research and development

Trade Secrets Misappropriation Damages can Include Estimated R&D Costs

By John DiGiacomo

A federal Court of Appeals has recently affirmed that damages for trade secret misappropriation can include estimated costs for research and development (and also a hefty award of punitive damages). See Epic Systems Corporation v. Tata Consultancy Services, Ltd., Case Nos. 19-1528; 19-1613 (7th Cir., August 20, 2020). That case involved the Wisconsin version of the Uniform Trade Secrets Act (“UTSA”). See Wis. Stat. § 134.90(2). The award of R&D costs was affirmed and justified as a form of unjust enrichment.

Generally, the UTSA (and the federal version) allow for three categories of damages — actual costs, unjust enrichment, and a “reasonable royalty.” For example, the Wisconsin statute — § 134.90(4)(a) — states in part

“A court may award damages in addition to, or in lieu of, injunctive relief …. Damages may include both the actual loss caused by the violation and unjust enrichment caused by the violation that is not taken into account in computing actual loss. Damages may be measured exclusively by the imposition of liability for a reasonable royalty for a violation of sub. (2) if the complainant cannot by any other method of measurement prove an amount of damages which exceeds the reasonable royalty.”

In the Epic Systems case, the defendant — Tata Consultancy Services, Ltd. (“Tata”) — successfully gained access to an Epic Systems database and web portal and used that access to download thousands of pages of Epic Systems documents. Epic Systems is a leading developer of electronic-health-record software. The downloaded documents contained a variety of confidential information including various alleged trade secrets. Tata is a competitor of Epic Systems and previously developed its own electronic-health-record software which, at the time, was predominately sold in India. Tata’s plan was to use the downloaded Epic Systems documents to create a competing database and portal and to enter the US market by luring away Epic System clients. However, Tata failed to lure away any of Epic Systems’ clients

When Epic Systems discovered that its documents had been stolen, it filed suit alleging, among other things, misappropriation of trade secrets. However, because Tata had failed to lure away any of Epic Systems’ clients, when establishing its measure of damages for trade secret misappropriation, Epic Systems could not show “actual damages” — such as lost profits. Therefore, Epic Systems used an unjust enrichment theory. Through the use of expert witnesses, Epic Systems provided the jury with evidence that Tata avoided millions of dollars worth of research, development and testing costs by stealing Epic System’s documents. In this manner, Epic Systems argued that Tata was unjustly enriched.

Ultimately, the jury was convinced and awarded Epic Systems $140 million in damages based on the theory of unjust enrichment. This award was confirmed by the trial judge and was ultimately upheld by the Court of Appeals. The court affirmed that unjust enrichment can be proven in many different ways and that “avoided” R&D costs were one valid method.

As noted, the jury also awarded punitive damages. The initial amount was $700 million which was reduced to $280 million by the trial judge based on Wisconsin’s statutory limit on punitive damages. This was further reduced by the Court of Appeals based on due process arguments to no more than $140 million.

For more information or if you have questions about protecting your trade secrets or if you need to initiate trade secret litigation, contact the trade secret lawyers at Revision Legal at 231-714-0100.

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