“No,” says the court in BladeRoom v Facebook et al.  “Yes,” says the court in O2 Micro v. Monolithic Power.

Can these different results be reconciled and can a rule for apportioning damages between trade secrets be derived from the inquiry? Yes and yes.

BladeRoom v. Facebook et al.

BladeRoom is ND of California case in which plaintiff BladeRoom asserted misappropriation of trade secrets under California’s version of the Uniform Trade Secret Act (CUTSA). The plaintiff’s damage expert’s opinion was that plaintiff should be awarded over $200 million lost profits and unjust enrichment damages resulting from defendant Emerson’s trade secret misappropriation. The defendant moved to exclude the opinion due to the expert’s failure to apportion damages on a trade secret-by-trade secret basis. The court denied the motion and allowed plaintiff to introduce the opinion at trial, stating:

It is true that under CUTSA, damages claimed for actual loss or unjust enrichment must be caused by the misappropriation alleged. Cal. Civ. Code § 3426.3. This portion of CUTSA does not require, however, that an expert assign damages amongst the trade secrets for his or her opinion to be admissible.

(Order, 5:15-cv-1370, Dkt. 745 at 14:1-4.)

Consistent with this ruling, the court rejected defendant Emerson’s proposed jury instruction that “[d]amages for misappropriation must be tied to each specific trade secret and to each specific combination of trade secrets.” (Dkts. 798 at 162:5-6 and 829 at 8:1-17.) Likewise, the verdict form given to the jury (which they ultimately returned in favor of plaintiff) did not require the jury to apportion damages between trade secrets.

(Jury Verdict, 5:15-cv-1370, Dkt. 867 at 3:12-16.)

O2 Micro v. Monolithic Power

O2 Micro is also a ND of California case in which plaintiff O2 Micro asserted misappropriation of trade secrets under CUTSA. The court granted a post-trial motion to vacate the jury’s award of $12 million unjust enrichment damages for trade secret misappropriation. In reaching this decision, the court cited the failure of plaintiff’s damage expert to assign damages between the 12 asserted trade secrets:

After the jury concluded that [defendant] did not misappropriate all of 02 Micro’s trade secrets, [O2 Micro’s damages] expert testimony regarding damages for misappropriation of all trade secret was useless to the jury.

O2 Micro Int’l Ltd. v. Monolithic Power Sys., Inc., 399 F. Supp. 2d 1064, 1077 (N.D. Cal. 2005) (emphasis added).

O2 Micro’s analysis is consistent with the comments to California’s model jury instructions, which state “[i]n cases involving more than one trade secret, the jury must answer all of the questions in the verdict form separately for each trade secret at issue.” CACI VF-4400 (Verdict Form for Misappropriation of Trade Secrets).

Can these two apparently opposing interpretations of trade secret damages be reconciled?

Yes. A damage expert is not required in every case to determine damages on a trade secret-by-trade secret basis. Whether they should be excused from doing so depends upon whether they are able to assume (i.e. rely on the jury finding) that misappropriation of any one or more of multiple asserted trade secrets could result in the same total amount of damages.

In BladeRoom, the damage expert based his opinion on the assumption that each of the asserted trade secrets was a “lock on the door” to defendant getting (and plaintiff losing) the construction deal at issue. Plaintiff’s counsel described the methodology in its brief as follows:

The technical experts have thus opined that each of these individual and combination Trade Secrets was a technical “lock on the door” to Emerson being awarded the Lulea 2 contract. Just as there can be multiple locks on a door, any one of which prevents the door from opening, there are multiple BladeRoom Trade Secrets or Combination Trade Secrets, any one (or more) of which would have prevented Emerson from entering into the Lulea 2 business with Facebook absent misappropriation. . . .

[M]isappropriation of any one or more of these “locks on the door” Trade Secrets by Defendants entitles BladeRoom to the full amount of damages flowing from that award of business to Emerson instead of to BladeRoom.

(Pl. Opp. Br., 5:15-cv-1370, Dkt. 559 at 10:16-11:4 (emphasis added).)

The court in BladeRoom allowed the damage expert’s testimony to go to the jury with the warning that plaintiff would be required to prove the hypotheses upon which the damage expert was relying. Based on the favorable jury verdict, the jury found that each of the asserted trade secrets served as a “lock on the door.” Whether the court deems the proofs sufficient to support these findings is yet to be determined – defendant Emerson has a pending JMOL motion challenging among other things the sufficiency of the evidence to support the damages award. (Def. Mot for JMOL, 5:15-cv-1370, Dkt 898 at 31.)

In comparison, in O2 Micro, the damage expert did not employ a “lock on the door” methodology. He did not assume that misappropriation of any one of the 12 trade secrets asserted in the case was a “lock” that would have prevented the “door” to defendant’s enrichment from “opening” absent misappropriation. He testified to a unitary sum for unjust enrichment damages in reliance on the jury finding misappropriation of all 12 trade secrets. When the jury found only 5 trade secrets to have been misappropriated, there was no evidence upon which the damage award could have been based.

The damage expert’s testimony in O2 Micro was rendered “useless” by his failure to assign damages on a trade secret-by-secret basis. But this does not mean O2 Micro is inconsistent with BladeRoom. Unlike his counterpart in BladeRoom, the damage expert In O2 Micro did not rely on foundational testimony showing that misappropriation of any one or more of multiple asserted trade secrets could result in the same total amount of damages. O2 Micro teaches that absent foundational testimony like that relied upon in BladeRoom, a damage expert will be required to apportion damages amongst trade secrets.

Dave Bohrer’s recent post Extending US Trade Secret Law to Reach IP Theft in China discusses what to do when your company’s Chinese joint venture makes off with your trade secrets in China.  The post suggests it may be possible to bring an action in US court extending either federal or state trade secret law extraterritorially to reach the misconduct in China.

In response to Dave’s post, I suggest that there is another, complementary alternative to a US-based civil action: bring a complaint asserting trade secret theft and unfair competition to the U.S. International Trade Commission (“ITC”) under Section 337 of the Tariff Act.

The ITC, despite its name, is a U.S. federal agency that operates as U.S. district court with a twist – extraterritorial reach to address unfair acts that take place entirely oversees, and in rem jurisdiction over Chinese respondents based on the importation of goods into the United States.   The ITC cannot award damages but it can close the borders to goods from Chinese entities that steal trade secrets, effectively a national injunction.  Your aggrieved U.S. client at least won’t find itself competing with its own purloined knowhow in the U.S. market.   ITC cases are fast (18 months or less, soup to nuts) and furious (offering remedies with teeth that not only exclude unfairly traded goods, but which can bind U.S. distributors and retailers with cease and desist orders).

The ITC came into its own as a forum for litigating trade secrets with the TianRui case in 2008.  In that case, employees from a Chinese-U.S. railway equipment joint venture departed and started a new Chinese company, using the stolen trade secrets.  Soon the U.S. partner was facing U.S. imports of Chinese railways using the stolen technology.  The ITC found, and the Federal Circuit affirmed, that the Commission had authority under Section 337 of the Tariff Act to apply U.S. trade secret law to bad actors and unfair acts that took place entirely in China.  The Federal Circuit expressly held that “section 337 applies to imported goods produced through the exploitation of trade secrets in which the act of misappropriation occurs abroad.   In reaching this decision, the Federal Circuit effectively treated the Uniform Trade Secrets Act as federal common law and found the Commission’s determination to comply with basic trade secret principles.  ITC findings of fact and law in “unfair acts” cases are preclusive and bind the district court, giving Complainants the option of a rapid one-two punch of an ITC exclusion order sealing the U.S. border from infringing goods, and then the possibility of walking into the district court for damages without relitigating the merits of the case.

Of particular note is the ITC’s determination in TianRui that “[t]he presumption against extraterritoriality does not govern this case.”   In other words, a trade secret complaint investigated by the ITC avoids entirely what my colleague described in his earlier post as one of the more significant legal hurdles to extending US trade secret law to reach extraterritorial conduct. Continue Reading Extending US Trade Secret Law to Reach IP Theft in China: An ITC Lawyer’s Reply

Hidden Memory Card  (inspired by ABC's Designated Survivor, 1:9, "The Blueprint," aired Dec. 7, 2016)
Hidden Memory Card (inspired by ABC’s Designated Survivor, 1:9, “The Blueprint,” aired Dec. 7, 2016)

Engineers from your China subsidiary just joined a competing company which has begun using your trade secrets.  Can you sue in the US and avoid the uncertainty and expense of seeking relief in a Chinese court?  The answer is that both federal Defend Trade Secrets Act (DTSA) of 2016 and California’s version of the Uniform Trade Secrets Act (CUTSA), under the right circumstances, may be extended extraterritorially to reach misappropriation outside of the US.

Perhaps surprisingly, it may be harder to do this under the federal law, which expressly provides that it applies to conduct outside the US, than under the California law, which is silent on the subject.  Let’s break this down.

Extraterritorial theft of trade secrets by insider employees or business partners in China is a significant problem as evidenced by the investigation in International Trade Commission cases Amsted v. TianRui (disclosure and use of US company’s trade secrets in China) [the 2011 Federal Circuit decision on appeal] and In re Certain Rubber Resins (same) [the 2014 ITC determination].  The problem reflects the reality of the current business environment, which is global and digital; technology owned by US-based companies is often shared with employees or business partners located outside of the US and it is not unusual for them to move between competitors. Continue Reading Extending US Trade Secret Law to Reach IP Theft in China

Although many may be asserted, quite often far less warrant protection
Although many may be asserted, quite often far less warrant protection

The question is whether it is possible to get a court to enter partial summary judgment before trial on some but not all of the trade secrets that the defendant is accused of stealing.

As discussed in the Sept 28 post, the answer is that this may not be possible if the lawsuit is filed in California state court.

But if the trade secret lawsuit is filed in federal court, the answer is yes.  In federal court, it is easier to weed out before trial alleged trade secrets that do not satisfy the legal requirements for protection.

Why should we care?  For each allegedly misappropriated trade secret that is allowed to be argued at trial, the costs incurred in either proving up or rebutting the claim run in the tens if not the hundreds of thousands of dollars spent on attorneys, experts and discovery, not to mention the significant time the court and the jury must devote to determining liability on each such claim.  In other words, the potential savings of time and money to all concerned (court, jurors, and parties) from taking fewer trade secrets to trial are huge. Also, settlement before trial is much more likely if the parties know in advance which trade secret claims will or will not be tried. Continue Reading You Can Get Partial SJ on Some But Not All Trade Secrets . . . In Federal Court

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