By Jonathan Stempel
(Reuters) - A federal appeals court on Thursday threw out a $919.9 million jury verdict that favored DuPont Co over the alleged theft of its trade secrets related to 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, saying the trial judge wrongly excluded evidence that was material to the South Korean company's defense. It also ordered that a new judge be assigned to the case.
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.
The 4th Circuit said it was ruling "with reluctance," noting that Kolon and five executives were criminally charged in August 2012 with trade secret theft, after the FBI obtained what the court 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.
Both civil cases and the criminal case had been overseen by U.S. District Judge Robert Payne in Richmond.
The 4th Circuit directed that Payne be replaced in the trade secrets case, after Kolon had argued that he should have recused himself because of a conflict of interest. It is unclear whether Payne will stay on the criminal case.
Thomas Sager, DuPont's general counsel, said in a statement that the Wilmington, Delaware-based company is 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.
Kolon's lawyer Jeff Randall, a partner and co-chair of the intellectual property practice at Paul Hastings, said the company is pleased that the damages award was overturned.
"All Kolon has ever asked for in this litigation is an opportunity to fully present its defense," Randall said in a phone interview. "DuPont has for decades published details about Kevlar in hundreds and hundreds of publicly available patents. A significant part of our defense is to be able to show that."
Shares of DuPont were down 20 cents at $67.92 in late afternoon trading on the New York Stock Exchange.
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.
"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)."
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, and requiring big 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.
Much of Diaz's opinion focused on Kolon's effort to have Payne recused because he had been a partner in a law firm, now known as McGuireWoods, that represented DuPont in the Akzo litigation at the time of that case.
Kolon, however, did not file its recusal motion until November 2011, and Diaz said Payne had the discretion to conclude that Kolon waited too long. One judge dissented, saying the antitrust case should be revived 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, Bernadette Baum and David Gregorio)