The U.S. Court of Appeals for the Federal Circuit recently vacated a $77 million verdict against Intersil Corp. in a patent and trade secrets suit filed by Texas Advanced Optoelectronic Solutions. Texas Advanced Optoelectronic Sols., Inc. v. Renesas Elecs. Am., Inc., No. 2016-2121, 2018 WL 2011463 (Fed. Cir. May 1, 2018). In its reversal, the Federal Circuit explained that juries cannot award the misappropriator’s profits to a trade secret owner because such an award is barred by the Seventh Amendment of the Constitution. The remedies available for different types of intellectual property infringement vary widely in terms of both their procedural requirements as well as the substantive facts and circumstances under which they can be obtained. In light of this large vacated award, it is important to understand the nuanced requirements for IP infringement remedies, businesses involved in litigating these areas should carefully consider their litigation strategies in view of these nuances.
Monetary relief and equitable relief are generally both available for trade secret infringement.1 As to the former, an owner of a trade secret may recover compensatory damages in the form of both 1) losses incurred; and 2) the misappropriator's profits due to the misappropriation.2 According to the Uniform Trade Secrets Act (“UTSA”), a court may also award a “reasonable” royalty.3 In some situations, attorney’s fees and punitive damages may also be available.4 Equitable relief comes in the form of injunctions which are court orders compelling the infringing party to stop the challenged activity.5 The figure below shows certain data regarding the relative frequency among the different types of trade secret remedies. Based on this data, compensatory damages are by far the most common.
Figure 1: Trade Secret Infringement Remedies by Relative Frequency6
The opportunity to disgorge the misappropriator’s profits may be a particularly attractive remedy in contrast with attempting to prove up lost profits in a patent infringement case. However, the reversal of the damage award in Texas Advanced Optoelectronic Solutions, Inc. v. Intersil occurred because the jury, not the judge, issued a remedy on the basis of a claim for misappropriation of trade secrets. Understanding why this is potentially a problem requires some overview of the relevant law. The Seventh Amendment governs when a party has a right to a jury trial.7 A two-part test is used to determine the applicability of the Seventh Amendment: 1) a court must compare the action with the analogous action brought in the courts of England during the eighteenth century, prior to the merger of law and equity, and determine whether the action would have been tried to a jury in the law courts; and 2) a court must look to the remedy sought and determine whether it is legal or equitable in nature.8 The “second inquiry is the more important” in the analysis.9 In Texas Advanced Optoelectronics, the Federal Circuit found that trade secret claims were first recognized in American and English courts in the 19th century. Since this was after the merger of the courts of law and equity, the Seventh Amendment did not necessarily demand a right to a jury trial. While claims for patent, trademark or copyright infringement that were available before that time can be considered analogous to trade secret claims in some respects, jury awards of disgorged profits in those cases were not available in 1791.10 Accordingly, the jury compensatory award to Texas Advanced Optoelectronic Solutions was improper. The Federal Circuit remanded the case to the district court for a decision on disgorgement by the judge.11
The general categories of patent infringement remedies are the same as trade secret infringement remedies. Namely, losses incurred, reasonable royalties, attorney’s fees, punitive damages, and injunctions. Unlike trade secrets, however, jury trials are available for patent infringement damages per the first prong of the Tull test because in the eighteenth-century jury trials were available for patent infringement.12
While the broad categories of remedies in patent and trade secret infringement are the same, the nuances differ significantly. An example of this is seen in AIA AMERICA, INC., fka Alzheimer's Institute of America, Inc., Inc. v. Avid Radiopharmaceuticals, 866 F.3d 1369 (Fed. Cir. 2017). The main issue in this case is whether litigants have a Seventh Amendment right to a jury trial on attorneys’ fees in patent infringement cases.13 According to the Federal Circuit, Defendant's request for attorney's fees as prevailing party in a patent infringement action was an equitable remedy, and thus did not invoke Seventh Amendment right to jury. To have a Seventh Amendment jury trial right, the remedy would have needed to be available at law before the merger of the courts of law and equity.14 In that early time period, either a judge in the court of law or an equity court would determine attorney’s fees.15 Accordingly, the Federal Circuit found that patent litigants do not have a Seventh Amendment right to a jury trial on attorneys’ fees.
The major takeaway from these cases for businesses involved in a trade secret infringement case is to know your audience for damages and liability arguments (judge or jury) and keep the audience for your argument in mind when developing those arguments. For example, while a jury might find certain facts or arguments persuasive as the trier of fact on liability for trade secret misappropriation, a judge may or may not find such facts or arguments persuasive when deciding on a remedy for that claim. On the other hand, in a patent infringement case, since the jury can both decide liability and determine damages, damaging facts or persuasive arguments against an accused infringer may weigh on both of those issues, although not on other types of recovery such as attorney’s fees.
1 Ronald T. Coleman et al, Trade Secrets – The Basic Principles and Issues, American Bar Association, https://www.americanbar.org/content/dam/aba/publications/litigation_committees/intellectual/trade-secrets-the-basic-principles-and-issues.authcheckdam.pdf.
2 John E. Elmore, A Quantitative Analysis of Damages in Trade Secrets Litigation, Forensic Analysis Insights, (Spring 2016), http://www.willamette.com/insights_journal/16/spring_2016_11.pdf.
4 William F. Johnson, Jr., Remedies in Trade Secret Litigation, 72 Nw. U. L. Rev. 1004 (1977-1978).
7 U.S. Const. amend. XIII. (“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.”)
8 Tull v. United States 481 US 412 (1987).
9 Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 565 (1990).
10 Texas Advanced Optoelectronic Sols., Inc. v. Renesas Elecs. Am., Inc., No. 2016-2121, 2018 WL 2011463, at *13 (Fed. Cir. May 1, 2018).
12 Ryan David, Fed. Circ. Axes $77M Award In Light Sensor Trade Secret Row,” Law 360, (May 1, 2018), https://www.law360.com/articles/1039124.
13 AIA Am., Inc. v. Avid Radiopharmaceuticals, 866 F.3d 1369 (Fed. Cir. 2017).
14 Texas Advanced Optoelectronic Sols., 888 F.3d at 1322.