With the dramatic increase in trade secret cases since the 2016 passage of the Defend Trade Secrets Act (DTSA), and the large damages awards in many of these cases, it is now more crucial than ever to properly understand how to assess and calculate damages in trade secret cases. Trade secrets can mean big business for companies that hold them, and damages awards for trade secret misappropriation can reach into the hundreds of millions of dollars. For example, a jury in a recent New York trade secret misappropriation case awarded the plaintiffs an $855 million verdict.[i] In a recent webinar, Fish attorneys Esha Bandyopadhyay and Tommy Jacks discussed the current landscape of trade secret damages, both under the DTSA and various state laws, as well as some recent developments in trade secrets damages law. Below is a summary of those developments. For more information about trade secrets damages, please find a recording of the full webinar here.
Recent Conflicts between the DTSA and State Trade Secrets LawsCongress’s primary objective when passing the DTSA in 2016 was to achieve uniformity – a single national standard for trade secret misappropriation. Over four years later, that goal remains elusive. While the damages provisions of the DTSA and the Uniform Trade Secrets Act (UTSA) (variations of which have been adopted by every state except New York) are quite similar, other provisions in state statutes create “wrinkles” for DTSA litigants, particularly given the propensity of many courts to view and address DTSA claims through the prism of state trade secret law. However, federal courts have found opportunities to address such wrinkles. Just recently, courts have taken up conflicts between the DTSA and state trade secrets laws regarding extraterritoriality, inevitable disclosure, and the right of action by non-owners.
Extraterritoriality
In Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd., 436 F.Supp.3d 1150 (N.D. Ill. 2020), the Northern District of Illinois considered the extent to which the DTSA allows a plaintiff to recover damages for misappropriating activities that occur outside the United States. Motorola alleged that Hytera (a Chinese company) hired three Motorola engineers who brought with them thousands of trade secrets that enabled Hytera to manufacture functionally identical two-way radios that were sold throughout the world. Hytera filed a motion to exclude evidence of damages incurred outside the U.S.; the court denied the motion, ruling that the evidence would be provisionally admitted but agreeing to determine prior to charging the jury whether and to what extent they would be allowed to consider evidence of extraterritorial damages.
The court began by noting that, under Supreme Court precedent, there is a presumption that U.S. statutes have no extraterritorial application. However, that presumption can be overcome if it is clear that the statute in question was intended to apply to conduct occurring outside the U.S. that affects interests inside the U.S. falling within the scope of the statute’s principle focus. The court then noted that the DTSA contains two pertinent sections in a single chapter — § 1836 (the damages provisions) and § 1837, which states that the Act “applies to conduct occurring outside the United States if…an act in furtherance of the offense was committed in the United States.” Since “use” of the trade secret inside the U.S. would be “in furtherance of the offense” of misappropriation, and since the plaintiff established at trial that the defendants advertised, promoted, and marketed the products embodying the allegedly stolen trade secrets inside the U.S., the court held that the damages provisions of § 1836, being in the same chapter as the extraterritoriality provisions of § 1837, would permit the recovery of damages worldwide.
In Luminati Networks Litd. V. BIScience, Inc., 2019 WL 2084426 (E.D. TX 2019), the Eastern District of Texas clarified the scope of the phrase “act in furtherance.” There, defendant BIScience argued that plaintiff Luminati failed to state a claim because it failed to allege any conduct occurring inside the U.S. relating to the alleged misappropriation, as required under the DTSA. The plaintiff responded that the sale of the defendant’s competing residential proxy service using its trade secrets caused it harm in the U.S. and was, therefore, in furtherance of the defendant’s misappropriation. The court held that the damages incurred by Luminati in the U.S., standing alone, are not acts “in furtherance of” BIScience’s misappropriation. However, the plaintiff also alleged in its complaint that BIScience had used its trade secrets in Texas, which the court held would suffice.
For DTSA plaintiffs, the lesson from these two cases is clear: If you seek damages based on the defendant’s global sales of its products incorporating your trade secrets, be sure to nail down the fact of the use of your trade secrets within the U.S.
Inevitable Disclosure
The inevitable disclosure doctrine presents another wrinkle for DTSA plaintiffs. In states that apply the doctrine, an...
