Minnesota Judge Vacates $630.4 Million Arbitration Award Against Western Digital

Judge Janet Poston’s decision reverses a federal arbiter’s award of $525 million last fall (CED Nov 22 p5) to Seagate, rejecting its claims that Western Digital and a former employee misappropriated trade secrets. The award increased to $630 million with interest, including $106 million in pre-award interest. In a Friday ruling, Poston turned aside the arbitration award tied to three trade secrets Seagate claimed Western Digital misappropriated, Western Digital said. Poston ordered a rehearing on the three claims before a new arbiter agreed upon by the companies, Western Digital said. Five other Seagate claims were found not to be trade secrets and had been made public, Poston said. If an agreement on a new arbiter isn’t reached by Nov. 2, Poston will appoint one, Western Digital said. The full text of Poston’s decision wasn’t available at our deadline. Western Digital officials weren’t available for comment. Seagate is “disappointed” with Poston’s ruling and “disagrees” with her conclusions, a Seagate spokeswoman said.

Seagate originally filed suit against Western Digital and a former employee, Sining Mao, in Minnesota’s Hennepin County District Court in October 2006. The case switched to arbitration the following year. Seagate filed an amended complaint in 2010 alleging misappropriation of trade secrets and wrongful interference with contract relations. In rejecting the award, Poston maintained that the arbiter conducted the case “in a manner that was substantially prejudicial” Western Digital and didn’t rule on a motion alleging fabrication of some claims until after the award was made. The arbiter also “exceded his powers” by “misapplying” Minnesota law and failing to calculate damages for breach of contract, Poston said in a 32-page decision.

"The Arbtrator failed to consider whether, upoon exclusion” of Western Digital’s evidence, there existed sufficient proof that the alleged trade secrets were trade secrets,” Poston wrote. “This weighing did not happen because the aribitrator entered an award” for Seagate “through the sanction of excluding all of Western Digital’s evidence” bearing on the elements that Seagate had to prove to establish a trade secret."

Meanwhile, the companies had mixed results for their stocks Monday after their shares fell Friday when Citigroup downgraded the companies’ stock to a sell rating from buy. In a note to clients, Citigroup analyst Joe Yoo said there were “overwhelming signs of further demand deterioration of not only PCs, but enterprise as well.” There is a 20 percent to 25 percent “downside risk” to analysts’ Q4 estimates for the companies’ earnings, Yoo said. “Our recent work suggests that the struggling PC market could get worse near-term, and the bar has not been set low enough for next year,” Yoo wrote. Seagate closed Friday down 17 cents at $28.07, but rose 36 cents Monday to $28.43. Western Digital finished Friday down 59 cents at $36.02 and declined another 27 cents Monday to $35.75.