This article was originally published in Law360 on March 6, 2024, and is republished here with permission.
These may look like Powerball jackpots: $764 million,[1] $2 billion,[2] $940 million.[3] But they are recent trade secret verdicts returned by juries in the last few years.
While trade secret litigation has long been a hotly contested legal battlefield, these eye-popping verdicts are becoming increasingly common.
Considering the value of a company’s intellectual property can often equal the value of the company itself, these cases give new meaning to “bet the company litigation.” Fortunately, there are steps to take to help avoid becoming the next headline.
Increasingly Severe Jury Verdicts
Over the last few years, juries are increasingly willing to award enormous damages for theft of trade secrets. For example, in 2020 the U.S. District Court for the Northern District of Illinois awarded $764.6 million in Motorola Solutions Inc. v. Hytera Communications Corp. Ltd.[4]
More recently, in 2022, a Virginia jury awarded $2 billion in Appian Corp. v. Pegasystems Inc.[5]
Courts have also vastly reduced — or eliminated — jury awards in misappropriation cases. In May 2023, in Versata Software Inc. v. Ford Motor Co., the U.S. District Court for the Eastern District of Michigan set aside a jury award of $104 million, awarding just nominal damages of $3 instead.[6]
The same month, the U.S. Court of Appeals for the Second Circuit vacated a $284 million verdict awarded by a jury to address trade secret theft in Syntel Sterling Best Shores Mauritius Ltd. v. The TriZetto Group Inc.[7]
These cases underscore the significant damages that can result from trade secret litigation, plus the uncertainty in actually recovering any of those awards.
Given the unpredictable nature of these suits, businesses must focus on what they control: taking proactive measures both for pursuing and defending against such claims.
Proactive Steps for Employers to Protect Their Trade Secrets
Given the potential for massive jury awards, it is crucial for employers to take proactive steps to protect their trade secrets and position themselves for success in potential litigation. Here are steps employers should be taking.
Identify trade secrets.
The first step is to identify and document the trade secrets within your organization. This may include, for example, customer lists, technological designs, manufacturing processes or software algorithms.
Be aware that the organization may be constantly developing or acquiring new trade secrets, so this step is continuous. Identify the trade secret and let employees and business partners know it is a protected asset. Once a trade secret is identified, take steps to protect it.
Inform and train employees about protecting trade secrets.
Employers must tell employees and business partners that information is secret and subject to protection. The employee handbook should inform incoming employees about their obligation to protect the trade secrets of the company. Anyone encountering the information should be required to sign nondisclosure agreements.
After onboarding, companies should continue to train and educate employees and business partners on whether certain information can be shared, with whom and by what means. Records of these training sessions should be maintained as proof of the company’s diligence.
Enter and enforce restrictive covenants.
Restrictive covenants can help prevent employees from disclosing or using trade secrets for their benefit or the benefit of third parties.
Nondisclosure agreements as well as nonsolicitation and noncompetition agreements are key tools in preventing the commercial disclosure of information.
These agreements should be carefully drafted to be enforceable under applicable law. These agreements should also include standard return-of-property language such as the following:
Employee will preserve for the Company and deliver to the Company at the termination of Employee’s employment, or at any other time the Company may request, all Company equipment and property. Following the delivery of all such items to the Company, Employee will delete all remaining copies or images of such items.
Monitor for misappropriation.
The organization should put systems in place to identify signs of trade secret misappropriation. This may include unauthorized or irregular use of personal email, unauthorized accessing of documents or attempts at unauthorized access, other unusual access patterns, or mass downloads.
Protect the information.
Restrict access to the company’s facility. If possible, restrict access to sensitive information by putting the sensitive information under lock and key.
If the information is electronic, protect it using password protection — and even then, limit access to only those who need to have it. Prohibit unauthorized use of flash drives, cloud storage, personal email accounts or personal devices.
Finally, put a disclaimer on all protected information clearly stating that the information is a trade secret.
Be prepared for litigation.
Finally, employers should be prepared for potential litigation because if the organization suspects misappropriation, the organization needs to be ready to act fast.
This includes maintaining through records, documenting any suspected misappropriation, and, when there is reason to suspect misappropriation, quickly consulting with in-house counsel and IT specialists to preserve all relevant data and develop a litigation strategy.
Keep records.
The cost incurred in developing the trade secret — or the cost avoided by stealing it — is often a key metric underpinning these substantial damages awards. It is critical to keep records relating to the time and effort spent in developing the protected asset.
Proactive Steps for Employers Accused of Misappropriation
On the flip side, businesses should take proactive steps to defend against accusations of trade secret misappropriation. Some key steps include the following.
Incoming employees should agree not to misappropriate.
Incoming employees should commit to not using or disclosing trade secrets of others, and they should be given this instruction early and often — as early as the offer letter.
Onboarding paperwork, such as employee handbooks, employment agreements or other agreements, should include language like the following: “Employee agrees not to use or disclose in the course of Employee’s employment with the Company any confidential information or trade secrets of any other company or person.”
Respond to allegations.
Typically, an employer first learns about a misappropriation accusation through a cease-and-desist letter. If accused of trade secret misappropriation, it is crucial to take the accusation seriously and to respond promptly. To properly address the accusation, employers may need to conduct an internal investigation.
Develop a plan.
An employer accused of misappropriation should immediately develop a plan. The plan should include consulting with employees and IT specialists to ensure all relevant data and other evidence is identified and preserved; and consulting with in-house counsel to develop a legal strategy.
A comprehensive strategy applies to the business analysis as well — if stolen information compromises a company’s product, the whole product may be tainted. Act quickly to ensure no further contamination by misappropriated information.
Document the development.
When a business is building on existing technology or prior art, it is key to document and record the literature relied on and the research and development efforts involved in the creation. This can help a defendant prove it created its own intellectual property in a lawful way, rather than stealing from a competitor.
Conclusion
Trade secret litigation is often high stakes, with the potential for massive jury verdicts that can have a significant impact on any business.
By taking proactive steps to protect trade secrets and defend against accusations of misappropriation, businesses can position themselves to navigate this legal minefield successfully.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd., No. 1:17-cv-01973 (N.D. Ill. Mar. 5, 2020).
[2] Appian Corp. v. Pegasystems Inc., No. 2020-07216 (Va. Cir. Ct. Fairfax Cty. May 9, 2022).
[3] Epic Systems Corp. v. Tata Consultancy Svcs., Ltd., No. 14-cv-748 (W.D. Wisc. July 1, 2022).
[4] No. 1:17-cv-01973 (N.D. Ill. Mar. 5, 2020).
[5] No. 2020-07216 (Va. Cir. Ct. Fairfax Cty. May 9, 2022).
[6] Versata Software, Inc. v. Ford Motor Co., No. 15-cv-10628 (E.D. Mich. May 1, 2023).
[7] Syntel Sterling Best Shores Mauritius, Ltd. v. The TriZetto Grp., 68 F.4th 792, 811 (2d Cir. 2023).
