Greenline Industries (Greenline), based in Larkspur, California, designs processors that convert feedstocks such as seed oils and animal fats into biodiesel fuels.  Greenline’s proprietary technology provides waterless systems to clean the fuel, allowing producers to avoid the time and money associated with introducing water into the process and later separating it out.  Greenline also enjoys an exclusive worldwide license to continuous flow technology, which greatly increases its processors’ production capacity. 

In 2006, Greenline and Arkansas engineering firm Agri-Process Innovations (API) created a venture, now called AP Fabrications (APF), for the purpose of installing Greenline biodiesel plants.  In 2007, Greenline gave up its ownership rights in the venture, and API became the sole owner of APF.

Last month Greenline sued API and APF in federal court in Oakland, California for anticipatory breach of contract, misappropriation of trade secrets, false advertising and a declaratory judgment that Greenline owns the copyrights in its processor designs.  Greenline alleges that its vendor agreement with APF provided that Greenline would be exclusively responsible for the design of biodiesel processing units while APF’s role was limited to installation of the units.  Greenline also contends that the agreement allowed API to sell the processors but required that they be marketed as “Greenline Industries” plants.

The trigger for the lawsuit was a May 5, 2008 letter in which API and APF told Greenline they were terminating the vendor agreement and demanded compensation for (unspecified) intellectual property rights created by API and used by Greenline.  Greenline alleges this repudiation of the agreement constitutes anticipatory breach of contract.  

According to the complaint, API also claims rights to Greenline’s technology through statements on its web site that API designs the processing units.  These and other statements implying ownership of the processing techniques, as well as claims of responsibility for the design of specific processing plants, form the basis for Greenline’s claims of false advertising.

While the anticipatory breach and false advertising claims seem reasonably well-founded, it’s hard to see how API/APF’s actions constitute misappropriation of trade secrets, considering that the only allegations of theft of intellectual property in the complaint are the May 5 letter and the statements on API’s web site. 

The Uniform Trade Secrets Act (upon which many state trade secrets laws are modeled) defines misappropriation as acquisition of a trade secret by someone who knows or should know it was acquired by improper means or disclosure of a trade secret that was improperly acquired.  The facts of the complaint suggest that any acquisition or disclosure of Greenline’s proprietary information by API or APF occurred pursuant to the vendor agreement, which was in force until last month.  Simply making misrepresentions of ownership of a particular proprietary technology to third parties would not seem to rise to the level of misappropriation.

The other striking thing about this dispute is the extremely short time period between API/APF’s letter to Greenline terminating the agreement (May 5, 2008) and the date Greenline filed the lawsuit (the complaint is dated May 12, 2008).  This rapid turnaround suggests either that tensions were brewing for a while or the two sides made little attempt to resolve the dispute before resorting to litigation.

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