2024 was a busy year for U.S. trade secret law. Many cases have had or are expected to have significant effects on present and future actions and parties in the United States. Below we present our top ten most interesting and impactful trade secret cases from across the country.
Avoiding Avoided Costs
On remand from an appeal in which the Second Circuit vacated a jury award of $284,855,192 in compensatory damages to TriZetto for Syntel's misappropriation under the Defend Trade Secrets Act ("DTSA"), Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Group, Inc., 68 F.4th 792 (2d Cir. 2023), the district court further vacated jury awards of $142,427,596 and $59,100,0001 for Syntel's misappropriation under New York trade secret law and copyright infringement, respectively.
In the appeal, the Second Circuit had affirmed the jury's findings that Syntel was liable for trade secret misappropriation under both the DTSA and New York law. However, it found that, in awarding damages for TriZetto's DTSA claim, the jury had improperly based its award not on "the actual loss TriZetto suffered post-DTSA from Syntel using its trade secrets," which TriZetto's expert had opined was $8.5 million in lost profits, but exclusively on the costs Syntel avoided by using TriZetto's trade secrets. Id. at 811. While the Second Circuit recognized that avoided costs could be factored into a compensatory damages award under the DTSA, it ruled that such avoided costs must be tied to the harm TriZetto actually suffered. Because TriZetto suffered no compensable harm beyondits lost profits, the Second Circuit held that, "as a matter of law, an unjust enrichment award of avoided costs was unavailable under the specific facts of this case." It therefore vacated the nearly $285 million award based on avoided costs and remanded for further consideration of the New York trade secret misappropriation and copyright infringement awards.2
On remand, the district court determined that it was bound to vacate the New York trade secret misappropriation and copyright infringement awards in like fashion. Specifically, it concluded that damages for trade secret misappropriation under New York law "must be measured by the plaintiff's actual losses," Syntel, 2024 WL 1116090, at *2 (quoting E.J. Brooks Co. v. Cambridge Sec. Seals, 105 N.E.3d 313 (N.Y. 2018)), and that the New York trade secret misappropriation award'which had been premised on a reasonable royalty that accounted exclusively for Syntel's avoided costs'did not reflect the injury TriZetto had suffered. The district court concluded similarly for the copyright infringement award. Id. at *4.
The district court, perhaps sympathetically, acknowledged that vacating the entire compensatory damages award was in "stark contrast to the jury's verdict" and "deprive[d] TriZetto of its lost profit damages of $8.5 million and, in effect, penalize[d] TriZetto for presenting a theory of damages that had yet to be addressed by the Second Circuit and had been accepted by the Seventh Circuit." Id. at *8. But Judge Schofield did find TriZetto was owed $14,548,992.98 in attorneys' fees.
Termination as Sanction
The court in Metricolor granted L'Oreal's motion for terminating sanctions with prejudice on grounds that Metricolor and one of its founders (Salvatore D'Amico) had committed several discovery-related abuses to conceal the weaknesses in Metricolor's trade secret case.
The district court explained, in detail, that (1) Mr. D'Amico spliced together and otherwise manufactured documents to support Metricolor's case after litigation began; (2) Metricolor produced these manufactured files to L'Oreal and affirmatively relied on certain of them in the litigation; (3) Mr. D'Amico deleted thousands of files (many permanently) to hide unfavorable evidence; (4) Metricolor concealed the existence of a forensic image taken of Mr. D'Amico's computer, which would have documented the missing files, for over a year and a half; and (5) Metricolor sought to halt a forensic review of that same image and inappropriately withheld documents discovered during that forensic review.
Based on these facts, the district court concluded that Metricolor and Mr. D'Amico "ha[d] repeatedly fabricated, destroyed, and withheld evidence" and that such "misconduct was the result of 'willfulness, bad faith, and fault'" that supported terminating sanctions. Id. at *18 (quoting Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (C.D. Cal. Mar. 29, 2024)).
The district court further determined that terminating the case with prejudice was "the only appropriate sanction," id. at *21, because of:
- The delay resulting from Metricolor's concealment of the image of Mr. D'Amico's computer and other misconduct, which "resulted in extensive and prolonged discovery disputes and forensic reviews which w[ould] likely continue if th[e] case were to move forward," id. at *20;
- The significant prejudice L'Oreal would suffer from Metricolor's destruction of an unknowable quantity of potentially important evidence;
- The "doubt" Metricolor's misconduct cast "on the veracity and integrity of all evidence in th[e] case," which "ma[d]e it impossible for [the] court to be confident that the parties will ever have access to the true facts," id. at *21 (quoting Conn. Gen., 482 F.3d at 1097); and
- The fact that lesser sanctions would be neither a sufficient remedy for Metricolor's misconduct nor a sufficient deterrent for its future misconduct.
Metricolor has appealed.
New Trial for Magistrate's Non-Ministerial Tasks
PB Legacy, Inc v. Am. Mariculture, Inc., 104 F.4th 1258 (11th Cir. 2024).
After a jury awarded almost $10 million to Plaintiff-Appellant TB Food USA, LLC ("TB Food") on federal and state trade secret claims, the Eleventh Circuit examined the propriety of the magistrate judge's exercise of Article III authority at trial.
During trial, the district judge had informed the parties that, because of his travel plans, the trial needed to end by a certain date, threatening a mistrial if the parties failed to finish by his deadline. Although the parties had rested their cases, the jury was still deliberating when the deadline approached. The parties then agreed to have a magistrate judge step in to read the forthcoming verdict and poll the jury. However, the magistrate judge went further, responding to several questions and notes from the jury and denying defendants' request that he ask the jury to clarify its verdict.
These actions, the Eleventh Circuit concluded, were an improper exercise of Article III authority. First addressing TB Food's waiver argument'i.e., that defendants waived their challenge by not objecting to the magistrate judge's conduct before the district court'the Eleventh Circuit noted that it had previously "reviewed the merits of a challenge to a magistrate judge's authority to conduct matters at trial" under similar circumstances. Id. at 1264. It then explained that the Federal Magistrates Act ("FMA"), which authorizes the delegation of Article III authority to magistrate judges, "embodies a strong policy concerning the proper administration of judicial business," id. (citation omitted), and therefore required treatment of the issue as jurisdictional (and unwaivable).
After addressing waiver, the Eleventh Circuit acknowledged that the district court did not need the parties' consent to have the magistrate judge perform the "ministerial" functions of reading the verdict and polling the jury under the FMA. But party consent was required for non-ministerial functions, the Eleventh Circuit explained, including functions "critical" to trial. Id. The Eleventh Circuit concluded that such consent was not sought outside the district court judge's and magistrate judge's presence and expressed in writing, which is what the FMA typically requires. That consent also could not be implied from the parties' conduct, as the parties were not told that the magistrate judge would perform non-ministerial tasks or that they were entitled to withhold consent to such performance without the imposition of adverse consequences. The Eleventh Circuit therefore vacated the judgment and remanded for a new trial on TB Food's trade secret claims.
Undoing and Injunction
Insulet Corp. v. EOFlow, Co., 104 F.4th 873 (Fed. Cir. 2024).
The Federal Circuit held that a district court abused its discretion when it preliminarily enjoined EOFlow from manufacturing, marketing, and selling insulin pump patches accused of incorporating Insulet's alleged trade secrets and from communicating technical information to a potential acquiring company (Medtronic).
In reversing the injunction, the Federal Circuit identified error in the district court's analysis of the likelihood of success, both because it failed to evaluate whether plaintiff's claim was barred by the statute of limitations and because the district court "failed to identify any trade secret with sufficient particularity." Id. at 882. The Federal Circuit determined that the district court:
- Applied an overbroad definition of the term "trade secret," which allowed Insulet to "advance[] a hazy grouping of information that the court did not probe with particularity to determine what, if anything, was deserving of trade secret protection," id. at 881;
- Failed to identify what among EOFlow's patches and technical information likely would have encompassed Insulet's trade secrets;
- Conducted only a generalized analysis insufficient to support a conclusion that Insulet took reasonable steps to protect specific and identifiable trade secrets;
- Failed to account for whether Insulet's alleged trade secrets were generally known or otherwise readily ascertainable through, e.g., reverse engineering...
