chevron-down Created with Sketch Beta.
July 08, 2020 Articles

Trade Secret Strategy Update: Data on the DTSA

Judges see trade secret claims sort of like torts, sort of like contracts, and sort of like intellectual property. Employment attorneys are filing these cases.

By Rachel Bailey

Intellectual property practitioners love to talk about trade secrets. They are intangible property, so trade secrets are within our purview, right? Well . . . a look at the landscape of trade secret litigation under the federal Defend Trade Secrets Act (DTSA) paints a different picture. Trade secret law brings together contracts, torts, employment, and, yes, intellectual property, in an exciting strategic challenge. This article explores some trends in DTSA litigation and describes how taking a collaborative approach across practice areas will help practitioners strategize in this unique arena.

Trade Secret Claims Overlap with Contract Claims

As background, the data in this article include only cases with trade secret misappropriation claims. The pleading must indicate two elements: (1) that the information at issue is protected as a trade secret and (2) some form of misappropriation, including various synonyms for acquisition, use, or disclosure. This means that cases in which the information may be confidential or proprietary business information that don’t allege it is being protected as a trade secret are not included in the case set. Cases that plead trade secret protection must include some sort of theft or violation claim to be included here.

Now that we’re a few years out from May 2016, when the DTSA went into effect, let’s look at what’s been happening in these cases. There was a noticeable 30 percent jump in all trade secret case filings between 2015 and 2017 from 1,074 cases to 1,396 cases. Since 2017, trade secret case filings have remained steady. The number of trade secret case filings has been nearly identical for the last three years.

asdfasfd

asdfasfd

Credit: Rachel Bailey

Trade secret cases without DTSA claims (having only state law or common-law trade secret claims) decreased slightly between 2018 and 2019. As many predicted, litigators tend to plead both DTSA claims and state law claims. For cases terminating through the end of 2019, there were 37 cases with findings of trade secret misappropriation under the DTSA. Of those 37 cases, 30 also had trade secret misappropriation findings under state law. The other 7 cases had findings at default judgment or on consent. Thus, claimants tend to plead and litigate both statutes simultaneously.

Trade Secret Cases in Federal District Courts 2010 to 2019

Trade Secret Cases in Federal District Courts 2010 to 2019

Credit: Rachel Bailey

Plaintiffs are not only pleading trade secret misappropriation under the DTSA and state law—they tend to plead contract claims as well. The figure below shows the overlap between trade secret cases and other practice areas. Roughly 80 percent of trade secret cases have a contract claim as well. This is not surprising considering that trade secrets are often protected through nondisclosure agreements. Trademark, copyright, and patent cases have a smaller, but still significant, overlap.

Trade Secret Overlap Cases in Federal District Courts: 2010 to 2019

Trade Secret Overlap Cases in Federal District Courts: 2010 to 2019

Credit: Rachel Bailey

Trade Secret Damages Overlap with Contracts and Torts Damages

Over $33 million in damages were awarded in cases with DTSA claims terminating through 2019. Nearly $5 million in damages were awarded for trade secret misappropriation claims. The $13 million in general damages includes awards for attorney fees, costs, prejudgment interest, and mixed awards that may be partially attributed to trade secret claims. These are often awards that list a lump-sum payment in the judgement without further explanation. Of significance, $10 million in damages were contracts damages awards. These were awarded for breach of contract or business tort claims in cases that also had DTSA claims.

Damages in DTSA Cases Terminating through 2019

Damages in DTSA Cases Terminating through 2019

Credit: Rachel Bailey

Trade secret misappropriation began as a member of the tort family—it’s called “misappropriation” after all. The claim often gets grouped in with other tort claims when the court evaluates damages, particularly exemplary and punitive damages. The DTSA awards exemplary damages in the event that the trade secret is willfully and maliciously misappropriated. (18 U.S.C. § 1836(b)(3)(C)). When there is a mix of claims, the way the court untangles the possible damages combinations is telling. Let’s look at a few examples (these include cases not listed above as they did not terminate before 2020 and may be ongoing cases):

In Bytion Inc. v. Boado (No. 9:17-cv-80915) in the Southern District of Florida, Judge Middlebrooks awarded the following damages in a default judgement:

  • $48,960.00 in punitive damages for the DTSA, state law trade secret misappropriation, and common-law conversion and tortious interference claims;
  • $24,840.00 in actual damages under the Lanham Act;
  • $49,680.00 in treble damages under the Lanham Act;
  • $21,375.00 in attorney fees; and
  • $4,070.25 in costs.

Here, both Judge Middlebrooks and the motion for default judgment lumped trade secret damages with damages for common-law torts. The torts damages were considered punitive but were not in addition to a separate actual damages award for the various torts. Now that the DTSA is a separate federal statute, litigators may want to seek separate damages.

In Liqwd, Inc. v. L'Oreal USA, Inc. (No. 1:17-cv-00014) in the District of Delaware, the jury found willful trade secret misappropriation under both the DTSA and state law, as well as patent infringement and breach of contract. The jury awarded the following damages:

  • $22,265,000.00 for trade secret misappropriation;
  • $22,265,000.00 for breach of contract;
  • $21,810,000.00 for infringement of patent number 9,498,419; and
  • $24,960,000.00 for infringement of patent number 9,668,954.

The court then issued an order reviewing for willfulness damages and to prevent double recovery. The court went through a large amount of separate calculations based on the dates of when information was a trade secret and not made public in the patent application, in order to prevent double recovery. In the end, the court subsumed the trade secret misappropriation and breach of contract into the patent damages for a lump sum of $49,920,000.00 (see footnote 1 in the court’s August 20, 2019, memorandum and judgment, ECF No. 1078). This case is currently on appeal at the federal circuit court.

In Cajun Services Unlimited LLC v. Benton Energy Service Co. (No. 2:17-cv-00491) in the Eastern District of Louisiana, a jury found willful trade secret misappropriation under both the DTSA and state law, as well as breach of contract, fraud, unfair trade practices, and patent infringement. The jury awarded the following damages:

  • $886,103.10 for breach of contract;
  • $552,000.00 in consequential damages for bad-faith breach of contract;
  • $1,500,000.00 for fraud, unfair trade practices, patent infringement, and trade secret misappropriation (not including willfulness); and
  • $2,000,000.00 in exemplary damages under the DTSA.

This last bullet is most intriguing because the amount of exemplary damages was capped in the jury instructions at no more than two times the lump-sum award for fraud, unfair trade practices, patent infringement, and trade secret misappropriation.

Unraveling damages calculations in federal court is complicated by the way various judges are lumping damages together. Patent, trademark, and copyright disputes tend to take place in federal court, rather than state court. Federal judges are seeing more trade secret cases and may be tempted to use an intellectual property framework in instructing juries or awarding damages. However, they see contract and tort claims that complicate this issue and often award a lump sum that appears to apply to some set of claims. Right now, it appears that trade secrets are not often thought of as separate property, but rather the act of misappropriation is lumped with other types of wrongdoing.

Employment Law Firms Are Filing Trade Secret Cases

To throw another wrench in your litigation strategy, the law firms filing these cases tend to specialize in employment law. Looking at the data, there is very little overlap between employment claims—such as Fair Labor Standards Act, discrimination, and harassment claims—and trade secret claims. However, trade secret claims often involve an employee who left the company and took a hard drive or some other know-how on leaving. So it seems reasonable that the employer would call an employment firm, which may have helped write its employee handbook or onboarding paperwork. Employment attorneys may look to other specializations in order to strategize overlapping claims, damages, and general case strategy.

Top Law Firms in DTSA Cases Filed 2016 to 2019

Top Law Firms Representing Plaintiffs

  • Ogletree Deakins Nash Smoak & Stewart
  • Fisher & Phillips
  • Seyfarth Shaw
  • Littler Mendelson
  • Jackson Lewis

Top Law Firms Representing Defendants

  • Ogletree Deakins Nash Smoak & Stewart
  • Cooley
  • Perkins Coie
  • Morgan Lewis & Bockius
  • Gordeen Rees Scully Mansukhani
 

Trade Secret Injunctions Are Unique

Restraining orders are extremely important in trade secret cases because plaintiffs are often attempting to stop the flow of information. There is no analogous or overlapping practice area that requires the stop of information in a similar way. A review of cases with DTSA claims that terminated through 2019 shows that courts evaluated 310 cases with motions for temporary restraining orders and granted them in 210 cases (a 68 percent grant rate). Courts evaluated fewer cases with motions for preliminary injunctions, granting injunctions in 128 out of 229 cases (a 56 percent grant rate). Courts evaluated very few cases with motions for permanent injunctions—only 10 cases had permanent injunctions that were evaluated on the merits, 8 of which were granted. Data show that negotiating injunctive relief is an important aspect of case strategy in this area of the law.

Bringing It All Together

As we’ve seen here, judges see trade secret claims sort of like torts, sort of like contracts, and sort of like intellectual property. Employment attorneys are filing these cases. Therefore, strategizing in trade secret litigation likely takes some extra research and talking to colleagues with knowledge of these areas of law, as well as the particular judge. By collaborating among different practice areas, litigators can make creative arguments in this emerging melting pot of the law.

Rachel Bailey is the data relations manager at Lex Machina and is based in New Orleans, Louisiana


Copyright © 2020, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).