There is a lack of consensus among Federal Circuit judges whether a jury should determine the amount of restitution or unjust enrichment damages. The three judges that decided TAOS v. Renesas (Fed. Cir. 2018) did not believe a jury should decide restitution for trade secret misappropriation. A different three-judge panel in TCL v. Ericsson (Fed. Cir. 2019) took a contrary position, holding that a jury should decide restitution for defendant’s past unlicensed sales of products infringing plaintiff’s patents. The different resolutions of the jury right question cannot be reconciled as dealing with different wrongful conduct – trade secret misappropriation in TAOS and patent infringement in TCL. Instead, they reflect a difference of opinion within the Federal Circuit on whether the same or substantially similar restitution remedy is legal or equitable in nature.
These Federal Circuit decisions are material to the continued development of guidelines for measuring monetary relief for trade secret misappropriation. In addition to actual losses, the trade secret owner is entitled to obtain the amount by which the misappropriator has been unjustly enriched (not otherwise accounted for in the award of actual losses). Relief in the form of actual loss is a damages-type remedy having the goal of compensating the trade secret owner for its losses. Relief in the form of unjust enrichment is a restitution-type remedy having the goal of preventing the misappropriator from unjustly benefiting at the trade secret owner’s expense. Whether future cases hold that a jury should decide unjust enrichment may well turn on which of TAOS’s or TCL’s views of restitution is adopted; if TAOS, this is equitable relief for which there is no jury right, or, if TCL, this is legal relief for which there is a jury right.
Texas Advanced Optoelectronic Solutions (TAOS) sued Renesas Electronics America (formerly Intersil) in the Eastern District of Texas alleging unauthorized use of ambient light sensor technology used in cellphones and other devices. The complaint contained four causes of action: patent infringement, trade secret misappropriation under Texas common law, breach of NDA and tortious interference with contract. After a trial, a jury returned a verdict for TAOS on all claims and awarded (1) $73.7 million as a reasonable royalty for patent infringement; (2) $48.8 million as disgorgement of Intersil’s profits (also known as restitution or unjust enrichment) and $10 million in exemplary damages for trade secret misappropriation; (3) $12 million as a reasonable royalty for breach of contract; (4) $8 million in lost profits and $10 million in exemplary damages for tortious interference; and (5) nominal damages of $1 for unauthorized retention of documents in breach of the NDA. The jury also found Intersil’s infringement to be willful.
Upon hearing post-trial motions, the district court denied TAOS’s request for enhanced damages for patent infringement and injunctive relief, ruled that the damages awarded for breach of contract and tortious interference were duplicative of the damages awarded for trade secret misappropriation, and allowed the patent infringement and trade secret misappropriation awards to stand.
On appeal, the Federal Circuit (Judges Taranto (opinion), Dyk and Bryson) vacated the award of actual and exemplary damages for trade secret misappropriation for two main reasons: first, TAOS failed to introduce evidence of the contribution of each of the three asserted trade secrets to the profits obtained by Intersil at TAOS’ expense (since the Federal Circuit affirmed liability for trade secret misappropriation on only one of the asserted trade secrets, evidence apportioning damages among the trade secrets was necessary); and second, the award for disgorgement of profits was not properly limited to the period of time that Intersil was liable for trade secret misappropriation
Instead of concluding its analysis at this point, the Federal Circuit proceeded to take up the issue whether the court or jury should decide on remand whether to award disgorged profits. The court framed the issue as whether the Seventh Amendment required that a jury decide whether to award disgorgement of defendant’s profits as a remedy for trade secret misappropriation. The Federal Circuit determined that there is no such constitutional jury right and therefore an “additional” reason for vacating the damages awarded for trade secret misappropriation is that defendant Intersil “had a right to a non-jury decision on disgorgement.” TAOS, 895. F.3d at 1319.
The more recent TCL decision arises out of dispute whether Ericsson, the owner of standard-essential patents (SEPs), complied with its obligations to offer fair, reasonable and non-discriminatory (FRAND) license rates to TCL, a manufacturer of mobile devices implementing standards incorporating the Ericsson SEPs. The resolution of the dispute required among other things the determination of the amount of the “release payment” owed by TCL as retrospective monetary compensation for past wrongs (unauthorized and unlicensed use of Ericsson’s SEPs). The district court ultimately conducted a bench trial on all issues. Ericsson appealed on the grounds that it was deprived of its Seventh Amendment right to jury trial on the release payment term.
On appeal, the Federal Circuit (Judges Chen (opinion), Newman and Hughes) focused its analysis of the Seventh Amendment jury right on the question whether the relief provided by the release payment was legal or equitable. Ericsson argued that it was legal because it is compensation for past patent infringement. TCL argued that it was equitable because it was ordered as restitution for TCL’s past unlicensed sales, i.e., that it was a “way to retroactively restore to Ericsson that which it would have received if the FRAND terms and conditions had previously been set, and a license not delayed.” TCL’s argument was unavailing in the view of the Federal Circuit because even if the release payment was properly characterized as restitution, the underlying nature of the relief was legal and therefore a jury trial on this restitution remedy was required under the Seventh Amendment. TCL, 2019 U.S. App. LEXIS 36090, at *28. Accordingly, the Federal Circuit vacated the district court’s determination of the release payment and remanded for jury trial. All other determinations made by the district court were vacated as predicated on issues common to the improperly decided release payment or reversed as a consequence of the vacated rulings.
Comparing TAOS to TCL
1. TAOS’ limited precedential value
As a preliminary observation, the earlier TAOS decision rejecting the right to jury trial was narrow in scope and arguably dicta, providing significant room in subsequent cases for limiting clarifications. First of all, TAOS’s “non-jury right” reason for vacating trade secret misappropriation damages was separate from and additional to its main rationale. Therefore, this portion of the decision is arguably dicta and of limited precedential strength.
Secondly, TAOS is distinguished by plaintiff TAOS choosing not to make all arguments available to it in support of its right to jury trial on unjust enrichment. Under Seventh Amendment jurisprudence, a party has a right to jury trial on an action that could have been brought in English courts of law in 1791 (the date on which the Seventh Amendment enacted) or is “analogous to one that was.”TAOS, 895. F.3d at 1319-20. If the historical inquiry does not yield an answer, then the court considers “precedent and functional considerations” that might support the right to jury trial. Id. That TAOS would benefit from arguing precedent and functional considerations seems obvious from the fact that causes of action for trade secret misappropriation were first recognized in the mid-1800s – well after the enactment of the Seventh Amendment – making it difficult to satisfy the constitutional historical inquiry. Yet TAOS stipulated away this argument. It agreed “that it lacks a right to jury decision on the remedy it seeks if that remedy was not historically available at law; it does not rely on functional considerations to support its argument for a right to jury determination of disgorgement.” Id. at 1320. TAOS’s scope is therefore limited to a historical inquiry that does not address the functional test for jury rights on unjust enrichment awards for trade secret misappropriation.
2. TAOS and TCL disagree whether restitution is legal or equitable remedy
TAOS’s and TCL’s different rulings on whether the restitution remedy should be decided by a jury cannot be explained as a consequence of the cases addressing different wrongful conduct – trade secret misappropriation in TAOS and patent infringement in TCL. The determination in TAOS that the jury should not decide restitution did not depend in any way on the differentiation of misappropriation of trade secrets from infringement of patents. To the contrary, TAOS deemed claims for patent infringement an appropriate analogue of trade secret claims for purposes of deciding the constitutional jury right question – in the view of the TAOS panel, since disgorgement of defendant’s profits was not historically available at law in a patent infringement case, neither was it available at law for trade secret misappropriation. Id. at 1324-25.
Furthermore, in TCL, that the underlying conduct involved patent infringement was not material to its determination that the jury should decide restitution. TCL focused on the substance as opposed to the form of the restitution remedy at issue. What was material to the decision in TCL was not that the release payment could be characterized as restitution or that the release payment was ordered in the form of an injunction, but rather that the release payment, in substance, provided a substitute remedy for the benefits obtained by TCL of engaging in unlicensed sales of proprietary technology.
Instead, the explanation for TAOS’s and TCL’s different conclusions is that their respective panels were not of the same mind on whether the same or substantially similar restitution remedy is equitable or legal in nature. The three-judge panel in TAOS viewed restitution as an equitable remedy which precludes recognition of a Seventh Amendment jury right. A different three-judge panel in TCL viewed restitution as a legal remedy for which there is a Seventh Amendment jury right.
- Both decisions appear to be grounded – at least at the outset of their analyses — in the same or similar principles. Breaking down these shared principles helps explain how and where the decisions ultimately diverge. Both cases:Involved the same type of monetary remedy, one which is measured by a gain obtained by the defendant at the plaintiff’s expense: in TAOS, this was the profit obtained by defendant from the unauthorized use of plaintiff’s trade secrets; in TCL, this was the financial benefit obtained by defendant from unlicensed sales of products that infringed plaintiff’s patents.
- Characterized the monetary remedy at issue as restitution.
- Applied the same or similar test for whether the Seventh Amendment preserved a right to jury trial; the inquiry in each case was whether the action in question was the same or analogous to an action brought in English courts of law or equity prior to the enactment of the Seventh Amendment in 1791, and whether the remedy sought is legal or equitable in nature.
- Recognized that restitution can be either legal or equitable, citing the Supreme Court in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 212-13 (2002):
[N]ot all relief falling under the rubric of restitution is available in equity. In the days of the divided bench, restitution was available in certain cases at law, and in certain others in equity. Thus, “restitution is a legal remedy when ordered in a case at law and an equitable remedy . . . when ordered in an equity case,” and whether it is legal or equitable depends on “the basis for [the plaintiff’s] claim” and the nature of the underlying remedies sought.
But having traveled down the same analytical path up to this point, TAOS and TCL go in different directions. TAOS looks at the historical analogues to trade secret claims and restitutionary remedies, concluding that these perspectives support the characterization of restitution as an equitable remedy. It cites the recognition of trade secret claims in American and English equity courts in the nineteenth century. TAOS, 895 F.3d at 1322-23. Acknowledging that liability for trade secret theft post-dates the 1791 enactment of the Seventh Amendment, TAOS also considered analogues for recovery of restitution for trade secret misappropriation from 1791 or earlier and concluded based on relatively scant authority that although a tort plaintiff could seek restitution in courts of law, the trade secret tort “does not appear to have included” restitution as a legal remedy. Id. at 1323. Finally, TAOS deems patent claims an analogue for trade secret claims; since, in the view of the TAOS panel, the disgorgement of defendant’s profits for patent infringement was historically not available at law, neither would it be for trade secret misappropriation. Id. at 1324-25.
In comparison, TCL focused more on the nature of the remedy at issue than on drawing historical analogues to the substantive bases of the claims. TCL applied the remedies law principle distinguishing between “specific” and “substitute” remedies, concluding that since the basis of the restitution remedy at issue was to provide a substitutionary remedy it was a legal claim. TCL, 2019 U.S. App. LEXIS 36090, at *29. Following the distinction drawn by the Supreme Court in Great-West Life between restitution in equity and restitution at law, the Federal Circuit explained that restitution in equity seeks to restore to plaintiff specific funds or property in the defendant’s possession. Id. In contrast, where restitution imposes personal liability on the defendant for money damages as a “substitute” for the benefits conferred on the defendant it is legal in nature. Id. at *28. In TCL, the basis of the release payments was not that TCL held particular funds or property that must be restored to Ericsson (a specific remedy that is equitable in nature), but rather as a substitute for the benefits conferred to TCL from selling products that practiced Ericsson’s SEPs without a license (a substitute remedy that is legal in nature).
Trade Secret Damages
Where does this leave courts that must decide whether to reserve for themselves or instead give the jury the task of determining unjust enrichment for trade secret misappropriation?
The current practice of most courts is to give the question to the jury. The ruling in TCL supports this approach. Also, by focusing the inquiry on the nature of the remedy sought, TCL avoids the pitfalls of attempting to draw analogies between more contemporary or modern day substantive claims (e.g. trade secret misappropriation) and claims historically heard at law or in equity on or before the enactment of the Seventh Amendment in 1791. These pitfalls are described in D. Dobbs and C. Roberts, Law of Remedies § 2.6(3), p. 119 (3d ed. 2017):
The historical or substantive approach breaks down quickly when history furnishes no precise guide, when history cannot be discovered in detail, and when we think we know more history than we do in fact.
To the extent TAOS holds to the contrary it is of limited precedential value; the court’s finding of no jury right was arguably dicta, and whether it was or wasn’t, the parties stipulated away arguments that otherwise might have supported a finding that there was a right to jury trial. In addition, the current Restatement Third of Restitution and Unjust Enrichment § 4 cmt. c., p. 30 (ALI 2011) also cautions against the tendency of some courts to erroneously base their determination whether relief is equitable in nature upon the characterization of the relief as “restitution” and/or “unjust enrichment.” (“The most widespread error is the assertion that a claim in restitution or unjust enrichment is by its nature equitable rather than legal.”) TAOS may be susceptible to this criticism.
Furthermore, the Supreme Court has extolled the “federal policy favoring jury trials,” especially with respect to disputed questions of fact. See In re RFC, 2018 U.S. Dist. LEXIS 160206, at *28 (D. Minn. Sept. 18, 2018), citing Simler v. Connor, 372 U.S. 221, 222 (1963).
All of this said, there is scant case law addressing this subject. That the common practice is for the jury to decide unjust enrichment for trade secret misappropriation does not mean there is well-established legal precedent supporting this practice. Depending upon how a court may want to approach the subject, it has recourse to the historical tests of TAOS leading to the finding that this relief is equitable and therefore the defendant has a right to a non-jury decision, or, alternatively, it can follow the remedies-focused test of TCL leading to the finding that this relief is legal and therefore requires a jury determination.