Propel Fuels Inc. vs. Phillips 66 Company

Case Background

On February 17, 2022, Plaintiff Propel Fuels Inc. filed a Trade Secret theft lawsuit in the California State, Superior Court of Alameda County (Case number: 22CV007197). Judge Michael Markman presided over the case.

Cause

Propel Fuels Inc., founded in 2004, developed a successful and innovative approach to selling renewable fuels (E85 and renewable diesel) in California. The company created proprietary methods for customer targeting, site selection, pricing, and operations based on extensive data collection and analysis. Their unique P: LOCAL algorithm, a valuable trade secret, helped identify optimal locations for renewable fuel sales. In 2017, Phillips 66 approached Propel about a potential acquisition. After signing an NDA on September 25, 2017, Propel shared over 1,000 confidential documents during due diligence, including trade secrets. Phillips 66 obtained detailed information about Propel's business strategies, financial data, and trade secrets. Despite promising not to enter the California renewables market independently, Phillips 66 abruptly terminated the acquisition on August 24, 2018, and immediately began implementing Propel's trade secret-based business model.

Injuries

Propel suffered direct competitive harm when Phillips 66 misappropriated its trade secrets and launched a competing renewable fuels business. Phillips 66 pressured Propel to end existing supply relationships, causing shortages and forcing Propel to accept less favorable terms. Additionally, Phillips 66 prevented Propel from renewing station leases within their network, directly impacting its business operations by leveraging trade secret information obtained during due diligence

Damages

Propel faced disrupted supply relationships, reduced profit margins, lost business opportunities at Phillips 66 stations, and significant market share losses. Propel also incurred substantial costs during the extended due diligence period and continues to suffer competitive damage as Phillips 66 expands its renewable fuel operations using Propel's trade secret methods. Phillips 66’s $800 million Rodeo refinery conversion and expansion to 450 retail locations directly threatens Propel's business model. Damages included lost profits, diminished market share, and erosion of Propel's competitive advantage in the renewable fuels sector. Phillips 66 gained unjust enrichment through unauthorized use of Propel's trade secrets, with billions in projected EBITDA from its California operations. The company’s CEO projected $1 billion in EBITDA by mid-decade and potentially $2 billion by decade's end, driven largely by Propel's misappropriated trade secrets.

Key Arguments and Proceedings

Legal representation

• Plaintiff(s): Propel Fuels Inc.
  • Counsel for Plaintiff: Michael Ng| Daniel Zaheer | Gabriela Ruiz | Zachary Ritz | Paul A. Kanellopoulos

• Defendant(s): Phillips 66 Company
  • Counsel for Defendants: Margaret A. Tough| Julianne C. Osborne | Benjamin P. Stollman | Jeffrey G. Homrig | Arman Zahoory

Key Arguments or Remarks by Counsel

"Propel did what many innovators cannot do—it stood up to a much larger adversary and persevered through a long process to vindicate its rights," said Michael Ng of the global disputes and investigations firm Kobre & Kim, lead counsel for Propel. "We are grateful to the jury, who spent more than a month examining detailed evidence supporting this verdict and their finding that Phillips 66’s misappropriation was willful and malicious, and the highly experienced presiding judge, who devoted considerable time and effort to the arguments of both sides."

Claims

• Misappropriation of Trade Secrets

Phillips 66 obtained and used Propel's trade secrets, including its confidential business strategies, site selection algorithms, and operational methods, under false pretenses during due diligence. They then used this trade secret information to launch a competing renewable fuels business, copying Propel's successful approach.

• Unfair and Unlawful Business Practices

Phillips 66 engaged in unfair competition by making false promises, inducing Propel to terminate valuable relationships, and preventing lease renewals. They violated the NDA by using confidential information, including trade secrets, for unauthorized purposes, leveraging Propel's trade secret information for competitive advantage.

Defense

The defense denied all material allegations and claimed that the Plaintiff suffered no damages due to Phillips 66’s actions. They raised nine affirmative defenses:

• the alleged trade secrets were readily ascertainable through proper means,
• the Plaintiff may have released its claims through prior agreements,
• the Plaintiff acted with unclean hands,
• the Plaintiff waived its claims either expressly or implicitly,
• estoppel barred the claims,
• the statutes of limitations expired,
• the Plaintiff unreasonably delayed filing the action (laches),
• adequate legal remedies existed, making equitable relief unnecessary, and
• California's Uniform Trade Secrets Act preempted the unfair competition claim.

Phillips 66 reserved the right to amend these defenses and requested that the Court rule in their favor, award them costs including attorney's fees, and grant any other appropriate relief.

Jury Verdict

On October 16, 2024, the jury found in favor of Propel on its claim that Phillips 66’s California renewable fuels business was developed using Propel’s trade secrets in violation of California’s Uniform Trade Secrets Act. They awarded unjust enrichment damages totaling $604.9 million. The jury also found that Phillips 66’s misappropriation was willful and malicious, allowing the Court to potentially triple the total damages award. Court Documents: Available Upon Request Press Release: https://finance.yahoo.com/news/jury-awards-propel-fuels-604-211100588.html