DSC's $137M judgment against Next Level upheld

Electronic News, March 10, 1997

Dallas and Chicago--The U.S. Fifth Circuit Court of Appeals in New Orleans has ruled in DSC Communications Corp.'s favor in upholding a $137 million judgment against General Instrument subsidiary Next Level Communications and Next Level's founders, Thomas Eames and Peter Keeler.

DSC had filed suit in federal court in Sherman, Texas, for theft of trade secrets and usurpation of corporate opportunity against Messrs. Eames and Keeler, former employees of DSC (EN, April 1, 1996). The jury found that Messrs. Eames and Keeler violated certain provisions of their employment contract, diverted a corporate opportunity and usurped DSC trade secrets in the development of Next Level's next-generation switched digital products.

Based on the jury's verdict following a three-week trial, the trial judge entered judgment in favor of DSC for $369.2 million which was later reduced to $127 million in compensatory damages for usurpation of corporate opportunity, plus $10 million in punitive damages (EN, June 17, 1996).

The court also ruled that DSC was not entitled to a permanent injunction against the defendants. The court found that an injunction which prevented Next Level from performing any act for which DSC has already been compensated would afford DSC a duplicative recovery.

However, the Court of Appeals ruled on Feb. 28 that the previous judgment should have been entered on the theft of trade secrets cause rather than on diversion of corporate opportunity and thus reversed the district court judgment for diversion of a corporate opportunity by Next Level and its founders. The case has been remanded to the District Court trial judge in Sherman, Texas, for that modification, which will add another million dollars to the judgment in DSC's favor, totaling $138 million, plus several million dollars in interest, said DSC. The Court of Appeals upheld the decision that no injunction will be issued against Next Level.

GI took a pre-tax charge of $141 million against earnings in the second quarter of 1996 to cover potential damages and the cost of litigation associated with the suit. "This dispute has become a purely financial matter for which we are prepared," said Thomas A. Dumit, VP and general counsel of GI. "Most importantly, the court has found that Next Level can continue to market its next-generation telephony solutions."

DSC's general counsel, George Brunt, said, "The intellectual property created by DSC is a fundamental asset of our company and our shareholders. This judgment, and the effort that went into obtaining it, is a reflection of DSC's continuing policy to rigorously protect these valuable assets from wrongful misappropriation."