Damages

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This is the third in a multi-part discussion [first part] [second part] about whether and when to cut-off damages for trade secret misappropriation. Similar posts on LinkedIn at [first], [second] and [third].

Guidance from the courts on these questions is not always consistent and depending upon the jurisdiction may not exist. This makes it hard to predict in a particular matter the length of time that will be allowed for recovery of trade secret damages.

A possible solution, one which is well-grounded in UTSA principles and related commentary, is extending the damages accounting period for as long as necessary to eliminate the unfair commercial advantage gained from actionable misappropriation. See Uniform Trade Secret Act (UTSA), § 3 cmt. (“Like injunctive relief, a monetary recovery for trade secret misappropriation is appropriate only for the period in which information is entitled to protection as a trade secret, plus the additional period, if any, in which a misappropriator retains an advantage over good faith competitors because of misappropriation.”).

Our first installment explained that the damages accounting period may extend beyond the time a trade secret is no longer protected because it has lost its secrecy.* Our second  installment acknowledged that there are circumstances where damages end before the loss of secrecy. Why? Because the end of the commercial advantage period — the end of the time necessary to deprive the defendant of an unfair commercial advantage that is attributable to misappropriation – occurs before the trade secret loses its secrecy.

This installment addresses the use of the so-called “head start” rule as a temporal limitation on damages and flags different interpretations of the rule that may cause confusion or misunderstanding about the proper duration of a damages award. The many and varied head start concepts may compel a court to limit or expand damages in a manner that is inconsistent with the core principle of eliminating unfair commercial advantage.
Continue Reading Unfair Head Start and Trade Secret Damages

This is the next in a multi-part discussion of measuring the accounting period for trade secret damages. The common theme across these discussions is the need to untether the liability requirement of secrecy from the damages goal of awarding as much as necessary (but no more than) to eliminate unfair competition. Similar versions of the first and second parts of this series can also be found on the LinkedIn.

Our previous article posed the question as to when it was appropriate to cut-off money damages for trade secret misappropriation. Answer: damages for trade secret misappropriation should last as long as (and no longer than) necessary to eliminate commercial advantage due to misappropriation. This answer justifies extending the damages accounting period beyond the time a trade secret is no longer protected because it has lost its secrecy.

As explained in this article, the opposite is also true. There are circumstances where damages accounting period runs before the loss of secrecy. Why? Because the end of the commercial advantage period — the end of the time necessary to deprive the defendant of a head start or other unfair commercial advantage that is attributable to misappropriation – occurs before the trade secret loses its secrecy.

Practically speaking, the primary consideration in determining the cut-off date for damages is the end date for eliminating the unfair commercial advantage attributable to the misappropriation. This cut-off date may pre-date or post-date the loss of secrecy depending upon the facts in a particular case.
Continue Reading Ending Damages for Trade Secret Misappropriation before the Loss of Secrecy

This is first in multi-part discussion of measuring the accounting period for trade secret damages. First up: untethering the liability requirement of secrecy from the damages goal of awarding as much as necessary (but no more than) to eliminate unfair competition.

Trade secrets qualify for protection only so long as they are not generally known or ascertainable through “proper means” such as independent invention, reverse-engineering, observing them in public use or obtaining them from public literature. See Uniform Trade Secrets Act (UTSA) § 1(4); id., cmt. Extending the protection of a trade secrets beyond this point contravenes the public interest in avoiding unnecessary restraints on exploitation of valuable information. Restatement 3d Unfair Competition, § 39 cmt. f.

One might conclude then that the cut-off for damages for trade secret misappropriation should be the end of the secrecy period (i.e., the period the trade secrets were not known or knowable through proper means). And there are some cases that taken this position, including the recent decision of the Delaware district court in Liqwd, Inc. and Olaplex v. L’Oreal USA, Inc., 1:17-cv-14, D.I. 1078 at 3 (D. Del. Aug. 20, 2019) (Memorandum and Judgement following entry of jury verdict). See also id. D.I. 1162 at 9, 2019 U.S. Dist. LEXIS 215668, at *12-13 (D. Del. Dec. 16, 2019) (Order denying plaintiffs’ motion to alter judgment); id. D.I. a1184 at 2 (D. Del. Mar. 24, 2020) (entry of final judgment).

However, the Liqwd decision to cut off damages as of the loss of secrecy may contravene the guiding principle that damages should last as long as necessary to deprive the defendant of a head start or other unfair commercial advantage that is attributable to misappropriation.
Continue Reading Extending Damages for Trade Secret Misappropriation beyond the Loss of Secrecy

Yesterday evening, the district court in the trade secret litigation Waymo v. Uber et al [3:17-cv-939-WHA] issued revised jury instructions on trade secret misappropriation and proposed special verdict form (Dkt. #2499). The revised instructions retain the requirement in earlier drafts of the instructions that Waymo must show Uber actually used the improperly acquired trade secrets…

Jury trial on reasonable royalty? Courtesy Google Images
Right to jury trial on reasonable royalty damages differs depending on whether suit brought under DTSA or California version of UTSA

The new Defend Trade Secrets Act (DTSA) became law on May 11, 2016 and applies to any misappropriation that occurs on or after that date.

Although the DTSA creates a federal, civil remedy for trade secret misappropriation, it does not preempt state law.  This is going to encourage serious forum shopping, including, among other things, over the right to jury trial.

The federal law cedes to the jury the determination of all possible monetary damages claims.  In comparison, the version of the Uniform Trade Secrets Act (UTSA) adopted by California (CUTSA), while giving the jury the issues of lost profits and unjust enrichment, reserves for the trial judge the determination whether and to what extent to award reasonable royalty damages.
Continue Reading Unlike California, New Federal Trade Secret Law Offers Right to Jury Trial on Reasonable Royalty Damages

This post summarizes Proportionality Compels Early Disclosure of Patent Damages, found here, first published by the IP Law Section, State Bar of California in connection with the March 23, 2016 seminar “Patent Disputes for our Time: New Realities, New Approaches.” 

Patent litigation norm: bludgeon one another before determining case value
Patent litigation norm: bludgeon one another before determining case value

The Dec 2015 amendments to the Federal Rules of Civil Procedure call for greater effort on the part of the court and the parties to ensure that the time and expense invested in a case is proportional to value of the case.  The typical practice in patent litigation of bludgeoning first and valuing later presents a particularly compelling focus for the renewed emphasis on achieving proportionality.

Since there is a direct causal relationship between early disclosure of patent damages and achieving proportionality, the high likelihood is that courts, going forward, will strictly enforce the requirement that a patent plaintiff provide its damage computations in its Rule 26(a) initial disclosures.  To avoid prejudice to the patent plaintiff, any such early disclosures should be non-binding and subject to revision as the case proceeds.
Continue Reading Amendments to Civil Procedure Rules: Ending Patent Practice of Bludgeoning First and Valuing Later

While the pendulum has clearly swung in favor of limiting recovery of patent infringement damages, most notably in patent cases where non-practicing entities seek reasonable royalty damages, lost profits damages are not among the casualties.

Photo of Judge Alsup in Chambers
Hon. William Alsup: courtesy Google Images

United States District Court Judge William Alsup (ND Cal) is a notoriously hard grader when it comes to determining whether to allow patent infringement damage studies to go to the jury.  He nonetheless allowed expert studies calculating lost profits on the infringer’s sales to go to the jury in his Order in Plantronics v. Aliph, 3:09-cv-1714 (ND Cal).  His analysis confirms that, notwithstanding current trends favoring aggressive judicial gatekeeping over expert damage studies in patent cases, lost profits are recoverable so long as they are supported by an appropriate market reconstruction theory.

Quick note: this post focuses on patent cases between competing operating companies separate and apart from patent cases brought by non-practicing entities (NPEs) sometimes called “trolls.”  While in NPE cases there are compelling policies favoring aggressive use of the entire market value rule and related apportionment rules to limit reasonable royalty damages, these same policies are nowhere near as strong in competitor patent litigation.

At least three highlights of the lost profit rulings in Plantronics:

  • Reasonable royalty apportionment rules don’t apply to lost profits
  • You can use the patent owner’s market share in the reconstructed market to calculate lost profits
  • You can recover lost profits under a market share theory even if there are acceptable, non-infringing substitutes

So let’s break this down.Continue Reading Lost Profit Damages Alive and Well in Patent Cases

Vringo bought Lycos patents on search technology that keys ads to user search queries, then sued Google.  At the recently completed trial, Vringo convinced a Virgina jury to award, see page 11 of its Nov. 6 verdict, a reasonable royalty of 3.5% of that portion of Google’s revenue purportedly connected to the stolen technology, which the jury calculated as $15.8 million.

While the verdict (which to-date has not been entered as the court’s final judgment) might look like it satisfies the increasingly strict limitations against using unduly large revenue bases to calculate reasonable royalty damages, this may not be the case.

Vringo’s damage theory is effectively captured in the following trial exhibit:

Vringo introduced Google documents that supported Vringo’s theory that it’s search technology provided a quantifiable increase in revenue:

This approach appears to comply with the rule that patent royalty damages may be assessed against only the smallest portion of overall revenue attributable to the patented technology.  Vringo assessed what might be considered a small royalty percentage against only a “smaller” portion ($14 billion) of Google’s overall ad revenue.  Yet Vringo was nonetheless able to introduce the OVERALL revenue ($70 billion) to the jury, effectively bringing in entire market value through the back door.  See why after the jump.Continue Reading Court Lets Vringo Bring in Entire Market Value Through Back Door

Apple founder Steve Jobs famously questioned the value of market research:

A lot of times, people don’t know what they want until you show it to them.

Business Week Online, 1988.

We built [the Mac] for ourselves. We were the group of people who were going to judge whether it was great or not. We weren’t going to go out and do market research.

Playboy, 1985.

While this philosophy served Apple well in creating product categories such as the Mac and iPhone, the same cannot be said for Apple’s attempts to enforce its intellectual property rights.

Apple sued Motorola for infringing Apple’s patents on specific features used in cell phones and tablets, seeking tens of millions of dollars as a reasonable royalty for the unauthorized use of the patented features based on the opinion of Apple’s damage expert. However, the trial judge, Richard Posner (pictured to the left – who blogs by the way), recently excluded these opinions as unreliable based largely upon the failure of the expert to properly investigate consumer preferences. (Judge Posner’s Opinion dated May 22, 2012.)

While success in the markets in which Apple competes may not require asking consumers what they want, success in the courtroom, in particular the recovery of money damages for lost royalties on infringing sales, very much hinges on evidence that these questions were asked.

So how did Judge Posner and other jurists like him get so far off the Jobs path?Continue Reading Steve Jobs vs. Judge Posner: Ask What Customers Want? (Yes, if You Want Patent Damages)