and County of Denver District Court No. 13CV31457 Honorable
Karen L. Brody, Judge.
AFFIRMED IN PART, REVERSED IN PART, AND CASE REMANDED WITH
Robinson Waters & O'Dorisio, P.C., Anthony L.
Leffert, Laura J. Ellenberger, Denver, Colorado, for
& Rees LLP, John R. Mann, Thomas B. Quinn, Tamara A.
Hoffbuhr Seelman, Denver, Colorado, for Defendants-Appellants
BERNARD J. JUDGE.
1 What is a trade secret? According to a Colorado statute, it
is, as is pertinent to this case, "the whole or any
portion . . . of any . . . design . . . which is secret and
of value." § 7-74-102(4), C.R.S. 2016. We conclude
in this appeal that the act of keeping a design secret does
not necessarily mean that it is a trade secret.
Rather, the design itself must be secret; focusing on the act
of protecting the design's secrecy skips the first and
fundamental step in the analytical process.
2 In this appeal, defendants, Newsco International Energy
Services, Inc.; Newsco International Energy Services USA,
Inc.; Newsco Directional & Horizontal Services, Inc.; and
Joe Ficken, appeal the trial court's judgment in favor of
plaintiff, Hawg Tools, LLC, on Hawg's claims for
misappropriation of a trade secret and conversion. Mr. Ficken
appeals the judgment against him on Hawg's claim for
breach of contract. We reverse the judgment as far as
Hawg's claim for misappropriation of a trade secret is
concerned, but we affirm the judgment on Hawg's claims
for conversion and breach of contract.
Background A. Mud Motors
3 We have learned from the record that drilling operations
typically employ a tool called a mud motor to drill for oil.
(Drilling fluid is commonly referred to as "mud.")
During a drilling operation, a mud motor is inserted into a
well hole. When fluid is pumped through the mud motor, the
motor drives a drill bit, and the drill bit drills a hole.
4 A mud motor consists of a power section and a transmission.
The power section contains a stator and rotor. (A stator is a
static part; a rotor is a moving part.) Drilling fluid is
pumped through the stator to turn the rotor.
5 The transmission consists of three parts:
(1) a mandrel, or a tubular shaft around which other parts
are assembled, which is attached to the rotor to drive the
(2) a bearing pack that allows the mandrel to turn the drill
bit without friction; and
(3) a bit box that contains the drill bit.
6 Bearing packs come in two types: wash bearing packs and
sealed bearing packs. A wash bearing pack leaves the bearings
exposed to the surrounding mud. In a sealed bearing pack, the
bearings are lubricated by an oil bath. The oil bath is
enclosed by seals to prevent mud from leaking in. This case
involves an alleged trade secret concerning the design of a
sealed bearing pack.
7 The following diagram, Figure 1, shows a typical mud motor
with a sealed bearing pack.
1: Schematic of a Typical Oilfield Downhole Drilling Mud
Motor (Mud Motor Seals, Kalsi Engineering,
8 As seen in Figure 1, a sealed bearing pack includes a
pressure compensating piston. As drilling fluid pressure
increases during drilling, the piston slides to compress the
lubricant reservoir. Similarly, as the oil bath heats up when
the drill is withdrawn, the piston slides back to expand the
reservoir. In this way, the piston maintains equal pressure
between the drilling fluid and the oil bath.
9 Sealed bearing packs protect components called thrust
bearings longer than wash bearing packs. When using a wash
bearing pack, thrust bearings last a few hours before they
break and then have to be replaced. But, when using a sealed
bearing pack, the seals break first instead of the thrust
bearings, and the seals can last days instead of hours. So
the obvious advantage of a sealed bearing pack is that the
drill runs longer before it has to be stopped to perform
10 This kind of sealed bearing pack was invented in 1971.
11 Hawg rents mud motors to oil and gas drilling companies.
Newsco uses mud motors to provide drilling services.
12 Daniel Gallagher owned Hawg. Before he formed this
company, he operated a similar business called New Venture.
In 2008, he asked a machinist to manufacture sealed bearing
packs for use in New Venture's mud motors. The machinist
arranged for a designer, Joe Ficken, who is one of the
defendants in this case, to design the sealed bearing packs.
13 The designer did not receive compensation for the design.
He testified that he created it as a favor to help the
machinist, a friend who was having financial difficulties.
The design was "simple, " and it took him only two
days to do it. Neither Mr. Gallagher nor the machinist asked
him to incorporate any specific features or customizations
into the design.
14 The designer assigned his rights in the design to the
machinist. The machinist assigned those rights to Mr.
Gallagher in exchange for $350, 000, some of which was
allocated to manufacture a number of sealed bearing packs for
Mr. Gallagher using the design. Mr. Gallagher later assigned
his rights in the design to Hawg.
15 The designer continued to make changes to the design
through June of 2011. During this time - in February 2011 -
he accepted a job at Newsco, and he began designing a sealed
bearing pack for his new employer.
16 Mr. Gallagher learned in 2013 that the designer had
designed a sealed bearing pack for Newsco. After determining
that the Newsco design was similar to ...