Facts

Javo Beverage Company is a commercial manufacturer of coffee, tea and botanical extracts. It advertises that the extracts used for its products are made from pure, natural ingredients. Its food and beverage products range from cold brew coffee products and non-alcoholic beverages to energy bars, ice cream and bakery items. A large number of well-known companies in the coffee, food and beverage industry contract with Javo specifically for its extraction and other related manufacturing expertise. As such, Javo has continually maintained this process as a proprietary trade secret, central to its business operations and value in the industry. Under this backdrop, Javo filed a complaint against Stephen Corey, an original co-founder of Javo and a principal inventor of Javo's trade secret extraction process, and Corey's new company, California Extraction Ventures Inc. Javo also filed a related arbitration against Corey for breach of his contractual obligations of confidentiality, non-use, and invention assignment.

PLAINTIFF'S CONTENTIONS: Generally, plaintiff Javo asserted that defendants Corey and California Extraction Ventures misused and disclosed Javo's proprietary extraction process by falsely claiming it as their own, disclosing it in patent filings, and using it to develop a competing business. Javo contended that in a 2001 Employee Agreement plus an Employee Confidentiality and Invention Assignment Agreement, Corey assigned all rights and interests he may have had in the proprietary process to Javo. The two agreements contained strict confidentiality clauses preventing Corey from using the proprietary information outside of his employment with Javo or from publicly disclosing any Javo trade secrets or confidential information. Regardless of these obligations, after Corey separated from Javo, he applied for patents that broadly disclosed and claimed rights in core aspects of the trade secrets and confidential information he participated in developing for Javo. Corey then assigned those patent applications to defendant California Extraction Ventures. Corey's disclosure of Javo's proprietary extraction process and his breach of his obligations under the Employee Agreement plus an Employee Confidentiality and Invention Assignment Agreement, destroyed the competitive auction process to sell Javo resulting in the company's devaluation by $50 million or more.

DEFENDANTS' CONTENTIONS: Defendants Corey and California Extraction Ventures denied all contentions. They argued that Corey rightfully owned the patents at issue in the case, and that Mr. Corey invented the technology claimed by the patents several years after he left Javo. Defendants further contended that, if Javo's allegations were correct that Mr. Corey's patents claim Javo's coffee extraction process, that Javo must have changed its process after the patents had been filed and, thus, now infringes the patents. Although Mr. Corey and California Extraction Ventures were both named as defendants in the district court case, California Extraction Ventures was not a party to the arbitration that Javo filed against Mr. Corey.

Result

Following a five-day arbitration hearing, the Arbitrator ruled entirely in favor of Javo on its breach of contract claims against Stephen Corey. Javo established that Corey violated his Employee Agreement and Employee Confidentiality and Invention Assignment Agreement by misusing and disclosing Javo's proprietary extraction process in patents that he purported to assign to his new company, California Extraction Ventures. Javo was awarded the full $50 million in damages that it requested because Corey's misconduct was found to be a substantial factor in reducing Javo's value and destroying a competitive process to sell the company. The Arbitrator also made the critical finding that under the definitive terms of the Employee Confidentiality and Invention Assignment Agreement, Corey already assigned all right, title, and interest in the inventions at issue to Javo. The Arbitrator enjoined Corey from future breaches of his contractual obligations of non-use, non-disclosure, and invention assignment owed to Javo. Under the provisions of the Employee Agreement and Employee Confidentiality and Invention Assignment Agreement, Javo was also awarded over $4.2 million in fees and costs as the prevailing party. The district court action was dismissed with prejudice on January 24, 2022 by stipulation of the parties.