On May 25, 2023, the U.S. Court of Appeals for the Second Circuit in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., Inc. issued a ruling severely limiting the availability of avoided costs as a measure of damages in trade secret cases brought under the Defend Trade Secrets Act (DTSA). ' F. 4th ', 2023 WL 3636674 (2d Cir. May 25, 2023).
Avoided costs refers to "the costs a trade secret holder had to spend in research and development that a trade secret misappropriator saves by avoiding development of its own trade secret." Id. at *13. Despite acknowledging that "avoided costs are recoverable as damages for unjust enrichment under the DTSA" and while affirming a jury's finding of liability over Syntel's misappropriation of TriZetto's trade secrets, the Second Circuit vacated the jury's award of $285 million in compensatory damages on the ground that avoided development costs was not an available measure of damages "under the particular facts of th[at] case." Id. at *13, *17-18.
The Second Circuit very narrowly interpreted the DTSA as permitting an award based on avoided costs only in instances where a plaintiff's injury "is not adequately addressed by lost profits," such as "where the value of the secret is damaged, or . . . destroyed." Id. at *13. The court opined that Syntel's misappropriation did not injure TriZetto beyond any loss of profits because "TriZetto retain[ed] the use and value of its trade secrets and the district court permanently enjoin[ed] Syntel from using TriZetto's secrets." Id. at *14. The court so held despite acknowledging that Syntel had "unjustly benefitted from misappropriating TriZetto's trade secrets" and earned $27 million in revenue. Id. at *15
Syntel is the latest chapter in the hostility of New York...
