Rust-Oleum Corporation vs. Nic Industries, Inc.

Case Background

On September 12, 2018, Plaintiff Rust-Oleum Corporation filed a Trade Secret lawsuit in the District Court of Oregon, Medford Division(Case number: 1:18cv1655). Judge Magistrate Mark D. Clarke presided over the case.

Cause

On September 24, 2015, NIC Industries entered into an Exclusive Sales Agreement with Wipe New, LLC. This agreement granted Wipe New the exclusive right to purchase NIC products for resale as part of its Wipe New product line, which focused on wipe-on applications for vehicle restoration, detailing, and general home use. On November 30, 2015, Wipe New assigned its rights, duties, and obligations under the Sales Agreement to Rust-Oleum Corporation. Under the terms of the agreement, Rust-Oleum was required to meet minimum annual purchase amounts, which increased each year over the contract term.

In late 2017, Rust-Oleum and NIC mutually agreed to terminate the Sales Agreement. On November 27, 2017, they signed a Mutual Settlement Agreement and Release, formally ending their exclusive sales relationship. This agreement included a mutual release from obligations under the Sales Agreement. Rust-Oleum agreed to pay for three purchase orders, after which the Sales Agreement would terminate, allowing Rust-Oleum the option to purchase products from other suppliers and independently develop its Wipe New product line.

Following the termination, Rust-Oleum continued its research and development activities, formulating new products within the Wipe New product line. The company maintained that these developments were independent of the products purchased under the Sales Agreement with NIC.

On August 24, 2018, NIC sent a cease and desist letter to Rust-Oleum, alleging that Rust-Oleum had reverse-engineered or attempted to recreate NIC’s products, violating the Settlement Agreement. However, NIC did not provide substantive evidence, citing only a reduction in Rust-Oleum’s purchases of NIC products and the termination of the Exclusivity Agreement.

Injuries

NIC allegedly breached the duty of good faith and fair dealing inherent in the Settlement Agreement by contacting Rust-Oleum’s product filler, despite knowing of a non-disclosure agreement between Rust-Oleum and the filler. This contact appeared to be an attempt to contract for services related to a product competing with Wipe New.

Additionally, NIC employees and agents repeatedly contacted Rust-Oleum’s staff via email, phone, and in person without invitation. Rust-Oleum described these contacts as unwelcome and persistent, aiming to obtain proprietary information about the Wipe New product line. They argued that NIC’s actions undermined the Settlement Agreement, which had allowed Rust-Oleum to develop its Wipe New product independently, and interfered with Rust-Oleum’s business relationships. Rust-Oleum believed that NIC’s actions were intended to improperly gather Rust-Oleum’s trade secrets and harm its business.

Damages

As a direct result of NIC’s alleged breach of good faith and fair dealing, Rust-Oleum sought damages exceeding $75,000, with the exact amount to be proven at trial. Rust-Oleum also requested compensatory damages, attorney’s fees, and recovery of legal costs as stipulated in the Settlement Agreement.

Key Arguments and Proceedings

Legal representation

  • Plaintiff(s): Rust-Oleum Corporation
    • Counsel for Plaintiff: Tracy M. McGovern| Colleen M. O’Neil | Gregg R. Brown | Nicholas Antonio Bonaminio | Robert Sohm
  • Defendant(s):NIC Industries, Inc.
    • Counsel for Defendants: Mark R. Weaver| David B. Paradis

 Claims

Declaratory Judgment: Rust-Oleum sought a declaratory judgment under 28 U.S.C. §§ 2201 and 2202, asking the Court to declare that it had not breached any obligations under the Sales or Settlement Agreements with NIC. The claim was based on a dispute between the parties regarding Rust-Oleum’s compliance with the agreements.

Breach of Implied Duty of Good Faith and Fair Dealing: Rust-Oleum argued that NIC breached this duty by interfering with Rust-Oleum’s Wipe New business. NIC allegedly communicated with Rust-Oleum’s vendors and employees under false pretenses to gain proprietary and trade secret information. Rust-Oleum asserted that it had fulfilled its obligations under the Settlement Agreement, while NIC’s conduct violated the agreement’s intent.

Defense

NIC Industries denied Rust-Oleum’s allegations and filed counterclaims. They accused Rust-Oleum of breaching the Exclusive Sales Agreement and the Settlement Agreement by reverse-engineering NIC’s product to uncover its trade secret formula. Further, NIC claimed Rust-Oleum conducted Gas Chromatography-Mass Spectrometry (GCMS) tests on the Wipe New product, violating the agreements’ confidentiality clauses.

After the exclusive agreement ended, NIC alleged that Rust-Oleum continued to sell Wipe New products without purchasing from NIC, using the trade secret formula to manufacture the product independently. NIC claimed Rust-Oleum’s actions violated the trade secret and intellectual property clauses, leading to substantial financial harm.

NIC’s counterclaims sought at least $16,721,293 in damages for lost sales, punitive damages, and attorney fees. NIC also requested injunctive relief to prevent Rust-Oleum from further using its trade secrets, emphasizing that its proprietary formula provided a competitive advantage in the coatings industry.

Jury Verdict

On September 27,2024, the jury found in favor of NIC Industries on all claims against Rust-Oleum. They concluded that Rust-Oleum had breached the Exclusive Sales Agreement and Settlement Agreement. As a result, the jury awarded $40 million in damages for the breach. The jury also determined that Rust-Oleum had misappropriated NIC’s trade secrets. This action was found to be willful and malicious, resulting in $30 million in damages. Additionally, the jury awarded $40 million in punitive damages for the trade secret misappropriation.

Additionally, the jury found Rust-Oleum liable for fraud, awarding $30 million in damages for this claim. Finally, the jury concluded that Rust-Oleum had acted with reckless and malicious intent towards NIC, awarding an additional $60 million in punitive damages. In total, the jury awarded NIC Industries $200 million in damages, including compensatory, punitive, trade secret, and fraud-related damages across all claims.

Court Documents:

Available Upon Request