Remedies Available for the Misappropriation of Trade Secrets

Figure 5.6. (credit: Joe Ravi via Wikimedia Commons / CC BY SA 3.0)

Learning Objectives

After completing this section, you will be able to

• Describe how injunctions are used to enjoin actual and threatened misappropriations of trade secrets.
• Explain how remedies are awarded under the Uniform Trade Secrets Act.

The UTSA provides a full array of remedies, including
statutory damages,
injunctive relief,
attorneys’ fees, and
exemplary damages.xxviii
The remedy or remedies will depend on the extent of trade secrets involved, the manner of misappropriation or conversion, and the type of damage sustained by the owner.

xxviii

See Unif. Trade Secrets Act §§ 2-5, U.L.A (1985).

Injunctive Relief

As discussed above, under the UTSA, injunctive relief is available to enjoin actual, as well as threatened, misappropriation. Injunctive relief allows the owner of a trade secret to obtain a court order prohibiting the actual or threatened
misappropriation of a trade secret. The ability to enjoin threatened misappropriation is very important because it enables the owner of the trade secret to prevent public disclosure of the trade secret.xxix
Injunctive relief may take many forms. The scope of an injunction may vary from a broad prohibition on any use of material found to be a trade secret, to a more limited prohibition on the scope of an employee’s work with a new employer.xxx
Both the scope and subject matter of an injunction vary depending upon the specific facts of the case and the nature of the trade secret in question. The UTSA provides that an injunction shall terminate once the trade secret ceases to exist, but may
be continued for a reasonable period of time to extinguish any commercial advantage that otherwise would be derived from the misappropriation. This is especially important where, at the time of the action, the information or knowledge is no longer a
trade secret. In such a case, the court may still award the owner injunctive relief that is narrowly crafted to deprive the defendant of the benefit of time saved by improper use of the owner’s trade secret.xxxi

xxix

Standard Brands, Inc. v. Zumpe, 264 F. Supp. 254, 269 (E.D. La. 1967).
xxx

See 3M v. Pribyl, 259 F.3d 587, 598 (7th Cir 2001) (upholding broad injunction on use of material in employee handbook, as overly specific injunctions may invite evasion).
xxxi

See Cherne Indus., Inc. v. Grounds & Associates, 278 N.W.2d 81 (Minn. 1979).

Table 5.2 Injunctive Relief

Where the information has not been publicly disclosed, the issue becomes more difficult. The duration of the injunction is often calculated according to the time that would be required for independent development of the information
or knowledge that was misappropriated. These “head start” injunctions assume that the information could be properly obtained through reverse engineering or independent development.xxxii

xxxii

See, e.g., Surgidev Corp. v. Eye Technology, Inc., 828 F.2d 452, 456-457 (8th Cir. 1987) (affirming 15-month injunction based on the period of time that would be required for independent development of the protected information).

To determine what length of time is appropriate, courts may rely on the opinions of experts and the experience of other competitors.xxxiii
However, a court may also opt to impose a permanent injunction that can later be modified, or in some circumstance rely on other considerations deemed important by the court.xxxiv

xxxiii

See, Restatement (Third) of Unfair Competition Section 44, comment f.
xxxiv

See e.g., General Electric Co. v. Sung, 843 F. Supp. 776, 780-781 (D. Mass. 1994) (seven-year product injunction, taking into account the willfulness of the misappropriation).

Courts also exhibit broad flexibility in the nature and duration of relief in cases dealing with former employees. When an injunction is issued in these cases, it usually will not be an outright ban on employment. Rather, it will
be a more limited injunction for a more limited duration.xxxv
Most courts are willing to allow continued employment, but will restrict the employee from working with a particular product line or area of the new employer’s business.xxxvi
However, if the role the employee will assume would inevitably lead to the disclosure of trade secrets, the employment may be prohibited altogether.xxxvii

xxxv

See, e.g., Doubleclick v. Henderson, No. 116914/97 (N.Y. Sup. Ct. Nov. 5, 1997) (granting an injunction restraining two former employees from competing with their former employer for a period of six months).
xxxvi

See, Merck & Co. Inc v. Lyon, 941 F. Supp. 1443 (M.D.N.C. 1996). See also Allis Chalmers Manf. Co. v. Continental Aviation and Eng. Corp., 255 F. Supp. 645 (E.D. Mich. 1966) (injunction limited to research as to a particular type of pump); but
see Union Carbide Corp. v. UGI Corp., 731 F.2d 1186 (5th Cir. 1984) (affirming injunction against use of information in 14 broad areas).
xxxvii

PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1272 (7th Cir 1995).

Damages Awarded

Damages are often awarded in addition to an injunction and are not an exclusive remedy.xxxviii
For example, in
Seagate Tech., LLC v. Western Digital Corp., 834 N.W.2d 555 (Minn. App. 2013), the Minnesota Court of Appeals affirmed a judgment of $630 million in favor of the plaintiffs against the
defendants stemming from a trade secret misappropriation dispute. Under the UTSA, damages are measured by the actual loss caused by the misappropriation as well as any resulting unjust enrichment of the misappropriator. Where the amount of actual
loss or unjust enrichment cannot be accurately calculated, the UTSA provides that damages may also be measured by the imposition of a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret. Exemplary or
punitive damages may be awarded where the court finds that the misappropriation was willful and malicious.xxxix

For example, in
Mattel, Inc. v. MGA Entm’t, Inc., 801 F. Supp. 2d 950 (C.D. Cal 2011), Mattel was found to have engaged in a prolonged practice of encouraging employees to
use false pretenses to acquire competitive information from the defendant. As a result of this conduct, the jury awarded, and the court affirmed a verdict of $85 million dollars in exemplary damages. A punitive or exemplary award may not exceed twice
the amount of the damage award.xl
However, some states have modified this cap on punitive damages, and allow for punitive damages greater than two times the amount of actual damages.xli

xxxviii

See e.g., Mikes Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398, 413-15 (6th Cir. 2006).
xxxix

See, e.g., Aries Information Sys., Inc. v. Pacific Management Sys. Corp., 366 N.W.2d 366 (Minn. Ct. App. 1985).
xl

See Unif. Trade Secrets Act § 3(b), U.L.A (1985).
xli

Reingold v. Swiftships, Inc., 210 F.3d 320, 323 (5th Cir. 2000).

Case Studies

and any resulting unjust enrichment of the misappropriator. |
| Mattel, Inc. v. MGA Entm’t. Inc. | In this case, Mattel was found to have encouraged employees to use false pretenses to acquire competitive information from the defendant. As a result of this conduct, $85 million dollars in exemplary damages was awarded. A punitive or
exemplary award may not exceed twice the amount of the damage award. xlii
However, some states have modified this cap. xliii
xlii
Reingold v. Swiftships , Inc., 210 F.3d 320, 323 (5th Cir. 2000).
xliii
See Unif. Trade Secrets Act § 3(b), U.L.A (1985). |

Table 5.3

In exceptional circumstances, an injunction may entitle the owner of the trade secret to a royalty for the period of time during which the use of the trade secret was prohibited. For example, the Supreme Court of Georgia has
affirmed a trial court’s reliance on a seldom-used provision of the UTSA to impose a “royalty injunction” instead of an injunction prohibiting the use of the plaintiff’s trade secret.xliv

xliv

See Electronic Data Systems Corp. v. Heinemann, 493 S.E.2d 132 (Ga. Sup. Ct. 1997).

A court may also award attorneys’ fees to a prevailing party in exceptional circumstances. A bad faith claim of misappropriation, a bad faith resistance to a motion to terminate an injunction, or a finding of willful and malicious
appropriation are exceptional circumstances in which an award of attorneys’ fees may be appropriate. However, courts are generally disinclined to award attorneys’ fees.xlv
The attorney fee provision is included to dissuade parties from filing malicious misappropriation actions in bad faith, and considered along with the need for exemplary damages.xlvi

xlv

See, e.g., Gordon Employment, Inc. v. Jewe1, 356 N.W.2d 738 (Minn. Ct. App. 1984).
xlvi

See Unif. Trade Secrets Act § 4 (comment), U.L.A(1985).

Where this page came from

This page was imported from OpenStax, Introduction to Intellectual Property. Section 5.6 of Introduction to Intellectual Property by David Kline, David Kappos, published by OpenStax (Rice University) under CC BY 4.0; the book is free at openstax.org. Changed here: set as a page on its own.

Nobody has written it yet — it is the source material at a new address, which is why search engines are asked to skip it and why no one earns from it. It is up for grabs: take it on, and it is yours to rewrite and to earn from.