Trade Secrets Archives

Trade Secrets

Ill-Gotten Gains: Unjust Enrichment Remedy Not Barred by Limitation of Liability Provision

by Taylor MacDonald | Apr 17, 2025 | Trade Secrets

Examining the issue of trade secret misappropriation when parties have contractually limited their liability from breach, the US Court of Appeals for the Eleventh Circuit reversed the district court’s dismissal of the case, finding that a plaintiff could still recover damages under a theory of unjust enrichment. Pemco Aircraft Engineering Services Inc. v. The Boeing Company, Case No. 22-13776 (11th Cir. Apr. 4, 2025) (Pryor, Branch, Carnes, JJ.)

Pemco and Boeing, who are usually competitors, entered into an agreement to jointly bid for a government contract. The parties’ contract had three separately executed parts that functioned as one agreement. When the contractual relationship fell apart, Pemco sued Boeing for breach of contract and trade secret misappropriation. Based on Boeing’s contractual breach, a jury awarded Pemco more than $2 million of out-of-pocket damages. The district court dismissed the trade secret misappropriation claim, however, as time-barred under Alabama law. After Pemco appealed, the Eleventh Circuit reviewed and determined that the trade secret misappropriation claim arose under Missouri law, not Alabama law, and that under Missouri law, Pemco’s trade secret claims were not time-barred. On remand, Pemco brought amended trade secret misappropriation claims under Missouri law, which the district court dismissed based on the parties’ contract, which limited liability. Pemco appealed.

The issue on appeal was whether the parties’ contractual limitation of liability provision precluded any damages, even for misappropriation. The contractual provision lists the categories of damages that the parties disclaimed, namely, incidental, punitive, and exemplary, or consequential damages. The Eleventh Circuit explained that two sophisticated parties negotiating at arm’s length are permitted by Missouri public policy considerations to contractually limit future recovery for even intentional torts. By including punitive and exemplary damages, which are available only for tort claims and not contractual ones, the parties clearly intended to include torts related to the contract within its scope. Thus, even though trade secret misappropriation is a tort and not a contractual claim, the Court found that the claim was restricted by this provision and Pemco was therefore limited in its potential recovery.

The Eleventh Circuit next looked to whether the jury award had sufficiently compensated Pemco. The district court found that a Missouri trade secrets claim was barred in this context because of a full recovery under the related contract claim. The Court, however, distinguished the two causes of action. So long as the trade secrets claim provides a separate, non-duplicative remedy, it can stand on its own despite other recoveries under the contract. The Missouri Trade Secrets Act explicitly provides for an unjust enrichment remedy not available for contractual breach and the parties chose not to limit recovery for unjust enrichment. Thus, the Court concluded that this remedy was available as a trade secret claim that was not, and could not have been, available to Pemco under the contract.

Boeing advanced two arguments against the availability of an unjust enrichment remedy. Boing argued that any further award would be duplicative of the previous jury award and that unjust enrichment constitutes a [...]

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Not Secret and Not Used: Misappropriation Claim Dismissed

by Dexter Hamilton | Apr 17, 2025 | Trade Secrets

The US Court of Appeals for the Fifth Circuit upheld a district court’s grant of summary judgment in favor of the defendants, finding that the plaintiff failed to identify a trade secret and presented no evidence of its use or disclosure. DeWolff, Boberg & Associates, Inc. v. Justin Pethick and The Randall Powers Co., Case No. 24-10375 (5th Cir. Apr. 3, 2025) (Smith, Clement, Duncan, JJ.)

In 2018, Justin Pethick was a DeWolff, Boberg & Associates (DBA) employee. That year, DBA’s competitor, The Randall Powers Company (Powers), hired Pethick as regional vice president of sales. After Pethick began working at Powers, some prospective DBA clients hired Powers for consulting services. DBA sued Powers for trade secret misappropriation, asserting that Pethick stole its trade secrets and used them to poach clients. The district court granted summary judgment in favor of Powers and Pethick. DBA appealed.

The Fifth Circuit affirmed but on alternative grounds. To prevail on a misappropriation claim under Texas law (where the initial suit was brought), “a plaintiff must show that (1) a trade secret existed, (2) the trade secret was acquired through a breach of a confidential relationship or discovered by improper means, and (3) the defendant used the trade secret without authorization from the plaintiff.”

On appeal, Powers first argued that the information DBA claimed was trade secrets, such as contact information, meeting notes, and “confidential information related to business opportunities,” did not qualify as protectable trade secrets. DBA pointed to “large swathes of database information” without distinguishing what exactly was supposedly a trade secret. The Fifth Circuit found it was unclear as to what materials were trade secrets, noting that it had “no obligation to sift through the record in search of evidence to support a party’s opposition to summary judgment.” The Court held that summary judgment was justified on this basis.

The Fifth Circuit further held that, even assuming the information qualified as trade secrets, summary judgment was still warranted because there was no evidence that Powers and Pethick used the information. Although Pethick had requested a copy of a document that DBA claimed contained trade secrets prior to joining Powers, there was no evidence that he ever possessed it while at Powers. To the contrary, the forensic expert retained by DBA to remove its data from Pethick’s computer did not find the document. The Court concluded that DBA failed to demonstrate any use of an alleged trade secret.

When Is a Trade Secret Accessible? As Soon as It Can Be Reverse Engineered

by Jodi Benassi | Apr 10, 2025 | Trade Secrets

Although the US Court of Appeals for the Federal Circuit upheld a damages award for trade secret misappropriation and breach of a confidentiality agreement, it found that the district court erred in its determination of when the trade secret became publicly accessible for the purpose of applying a reverse engineering defense. The Federal Circuit also vacated and remanded the prejudgment interest award, finding that interest should not accrue on future sales. ams-OSRAM USA Inc. v. Renesas Elect. America, Inc., Case No. 22-2185 (Fed. Cir. Apr. 4, 2025) (Taranto, Schall, Chen, JJ.)

In 2008 ams sued Renesas for patent infringement, trade secret misappropriation, and breach of contract for using information that ams revealed in confidence. In 2015 a jury found for ams, and the district court entered judgment for trade secret misappropriation damages, but not for breach of contract. The district court determined that the breach award was duplicative of the misappropriation award. On appeal, in 2018 the Federal Circuit affirmed Renesas’ liability for misappropriation on a more limited basis than had been presented to the jury. The Court vacated the misappropriation award and remanded, instructing that disgorgement of profits damages should be decided by the judge, not the jury.

On remand, ams argued that it was entitled to “re-elect its remedy” and narrowed to the misappropriation and contract claims, which required the case to be retried. The new jury also found in favor of ams. The district judge then determined the monetary award for trade secret misappropriation, consisting of disgorgement of profits for one product and exemplary damages of double that sum. On ams’s breach of contract claim, the jury awarded a reasonable royalty on sales of products, other than the one subject to disgorgement damages. ams was also awarded prejudgment interest on both its misappropriation and contract claims, and attorneys’ fees on its breach of contract claim. Both parties appealed.

Trade Secret Accessibility and Reverse Engineering

The district court ruled that ams’s trade secrets became accessible in January 2006 when Renesas successfully reverse engineered the trade secret embodied in ams’s product. The district court determined that the relevant inquiry for accessibility is what the misappropriator actually did rather than what the misappropriator or other parties could have done. Renesas argued that the trade secret first became accessible when it could have reverse engineered the trade secret in February 2005.

The Federal Circuit agreed with Renesas, explaining that the district court’s ruling was inconsistent with Texas law. Under Texas law, information that is generally known or readily available by independent investigation does not qualify as a trade secret. Citing Fifth Circuit precedent, the Federal Circuit emphasized that the public is free to discover and exploit trade secrets through reverse engineering of products in the public domain. The Court found that Renesas could have accessed ams’s trade secrets through proper and straightforward means by February 2005. While acknowledging that the trade secret may not have been immediately apparent through casual inspection, the Court pointed out that reverse engineering is a common [...]

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What’s Shaking? Not an Interlocutory Appellate Decision on Damages

by Tessa Kroll | Jan 30, 2025 | Trade Secrets

The US Court of Appeals for the Fifth Circuit dismissed and remanded a district court certified interlocutory appeal concerning the standard for calculating a reasonable royalty under the Defend Trade Secrets Act (DTSA). The Court explained that the rate instruction issued by the district court was erroneous because the parties had not yet gone to trial and the plaintiff had not yet proven liability. Therefore, the issue of damages might never arise. Silverthorne Seismic, L.L.C. v. Sterling Seismic Servs., Ltd., Case No. 24-20006 (5th Cir. Jan. 3, 2025) (Smith, Clement, Higginson, JJ.) (Higginson, J., dissenting).

Silverthorne licensed seismic data to Casillas Petroleum Resource Partners II, LLC, an oil and gas exploration company. Under this arrangement, Silverthorne provided data to Sterling, a seismic data processer, which processed the data and sent it to Casillas. Because Sterling’s data processing required more data than what Casillas had paid for, Sterling was only permitted to forward the data that Casillas had licensed. However, Sterling sent Casillas unlicensed data, which Casillas allegedly showed to potential investors.

Silverthorne sued Sterling for trade secret misappropriation under the DTSA and sought reasonable royalties for Sterling’s improper disclosure. Shortly before trial, the district court issued an order adopting the Fifth Circuit’s definition of “reasonable royalty” in University Computing (1974), which, in this case, would have required Silverthorne to prove what the parties “would have agreed to for . . . use [of] the alleged trade secret.” University Computing predates the DTSA, which provides for reasonable royalties for “disclosure or use of a trade secret.” Silverthorne appealed the order, noting that it would not be able to prove what Sterling would have agreed to pay to use the data, since Sterling was a data processor and not an end user. The district court certified the following question for appeal:

[W]hether a plaintiff is entitled to prove reasonable royalty damages under the DTSA using willing buyer(s) detached from the parties to the litigation when willing buyers (here, oil and gas exploration companies) exist for plaintiff’s alleged trade secret (here, seismic data), but the defendant and comparable entities (here, seismic processors) do not buy or license that trade secret.

An administrative panel of the Fifth Circuit granted leave to appeal.

Majority Opinion

The Fifth Circuit dismissed the appeal as not involving a controlling question of law. The Court explained that interlocutory appeals are only permitted where an order involves a controlling question of law, the resolution of which would materially and immediately affect the outcome of litigation in the district court. The Fifth Circuit emphasized that a question is not controlling just because the answer would complicate a litigant’s ability to make its case or because the answer could save the parties from a post-judgment appeal. Applying these principles, the Court reasoned that damages issues generally do not control a case until the plaintiff establishes liability, unless the damages issue would be dispositive. Because Silverthorne had not yet established liability and was not barred from proving damages under the district court’s definition [...]

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Jury Trial on Legal Issue Denied, But No Harm Done

by Keval Amin | Aug 29, 2024 | Trade Secrets

The US Court of Appeals for the Seventh Circuit affirmed a district court’s denial of a jury trial, concluding it was harmless error because the defendant would have been entitled to a directed verdict regardless. Overwell Harvest Ltd. v. Trading Techs. Int’l, Inc., Case No. 23-2150 (7th Cir. Aug. 12, 2024) (Kirsch, Pryor, Kolar, JJ.)

Overwell Harvest was established to invest in Neurensic, a company specializing in market surveillance technology. Despite Overwell’s investment of millions of dollars, Neurensic faced significant financial distress, leading its management to pursue a sale. Neurensic’s CEO and COO accepted an offer from Trading Technologies, which subsequently hired former Neurensic employees with the CEO and COO’s approval. Prior to the sale, Overwell submitted a competing bid, to which Trading Technologies responded by raising its offer. Neurensic chose to accept Trading Technologies’ offer.

Overwell sued Trading Technologies for aiding and abetting breaches of fiduciary duties by Neurensic’s leadership. The district court dismissed Overwell’s jury demand and ruled that the claim was equitable despite the damages sought. In a bench trial, the district court ruled in favor of Trading Technologies, determining that Overwell waived its claims that Trading Technologies had aided and abetted breaches of fiduciary duty by Neurensic’s leadership. The district court’s decision was based on Overwell’s failure to advance arguments concerning improper notice to shareholders regarding the vote on Trading Technologies’ offer. Overwell appealed.

The Seventh Circuit decided that Overwell had a Seventh Amendment right to a jury trial because the case involved legal relief in addition to equitable relief. While the Court agreed that Overwell’s claim for aiding and abetting breaches of fiduciary duty under Delaware law was historically equitable, the request for compensatory and punitive damages constituted legal relief. The Court emphasized that even if a claim is equitable, the pursuit of legal relief (such as money damages) entitles a party to a jury trial. The Seventh Circuit determined that the district court erred by denying Overwell this right because determining legal relief is traditionally the role of a jury.

The Seventh Circuit concluded that this error was harmless, however, because under Delaware law Trading Technologies would have been entitled to a directed verdict. The Court explained that a directed verdict is appropriate when no reasonable jury could find for the losing party based on the evidence, viewing the record in the light most favorable to the losing party.

The Seventh Circuit rejected Overwell’s breach of fiduciary duty claims, finding that the alleged breaches lacked merit under the Delaware standard for aiding and abetting fiduciary breaches. First, the Court held that Overwell failed to show that Trading Technologies knowingly participated in a fiduciary breach, as the continued servicing of Neurensic’s customers by former employees benefitted Neurensic, not Trading Technologies.

Second, the Seventh Circuit determined that Overwell’s claim of blocking competitive bids could not succeed as Neurensic still held its most valuable asset – its source code – and could have repossessed its servers. Trading Technologies’ negotiation tactics were permissible under Delaware law, which allows [...]

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Insuring Innovation: Software Code May Be Protected as an Arrangement

by Karen Gover | Aug 22, 2024 | Copyrights, Trade Secrets

The US Court of Appeals for the Eleventh Circuit once again remanded a trade secret and copyright dispute involving software for generating life insurance quotes, finding that the district court erred by failing to consider the copyrightability of the source code’s arrangement. As to the trade secret claim, however, the Eleventh Circuit found that the district court did not err in finding that the defendants misappropriated the trade secrets at issue and could be held jointly and severally liable, despite varying levels of culpability. Compulife Software, Inc. v. Newman, Case No. 21-14074 (11th Cir. Aug. 1, 2024) (Jordan, Brasher, Abudu, JJ.)

Compulife’s software generates life insurance quotes using a proprietary database of insurance rates. The software produces a quote by using blocks of code, arranged in a particular manner, that correspond to different data points such as state, birth month, birthday, birth year, sex and smoking status. Compulife licenses its software to customers and offers an online version to the public.

David Rutstein is a former insurance agent who is permanently barred from the profession. Rutstein misled Compulife into giving him its software by pretending that he worked with someone who had a license to use it. Rutstein then created and registered several websites in his son’s name using Compulife’s software in connection with the sites. One of the websites was later owned by Aaron Levy. Rutstein and Levy directed an employee, Moses Newman, to launch a scraping attack on Compulife’s website to get millions of quotes, which they used for their own websites. Compulife’s sales declined as a result.

Compulife sued Rutstein, Rutstein’s son, Levy and Newman for copyright infringement and misappropriation of trade secrets, among other claims. After a bench trial, the parties appealed, and the Eleventh Circuit directed the district court to make more specific findings. After a second bench trial, the district court determined that the defendants did not infringe Compulife’s software by copying it and using it for their own website, but they did misappropriate Compulife’s trade secrets. The defendants were held jointly and severally liable despite differing degrees of culpability. All parties appealed.

Compulife argued that the district court erred in concluding that the defendants did not infringe its copyright. The Eleventh Circuit agreed in part, finding that the district court incorrectly applied the abstraction-filtration-comparison test used in software copyright infringement analyses. Compulife claimed that the arrangement of its various source code elements (e.g., state, birth month, birthday, birth year and sex) was a creative and therefore protectable form of expression. The Court agreed that the arrangement was potentially protectable, similar to its holding in another case that the arrangement of yacht listings in a boat guide could be protectable. BUC Int’l v. Int’l Yacht Council (11th Cir. 2007). The Court remanded the copyright infringement analysis to the district court, finding that it erred in the abstraction step because it “never identified the entire arrangement of these variables in the code as a constituent component of the code.” The Eleventh Circuit disagreed, however, with [...]

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Don’t Share Trade Secrets With Your Fiancé: A Cautionary Tale

by Karen Gover | Aug 15, 2024 | Trade Secrets

The US Court of Appeals for the First Circuit largely affirmed a multimillion-dollar award against a temp agency for misappropriation of trade secrets and unjust enrichment due to its employee’s act of obtaining proprietary information from his fiancée, who worked at a competitor placement firm. BioPoint, Inc. v. Dickhaut, et al., Case No. 23-1575 (1st Cir. July 30, 2024) (Rikelman, Lynch, Howard, JJ.) (Rikelman, dissenting in part).

BioPoint is a Massachusetts-based life sciences consulting firm that places highly skilled candidates in temporary positions at pharmaceutical, biopharmaceutical and medical device companies. Leah Attis was one of the company’s top salespeople. Catapult is a Texas-based placement company. It opened a Boston office in 2017 and hired Attis’s fiancé, Andrew Dickhaut, as managing director. When business did not go well at Catapult’s Boston office, Attis began to help Dickhaut place candidates by giving him proprietary information about candidates and rates from BioPoint’s database, even though Catapult did not initially operate in the life sciences sector. As a result, Catapult eventually entered into a managed services provider agreement with biotechnology company Vedanta, whereby Catapult would manage all of Vedanta’s labor contracts and would have the first opportunity to fill openings there. Attis continued to give Dickhaut information on candidates from BioPoint’s system to help with Vedanta openings.

Upon discovering that it lost a candidate placement to Catapult because of Attis’s interventions, BioPoint fired her in December 2019. BioPoint then sued Catapult and Dickhaut for federal and state law claims, alleging misappropriation of trade secrets, tortious interference, and unfair and deceptive trade practices. The case proceeded to trial, and the district court divided the claims between a jury trial for the legal claims and a bench trial for equitable relief. The jury found that Catapult had misappropriated trade secrets and tortiously interfered with BioPoint’s relationship with the candidate that Attis helped Dickhaut place. The jury awarded BioPoint more than $300,000 in damages. At the bench trial on the equitable claims, the district court found that all profits that Catapult derived from its relationship with Vedanta arose on account of misappropriation of trade secrets and were recoverable as unjust enrichment. The district court awarded treble damages jointly against Dickhaut and Catapult, totaling more than $5 million. Catapult appealed.

While the First Circuit largely affirmed the district court and the jury’s findings, the First Circuit found two errors. First, the Court found that the district court erred in awarding BioPoint both the lost profits from the placement of the candidate and the unjust enrichment that accrued to Catapult as the result of the placement. The Court explained that the law does not permit the lost profits to be counted twice and reduced the award by more than $150,000, which was the amount that the district court had awarded for the loss of the candidate.

Second, the First Circuit found that the district court erred in finding Dickhaut jointly and severally liable for the entirety of his employer’s unjust enrichment, calling it “a bridge too far.” Since the [...]

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One Bite at the Apple Where State and Federal Jurisdiction Is Concurrent

by Abigail A. Rubinstein | Aug 15, 2024 | Trade Secrets

The US Court of Appeals for the Second Circuit upheld a federal district court’s dismissal of a case on res judicata grounds after a state court issued a decision on different claims but had concurrent jurisdiction over the claims alleged in the federal case. Beijing Neu Cloud Oriental Sys. Tech. Co. v. Int’l Bus. Machs. Corp., Case No. 22-3132 (2d Cir. July 25, 2024) (Livingston, Menashi, Kahn, JJ.)

Beijing Neu Cloud Oriental System Technology filed suit in federal district court against several International Business Machines companies (collectively, IBM defendants) asserting a single claim for trade secret misappropriation under the Defend Trade Secrets Act (DTSA). Shortly thereafter, Neu Cloud also sued the IBM defendants in New York state court, alleging state law causes of action for unfair competition, unjust enrichment, breach of fiduciary duty, breach of contract and tortious interference.

The state court dismissed the claims. After the state court issued its decision, the IBM defendants moved to dismiss the federal action, arguing that:

Neu Cloud’s claim was time-barred.
Neu Cloud failed to state a plausible DTSA claim.
The judgment of the New York Supreme Court precluded the instant DTSA claim under res judicata.

The district court granted the motion to dismiss, agreeing with the IBM defendants on the DTSA claims but not on the effect of res judicata. Neu Cloud appealed the dismissal of its complaint. The Second Circuit only considered the arguments related to the IBM defendants’ res judicata defense.

Applying New York law to determine the preclusive effect of the state court’s judgment, the Second Circuit explained that under New York preclusion law “a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter.” This rule applies if the subsequent claim was “actually litigated” in the prior action or if it merely “could have been raised in the prior litigation.”

The Second Circuit found that the district court’s decision was on the merits and the trade secret claims could have been raised in the state court action. The Court held that the New York state court would have been competent to adjudicate the DTSA claim since jurisdiction for DTSA actions is not exclusive to federal courts. The Court noted that the plain text of the DTSA is strong evidence that Congress intended for jurisdiction over DTSA claims to be federal and state concurrent. Moreover, the Second Circuit found that the legislative history revealed no evidence that Congress affirmatively intended to confer exclusive jurisdiction over DTSA claims on the federal courts. The Court noted that many other circuit courts had come to the same conclusion.

Since the parties were clearly the same, the state court case involved the same subject matter, and the claims alleged the same injury and arose out of the same or related facts, the Second Circuit stated that the relevant question was whether Neu Cloud should have sought recovery in state court for its claim of trade secret [...]

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Missed Appropriation: Massive Trade Secret Verdict Vacated

by Anisa Noorassa | Aug 8, 2024 | Trade Secrets

The Court of Appeals of Virginia vacated a $2 billion award in a trade secret misappropriation case based on a series of evidential errors and improper jury instructions. Pegasystems Inc. v. Appian Corporation, Case No. 1399-22-4 (Va. Ct. App. 2024) (Beales, Friedman, Callins, JJ.)

Pegasystems and Appian are both companies in the business process management (BMP) industry and offer platforms that allow third parties to build software applications. Appian accused Pega of trade secret misappropriation, presenting evidence that Pega used the employee of a licensee of Appian’s technology to pass trade secrets to Pega, thereby enabling Pega to better market its own technology and exploit Appian’s weaknesses. Pega’s “spy,” Youyong Zou, recorded almost 100 videos of Appian’s platform and used them to demonstrate the strengths and weaknesses of Appian’s system in tutorials sent to Pega. Appian brough an action against Pega and Zou under the Virginia Uniform Trade Secrets Act (VUTSA) and the Virginia Computer Crimes Act. At trial, the jury returned a verdict in favor of Appian, finding that Pega and Zou misappropriated Appian’s trade secrets in violation of VUTSA. The jury awarded Appian damages in excess of $2 billion, which was the largest damages verdict in Virginia’s history. Pega appealed.

The Appellate Court found that although Appian did not fail as a matter of law to prove evidence of trade secret misappropriation, the trial court erred in instructing the jury by failing to place the burden of proximate causation on Appian, as required by both VUTSA and Virginia precedent. The Appellate Court found that this error resulted in a potentially excessive award that assumed all of Pega’s sales were tainted by the misappropriation. The Appellate Court instructed that on remand, Appian bears the burden of proving that the misappropriation caused the alleged damages and proving the amount of damages attributable to the trade secret with reasonable certainty. The Appellate Court also found that the trial court erroneously excluded key evidence that could have established that much of Pega’s revenue had nothing to do with the alleged misappropriation.

The Appellate Court further found that the trial court erred in excluding evidence that Pega argued would establish that many of the allegedly stolen features actually predated Pega’s contact with Zou. The trial court had excluded the evidence because the original laptop with this evidence had become inoperable. The trial court had refused to allow Pega the opportunity to authenticate the evidence and introduce the software on a new laptop. The Appellate Court found that this refusal was an abuse of discretion. The Appellate Court concluded that Pega was entitled to introduce a copy of this software under the rules of evidence, even if it was not on the original laptop.

Finally, the Appellate Court determined that the trial court erred in instructing the jury that the number of people with access to Appian’s trade secrets was “not relevant” to “any issue in this case.” The Appellate Court found that Pega’s evidence that “thousands” of people potentially had access to Appian’s [...]

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Message Received: Trade Secret Law Damages Available for Sales Outside US

by Amol Parikh | Jul 18, 2024 | Copyrights, Trade Secrets

The US Court of Appeals for the Seventh Circuit affirmed, in a matter of first impression, a district court’s decision to apply trade secret law extraterritorially and award trade secret damages for foreign sales while also finding that the copyright damages award needed to be reduced to eliminate foreign sales. Motorola Solutions, Inc. v. Hytera Communications Ltd., Case Nos. 22-2370; -2413 (7th Cir. July 2, 2024) (Hamilton, Brennan, St. Eve., JJ.)

Motorola Solutions and Hytera compete globally in the market for two-way radio systems. Motorola spent years and tens of millions of dollars developing trade secrets embodied in its line of high-end digital mobile radio (DMR) products. Hytera struggled to overcome technical challenges to develop its own competing DMR products. After failing for years, Hytera hatched a plan to “leap-frog Motorola” by stealing its trade secrets. Hytera, headquartered in China, hired three engineers from Motorola in Malaysia, offering them high-paying jobs in exchange for Motorola’s proprietary information. Before the engineers left Motorola, acting at Hytera’s direction, they downloaded thousands of documents and computer files containing Motorola’s trade secrets and copyrighted source code. Hytera relied on the stolen material to develop and launch a line of DMR radios that were functionally indistinguishable from Motorola’s DMR radios. Hytera sold these DMR radios in the United States and abroad.

Motorola sued Hytera for copyright infringement and trade secret misappropriation. The jury found that Hytera had violated both the Defend Trade Secrets Act of 2016 (DTSA) and the Copyright Act. The jury awarded compensatory damages under the Copyright Act and both compensatory and punitive damages under the DTSA for a total award of $765 million. The district court later reduced the award to $544 million, which included $136 million in copyright damages and $408 million in trade secrets damages. Hytera appealed.

Hytera conceded liability and instead challenged the damages award under both the Copyright Act and the DTSA. Among other things, Hytera argued that copyright and trade secret damages should not have been awarded for its sales outside the US. With respect to the copyright award, the Seventh Circuit agreed that Motorola failed to show a domestic violation of the Copyright Act and therefore was not entitled to recover damages for any of Hytera’s foreign sales of infringing products as unjust enrichment. Specifically, to show a domestic violation of the Copyright Act, Motorola had asserted that its code was copied from servers based in Chicago. While the district court accepted Motorola’s argument, the Seventh Circuit found that this factual finding lacked adequate support in the record, citing Motorola’s expert’s admission that there was no evidence of downloads from the Chicago servers. The Court instead found that given the location of the employees in Malaysia, it was likelier that the code was downloaded from Motorola’s Malaysia server. The Court therefore reversed the $136 million copyright award and remanded with instructions to limit the copyright award to Hytera’s domestic sales of infringing products.

The Seventh Circuit affirmed with respect to the trade secret award. Like the [...]

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