Caterpillar Inc. CAT has been adjudged guilty by Chicago’s federal court for stealing trade secrets from Cramlington, England-based supplier, Miller UK Ltd and ordered to pay damages of $73.6 million. Caterpillar is disappointed by the verdict that followed a two-month trial and is contemplating its next move.
Miller, meanwhile is planning to seek interest and attorney’s fees on top of the $73.6 million in damages. Caterpillar would then have to shell out around $100 million.
Miller had in the past supplied Caterpillar with a device called a coupler. Miller had designed it around 1998 and it was the world’s first fully automatic, universal quick coupler. The device allowed operators of excavators to change scoops or other attachments without getting out of their cabs. As it gained popularity, Caterpillar became Miller’s biggest customer.
Miller expanded production capacity near Newcastle, England, and added a joint-venture plant in China to meet Caterpillar’s demand for the couplers. According to Miller, Caterpillar orders accounted for as much as 28% of its business and a larger share of its profits.
However, in 2008, Caterpillar developed its own coupler product and ended its supply agreement with Miller. The loss of Caterpillar as a customer forced Miller to terminate about three-quarters of its work force and close offices in Savannah, GA, and Japan and scale back a joint venture in China. In the lawsuit filed five years earlier, Miller alleged that Caterpillar took advantage of its leverage as Miller’s largest customer to gain access to its trade secrets, which was used to manufacture the coupler.
This is another disappointing news for the mining and equipment behemoth. Caterpillar recently reported an 11% decline in its global retail sales for the three months ended November 2015. The company, which is considered to be the bellwether of economic activities, is going through a rough patch with sales declining for 36 consecutive months due to a crash in commodity prices, soft mining demand and a slowdown in China.
Caterpillar currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industrial products sector are CUI Global, Inc. CUI, ScanSource, Inc. SCSC and Codexis, Inc. CDXS and all of these stocks sport a Zacks Rank #1 (Strong Buy).
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