost was $3 million per year and that the
defendant saved at least three years of development costs).
Finally, TMG argues that the District Court erred in
awarding damages on top of issuing a permanent injunction
prohibiting it from using PPG’s trade secrets. Because the
injunction prohibited use of the trade secrets, TMG says,
awarding damages for use during that same period of time
amounts to a “double recovery.” (Opening Br. at 19.) But,
while an award of “injunctive relief ordinarily will preclude a
monetary award for a period in which the injunction is
effective[,]” 12 Pa. Cons. Stat. § 5304 cmt.; cf. DSC Commc’ns
Corp. v. Next Level Commc’ns, 107 F.3d 322, 328 (5th Cir.
1997) (district court did not abuse discretion in denying
injunctive relief after jury award of damages sufficiently
compensated for the misappropriation), that is not what
happened here.
The District Court here did not award damages for a
period of use that overlapped with the period covered by the
injunction. The damages award was for the development costs
TMG avoided when, for example, it solicited molds from
PPG’s subcontractor and began designing a production facility
in China. Those were past uses of the misappropriated trade
secrets for which PPG was entitled to damages. The forward-
15
looking permanent injunction, meanwhile, was issued in
March 2020, long after TMG’s earlier and unlawful use of
PPG’s trade secrets. The damages and permanent injunction
covered entirely separate periods of past and potential future
use of misappropriated trade secrets. 14
14
That remains true notwithstanding the District
Court’s analogy to the secret recipe of a popular “soda pop
manufacturer located in Atlanta, Georgia”:
If a competing soda pop manufacturer stole the
secret, but never actually produced any soda pop
from the world-famous recipe, the thief still
obtained an actual benefit – a really big benefit.
After all, the recipe, in and of itself, has immense
value. And the competing manufacturer would
have acquired the ability to use the world-famous
and top-secret recipe whenever it wanted,
without having to spend a dime of R&D costs, or
a moment of R&D time. The competitor plainly
would have been enriched in the amount of R&D
that it never had to do.
(App. at 36.) TMG leans on that language as indicating that
the District Court awarded damages for the same future period
covered by the permanent injunction. Yet the District Court’s
reasoning elsewhere makes clear that its careful damages
calculation – focusing on the R&D costs that PPG incurred and
that TMG avoided – was for past use, while the injunction
covered future use.
Finally, TMG also argues that the award of treble
damages should be vacated because it rests on an erroneous
calculation of actual damages. The actual damages calculation
16
III. CONCLUSION
Under the Uniform Trade Secrets Act, including
Pennsylvania’s version of that statute, it can be appropriate to
measure unjust enrichment from a misappropriated trade secret
by looking at development costs that were avoided but would
have been incurred if not for the misappropriation. The District
Court considered and carefully analyzed such evidence here,
and its methodology and conclusion are sound. We will
therefore affirm.
was not erroneous, however, so we see no reason to disturb the
award of treble damages.
17