ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Internal Memorandum
PRIVILEGE LEGEND: This memorandum is prepared in anticipation of litigation, constitutes attorney work product, and is protected by the attorney-client privilege. It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. It should not be disclosed to any third party without the prior written consent of counsel. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
I. Executive Summary
The purpose of this memorandum is to set forth the damages framework applicable to the claims of our client, Crestline Packaging Solutions LLC ("CPS"), against defendants Harlow Chemical Supply Inc. ("Harlow"), Gerald W. Norris ("Norris"), and Kenneth Fielding ("Fielding") arising from the misappropriation of CPS's proprietary barrier coating formulation designated CPS-BC-1147 and related breaches of the Toll Manufacturing Agreement dated March 15, 2017 (the "TMA"). This memorandum is intended to guide our internal strategy for damages presentation, inform the coordination of CPS's retained economic damages expert, and provide a framework for settlement evaluation as the case progresses through fact and expert discovery.
Based on the investigation conducted to date, CPS's compensatory damages fall into three primary categories:
(a) CPS's Lost Profits from Diverted Sales. CPS lost sales of CPS-BC-1147 to customers who switched to, or considered switching to, Harlow's competing product, ShieldCoat Pro 900, as a direct and proximate result of Harlow's misappropriation and targeted customer solicitation. Preliminary estimates place these lost profits in the range of $5.1 million to $7.2 million.
(b) Harlow's Unjust Enrichment / Disgorgement of Profits. Harlow realized net profits from the sale of ShieldCoat Pro 900 — a product that exists solely because of Harlow's misappropriation of CPS's trade secret formulation. CPS is entitled to disgorgement of those profits to the extent they are not already captured in the lost profits analysis. The preliminary estimate for this category is $2.3 million.
(c) Price Erosion to CPS's Remaining Customer Base. Harlow's offering of ShieldCoat Pro 900 at a substantial discount to CPS's established pricing created downward pricing pressure on CPS-BC-1147 across CPS's customer base, including customers that did not switch to Harlow but demanded — and in some cases received — price concessions. The preliminary estimate for price erosion damages is $1.5 million to $3.1 million.
In the aggregate, CPS's total estimated compensatory damages range from $8.9 million to $12.6 million, depending on assumptions regarding volume diversion, duration of the loss period, contribution margin calculations, and the allocation between lost profits and unjust enrichment to avoid double-counting.
CPS has retained Jeffrey Callahan, CPA/ABV, CFF, a Principal at Meridian Forensic Consulting Group LLC, 155 North Wacker Drive, Suite 1010, Chicago, Illinois 60606, as its economic damages expert. Mr. Callahan's formal expert report is targeted for completion in mid-June 2024, consistent with the anticipated expert disclosure deadline under the case scheduling order. This memorandum is intended, in part, to guide the scope and methodology of that report.
In addition to compensatory damages, CPS has the ability to pursue additional relief in the form of exemplary (punitive) damages and attorneys' fees under both the federal Defend Trade Secrets Act, 18 U.S.C. §§ 1836–1839 (the "DTSA"), and the Ohio Uniform Trade Secrets Act, Ohio Rev. Code §§ 1333.61–1333.69 (the "Ohio UTSA"). Under both statutes, if the court finds willful and malicious misappropriation, it may award exemplary damages in an amount not exceeding two times the compensatory damages award, as well as reasonable attorneys' fees. The availability of these enhanced remedies substantially increases CPS's total potential recovery and provides meaningful leverage in settlement negotiations.
II. Background — Revenue Significance of CPS-BC-1147
An understanding of the commercial significance of the CPS-BC-1147 formulation to CPS's business is essential context for the damages analysis. The magnitude of CPS's investment in and revenue dependence on this product line directly informs the harm caused by Harlow's misappropriation.
Product Description. CPS-BC-1147 is a water-based, high-performance barrier coating specifically engineered for application to food-grade paperboard packaging substrates. The coating provides a combination of moisture-vapor barrier, grease barrier, and oxygen barrier properties that is critical for food packaging applications, including fast-food containers, frozen food cartons, and microwave-ready packaging. The product is designed to be applied on conventional coating equipment at commercial production speeds while meeting stringent FDA compliance requirements for direct food contact. The combination of barrier performance, processability, and regulatory compliance makes CPS-BC-1147 a differentiated offering in a market segment where performance specifications are exacting and customer qualification cycles are lengthy.
Research and Development Investment. CPS-BC-1147 was developed by CPS's Research & Development team over a period of approximately twenty-four months, from January 2015 through December 2016. The development effort was led by Dr. Margaret Yuen, CPS's Director of Formulation Chemistry. The total R&D investment in the product was approximately $3.8 million, encompassing laboratory equipment and instrumentation, raw material procurement and trials, personnel costs (including dedicated R&D chemists and technicians), pilot-line testing at CPS's Columbus, Ohio facility, and extensive FDA compliance and food-contact safety testing. This investment reflects a sustained, deliberate commitment of resources to create a product that would command premium pricing and durable customer relationships in a high-value market segment.
Formulation Complexity and Secrecy. The CPS-BC-1147 formulation comprises fourteen distinct chemical constituents combined in proprietary ratios. The manufacturing process requires a specific order-of-addition protocol, defined processing temperatures, and controlled shear rates that are integral to achieving the desired barrier performance. The specificity and complexity of the formulation — involving fourteen interacting components rather than a simple two- or three-component system — is a critical fact for the damages case. As discussed in Section III below, Thornburg Analytics LLC's forensic analysis confirmed that Harlow's ShieldCoat Pro 900 matched all fourteen constituents within ±0.3% by weight, an outcome that Dr. Elena Vasquez's preliminary report describes as "not achievable through independent development."
Revenue Significance. CPS's total revenue for fiscal year 2023 was $214.7 million, with EBITDA of $31.2 million. CPS-BC-1147 accounted for approximately 22% of CPS's total coatings revenue in fiscal year 2023, equating to approximately $47.23 million in product-line revenue. CPS produces approximately 38 million pounds of coatings annually across all products and facilities. By any measure, CPS-BC-1147 is CPS's single most commercially significant product line, representing a disproportionately large share of both revenue and margin contribution.
Ownership and Financial Stakeholders. CPS is a portfolio company of Ridgepoint Capital Partners LP, a private equity firm that acquired CPS in 2019 at an enterprise value of $285 million. Ridgepoint has a direct and substantial financial interest in protecting the value of the CPS-BC-1147 product line, which was a central element of the investment thesis at the time of acquisition. Any erosion in CPS-BC-1147 revenue or margin directly impacts the return profile of Ridgepoint's investment and the enterprise value of CPS.
In addition, CPS maintains a $130 million senior secured credit facility with Keystone Commerce Bank. The credit facility contains financial covenants tied to revenue and EBITDA performance. Significant revenue erosion from the misappropriation of CPS-BC-1147 could implicate CPS's compliance with these financial covenants, creating additional financial risk for the company beyond the direct loss of sales and margin. While covenant compliance is not itself a category of damages in this litigation, it underscores the urgency and material significance of the harm CPS has suffered and the importance of obtaining full recovery.
III. Factual Predicate for Damages
A. The Tolling Relationship and Misappropriation
CPS and Harlow entered into a Toll Manufacturing Agreement on March 15, 2017 (the "TMA"), pursuant to which Harlow agreed to blend, package, and ship CPS-BC-1147 at Harlow's manufacturing facility in Terre Haute, Indiana, on behalf of CPS and in accordance with CPS's specifications. The tolling arrangement was a standard outsourced manufacturing relationship in the specialty chemicals industry, intended to provide CPS with additional production capacity without the capital expenditure of building or expanding its own blending operations.
Limited Disclosure Framework. Critically, the TMA was structured to limit Harlow's access to CPS's proprietary formulation. Under the terms of the agreement, CPS provided Harlow with a "Partial Formulation Disclosure" that identified only nine of the fourteen chemical constituents of CPS-BC-1147, together with general proportional ranges for those nine components. The remaining five proprietary additive components — which are essential to the barrier performance characteristics that differentiate CPS-BC-1147 from competing products — were never disclosed to Harlow in any form. Instead, CPS pre-blended those five components at its Columbus, Ohio facility into a concentrated additive package designated "CPS Concentrate A," which was shipped to Harlow's Terre Haute facility for incorporation into the final product during the blending process. This structure was deliberately designed to prevent Harlow from acquiring the complete formulation knowledge necessary to independently replicate CPS-BC-1147.
Contractual Protections. The TMA contained several provisions specifically intended to protect CPS's proprietary information and prevent Harlow from competing with CPS using knowledge obtained through the tolling relationship:
• Section 7 — Confidentiality: Harlow agreed to treat all information received from CPS in connection with the TMA as confidential and to use such information solely for the purpose of performing its obligations under the TMA.
• Section 8.2 — Reverse Engineering Prohibition: Harlow agreed not to analyze, reverse engineer, decompile, or otherwise attempt to determine the composition or formulation of any CPS product, including CPS Concentrate A or CPS-BC-1147.
• Section 9.1 — Post-Termination Non-Compete: Harlow agreed that for a period of three years following the termination or expiration of the TMA, it would not manufacture, market, sell, or distribute any product that is substantially similar to CPS-BC-1147 or any other product manufactured under the TMA.
• Section 9.3 — Customer Non-Solicitation: Harlow agreed that for a period of three years following termination or expiration of the TMA, it would not directly or indirectly solicit, contact, or attempt to divert any customer of CPS that was known to Harlow as a CPS customer during the term of the TMA.
Economics of the Tolling Relationship. CPS paid Harlow a tolling fee of $0.38 per pound for blending and packaging services. In calendar year 2022, Harlow processed approximately 9.4 million pounds of CPS-BC-1147 for CPS, generating tolling fees to Harlow of approximately $3,572,000 (9,400,000 pounds × $0.38/lb). This was a meaningful revenue stream for Harlow, but a fraction of the value that CPS-BC-1147 represented to CPS in the form of end-product sales to its customers.
Termination of the TMA. CPS terminated the TMA effective January 31, 2023, after bringing additional in-house blending capacity online at its Columbus facility. The termination was a legitimate business decision driven by CPS's desire to consolidate manufacturing operations and reduce per-unit costs. There is no indication that the termination was contested by Harlow at the time.
The Misappropriation. The evidence developed to date indicates that the misappropriation of CPS's trade secret formulation began before the TMA was even terminated. In approximately September 2022 — five months before the January 31, 2023 termination date — Kenneth Fielding, Harlow's Vice President of Technical Operations, sent a sample of CPS Concentrate A to Archer Material Sciences Inc., located at 9300 Harding Street, Indianapolis, Indiana 46221, for compositional analysis. This act was a direct and unambiguous violation of TMA Section 8.2, which prohibited reverse engineering of CPS products and materials. The purpose of the submission to Archer Material Sciences was clearly to determine the composition of CPS Concentrate A — the very additive package that CPS had deliberately withheld from Harlow's knowledge — so that Harlow could independently replicate the complete CPS-BC-1147 formulation.
In addition to the reverse engineering, Fielding retained batch production records, analytical test results, and process parameter logs beyond the scope permitted by the TMA. Under the TMA's confidentiality provisions, Harlow was required to return or destroy all CPS confidential information upon termination. The retention of these records provided Harlow with detailed processing knowledge — including temperatures, shear rates, order of addition, and quality specifications — that further facilitated Harlow's ability to reproduce CPS-BC-1147.
B. Harlow's Competing Product and Customer Solicitation
Launch of ShieldCoat Pro 900. In approximately April 2023 — barely three months after the termination of the TMA on January 31, 2023 — Harlow began marketing a new barrier coating product under the name "ShieldCoat Pro 900" to the food packaging industry. The product was positioned as a direct competitor to CPS-BC-1147, targeting the same end-use applications and customer base.
discovery of Customer Solicitation. On June 12, 2023, Brian Novotny, CPS's Sales Director, learned from a contact at Mapleridge Paper Corp. — a longstanding CPS customer with a multi-year purchasing relationship for CPS-BC-1147 — that Amanda Trent, Harlow's Sales Director, had approached Mapleridge and offered ShieldCoat Pro 900 at a price representing a 15% discount to CPS's then-current pricing for CPS-BC-1147. This was not a cold call to a new prospect; it was a targeted solicitation of a known CPS customer, in direct violation of TMA Section 9.3.
Between June and November 2023, CPS's sales team confirmed that Harlow's sales personnel had solicited at least four additional CPS customers beyond Mapleridge Paper Corp.:
1. Pinnacle Flexible Films LLC
2. Orion Paperboard Inc.
3. Great River Packaging Co.
4. TerraFold Industries LLC
These five accounts represent a significant portion of CPS's CPS-BC-1147 customer base and include several of CPS's largest-volume purchasers. The pattern of solicitation is not random; it reflects a deliberate, systematic effort to target CPS's existing customer relationships using a product that is, as demonstrated by the forensic analysis, a near-identical copy of CPS's trade secret formulation.
Forensic Chemical Analysis. CPS engaged Thornburg Analytics LLC (Dr. Elena Vasquez, Ph.D., Analytical Chemistry; 7225 Research Park Drive, Cincinnati, Ohio 45237) to perform forensic chemical analysis comparing ShieldCoat Pro 900 to CPS-BC-1147. Dr. Vasquez's preliminary report, dated December 22, 2023, concluded that ShieldCoat Pro 900 matched CPS-BC-1147 in all fourteen chemical constituents within ±0.3% by weight. Dr. Vasquez's report further stated that this degree of compositional identity is "not achievable through independent development" and is "consistent only with access to the complete formulation." This finding is the scientific cornerstone of CPS's misappropriation claims and provides compelling evidence that ShieldCoat Pro 900 is not an independently developed product but rather a direct copy of CPS-BC-1147, manufactured using the trade secret formulation obtained through Harlow's reverse engineering of CPS Concentrate A.
C. Procedural Posture
CPS filed its Complaint on February 26, 2024, in the United States District Court for the Southern District of Ohio, Eastern Division. The case was assigned to the Honorable Judge Patricia Langford. CPS moved for a temporary restraining order on the same date, and the TRO was granted on March 4, 2024. A preliminary injunction hearing was held on April 11, 2024, and on April 18, 2024, Judge Langford entered a preliminary injunction order restraining Harlow from manufacturing, marketing, selling, or distributing ShieldCoat Pro 900 and ordering the preservation of all documents and electronic data relating to ShieldCoat Pro 900 and the underlying formulation.
The Complaint asserts five claims for relief:
1. Count 1 — Misappropriation of Trade Secrets (DTSA): Misappropriation of the CPS-BC-1147 trade secret formulation in violation of the Defend Trade Secrets Act, 18 U.S.C. §§ 1836–1839.
2. Count 2 — Misappropriation of Trade Secrets (Ohio UTSA): Misappropriation of the CPS-BC-1147 trade secret formulation in violation of the Ohio Uniform Trade Secrets Act, Ohio Rev. Code §§ 1333.61–1333.69.
3. Count 3 — Breach of Contract: Breach of the TMA, specifically Sections 7 (Confidentiality), 8.2 (Reverse Engineering Prohibition), 9.1 (Post-Termination Non-Compete), and 9.3 (Customer Non-Solicitation).
4. Count 4 — Tortious Interference with Business Relationships: Intentional interference with CPS's existing and prospective business relationships with its CPS-BC-1147 customers through the solicitation of those customers using a misappropriated product.
5. Count 5 — Unjust Enrichment: Equitable claim for disgorgement of profits Harlow derived from its wrongful use of CPS's trade secret formulation.
Discovery is currently underway. Harlow is estimated to produce approximately 42,000 documents, and CPS is anticipated to produce approximately 18,000 documents. Depositions of key witnesses are scheduled for the May through July 2024 time frame, including depositions of Gerald Norris (Harlow's sole shareholder and president), Kenneth Fielding (Harlow's VP of Technical Operations who directed the reverse engineering), Amanda Trent (Harlow's Sales Director who conducted the customer solicitation), Dr. Margaret Yuen (CPS's Director of Formulation Chemistry who led the development of CPS-BC-1147), and Brian Novotny (CPS's Sales Director who first learned of Harlow's competitive activity).
IV. Damages Framework
This section sets forth the three primary categories of compensatory damages, the legal basis and quantification methodology for each, and the preliminary estimates that will inform the scope of the Meridian Forensic expert report.
A. Category 1 — CPS's Lost Profits from Diverted Sales
Legal Basis. CPS's lost profits claim is supported by multiple legal theories. Under the DTSA, 18 U.S.C. § 1836(b)(3)(B)(i), a claimant may recover damages for "actual loss caused by the misappropriation of the trade secret." Under the Ohio UTSA, Ohio Rev. Code § 1333.63(A), a claimant is entitled to recover "damages for the actual loss caused by misappropriation." Lost profits are the paradigmatic form of actual loss in trade secret cases where the misappropriator has used the trade secret to compete directly with the trade secret owner in the same market. In addition, CPS's breach of contract claims (Count 3) independently support an award of compensatory damages in the form of lost profits, measured by CPS's expectation interest — the profits CPS would have earned but for Harlow's breaches of the TMA.
Theory of Liability for Lost Profits. CPS lost sales of CPS-BC-1147 to customers who switched to — or considered switching to — Harlow's ShieldCoat Pro 900 as a direct result of Harlow's misappropriation of the CPS-BC-1147 formulation and Harlow's targeted solicitation of CPS's existing customer base. Absent the misappropriation, ShieldCoat Pro 900 would not exist, and those customers would have continued to purchase CPS-BC-1147 from CPS at CPS's established pricing and volumes. The lost profits represent the incremental contribution margin that CPS would have earned on the diverted sales.
Identified Affected Customers. At minimum, five CPS customer accounts were directly solicited by Harlow's sales team and are potentially affected:
1. Mapleridge Paper Corp.
2. Pinnacle Flexible Films LLC
3. Orion Paperboard Inc.
4. Great River Packaging Co.
5. TerraFold Industries LLC
Additional affected customers may be identified as discovery progresses, particularly through production of Harlow's ShieldCoat Pro 900 customer lists and Amanda Trent's sales records and communications.
Quantification Methodology. The lost profits analysis will employ a "but for" methodology, comparing CPS's actual revenues and contribution margins from the affected customer accounts for the period April 2023 (the approximate date Harlow began marketing ShieldCoat Pro 900) through the date of trial (or, alternatively, through the date on which the preliminary injunction achieved full compliance, if earlier and if customer relationships have been fully restored) against the projected revenues and contribution margins that CPS would have earned from those same accounts absent the misappropriation and customer solicitation. The analysis must account for customer-specific volume data, historical purchasing patterns, CPS's pricing schedules, and CPS's contribution margin on CPS-BC-1147 (defined as gross margin less variable selling costs, including raw materials, direct labor, packaging, freight, and sales commissions).
Preliminary Estimate. Based on the information available to date, CPS's lost profits from diverted sales are preliminarily estimated in the range of $5.1 million to $7.2 million. The range reflects uncertainty regarding the precise volume of sales lost to each affected customer, the applicable contribution margin, and the duration of the loss period.
Key Variables. The following variables will materially affect the final lost profits calculation and must be addressed in the Meridian Forensic expert report:
(i) The actual volume of CPS-BC-1147 sales lost to each affected customer, including whether the customer switched entirely to ShieldCoat Pro 900, partially switched, or merely reduced its CPS-BC-1147 purchases.
(ii) CPS's contribution margin on CPS-BC-1147 — this is the most sensitive variable in the lost profits analysis and will require detailed cost accounting data from CPS, including raw material costs, direct manufacturing labor, variable overhead, packaging, freight, and sales commissions.
(iii) The duration of the loss period, including whether the loss is ongoing or has been mitigated by the TRO and preliminary injunction, and whether any affected customers have returned to CPS following the court's entry of injunctive relief.
(iv) Whether CPS had the capacity to fulfill the diverted orders from its own facilities, or whether capacity constraints would have limited CPS's ability to serve the full demand (we believe the answer is yes — CPS brought additional in-house capacity online in connection with the TMA termination — but this must be confirmed with CPS's operations team).
Documents Needed from CPS. To support the lost profits analysis, the following documents and data should be collected from CPS and provided to Meridian Forensic:
• Historical sales data by customer for CPS-BC-1147, covering fiscal years 2020 through 2024 (to establish baseline volumes and trends).
• Pricing schedules for CPS-BC-1147, including any customer-specific pricing tiers or volume discounts.
• Contribution margin analysis for CPS-BC-1147, including detailed cost-of-goods-sold breakdowns.
• Customer correspondence and CRM records reflecting the impact of Harlow's solicitation on CPS's customer relationships.
• Internal sales forecasts and budgets for CPS-BC-1147 for the affected period.
Documents Needed from Harlow (Discovery). The following documents should be obtained from Harlow through discovery to corroborate and refine the lost profits analysis:
• ShieldCoat Pro 900 customer lists, including identification of which customers were former or current CPS customers.
• ShieldCoat Pro 900 sales invoices, pricing schedules, and volume data, broken down by customer and by time period.
• Customer correspondence and sales communications (particularly those of Amanda Trent) reflecting solicitation activity, pricing discussions, and competitive positioning against CPS.
• Financial records reflecting ShieldCoat Pro 900 revenue and margins.
B. Category 2 — Harlow's Unjust Enrichment / Disgorgement of Profits
Legal Basis. Under the DTSA, 18 U.S.C. § 1836(b)(3)(B)(ii), a claimant may recover damages measured by "any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss." Similarly, under the Ohio UTSA, Ohio Rev. Code § 1333.63(A), a claimant may recover unjust enrichment damages in addition to or in lieu of actual loss. CPS's separate equitable claim for unjust enrichment (Count 5) provides an independent basis for disgorgement.
Theory. Harlow profited from the sale of ShieldCoat Pro 900, a product that would not exist but for Harlow's deliberate misappropriation of CPS's trade secret formulation. ShieldCoat Pro 900 is not the product of Harlow's independent research and development; it is a near-identical copy of CPS-BC-1147, as established by the Thornburg Analytics forensic analysis. Harlow should not be permitted to retain the profits it earned through this wrongful conduct. The law requires disgorgement of those profits as a matter of equity and to deter future misappropriation.
Quantification Methodology. Unjust enrichment is measured by Harlow's net profits from ShieldCoat Pro 900 sales. The calculation begins with Harlow's gross revenues from ShieldCoat Pro 900 and deducts Harlow's direct and incremental costs of manufacturing and selling the product, including raw materials, direct labor, packaging, freight, and sales commissions. Importantly, the burden of proving deductible costs falls on Harlow as the misappropriator. See, e.g., Avery Dennison Corp. v. Four Pillars Enter. Co., 45 F. App'x 479 (6th Cir. 2002). This burden-shifting is significant because it means that any costs Harlow cannot substantiate with adequate records will not be deducted from its gross revenues, resulting in a higher disgorgement figure.
Preliminary Estimate. Based on information available from CPS's investigation and early discovery, Harlow's net profits from ShieldCoat Pro 900 sales from the approximate product launch date of April 2023 through the TRO date of March 4, 2024 are preliminarily estimated at $2.3 million. This estimate is subject to refinement as Harlow's financial records for the ShieldCoat Pro 900 product line are produced in discovery.
Important Note on Overlap. Under both the DTSA and the Ohio UTSA, unjust enrichment recovery is permitted only "to the extent" it exceeds the actual loss already captured in the lost profits analysis (Category 1). The statutes are designed to prevent double-counting: if a particular sale of ShieldCoat Pro 900 to a former CPS customer is already captured as a lost profit to CPS, the same sale should not also be counted as unjust enrichment to Harlow (or, more precisely, Harlow's profit on that sale should only be counted to the extent it exceeds CPS's lost margin). This overlap allocation is a technical but important element of the damages analysis and must be carefully coordinated with Meridian Forensic. As a practical matter, the disgorgement component should focus on: (a) Harlow's sales of ShieldCoat Pro 900 to customers who were not CPS customers (i.e., customers that Harlow acquired independently using the misappropriated formulation, where the sales do not represent diverted CPS volume); and (b) any incremental profit that Harlow earned on sales to former CPS customers that exceeds CPS's lost contribution margin on those same sales.
Documents Needed from Harlow (Discovery). The following documents are essential to the unjust enrichment analysis and should be prioritized in discovery:
• ShieldCoat Pro 900 profit and loss statement or product-line financial statements, including revenue, cost of goods sold, and gross margin detail.
• Detailed cost-of-goods-sold information for ShieldCoat Pro 900, including raw material costs, direct labor, manufacturing overhead, packaging, and freight.
• ShieldCoat Pro 900 sales records broken down by customer, to permit the overlap allocation analysis.
• Manufacturing cost records, including batch records, purchasing records, and labor allocation records.
• Any internal financial projections, budgets, or business plans for ShieldCoat Pro 900 (which may also be relevant to establishing the deliberateness and premeditation of Harlow's conduct).
C. Category 3 — Price Erosion to CPS's Remaining Customer Base
Legal Basis. Price erosion is a recognized component of actual loss under both the DTSA, 18 U.S.C. § 1836(b)(3)(B)(i), and the Ohio UTSA, Ohio Rev. Code § 1333.63(A). It is also recoverable as consequential damages for breach of contract under CPS's Count 3 claims. Courts have consistently recognized that the introduction of a competing product based on misappropriated trade secrets can depress pricing across the trade secret owner's entire customer base, not merely the customers who switch to the misappropriator's product. See, e.g., Borg-Warner Corp. v. Eaton Mfg. Co., 2006 WL 2945134, at *8 (N.D. Ohio Oct. 13, 2006).
Theory. Harlow's offering of ShieldCoat Pro 900 at a price representing a 15% discount to CPS's established pricing for CPS-BC-1147 created significant downward pricing pressure on CPS-BC-1147 across CPS's customer base. This pricing pressure affected not only the five customers that Harlow directly solicited but also other CPS customers who became aware — through market intelligence, competitor communications, or their own procurement processes — that a substantially similar barrier coating was available at a materially lower price. The result was that certain CPS customers who did not switch to Harlow nevertheless demanded price concessions or renegotiated their supply contracts at lower rates. These price concessions represent a real and quantifiable harm to CPS that is distinct from the lost sales volumes captured in Category 1.
Quantification Methodology. The price erosion analysis will compare CPS's actual realized pricing per pound for CPS-BC-1147 after April 2023 against CPS's historical pricing and projected pricing absent competition from ShieldCoat Pro 900. The price differential will be applied to the actual volumes sold to the affected customer base during the relevant period. This methodology requires a careful "before and after" pricing analysis, using CPS's pre-misappropriation pricing trends as the baseline and accounting for any legitimate market factors (such as raw material cost changes or general industry pricing trends) that would have affected CPS's pricing independent of Harlow's misconduct.
Preliminary Estimate. Price erosion damages are preliminarily estimated in the range of $1.5 million to $3.1 million. The width of this range reflects uncertainty regarding the number of customers who received or demanded price concessions, the magnitude of the concessions, and the expected duration of the pricing impact.
Key Variables. The following factors will affect the final price erosion calculation:
(i) The number of CPS customers who requested or received price concessions on CPS-BC-1147 following Harlow's entry into the market with ShieldCoat Pro 900.
(ii) The magnitude of the price reductions actually granted by CPS to retain those customers.
(iii) The duration of the pricing impact. This is a particularly important variable because price erosion may persist beyond the effective date of the injunction if customer pricing expectations have been reset downward. Even if Harlow ceases selling ShieldCoat Pro 900, customers who received discounted pricing may resist returning to pre-misappropriation price levels.
(iv) CPS's pricing records and any customer communications specifically referencing competitive pressure from Harlow or ShieldCoat Pro 900 as the basis for requesting price concessions.
Documents Needed from CPS. The following documents should be collected from CPS:
• Pricing history by customer for CPS-BC-1147 covering 2021 through 2024, including all pricing tiers, volume discounts, and any mid-contract price adjustments.
• Records of any price concessions granted to CPS-BC-1147 customers after April 2023, including the amount of the concession, the customer, and the stated reason.
• Customer negotiation correspondence referencing Harlow, ShieldCoat Pro 900, or competitive pricing pressure.
• Internal pricing strategy memoranda, sales meeting minutes, or other documents reflecting CPS's assessment of competitive pricing pressure and its pricing responses.
Documents Needed from Harlow (Discovery). The following documents should be obtained from Harlow:
• ShieldCoat Pro 900 pricing and discount schedules, including any customer-specific pricing.
• Amanda Trent's customer communications, including emails, text messages, and sales call notes, reflecting the pricing at which ShieldCoat Pro 900 was offered.
• Sales presentations, marketing materials, and proposals that reference comparative pricing to CPS-BC-1147.
D. Total Compensatory Damages Range
The following table summarizes the preliminary compensatory damages estimates across all three categories:
The low end and high end of this range depend on the assumptions regarding: (a) the volume of sales diverted from CPS to Harlow per customer; (b) the applicable contribution margin for CPS-BC-1147; (c) the duration of the loss period; (d) the number of customers affected by price erosion and the magnitude of price concessions; and (e) the overlap allocation between lost profits (Category 1) and unjust enrichment (Category 2) to avoid double-counting. These assumptions will be refined as discovery progresses and additional data becomes available, and will be formally documented and supported in the Meridian Forensic expert report.
V. Exemplary / Punitive Damages
A. DTSA Exemplary Damages
Under 18 U.S.C. § 1836(b)(3)(C), if the court finds that the trade secret was "willfully and maliciously misappropriated," the court may award exemplary damages in an amount not more than two times the amount of compensatory damages awarded under subsection (b)(3)(B). This provision is designed to punish and deter particularly egregious conduct that goes beyond mere misappropriation to encompass deliberate, knowing, and malicious theft of trade secrets.
Assessment of Willfulness. The evidence developed to date strongly supports a finding of willful and malicious misappropriation. The following facts are particularly significant:
(i) Deliberate Reverse Engineering. Harlow — acting through its Vice President of Technical Operations, Kenneth Fielding — deliberately sent CPS Concentrate A to Archer Material Sciences Inc. for compositional analysis in approximately September 2022. This was not an inadvertent disclosure or an innocent mistake; it was a premeditated act of reverse engineering directed at the most sensitive element of CPS's proprietary formulation. Fielding knew that CPS Concentrate A contained the undisclosed proprietary additives that CPS had deliberately withheld from Harlow's knowledge.
(ii) Violation of Express Contractual Prohibition. The reverse engineering occurred while the TMA was still in full force and effect (termination did not occur until January 31, 2023) and in direct violation of TMA Section 8.2, which expressly prohibited Harlow from analyzing, reverse engineering, or otherwise attempting to determine the composition of any CPS product or material, including CPS Concentrate A.
(iii) Systematic Customer Solicitation. Amanda Trent's solicitation of at least five CPS customers was not a single, isolated incident but a systematic campaign to divert CPS's customer relationships using a product derived from misappropriated trade secrets, in direct violation of TMA Section 9.3.
(iv) Concealment and Denial. When CPS's counsel raised the misappropriation issue, Harlow — through its counsel, Brian Whitaker of Voss Gentry & Whitaker LLP — responded with a letter dated February 5, 2024, denying any misappropriation and characterizing ShieldCoat Pro 900 as an independently developed product. This denial was made despite the forensic evidence demonstrating a match in all fourteen constituents within ±0.3% by weight, and it reflects an ongoing effort to conceal and deny the misappropriation rather than to remediate it.
Potential Exemplary Damages. If the court awards compensatory damages at the full range of $8.9 million to $12.6 million and applies the maximum 2× multiplier, the resulting exemplary damages would be an additional $17.8 million to $25.2 million. While courts exercise significant discretion in setting the exemplary damages multiplier and rarely award the full 2× amount, the potential exposure is substantial and meaningful for settlement purposes.
B. Ohio UTSA Exemplary Damages
Under Ohio Rev. Code § 1333.63(B), if willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice the compensatory damages awarded under subsection (A). The statutory standard and evidence supporting the claim are substantively identical to the DTSA analysis set forth above, and the Ohio UTSA claim provides a parallel and alternative basis for exemplary damages.
Note on Election. CPS cannot recover exemplary damages under both the DTSA and the Ohio UTSA for the same misappropriation. If the court awards exemplary damages under one statute, it will not award a separate exemplary damages award under the other for the same conduct. CPS should be prepared to present its exemplary damages claim under whichever statute provides the most favorable procedural posture and jury instructions, or to allow the court to determine the appropriate statutory basis.
C. Strategic Considerations
The availability of exemplary damages under both statutes is a significant leverage point in settlement negotiations. Harlow's total potential exposure — combining compensatory damages of $8.9 million to $12.6 million with exemplary damages of up to twice that amount — could reach as high as $26.7 million to $37.8 million before attorneys' fees. Even if the court were to apply a more conservative exemplary damages multiplier of 1× to 1.5× (which is more typical of awards in the Southern District of Ohio in trade secret cases), the total exposure remains very substantial.
However, it is important to manage client expectations regarding exemplary damages. Exemplary damages are discretionary, not guaranteed, and depend on the court's (or jury's) assessment of the egregiousness of Harlow's conduct. Courts in this district have awarded exemplary multipliers in trade secret cases, but generally in the range of 1× to 1.5× rather than the full 2× permitted by statute. The strongest cases for maximum multipliers typically involve defendants who continue to deny and conceal their misappropriation even after litigation is commenced, or who destroy evidence — factors that may or may not be present here depending on how discovery unfolds.
We recommend that the damages report prepared by Meridian Forensic include a section addressing the willfulness factors that support an exemplary damages claim — including the timeline and deliberateness of the reverse engineering, the violation of express contractual prohibitions, and the systematic nature of the customer solicitation — to provide a factual foundation for briefing on exemplary damages. However, the primary focus of the expert report should be on the compensatory damages categories, as the exemplary damages multiplier is ultimately a determination for the court or jury and is not a matter of expert economic opinion.
VI. Attorneys' Fees
A. DTSA Attorneys' Fees
Under 18 U.S.C. § 1836(b)(3)(D), in a case of willful and malicious misappropriation, the court may award reasonable attorney's fees to the prevailing party. This is a discretionary, not mandatory, fee-shifting provision; its availability depends on the same finding of willfulness and malice required for exemplary damages. The same evidence supporting the exemplary damages claim (discussed in Section V above) supports a fee award.
If applicable, CPS could recover Calderwood & Harkness's fees and expenses incurred in this matter. Through the date of this memorandum, the firm has incurred approximately $387,000 in fees and expenses. Based on the projected scope of remaining discovery, deposition preparation and attendance, expert coordination, pretrial preparation, and trial, the total fees and expenses at the time of trial are estimated at $1.2 million to $1.5 million, depending on the duration and complexity of the discovery process and the length of trial. This estimate does not include fees for any post-trial proceedings or appeal.
B. Ohio UTSA Attorneys' Fees
Ohio Rev. Code § 1333.65 similarly permits an award of reasonable attorney's fees to the prevailing party if willful and malicious misappropriation exists. In addition, the Ohio UTSA permits a fee award if a claim of misappropriation is made in bad faith — a provision that could become relevant if Harlow asserts affirmative defenses or counterclaims challenging CPS's trade secret designation in bad faith. As with the DTSA provision, the Ohio UTSA fee-shifting provision is discretionary.
C. Breach of Contract — Fee-Shifting Provision
Independent of the statutory fee-shifting provisions under the DTSA and Ohio UTSA, the TMA itself may provide a contractual basis for fee recovery. Preliminary review of the TMA indicates that Section 12.4 includes a prevailing party attorneys' fees clause applicable to disputes arising under the agreement. If this provision is enforceable — and we anticipate it is, subject to a more detailed review of its scope and any applicable limitations — it provides an independent, contractual basis for CPS to recover its attorneys' fees and litigation expenses in connection with its breach of contract claims (Count 3), without the need to prove willful and malicious misappropriation. This is a significant advantage because the contractual fee-shifting provision is triggered simply by CPS prevailing on its contract claims, which may be easier to establish than the heightened willfulness standard required for statutory fee-shifting.
We recommend that a more detailed review of TMA Section 12.4 be completed promptly, including analysis of the scope of the fee-shifting clause (i.e., whether it covers only fees incurred in enforcing the specific TMA provisions at issue or extends more broadly to all fees in connection with disputes arising under the agreement), any limitations or caps, and the enforceability of the provision under Indiana law (which governs the TMA) or Ohio law (which governs the tort and statutory claims).
D. Strategic Note
The availability of attorneys' fees under multiple independent theories — DTSA, Ohio UTSA, and the TMA's contractual fee-shifting provision — substantially strengthens CPS's overall litigation position. From Harlow's perspective, the prospect of paying not only compensatory and exemplary damages but also CPS's attorneys' fees (potentially $1.2 million to $1.5 million) makes the total potential exposure even more significant. This should be prominently highlighted in any settlement demand to maximize its persuasive impact.
VII. Coordination with Meridian Forensic Consulting Group LLC
A. Expert Engagement
Jeffrey Callahan, CPA/ABV, CFF, a Principal at Meridian Forensic Consulting Group LLC, has been retained as CPS's economic damages expert. Mr. Callahan is a certified public accountant with accreditation in business valuation (ABV) and certification in financial forensics (CFF) from the American Institute of Certified Public Accountants. He has extensive experience in trade secret damages litigation and has testified as an expert in federal and state courts in matters involving lost profits, unjust enrichment, and reasonable royalty damages methodologies. His engagement letter has been executed, and he is billing on an hourly basis. The formal expert report is targeted for completion in mid-June 2024, consistent with the anticipated expert disclosure deadline under the case scheduling order.
B. Document and Data Production to Meridian
The following key document categories should be assembled and transmitted to Meridian Forensic to support its damages analysis. The data package should be comprehensive and well-organized to minimize follow-up requests and to enable Meridian to produce a thorough and defensible expert report within the targeted timeline.
1. CPS Financial Records.
• CPS-BC-1147 revenue detail by customer for fiscal years 2020 through 2024, including unit volumes (in pounds), pricing per pound, and total revenue per customer per period.
• CPS-BC-1147 cost-of-goods-sold and contribution margin data, including detailed breakdowns of raw material costs, direct manufacturing labor, variable manufacturing overhead, packaging, freight, and sales commissions.
• CPS overall profit and loss statements and segment reporting for fiscal years 2020 through 2024, to provide context for the relative significance of CPS-BC-1147 within CPS's overall business.
• CPS pricing schedules and discount records for CPS-BC-1147, including any tiered pricing, volume-based discounts, and customer-specific pricing arrangements.
2. CPS Customer Records.
• CPS's complete customer list for CPS-BC-1147, including all active and former customers.
• Customer-specific volume and revenue data for the five identified affected customers (Mapleridge Paper Corp., Pinnacle Flexible Films LLC, Orion Paperboard Inc., Great River Packaging Co., and TerraFold Industries LLC), as well as for any additional customers identified as affected during discovery.
• CRM data reflecting customer contacts, negotiations, pricing discussions, and any price concessions granted after April 2023.
• Correspondence between CPS's sales team and affected customers, including emails, letters, meeting notes, and call logs reflecting the impact of Harlow's solicitation and competitive pricing on customer relationships.
3. Harlow discovery Production.
• ShieldCoat Pro 900 sales records, invoices, customer lists, pricing data, and volume data, as produced by Harlow in discovery.
• Harlow financial records for the ShieldCoat Pro 900 product line, including revenue, cost of goods sold, gross margin, and net profit data.
• Amanda Trent's sales and solicitation records, including emails, text messages, sales call notes, proposals, and customer communications.
• Any Harlow internal financial projections, budgets, or business plans for ShieldCoat Pro 900, which may provide insight into Harlow's expected revenues and profits and the deliberateness of its competitive strategy.
4. TMA and Tolling Data.
• The executed Toll Manufacturing Agreement dated March 15, 2017, including all amendments and schedules.
• Tolling fee schedules, including the $0.38 per pound rate and any adjustments during the term of the TMA.
• Calendar year 2022 production records reflecting the approximately 9.4 million pounds tolled by Harlow for CPS.
• Termination correspondence, including the termination notice and any related communications between CPS and Harlow.
5. Thornburg Analytics Report.
• The preliminary forensic chemical analysis report dated December 22, 2023, prepared by Dr. Elena Vasquez of Thornburg Analytics LLC, to establish the factual predicate that ShieldCoat Pro 900 is derived from CPS-BC-1147. This report is foundational to the damages analysis because it establishes the causal link between the misappropriation and Harlow's competing product.
6. R&D Investment Records.
• Documentation of CPS's approximately $3.8 million investment in developing CPS-BC-1147, including R&D budgets, equipment purchase records, personnel costs allocable to the development program, raw material trial costs, pilot-line testing expenses, and FDA compliance testing costs. These records are relevant to the reasonable royalty alternative analysis (discussed in Section VIII below) and to establishing the value of the trade secret for purposes of both compensatory and exemplary damages.
C. Expert Report Scope and Deliverables
Meridian Forensic should be instructed to address the following topics in its formal expert report:
1. Lost Profits Analysis (Category 1). A detailed, customer-by-customer analysis of CPS's lost profits from diverted sales of CPS-BC-1147, employing a "but for" methodology and supported by customer-specific volume data, pricing data, and contribution margin calculations.
2. Unjust Enrichment / Disgorgement Analysis (Category 2). An analysis of Harlow's net profits from ShieldCoat Pro 900 sales, with proper allocation to avoid overlap with the lost profits analysis (i.e., disgorgement should capture only profits not already accounted for as CPS lost profits).
3. Price Erosion Analysis (Category 3). A before-and-after pricing comparison quantifying the reduction in CPS's realized pricing for CPS-BC-1147 attributable to the competitive pressure from ShieldCoat Pro 900, applied to actual volumes sold to the affected customer base.
4. Total Compensatory Damages Range. A summary of total compensatory damages across all three categories, with clearly stated supporting assumptions, a detailed description of the methodologies employed, and a sensitivity analysis showing the impact of key variable assumptions on the total damages figure.
5. Willfulness Factors. A discussion of the factual indicators of willful and malicious misappropriation, to support CPS's briefing on exemplary damages. This section should address the deliberateness of the reverse engineering, the violation of contractual prohibitions, the systematic nature of customer solicitation, and the concealment of the misappropriation. This section is intended for use in legal briefing, not as a separate damages figure — the exemplary damages multiplier is the court's determination, not an expert's.
6. Alternative Reasonable Royalty Calculation. As a floor and fallback damages theory, a calculation of the reasonable royalty that a willing licensor (CPS) and a willing licensee (Harlow) would have agreed upon for the right to use the CPS-BC-1147 formulation, taking into account the factors discussed in Section VIII below. This analysis should be included even though the primary theories (lost profits, unjust enrichment, and price erosion) are expected to yield a higher recovery.
D. Deposition Coordination
Several depositions scheduled for the May through July 2024 timeframe will generate testimony directly relevant to the damages quantification. It is essential that the deposition strategy be coordinated with the damages framework to ensure that key factual foundations are established through sworn testimony.
• Gerald Norris (Harlow's sole shareholder and president): Testimony regarding Harlow's decision to develop and market ShieldCoat Pro 900, Harlow's financial performance and condition, and the authorization and oversight of the reverse engineering and customer solicitation activities. Deposition transcripts should be provided to Meridian promptly upon receipt.
• Kenneth Fielding (Harlow's VP of Technical Operations): Testimony regarding the submission of CPS Concentrate A to Archer Material Sciences, the results received, the development of ShieldCoat Pro 900, and the retention of CPS confidential information after termination of the TMA.
• Amanda Trent (Harlow's Sales Director): Testimony regarding the customer solicitation campaign, the pricing offered to CPS customers, the volume of ShieldCoat Pro 900 sales, and the identity of all customers contacted or sold to.
• Brian Novotny (CPS's Sales Director): Testimony establishing the timeline of customer solicitation, the competitive impact on CPS's customer relationships, price concessions demanded or granted, and the overall commercial effect of ShieldCoat Pro 900 on CPS's CPS-BC-1147 business. Novotny's testimony should be coordinated with the damages framework to ensure that the factual foundations for all three damages categories are established.
• Dr. Margaret Yuen (CPS's Director of Formulation Chemistry): Testimony regarding the R&D investment in CPS-BC-1147, the unique and proprietary nature of the fourteen-constituent formulation, the deliberate decision to withhold the five additive components from Harlow through the CPS Concentrate A mechanism, and the value of the trade secret to CPS's business.
E. Timeline. The following timeline governs the expert coordination process:
It is critical that the May 31, 2024 target date for transmission of the data package be met. Any delay in providing the data to Meridian will compress the time available for analysis and report drafting, potentially requiring an extension of the expert disclosure deadline or resulting in a less thorough report. We should immediately begin assembling the CPS internal documents identified in Section VII.B above and should follow up on any outstanding discovery requests to Harlow that are necessary to complete the data package.
VIII. Alternative Damages Theory — Reasonable Royalty
Under both the DTSA, 18 U.S.C. § 1836(b)(3)(B)(ii), and the Ohio UTSA, Ohio Rev. Code § 1333.63(A), if actual loss and unjust enrichment are not adequately provable, the court may impose liability measured by "a reasonable royalty for the misappropriator's unauthorized disclosure or use of the trade secret." A reasonable royalty analysis provides a floor on damages — it ensures that CPS recovers at minimum the value that a willing licensor and a willing licensee would have agreed upon in a hypothetical arm's-length negotiation for the right to use the CPS-BC-1147 formulation.
While we believe that the primary damages theories — lost profits, unjust enrichment, and price erosion — are well-supported and likely to yield a higher recovery than a reasonable royalty, the reasonable royalty theory should be included in the Meridian Forensic expert report as an alternative and fallback position. There is always a risk that the court or jury will find some element of the lost profits or unjust enrichment analysis insufficiently supported, and having a reasonable royalty analysis in reserve ensures that CPS has a viable damages theory under any scenario.
The following factors are relevant to the reasonable royalty analysis:
(i) CPS's R&D Investment. CPS invested approximately $3.8 million over twenty-four months to develop CPS-BC-1147. This investment represents the cost of creating the trade secret and establishes a floor below which no rational licensor would agree to license the formulation.
(ii) Revenue Generated by CPS-BC-1147. The formulation generates approximately $47.23 million in annual revenue for CPS, representing 22% of CPS's total coatings revenue. This figure reflects the commercial value of the trade secret in the marketplace and is a key input in determining what a willing licensee would be prepared to pay for access to the formulation.
(iii) CPS's Contribution Margin. The contribution margin on CPS-BC-1147 reflects the profit that CPS earns per unit of product sold and is relevant to determining the royalty rate that a willing licensor would demand. A formulation that generates high margins commands a correspondingly higher royalty rate.
(iv) The Tolling Fee as a Reference Point. The tolling fee of $0.38 per pound that CPS paid Harlow under the TMA provides a useful, if imperfect, reference point. This fee reflected the value of Harlow's manufacturing services alone, without any right to use or exploit the formulation. A royalty for the right to use the formulation itself would necessarily exceed the tolling fee, since the formulation is the basis for the product's market value, while the tolling fee compensated only for blending and packaging services.
(v) Industry Licensing Benchmarks. Comparable licensing arrangements for specialty chemical formulations in the coatings and packaging industries, if available, would provide additional support for the royalty rate. Meridian Forensic should be instructed to research and, if possible, identify comparable licensing transactions.
We recommend that Meridian Forensic include a reasonable royalty analysis as a separate section of its expert report, clearly designated as an alternative to the primary lost profits and unjust enrichment theories. The reasonable royalty should be calculated on a per-pound or percentage-of-revenue basis and applied to Harlow's total ShieldCoat Pro 900 sales volume for the relevant period.
IX. Damages Relating to Breach of Contract Claims