Orange case over trade secrets, Chinese plant removed to federal court

David Yates Nov. 19, 2007, 5:00am

In October, the Record reported on a lawsuit that involved two global chemical companies battling over a Chinese power plant project and the trade secrets needed for its development, which may have been leaked at a plant in Orange.

INVISTA SARL had filed a petition for an injunction with the Orange County District Court on Oct. 9, asserting the French-based Rhodia S.A. plans to use INVISTA SARL's proprietary information to build a chemical plant in China. (Case No. D0707570-c)

On Nov. 13, the lawsuit was plucked from Orange County and reseated in the U.S. District Court for the Eastern District of Texas, Beaumont Division. (Case No. 1:01-CV-00865)

The lawsuit and background

INVISTA SARL, part of Koch Industries Inc., owns and operates chemical manufacturing facilities in Orange and Victoria and maintains an engineering office in Houston, employing more than 1,000 people in the state of Texas.

Rhodia S.A. has its corporate headquarters in Courbevoie, France. In the 1970s, Rhodia's predecessor company entered into a joint venture agreement with DuPont for the purpose of creating a company to provide adiponitrile (ADN) for use in Europe. ADN is a critical intermediate chemical used in the manufacture of nylon 6,6. The technology at the time was non-butadiene based and the European facility was later shut down.

Now INVISTA SARL is trying to prevent Rhodia from unauthorized use of its know-how related to butadiene-based ADN production. INVISTA SARL says the technology is a proprietary trade secret that is "widely recognized" as the most cost-effective and efficient method for ADN manufacturing.

INVISTA SARL claims Rhodia S.A. plans to use its trade secrets in the design and operation of an ADN manufacturing facility in the People's
Republic of China.

Rhodia's affiliates gained access to the trade secrets through a joint venture between INVISTA SARL and Rhodia, the original complaint states. The joint venture is operated by employees of Rhodia entities that were seconded or loaned to the venture.

"At least some of the confidential proprietary commercial information comprising the trade secrets was provided to Rhodia S.A. and/or its affiliates through documents that were provided in, and during face-to-face meetings that occurred at INVISTA SARL' s plants, or sites nearby, in the state of Texas, including its plant in Orange, Texas," the suit states.

INVISTA SARL first became aware of Rhodia S.A.'s ambitions on March 7, 2007, when in a conference call with investors, Rhodia S.A. announced that it was planning to build an ADN plant in China, characterizing ADN as a "proprietary" product, the suit said.

Three weeks later, in a March 26, 2007, article in an industry publication, Rhodia S.A. indicated that it was making a significant investment to build the China plant for the manufacture of hexamethylene diamine (HIVID), another intermediate required to manufacture nylon 6,6, the suit said.

More recently, a Rhodia S .A. affiliate publicly reiterated the Rhodia Group's intentions to develop an ADN plant in Asia during a July 10, 2007, presentation to investors and industry analysts.

INVISTA believes that Rhodia already has or is about to misappropriate trade secrets for the Rhodia ADN plant in China.

In the lawsuit, INVISTA has based the belief on the following:

  • Rhodia S.A. and its affiliates have enjoyed access to INVISTA SARL's Trade Secrets regarding INVISTA SARL's butadiene-based ADN manufacturing technology through the Butachimie joint venture operated by a Rhodia S.A. affiliate and staffed with employees of affiliates and entities of the Rhodia Group;

  • Rhodia S.A. and its affiliates are intimately familiar with operating a plant designed, operated and based on INVISTA SARL's Trade Secrets, and particularly, INVISTA SARL's…technology used by the joint venture;

  • INVISTA SARL has the only viable butadiene-based ADN manufacturing technology in the world today. This technology is the most efficient AND technology presently in use and is vastly more efficient than any other known process;

  • On information and belief, Rhodia S.A. and its affiliates are not licensees of any other butadiene-based ADN manufacturing technology;

  • The predecessor entity to Rhodia S.A once operated non-butadiene-based ADN manufacturing facilities. However, after Rhodia S.A.'s predecessor began to rely on output from the joint venture using the butadiene production method based on Plaintiffs trade secrets, it shut down its facilities using the outmoded technology;

  • And upon information and belief, Rhodia S.A. and its affiliates have not used their non-butadiene-based technology since closing their non-butadiene-based ADN plants many years ago."

  • INVISTA firmly believes the statements listed above is proof that Rhodia S.A. intends to use and is using its trade secrets to build the China plant.

    "Rhodia S.A.'s plans are also reflected in its recent speech and conduct," the suit said. "In September 2006, INVISTA announced that it had commenced preliminary engineering activities to build a significant ADN manufacturing facility in China. On May 9, 2007, INVISTA formally announced that it was building an ADN plant in China and that it had started taking the required preparatory steps...This plant will entail an investment of hundreds of millions of dollars."

    On Sept. 28, 2007, INVISTA SARL attorneys' wrote to Rhodia S.A. to make clear INVISTA SARL's position that the company may not use its trade secrets in its plan for the China plant, and requested written assurances by Oct. 12, 2007, that Rhodia S.A. would not use the trade secrets, the suit said.

    The suit was filed Oct. 9, prior to the Oct. 12 deadline, but INVISTA learned on Oct. 5 that Rhodia had initiated arbitration in France against INVISTA and two of its affiliates.

    The French arbitration seeks an order that the Rhodia entities may use INVISTA SARL' s Trade Secrets, the suit said.

    "As will become clear in the course of the present proceedings, the Rhodia Group is attempting to use its complex structure and arbitration to bind parties who are not parties to the relevant agreements and as part of its scheme to misappropriate INVISTA SARL' s Trade Secrets and other valuable proprietary information to which it has no legal right," the suit states.

    If Rhodia S.A.'s is allowed to push forward, INVISTA claims the China plant will cause it irreparable injury, the suit said. INVISTA SARL is seeking injunctive relief, punitive, general, special and compensatory damages.

    INVISTA SARL is demanding a trial by jury and is represented by attorney Lawrence Germer of Germer, Gertz.

    Rhodia S.A. is represented by Gilbert Low of the Orgain, Bell & Tucker law firm.

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