NWPCA Announces Settlement of PDS Lawsuits

Further to our previous posts about the pallet design software dispute and settlement, NWPCA has announced settlement of lawsuits filed against Dr. Marshall White, Mr. Howe Wallace, PalletOne and White & Company relating to NWPCA’s copyrighted pallet design and analysis software, the Pallet Design System© (PDS©) and the litigation is being dismissed.

Here is the remainder of the NWPCA announcement:

NWPCA’s goal in filing litigation, and ultimately in settling that litigation, was to protect its 30 year investment in PDS and to ensure that Dr. White, PalletOne and their colleagues competed fairly with NWPCA in the marketing and sale of Best Load.

NWPCA President/CEO Bruce Scholnick stated, “NWPCA does not object to, and does not fear, fair competition in the pallet design and analysis software market because PDS has been carefully developed and tested under field conditions for 30 years and NWPCA is committed to continuing that careful development rather than rushing new products to the market. What NWPCA objected to, and sought to remedy through litigation, was the unfair competitive advantages taken by Dr. White and PalletOne resulting from the misuse of the PDS source code and NWPCA’s trade secrets.”

In a highly unusual action, the federal district court in Roanoke Virginia issued an injunction last week which:

  • Requires Dr. White, PalletOne and the developers of Best Load to delete the current pallet design component of Best Load and to “start from scratch” in developing a pallet design component;
  • Expressly prohibits Dr. White and his colleagues from using certain NWPCA proprietary information in developing a new pallet design component;
  • Prohibits Dr. White and his colleagues from using any version of the PDS source code, software or output to develop Best Load;
  • Requires Dr. White and his colleagues to destroy all copies of certain PDS data;
  • Permits NWPCA to have an independent expert review the final Best Load source code to ensure that there is no misappropriation of NWPCA source code or trade secrets;
  • Prohibits Dr. White and his colleagues from ever again challenging NWPCA’s ownership of PDS;
  • Requires Dr. White and his colleagues to issue a press release acknowledging that PDS is the industry standard today;
  • Prohibits Dr. White and his colleagues from asking or attempting to influence the American National Standards Institute, directly or indirectly, to remove PDS as the industry standard; and
  • Prohibits Dr. White and PalletOne from marketing, selling, giving away or using Best Load for a one year period – an equitable remedy for the alleged misconduct by Dr. White and PalletOne.

In another unusual step, Judge Urbanski has retained jurisdiction for enforcement of the court order. Thus, rather than relying on Dr. White and his colleagues to comply with the settlement agreement and being forced to institute new litigation in the event of a breach, NWPCA can go directly to Judge Urbanski to ask the court to find defendants in contempt of court in the event of any noncompliance with the court order.

In addition, unlike most settlement agreements, the agreement itself is not confidential. As a trade association accountable to its members, NWPCA insisted that any settlement agreement be made public and that it be permitted to share the information it learned through the litigation process with its members (with the exception of truly confidential and proprietary technical and financial information.) In the litigation, NWPCA took the position that Dr. White and PalletOne had misused the “Attorneys Eyes Only” (AEO) designation by designating most documents as AEO. As a result, a condition NWPCA placed on settlement was full and honest disclosure of what had occurred.

As part of that settlement agreement, NWPCA agreed to dismiss the federal lawsuit against Dr. White as well as a state court action filed by NWPCA against PalletOne and others. NWPCA agreed to allow PalletOne to sign a new PDS lease, return the PDS software to PalletOne and permit PalletOne to resume its use of the PDS software in compliance with the PDS Lease terms.

As an employee of PalletOne, Dr. White can use PDS for the purpose of designing pallets for PalletOne’s customers. However, Dr. White and PalletOne are prohibited from using PDS in the development of Best Load, such as calibrating the Best Load results to approximate the PDS results.

“The settlement was positive for NWPCA, our members and the industry,” said Scholnick, “but no one is celebrating. The actions taken by the association were not taken precipitously. After careful and thoughtful deliberation, NWPCA leadership ultimately determined legal steps were necessary to protect PDS. Those of us involved, while pleased that we obtained all of our goals in the settlement, are very glad the litigation is over.”

PDS Litigation Review

PDS was developed over a 30-year period during a collaborative relationship with Virginia Tech and its William H. Sardo, Jr. Pallet Container Research Laboratory. NWPCA provided millions of dollars to Virginia Tech to conduct research relating to wooden pallets and for the development of the PDS software. Each new version of PDS incorporates the latest data, engineering and technologies coming out of NWPCA’s continuous program of research and development, which includes research on the relationships between the design and performance of wood pallets and the entire unit load. NWPCA owns the copyrights in PDS.

Much of that PDS research and software development was done under the auspices of Dr. Marshall White, a tenured professor at Virginia Tech. Late last fall, NWPCA learned that Dr. White was marketing “Best Load”, a new computer assisted pallet design software program, which looked and performed like PDS. On Dec. 29, 2009, NWPCA filed a lawsuit against Dr. White seeking a preliminary and permanent injunction, an accounting and damages for breach of contract, breach of fiduciary duties, theft of trade secrets, copyright infringement, and unfair and deceptive trade practices. The federal lawsuit alleged, among other things, that notwithstanding Virginia Tech’s contractual obligation to return all copies of the PDS© source code when its agreement with NWPCA expired, Dr. White deliberately retained a copy of the PDS© source code.

During the federal litigation, NWPCA learned of PalletOne’s secret involvement in the development and sale of Best Load.  In a second lawsuit filed by NWPCA in the Circuit Court for the City of Alexandria, Va. in July, NWPCA sued PalletOne and its CEO and President Howe Wallace for their improper actions in the development of Best Load. The state court complaint alleged that PalletOne violated its PDS lease and engaged in a conspiracy to injure NWPCA’s business. The state complaint also alleged that during the period Mr. Wallace was serving on NWPCA’s Board, he breached his fiduciary duties to NWPCA by representing he did not have any business interests that conflicted with his duties as a Board member of NWPCA, even though PalletOne’s subsidiary White and Company was developing a software program that competed with PDS.

Specifically, the state court complaint alleged that in 2005, while Virginia Tech still had over a year left on its contract with NWPCA to further develop and enhance PDS under Dr. White’s leadership, Dr. White and Mr. Wallace quietly agreed that PalletOne would fund the development of a software program that would, in part, design pallets.

To that end, in 2005, PalletOne quietly formed White and Company, a limited liability company with PalletOne as its sole owner. Although White and Company’s website represents that it “was founded in 2007 by Dr. Marshall S. White as an independent consulting firm,” NWPCA learned that White and Company actually is a subsidiary of PalletOne and was formed by PalletOne in 2005, while Dr. White was still at Virginia Tech. The state court complaint claimed that Dr. White recruited other Virginia Tech faculty to assist in the development of the competing Best Load software while he was still in charge of NWPCA’s confidential research and development.

In the state court action, NWPCA also alleged that Dr. White and his programmer had reviewed the PDS source code to assist in the development of White and Company’s new software. In addition, based on what it learned in the federal litigation, NWPCA alleged that because PDS was the widely recognized standard in the industry, PalletOne’s PDS license was repeatedly and improperly used to ensure that the Best Load results were calibrated with the PDS results.

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