unjust enrichment Archives

A Healthy Dose of Seeds: Unique Combination Trade Secrets Entitled to Protection

By Anthony S. Ferrara on Nov 29, 2022
Posted In Trade Secrets

The US Court of Appeals for the Sixth Circuit upheld a jury verdict finding a dietary supplement company liable for misappropriating another company’s research and development (R&D) related to broccoli-seed extract. Caudill Seed & Warehouse Co., Inc. v. Jarrow Formulas, Inc., Case No. 21-5354 (6th Cir. Nov. 10, 2022) (per curiam) (Moore, J., concurring in part and dissenting in part). The decision addressed several issues relating to so-called “combination” trade secrets.

Caudill manufactures and sells various nutritional supplements, including a supplement made using broccoli-seed extract. Caudill sued Jarrow Formulas for trade secret misappropriation after its Director of Research Ken Ashurst left Caudill and joined Jarrow. Ashurst had led Caudill’s R&D efforts for nine years, including extensively researching the development of broccoli-seed derivatives and assembling a large body of research related to broccoli seeds. After he joined Jarrow, Ashurst delivered a curated collection of broccoli product research to Jarrow and helped it bring its own competing broccoli-seed extract supplement to the market in just four months.

The case proceeded to trial. The jury found that Caudill had a protectable trade secret; Jarrow misappropriated said trade secret; and Caudill was entitled to more than $2 million in actual losses, more than $400,000 in unjust enrichment damages, and exemplary damages. Jarrow moved for judgment as a matter of law and for a new trial. After the district court denied the motions, Jarrow appealed.

Jarrow argued that Caudill improperly asserted a “kitchen-sink theory” of trade secrets by broadly defining all its research activities as a single trade secret. Jarrow also argued that Caudill failed to show that it had acquired the alleged trade secret. Finally, Jarrow challenged the damages awards on legal grounds. The Sixth Circuit rejected each of Jarrow’s arguments on appeal.

The Sixth Circuit first found that Caudill properly defined its alleged trade secret as its “research and development on supplements, broccoli, and chemical compounds.” The Court treated Caudill’s alleged trade secret as a “combination” trade secret (i.e., a collection of elements that individually are generally known but are unique in combination.) The Court concluded that Caudill demonstrated it had assembled a unique collection of processes and information relating to its R&D process, and therefore, Caudill properly defined its entire R&D process as a trade secret. The Court rejected Jarrow’s argument that Caudill’s alleged trade secret mostly consisted of public domain materials on the basis that the materials were unique in combination.

The Sixth Circuit also rejected Jarrow’s argument that Caudill failed to show that Jarrow acquired and used the entire combination trade secret. The Court noted differing authority on whether a plaintiff alleging a combination trade secret must show acquisition and use of the entire combination but concluded that trade secret law does not require proving acquisition of “each atom” of the combination trade secret. The Court reasoned that when a trade secret consists of a “mass of public information” that has been collected, the defendant will always be able to identify some minute detail of the combination that it did [...]

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A Window into Trade Secret Damages: R&D Costs Can Quantify Unjust Enrichment

By Kyle Sorenson, PhD on Sep 15, 2022
Posted In Trade Secrets

The US Court of Appeals for the Third Circuit affirmed a district court’s finding of damages in a trade secrets case under Pennsylvania’s version of the Uniform Trade Secrets Act. The Third Circuit explained that it is appropriate to quantify damages under the unjust enrichment standard by considering the trade secret owner’s research and development costs as an indicator of the research and development costs that the defendant avoided but would have incurred if not for its misappropriation. PPG Indus. Inc. v. Jiangsu Tie Mao Glass Co. Ltd. et al., Case No. 21-2288 (3rd Cir. Aug. 30, 2022) (Jordan, Porter, Phipps, JJ.)

PPG is the maker of OpticorTM, a novel plastic for airplane windows. PPG sued Jiangsu Tie Mao Glass (TMG), asserting trade secret misappropriation, among other things. PPG alleged that TMG persuaded a former PPG employee to provide TMG with a treasure trove of trade secrets and that TMG used the trade secrets to begin making plans to produce Opticor-quality windows and to build a factory to manufacture its product. After TMG failed to appear in the case for more than a year, the district court entered a default judgement for PPG. Only then did TMG show up. The district court declined to set aside the default judgment and ultimately awarded damages for TMG’s unjust enrichment totaling about $9 million, which it then trebled to $26.5 million, and issued a permanent injunction against TMG. TMG appealed.

The Third Circuit began by analyzing whether TMG was unjustly enriched as a result of its acts. Trade secret damages are commonly determined either by calculating actual loss to the plaintiff or by quantifying the defendant’s unjust enrichment from the use of the trade secret. The Court found that although TMG did not sell products containing the Opticor technology, TMG was unjustly enriched by its use of the trade secrets. For example, TMG used PPG’s proprietary drawings (minus PPG’s name and logo) to ask a subcontractor to “manufacture for TMG the same molds that it did for PPG.” TMG also was building, or had plans to build, a production facility to manufacture its version of the Opticor technology. The Court determined that TMG was unjustly enriched because TMG used PPG’s trade secrets to completely skip the research and development phase of its version of the Opticor technology and instead move directly to the phase of preparing for production.

Next, the Third Circuit considered whether the damages amount awarded to PPG was appropriate. Unjust enrichment requires the defendant to pay the plaintiff the value of the benefit conferred from the use of plaintiff’s trade secrets. This benefit can be a cost that was avoided and may include development costs. The Court found it appropriate to consider the research and development costs PPG incurred in developing the Opticor technology as an indicator of the research and development costs TMG would have sustained to develop its own version of the Opticor technology in the absence of misappropriation. In short, “[t]he costs a plaintiff spent in development [...]

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Improper Use of Voluntarily Communicated Trade Secrets Sufficient to Maintain Action for Misappropriation in Texas

By Paul Devinsky on Jul 1, 2020
Posted In Trade Secrets

The US Court of Appeals for the Fifth Circuit held that, under Texas law, a plaintiff can sustain an action for trade secret misappropriation even if the plaintiff voluntarily communicated the alleged trade secrets to the defendant. Hoover Panel Systems, Inc. v. HAT Contract, Inc., Case No. 19-10650 (5th Cir. June 17, 2020) (per curiam). (more…)