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Kara v. Stamps.com – another illustration of the dangers of going it alone after signing a nondisclosure agreement to see someone’s technology

If you ever sign a nondisclosure agreement (NDA) to talk about licensing someone’s technology, but then decide to go it alone and develop your own version, you could be setting yourself up for a rough time in court. Stamps.com has been learning this the hard way.

Stamps.com signs an NDA with Kara Technology, but then decides to go it alone

Stamps.com signed an NDA with a company called Kara Technology. The companies discussed the possibility of Stamps.com’s licensing Kara’s technology to allow users to print secured documents, like stamps or airline tickets, at home using preprinted label sheets.

A couple of months later, however, Stamps.com said they weren’t interested in proceeding further with Kara — and then a year after that, brought out its own product.

Kara sues for breach of the NDA

Kara sued for patent infringement and for breach of the NDA. The trial court granted summary judgment in favor of Stamps.com, on grounds that there was no infringement of the patent, and that Kara had waited too long to file suit for breach of the NDA.

Last week, though, a federal appeals court reversed the summary judgment on both counts. See Kara Technology Inc. v. Stamps.com, Inc., Nos. 2009-1027, -1028 (Fed. Cir. Sept. 24, 2009) (reversing and remanding summary judgment).

Concerning the NDA, the appeals court ruled that Kara was entitled to have a jury decide whether Kara waited too long — as well as whether Stamps.com breached the agreement by using its knowledge of Kara’s confidential information in developing its own product.

Cases like this can go badly for the defendant in a jury trial

Now, Stamps.com gets to experience the expense and the management distraction of preparing for a jury trial.

And then, it gets to roll the dice about which witnesses the jurors will believe on these hotly-disputed fact questions.

Doubling the pleasure for Stamps.com, the non-technical jurors — usually the only kind left on the jury after the lawyers have exercised their strikes — may well be biased in favor of a small-company plaintiff like Kara. This is especially true, given that Kara’s lawyers will no doubt wave the company’s U.S. patent around to convince the jury that they are groundbreaking innovators who had their ideas stolen.

And doubling the fun, in American trial practice the plaintiff, in this case Kara, gets to bat first and last: Kara’s lawyers will have the right to go first in presenting their opening statement and to put on their witnesses first, thus creating the jury’s first impression of the case. Then at the conclusion of the trial, Kara’s lawyers will get the last word in the closing arguments.

This kind of case can turn out very badly for the defendant. I have some personal experience on that score: Years ago, I was assistant trial counsel for a big corporate defendant that got hit with a $57 million verdict in a very similar situation. My firm’s client was accused of misappropriating confidential information that it had received under a nondisclosure agreement. The client’s technical people testified that they had developed their technology without using the plaintiff’s confidential information, but the jurors simply didn’t believe them. On appeal, the appellate court held that the jurors weren’t clearly wrong on that point — more precisely, that the record contained substantial evidence, that is, non-trivial evidence, in support of the jury’s verdict — and that was the ball game.

If I had to bet, I’d say Stamps.com likely will decide that discretion is the better part of valor, and will settle before trial.

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