U.S. court voids $920-million DuPont award in Kevlar case

(Reuters) - A federal appeals court on Thursday threw out a $919.9 million jury verdict that favored DuPont Co in a case over the alleged theft of trade secrets for a fiber used to make Kevlar bulletproof vests.

The 4th U.S. Circuit Court of Appeals in Richmond, Virginia voided the September 2011 verdict against Kolon Industries Inc "with reluctance" because the trial judge, U.S. District Judge Robert Payne, had improperly excluded evidence that was material to the South Korean company's defense.

A Richmond jury had awarded the damages after finding that Kolon had willfully and maliciously stolen 149 DuPont trade secrets relating to the latter's Kevlar para-aramid fiber, used to make tires, fiber-optic cables and body armor.

Kolon and five executives were criminally charged by federal prosecutors in Richmond in August 2012 with stealing trade secrets, after the FBI obtained what the 4th Circuit called "compelling evidence of Kolon's misconduct."

In a separate decision on Thursday, the 4th Circuit upheld the dismissal of Kolon's antitrust countersuit accusing DuPont of trying to monopolize the U.S. market for para-aramid fiber.

The court rejected Kolon's argument that Payne should have recused himself because of a conflict of interest, but directed that a new judge replace him in overseeing the trade secrets case, including a possible new trial.

Thomas Sager, DuPont's general counsel, said in a statement that the Wilmington, Delaware-based company was disappointed that the damages award was thrown out.

"We will continue to vigorously pursue Kolon to hold them accountable and are confident that we will prevail," he said.

Jeff Randall, a partner at Paul Hastings representing Kolon, said the company was pleased that the jury award was overturned.

"The new trial should allow Kolon to present strong evidence in support of its defenses," he said.

"FUNDAMENTAL ERROR"

DuPont began the litigation in February 2009, claiming that Michael Mitchell, a 24-year DuPont veteran, had taken proprietary information about Kevlar when he left in 2006 to start his own fiber business, and later shared it with Kolon.

The 4th Circuit said Payne erred by excluding Kolon evidence suggesting that DuPont had disclosed some of the trade secrets in earlier litigation against rival Akzo Nobel NV.

While not deciding whether any of this evidence should have been admitted, the 4th Circuit said Payne's "blanket exclusion" of the evidence "severely prejudiced" Kolon's defense.

"Absent fundamental error, we are loath to overturn a jury verdict in a civil case," the court said in an unsigned opinion.

"Jury trials are expensive, in time and resources, both for the litigating parties and for society as a whole. We are constrained to fund such a fundamental error in this (case)."

DuPont shares were down 22 cents at $67.90 in afternoon trading on the New York Stock Exchange.

ANTITRUST CLAIMS REJECTED

In the antitrust action, Kolon argued that DuPont violated the Sherman Act by having held a more than 70 percent U.S. market share of para-aramid fibers, requiring large customers to buy 80 percent or more of their fibers from the company.

But the 4th Circuit said DuPont's market share had fallen below 60 percent during the 2006 to 2009 period at issue, and was in the midst of a "steady, decades-long loss" of market share to another rival, Japan's Teijin Ltd.

"In light of DuPont's reduced market share and lack of durable market power, the evidence cannot sustain a jury finding that DuPont had the power to control prices or exclude competition, or was truly predominant in the market," Circuit Judge Albert Diaz wrote for the 4th Circuit.

Much of Diaz's opinion focused on Kolon's contention that Payne should have disqualified himself because he had been a partner in a law firm, now known as McGuireWoods, that had represented DuPont in the Akzo litigation.

Kolon, however, did not file its recusal motion until November 2011, after the jury verdict in the trade secrets case and long after the antitrust case had begun. Diaz said Payne had the discretion to conclude that Kolon waited too long.

One of the judges on that 4th Circuit panel dissented in that part of the case, saying Payne should have recused himself and that the antitrust claims belong before a different judge.

The cases in the 4th U.S. Circuit Court of Appeals are E.I. DuPont de Nemours Co v. Kolon Industries Inc, Nos. 12-1260 and 12-2070; and Kolon Industries Inc v. E.I. DuPont de Nemours Co, No. 12-1587. The criminal case is U.S. v. Kolon Industries Inc et al, U.S. District Court, Eastern District of Virginia, No. 12-cr-00137.

(Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy and Bernadette Baum)

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