One of my upcoming projects is to write something on trade secret damages—with a primary focus on U.S. law, where in the past few years we have seen a number of very high damages awards (in the nine and even ten-figure range). I already have touched on this topic to some extent in my recently-published book Remedies in Intellectual Property Law, but the law is continuing to evolve in real time, and there are several issues that in my view are not as fully developed as perhaps they could be in the legal/law-and-economics literature. Among these are the applicability of U.S. patent damages standards on topics such as apportionment of damages to trade secret disputes; the standards for awarding punitive damages for trade secret misappropriation; and most importantly, perhaps, the availability of monetary relief for “unjust enrichment.”
In regard to the last of these, last week the Federal Circuit in Versata Software, LLC v. Ford Motor Co., held that, under the federal Defend Trade Secrets Act (DTSA) and the Michigan Uniform Trade Secrets Act, a plaintiff is entitled to recover “unjust enrichment” damages as a matter of statutory right. (For an excellent discussion on Patently-O, see here; see also this discussion of unjust enrichment, from a few weeks ago, on IP Watchdog) Both statutes explicitly reference “unjust enrichment,” so in that respect the Federal Circuit’s decision seems straightforward (and, coincidentally, consistent with an understanding of unjust enrichment that prevails in some civil law countries, as well as U.S. copyright and design patent law)—but there is a strain of contrary precedent, exemplified by the Second Circuit in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Group, Inc., 68 F.4th 792 (2d Cir. 2023), in which the court held that the DTSA permits an unjust enrichment award of the defendant’s avoided costs only if the misappropriation injured the plaintiff beyond the amount of its quantifiable actual damages. (In effect, this would render such awards a type of compensatory damages rather than a gain-based remedy, the latter being how one might otherwise think of unjust enrichment.) This holding also points to another issue that perhaps has not been sufficiently theorized, namely exactly what should an unjust enrichment award mean in the context of trade secret law. Presumably it can include the disgorgement of the defendant’s profit attributable to the misappropriation, if there is any such profit; but if there is no such profit, or perhaps even if there is, should courts sometimes award the costs the defendant avoided incurring by using the plaintiff’s secret information? If so, how do you calculate those avoided costs—and what, if anything, is the relationship between an award of avoided costs and injunctive relief (including head-start injunctions)?
Other questions also deserve further analysis. Should an award of unjust enrichment ever mean just an award of a reasonable royalty (an outcome the Federal Circuit appears to disapprove of in Versata, but which in theory could be justified if you think that, absent the misappropriation, the plaintiff would have licensed the defendant to use the secret)? Doctrinally, is the remedy best thought of as a matter of right, or as an equitable (and hence discretionary, and perhaps jury-less) remedy? The latter would seem to rule out the "as a matter of course" option, but if this is correct should eligibility for an unjust enrichment award hinge on the defendant’s having intentionally misappropriated? (To be sure, that standard that usually will be satisfied in this context, because liability for trade secret misappropriation, unlike liability for other types of IP infringement, requires proof of knowing or intentional conduct, or at least constructive knowledge--though there may be cases where the defendant had a good faith but erroneous belief that the information it acquired, used, or disclosed was not secret.) Or should we require something more (willfulness, egregiousness, whatever), to avoid risking overdeterrence? Relatedly, what (if anything) should be the relationship between an award of disgorgement of profits and punitive damages—should a plaintiff be allowed to recover both, or is that overdoing it? Alternatively, is there anything to be said, at least as a policy matter, for doing away disgorgement of the defendant’s profits altogether, as U.S. law has done with respect to utility patent infringement? (The New York Court of Appeals in E.J. Brooks Co. v. Cambridge Sec. Seals, 105 N.E.3d 301 (N.Y. 2018), might be read as interpreting New York law as not permitting this measure of recovery for trade secret misappropriation (New York doesn’t follow the Uniform Trade Secrets Act), although the dissenting judge in that case argued for limiting the majority holding precluding an award of avoided costs to cases seeking damages at law as opposed to equity.)
I’m not entirely sure yet what my own views are on all of these issues, but I am starting to supplement my existing research file and to develop some ideas. And if readers have any leads, including non-U.S. cases addressing any of these issues, I’d be happy to hear from you.
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I will be taking a blogging break for the next two weeks. I plan to resume on or about June 15.
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