Bloomberg News

TCW, DoubleLine Spar Over Trade-Secret Royalties After Trial

October 25, 2011

(Updates with expert’s testimony in eighth paragraph.)

Oct. 25 (Bloomberg) -- TCW Group Inc.’s expert witness said the asset-management firm is owed $81.7 million in “reasonable royalties” by DoubleLine Capital LP after a jury’s finding in September that DoubleLine misappropriated TCW’s trade secrets.

The use of TCW’s trade secrets, including portfolio management systems, would have allowed DoubleLine to avoid risks and delays getting its business operating, Brad Cornell, the witness, told California Superior Court Judge Carl J. West in Los Angeles today.

“TCW’s trade secrets are based on years, if not decades, of actual experience,” Cornell said under questioning by TCW lawyer John Quinn.

TCW, the Los Angeles-based unit of Societe Generale SA, sued its former chief investment officer, Jeffrey Gundlach, 51, in January 2010, after more than half of its fixed-income professionals joined DoubleLine, the rival firm Gundlach started within weeks after TCW fired him. Gundlach countersued, saying TCW pushed him out to avoid paying him hundreds of millions of dollars in fees for the funds his group managed.

After a six-week trial, the jury awarded Gundlach and three other former TCW employees $66.7 million for unpaid wages. The jury also found that Gundlach breached his fiduciary duty and misappropriated TCW trade secrets. The jury awarded TCW no damages on the breach claim. The judge will determine what TCW is owed on the trade-secret claim.

Financial Projection

Under questioning by DoubleLine’s lawyer Mark Helm, Cornell said his estimate was based in part on a pro forma financial projection, made by one of Gundlach’s associates before DoubleLine was created, that assumed the new company would manage all the $48 billion in assets that Gundlach and his group managed at TCW.

Cornell said TCW’s intellectual property might be worth less than his calculation without those assets. TCW acquired a different asset management firm in December of 2009 to take over Gundlach’s funds when he was fired. The funds didn’t transfer to DoubleLine as the pro forma projection had contemplated.

“That would be a separate exercise,” to estimate the value of the intellectual property without the assets, Cornell said. “I haven’t done that exercise.”

DoubleLine’s expert witness is scheduled to testify at the next hearing on Nov. 21. West will rule on the royalties after he has heard all the evidence and both sides have filed additional briefings in support of their positions.

The case is Trust Co. of the West v. Gundlach, BC429385, California Superior Court, Los Angeles County (Los Angeles).

--Editors: Peter Blumberg, Charles Carter

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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