Web Date: September 19, 2012
A Qualified Victory For ACS
After years of litigation and acrimony between the combatants, the Ohio Supreme Court on Sept. 18 released a split decision on the intellectual property dispute American Chemical Society v. Leadscope Inc. The high court partially affirmed and partially reversed rulings by Ohio’s 10th District Court of Appeals that had affirmed a trial court’s award to software start-up firm Leadscope Inc. and its three founders of $26.5 million in civil damages against ACS for alleged unfair business practices and defamation.
The court’s decision to vacate the lower court’s finding of defamation—by far the largest portion of the total award—means that the amount of damages ACS must now pay will be reduced by at least $15 million. The exact amount that ACS will be liable for will be worked out in later hearings at the trial court level. Unless ACS pursues further relief on the unfair competition ruling, this week’s ruling may well mark the end of a decadelong legal battle between ACS and three of its former employees. The three founders of Leadscope had worked for the society’s Chemical Abstracts Service (CAS) division in Columbus.
Attorneys from Squire Sanders, the law firm that has represented Leadscope in the dispute, declined to comment on the decision, and Leadscope corporate officials in Columbus, could not be reached for comment. The Leadscope website did not carry any statement or other news about the decision at the time of C&EN’s deadline. ACS is the publisher of C&EN.
The original ACS suit against Leadscope was filed first in a federal court, withdrawn, and then refiled in an Ohio common pleas court in 2002. The suit alleged that the Leadscope principals, as former ACS employees, had misappropriated ACS intellectual property in order to develop a software product that would compete with CAS products. Leadscope filed counterclaims seeking damages from ACS for unfair competition, tortious interference with business relations, and defamation. An eight-week jury trial in 2008 found in favor of Leadscope on substantially all of its claims, and the jury’s findings were subsequently upheld by the appeals court in 2010.
For ACS, the highlight of the Ohio Supreme Court’s 5-2 decision is a reversal of Leadscope’s defamation charges. Paying all of their damages plus interest and attorneys’ fees—which, at times, were estimated to reach as high as $40 million to $50 million—would have exacted a huge financial toll on the nonprofit professional society. The society has not paid any monetary damages in the case, ACS officials point out.
“We are pleased that the court reversed [the defamation] part of the decision,” says Ryan Augsburger, a managing director at the Ohio Manufacturers’ Association, which filed an amicus brief in the case. The association was joined in support of ACS by the Ohio attorney general, the Ohio Chamber of Commerce, the Ohio State Bar Association, and the Ohio Council of Retail Merchants.
Still, “it’s a complex decision and ACS needs to carefully review and assess the decision over the next several days,” said ACS Board Chair William F. Carroll Jr. when the decision was announced. “Today’s ruling will not impact ACS member dues; ACS products, programs, or services; ACS staffing levels; or the ability of ACS to achieve its mission.” What’s more, ACS officials say, any monetary damages that ultimately must be paid will be taken from cash reserves and investment accounts and possible insurance coverage. Damages have not had nor will they have any effect on ACS core operations and services, including journal prices and CAS products, or other products and services it offers to members and other customers, ACS officials maintain.
In a 4-3 vote, the Ohio Supreme Court did uphold a finding that ACS had engaged in unfair competition by filing a “malicious lawsuit” against Leadscope claiming misappropriation of intellectual property. In her majority opinion, Chief Justice Maureen O’Connor wrote that, in order to prove the claim, “the claimant must show that the lawsuit was objectively baseless, and that the competitor filed the suit with a subjective intent to injure the claimant’s ability to be competitive.”
O’Connor continued that, even though a jury in the original 2008 trial was given improper instructions about how to decide the unfair competition claim—the instructions focused on intent and not the legitimacy of ACS’s claim—“the jury could not reasonably have made any other determination. We therefore affirm the judgment of the court of appeals regarding Leadscope’s unfair competition claim.”
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