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 in order to recover unjust enrichment damages.

With due respect to the very hard work of the court and the parties, and recognizing full well that the district court has the final say on such matters, the current draft instructions do not incorporate — perhaps intentionally, perhaps not — the lessons learned by the Western District of Wisconsin in Epic Systems v. Tata Consultancy Services [3:14-cv-748-WMC] in the course of instructing a jury on awarding unjust enrichment damages on an acquisition-based misappropriation theory.

Epic Systems and its relevance to the “use” issues in the Waymo litigation is the subject of my earlier post Acquisition-based misappropriation depends upon how “use” is “used” (LinkedIn Dec. 22, 2017). The key rulings in Epic Systems:

Of particular relevance to the Waymo litigation is that the district court in Epic Systems initially instructed the jury that recovery of unjust enrichment damages is contingent upon showing actual use of the trade secrets. There was little or no explanation in these initial instructions of what is meant by “use.”  Upon listening to testimony on damages, however, the district court in Epic Systems decided it needed to issue a supplemental damage instruction to clarify that “use” does not require showing the trade secret was used to develop a successful competing product. (Dkt. #898 at 92:18-93:1)

The point is that the law makes clear that you don’t necessarily have to be successful in order to have used and be entitled to — and to be deemed to have been benefited by the development, market or sale of a competitive product. You don’t have to be successful if you’ve used it to develop, market or sell a competitive product. That’s enough. You don’t have to be — you don’t have to prove that it was successfully developed, marketed or sold.

This important clarification is missing from the current Waymo instructions. Without it, a defendant could avoid unjust enrichment damages on the grounds that there is no evidence that it “used” the trade secret to successfully develop, market or sell a competing product.

True enough, the district court in Waymo added new instruction XVI (Dkt. #2449 at 8), which cautions that “use” is not limited to “direct copying but can include studying and consulting” and “studying may constitute use even though the two designs differed.”  The underlying intent may have been the same as that which motivated the district court in Epic Systems to issue a supplemental instruction.  However motivated, the Waymo instruction falls  short of sufficiently warding off argument or evidence designed to narrow “use” to successful competition.

It may help to break down in chronological fashion how the district court in Epic Systems came to believe further explanation was necessary.

The district court started out by rejecting the plaintiff’s offer of proof of compensatory damages as not sufficiently anchored in evidence of use by defendant, stating in Epic Systems, Order on Offer of Proof Damages, at *5:

In other words, while the court is open to a “use” theory which is broader than specific evidence that Epic’s “confidential and trade secret information was incorporated into TCS’s Med Mantra product” [], plaintiff must tie its damages theory to that use. Otherwise, all the jury has is Britven’s assessment of the total value to TCS of Epic’ confidential information without any way to discount that total value to reflect TCS’s actual benefit.

The district court also described to counsel what it wanted to see in a sidebar outside the presence of the jury:

The jury was then instructed about the evidence of “use” required to award unjust enrichment damages:

In the course of introducing their evidence and testimony on damages, counsel advanced different interpretations of “use,” compelling the court to issue a supplemental instruction:

The jury then received (and ultimately rendered) a special verdict on damages that called out specific benefits anchored in use by the defendant:

In post-trial motions, defendant challenged the verdict as lacking sufficient evidence, but plaintiff successfully characterized the challenge as erroneously trying read back into “use” the requirement “that Epic had to prove that TCS then ‘used’ the comparative analysis either to improve or market its medical software products. But that is not the standard required under the law, and it is not the standard on which the jury was instructed.” (Pl. Opp. to Post-Trial Mot., Dkt. #926 at 56.)  The district court agreed (but did reduce the compensatory award by $100 million on other grounds), see Epic Systems, Order on Post-Trial Motions, at *4-5.

Bringing this back to Waymo litigation, Epic Systems is on point in that it awarded significant unjust enrichment damages on what for all practical purposes was an acquisition-based theory of misappropriation.  It rejected the argument by the plaintiff that “use” should not be a required to show unjust enrichment damages — which may be the approach Waymo is taking in its litigation.  It also rejects the idea that “use’ requires a showing that the trade secret or confidential information was used by defendant to develop a successful competitive product — which may be the approach Uber is taking in its defense of Waymo’s unjust enrichment claims. It therefore might be worth it for the parties and the court in Waymo to borrow the “use” instructions ultimately issued in Epic Systems.

 

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