Trade Secret Litigation

Trade Secret Litigation is a highly complex area of law involving a company’s or person’s valuable and most confidential, technical or financial information, which the company or person considers to be “trade secrets.” The Fort Lauderdale and Miami trade secret litigation attorneys at the Mavrick Law Firm have extensive experience in representing businesses trade secrets litigation.

Florida is one of forty-eight states that have adopted the Uniform Trade Secrets Act. This uniform law was created by the National Conference of Commissioners on Uniform State Laws to effectively protect trade secrets for businesses operating in multiple states. Florida’s Uniform Trade Secrets Act (“FUTSA”), § 688.001 et seq., Fla. Stat., mirrors the federal Uniform Trade Secrets Act and defines trade secrets as follows:

“Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process that:

1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
2. Is the subject of efforts that are reasonable under the circumstances to maintain itssecrecy.

The definition of trade secrets was drafted broadly to encompass a wide-range of information that a business could seek to protect as a trade secret. A few cases in Florida have narrowed FUTSA’s broad definition of trade secrets, creating some inconsistencies concerning whether certain information should qualify as a trade secret. In Florida, a trade secret is defined as information, including a formula, pattern, compilation, program, device, method, technique, or process that (1) derives independent economic value from not being generally known to and not readily ascertainable by others who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts to maintain its secrecy.In an action involving alleged trade secrets, the plaintiff bears the burden of demonstrating both that the specific information it seeks to protect is secret and that it has taken reasonable steps to protect this secrecy. Information generally known or readily accessible to third parties cannot qualify for trade secret protection.

Despite the general rule that “information generally known or readily accessible to third parties cannot qualify as a trade secret,” there is a long-standing exception under Florida law. In Sun Crete of Florida, Inc. v. Sundeck Products, Inc., 452 So. 2d 973, 975 (Fla. 4th DCA 1984), Florida’s Fourth District Court of Appeal interpreted trade secrets to mean “a plan or process, tool, mechanism or compound [including] a unique combination of otherwise known components, if the combination differs materially from other methods known in the trade.” Thus even if all the information is publicly available, a unique compilation of that information may qualify as a trade secret, if the combination adds value to the information.

FUTSA also establishes a cause of action for trade secret misappropriation. Trade secret misappropriation means:

1. Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
2. Disclosure or use of a trade secret of another without express or implied consent by a person who:
   1. Used improper means to acquire knowledge of the trade secret; or
   2. At the time of disclosure or use, knew or had reason to know that her or his knowledge of the trade secret was:
      1. Derived from or through a person who had utilized improper means to acquire it;
      2. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
      3. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
   3. Before a material change of her or his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

In cases of actual or threatened misappropriation, FUTSA permits an injured party to obtain injunctive relief. See § 688.003, Florida Statute. If a company’s or person’s trade secrets are misappropriated in violation of FUTSA, the injured party may be entitled to damages. In cases of “willful and malicious misappropriation,” the injured party may recover exemplary damages and attorney’s fees. See §§ 688.004, 688.005, Fla. Stat.

The Federal Defend Trade Secret Acts

Because the vast majority of states have adopted the Uniform Trade Secrets Act, trade secret misappropriation claims for the most part historically have been litigated in state court. In 2016, however, federal law was expanded to include protection of trade secrets in the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836 et seq. DTSA created a federal cause of action for trade secret misappropriation, allowing businesses to litigate their trade secret misappropriation claims in federal courts throughout the United States. DTSA expands the definition of trade secrets beyond what is found in the Uniform Trade Secrets Act:

The term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—

1. the owner thereof has taken reasonable measures to keep such information secret; and
2. the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information

18 U.S.C. § 1839.

To prevail on a claim for misappropriation of trade secrets, a plaintiff must demonstrate that (1) it possessed a trade secret; and (2) it’s trade secret information was misappropriated, either by one who knew or had reason to know that the secret was improperly obtained or by one who used improper means to obtain it. Federal and Florida State Courts often protect trade secret rights via an injunction that prohibits misappropriation or use of the trade secret. Both the Federal Defend Trade Secrets Act (the “DTSA”) and Florida’s Uniform Trade Secrets Act (the “FUTSA”) authorize a court to grant an injunction to prevent ‘actual’ or ‘threatened’ misappropriation of a ‘trade secret.’” Heralds of Gospel Found., Inc. v. Varela, 2017 WL 3868421 (S.D. Fla. June 23, 2017) (granting temporary restraining order in action brought under the Defend Trade Secrets Act and the Florida Uniform Trade Secrets Act). To support a preliminary injunction: The movant must establish: (1) substantial likelihood of success on the merits; (2) irreparable injury unless the injunction issues; (3) that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest. The same factors that generally govern a request for a preliminary injunction also apply to a request for a temporary restraining order. A temporary restraining order on an ex parte basis may be granted upon a showing ‘that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition.

Notice to Employees and Contractors is Required to Take Full Advantage of Defend Trade Secrets Act (DTSA)

The DTSA created the first federal civil cause of action and source of federal statutory remedies for misappropriation of trade secrets and provides a uniform cause of action across the United States. Prior to the enactment of the DTSA, trade secret misappropriation claims were limited to state laws. The DTSA does not preempt state law claims, but it does provide a path to litigate trade secret claims in federal court. The Mavrick Law Firm represents business in all aspects of trade secret law.

If an employer is able to establish theft of a trade secret, it may be entitled to 1) seizure of the property necessary to prevent the propagation or dissemination of the trade secret, 2) the granting of an injunction, 3) award of monetary damages, including damages for the actual loss suffered by the theft and damages for any unjust enrichment the misappropriating party received from the theft, 4) award of exemplary damages, which is up to double the amount of the actual and unjust enrichment damages, if the theft was willful and malicious, and 5) an award of attorney’s fees paid to the prevailing party by the losing party. 18 U.S.C. §1836 2(b)(3)(A-D).

In order for an employer to be eligible to recover exemplary damages (double damages) and attorney’s fees for misappropriated trade secrets, a notice must be given to its employees, contractors and/or consultant informing them of the employee immunity provisions under the DTSA.

The notice must be provided in any new agreement governing trade secrets or other confidential information. The following is an adaptation of the statutory immunity provisions of the DTSA:

An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order.

See 18 U.S.C. §1833(b)(1)&(2).

An employer can comply with the notice requirement by either incorporating the immunity provisions in the contract or agreement itself, or include in such agreement a cross-reference to the employer’s whistleblower policy containing the requisite immunity provisions. See 18 U.S.C. §1833(b)(3)(A)&(B).

Trade Secret Claims Based on Stolen Customer Lists

There has been a great deal of litigation over whether a customer list can qualify as a trade secret. Generally, customer lists can constitute trade secrets where the lists are acquired or compiled through the industry of the owner of the lists and are not just a compilation of information commonly available to the public. There are many cases where businesses suffer theft of their customer list by former employees.

The DTSA and FUTSA define “misappropriation” as the acquisition of a trade secret of another by a person without consent and by improper means, or the disclosure or use of a trade secret of another without consent by a person who used improper means to acquire knowledge of the trade secret. “Improper means” is defined to include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” (See 18 U.S.C. § 1839(6)). If a plaintiff can establish that a defendant was under a duty to maintain the confidentiality of plaintiff’s trade secrets and acquired or used such information without the consent of the plaintiff, then the defendant’s actions constitute trade secret misappropriation, and the plaintiff will be likely to succeed on the merits of their misappropriation claims under the DTSA and FUTSA. Heralds of Gospel Found., Inc., 2017 WL 3868421, at *6 (“The John Doe Defendants were under an obligation to maintain the confidentially of the Videos, and they had no authorization to disseminate the Videos to any third parties outside of the Association. Defendants’ actions therefore constitute trade secret misappropriation under the DTSA and FUTSA, and Plaintiffs are likely to succeed on the merits of its trade secret misappropriation claims”).

Florida Trade Secret Law: Rating Software Found to be Trade Secret but not its Compilation of Publicly Available Data

Companies often develop software to provide customers with an easier way to sort through information that may otherwise be available to the public. It provides a service to their customers who would rather not spend a large amount of time researching, but rather to have it all in one location. One of the defining characteristics of a trade secret is that it must consist of information that derives economic value from not being readily ascertainable by others. Peter Mavrick is a Fort Lauderdale trade secret attorney who has extensive experience in trade secret litigation.

In the case of Liberty American Ins. Group, Inc. v. Westpoint Underwriters, L.L.C., et al, 199 F.Supp.2d 1271 (M.D. Fla. 2001), Liberty American Ins. Group, Inc. (“Liberty”) developed a software system for rating of mobile-home insurance premiums, which included a rating engine, an underwriting database and a database of information pertaining to mobile-home parks. Lyle Vincent (“Vincent”) was one of Liberty’s employees who participated in writing of the rating software program. While employed by Liberty, Vincent transferred Liberty’s software and database to his personal computer in violation of his terms of employment and confidentiality agreement. Vincent was terminated for an unrelated reason and locked out of his computer. Vincent, however, did not tell his employer that he was in possession of Liberty’s software and database. He subsequently went to work for another company where he had strong incentive to use Liberty’s information because he was hired to write a program that would enable his new employer to obtain business from Liberty’s clients.

Liberty filed a lawsuit in federal court against Vincent and the competitor for misappropriation of trade secrets as well as other causes of action. Liberty filed a motion for a preliminary injunction. Liberty petitioned the court to prevent its competitor from using Liberty’s rating software and mobile-home database information. When a court determines whether a preliminary injunction should be issued, one of the factors that it must look at is whether a substantial likelihood exists that the moving party will ultimately prevail on the merits. Liberty Am. Ins. Grp., Inc. v. WestPoint Underwriters, L.L.C., 199 F. Supp. 2d 1271, 1276 (M.D. Fla. 2001).

Liberty’s rating software consisted of a rating engine, a glossary of terms, Javascripts and an HTML generator. All parts of the software were not readily known or ascertainable by its competitors and Liberty took reasonable steps to protect their secrecy. In fact, Liberty even received copyright registrations for each of the parts of the software. So, the federal court correctly found the ratings software to be trade secret information protected by Florida law. However, the court did not find the mobile-home park database to be trade secret because it consisted of information that was available on the internet as well as information that could be observed by a visitor to any of the parks. The court ultimately found that Liberty would prevail on the merits of its claims for misappropriation of trade secrets against Vincent, but only as to its rating software and not its database of information pertaining to mobile-home parks. Peter Mavrick is a Fort Lauderdale trade secret attorney who represents businesses.

Disgorgement of Defendant’s Profits as Damages for Misappropriated Trade Secrets

Trade secrets are often the most valuable asset of a business’s operation. Depending on the type of trade secrets, their development requires a significant investment of money, time, research and work. When a trade secret is misappropriated, it can give an unfair head start to a competitor who did not have to independently develop its product, specification or client list. An appropriate remedy that courts can award to a business to recover its investment is the disgorgement of a defendant’s profits. Lost profits can be calculated as the amount of time it would have taken for the defendant to develop its product, specification or client list without the benefit of the stolen trade secrets (i.e. the “head start” period).

In the case of Sensormatic Electronics Corp. v. the TAG COMPANY US, LLC, et al., 632 F. Supp.2d 1147 (S.D. Fla. December 19, 2008), Sensormatic Electronics Corp. (“Sensormatic”) sued its former employee and its competitors for several claims of patent infringement and for misappropriation of trade secrets. The former employee violated his agreement with Sensormatic by misappropriating trade secret specifications for their security labels which are used by retail stores and attached to merchandise in order to trigger a surveillance system. Sensormatic spent years of testing and monetary resources to create their specifications for the security label. In addition, Sensormatic made a reasonable effort to maintain the secrecy of its specifications and required its employees, licensees and material suppliers to sign confidentiality agreements.

Sensormatic’s trade secrets were acquired by the former employee from a former licensee of Sensormatic, both of whom were bound by confidentiality agreements with Sensormatic. The former employee then became the CEO of TAG COMPANY US, LLC (“TAG”), who developed and sold a similar product to that of Sensormatic. It was alleged that the former employee either took the specifications from Sensormatic himself or obtained them from a former licensee of Sensormatic. The federal court held that regardless of how he obtained the Sensormatic specifications, TAG’s acquisition of Sensormatic’s specifications was done through improper means and in violation of FUTSA. TAG used Sensormatic’s specifications to catch up to Sensormatic in the security label business.

Pursuant to FUTSA, “…a complainant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing the actual loss.” Fla. Stat. §688.004. The federal court awarded Sensormatic the “head start” damages in the amount of $200,000, based on Plaintiff’s expert testimony that based the amount on the calculation of TAG’s incremental profits from sales of the security labels during several head start periods ranging from six months to three years. He also calculated the amount of head start benefit TAG had already received, in the event that an injunction was entered prohibiting future sales of the security labels.

FLORIDA TRADE SECRET LITIGATION: DIFFERENT METHODS OF CALCULATING DAMAGES ARE AVAILABLE FOR MISAPPROPRIATION OF TRADE SECRETS

The Florida Uniform Trade Secrets Act (FUTSA) provides multiple ways that a victim of trade secret misappropriation may use in calculating its damages. Damages for a FUTSA violation “can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation.” Advantor Sys. Corp. v. DRS Tech. Services, Inc., 678 Fed. Appx. 839 (11th Cir. 2017). In other words, when a company misappropriates a trade secret from another company, the aggrieved company may seek damages based on its actual losses and lost profits, as well as the advantage gained by the misappropriating party, or the value of the hypothetical royalties that it would have been paid had the misappropriating party bought the rights to the trade secret in an arms-length transaction. Section 688.004, Florida Statutes. Peter Mavrick is a Fort Lauderdale and Miami trade secret lawyer who represents businesses in trade secret litigation and other business litigation.

Because of the inherent difficulty in calculating damages in trade secret misappropriation cases, courts often permit aggrieved parties flexibility in calculating damages. Med. Store, Inc. v. AIG Claim Services, Inc., 02-80513-CIV, 2003 WL 25669175 (S.D. Fla. Oct. 17, 2003). “The law of damages as applied in misappropriation of trade secret cases holds that when some damage is proven and ‘the uncertainty lies only in the amount of damages, recovery may be had if there is proof of a reasonable basis from which the amount can be inferred or approximated.’” Perdue Farms Inc. v. Hook, 777 So. 2d 1047 (Fla. 2d DCA 2001).

There are three established methods by which an injured party may claim their damages for trade secret misappropriation. The first method is to base damages on the losses that were directly suffered from the misappropriation. These damages can include “loss of profits, lost customers or lost market share to the owner of the trade secret caused by the misappropriation.” Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 94 So. 3d 640 (Fla. 4th DCA 2012). If a victim of trade secret misappropriation claims lost profits, the lost profits must be proven with reasonable certainty and be a natural consequence of the wrong. Sihle Ins. Grp., Inc. v. Right Way Hauling, Inc., 845 So.2d 998 (Fla. 5th DCA 2003). However, lost profits may not be based on a speculative circumstances. “[D]amages may not be awarded for lost profits when those profits are dependent on a party taking an action that it is unclear he would have taken.” Brough v. Imperial Sterling Ltd., 297 F.3d 1172 (11th Cir.2002).

A second method by which an injured party may elect to seek damages is based upon the misappropriating party’s unjust enrichment, instead of the victim’s losses. “Disgorgement of a defendant’s profits is an appropriate remedy where the disgorgement is limited to the amount of time it would have taken the defendant to independently develop its product without the benefit of the plaintiff’s trade secrets—in other words, the “head start” period.” Sensormatic Elecs. Corp. v. TAG Co. US, LLC, 632 F. Supp. 2d 1147 (S.D. Fla. 2008), aff’d in part sub nom. Sensormatic Elecs., LLC v. Kahle, 367 Fed. Appx. 143 (Fed. Cir. 2010).

A variation of the unjust enrichment method of calculating damages in trade secret misappropriation cases is called the “head-start period.” Under this methodology, the damages are calculated by comparing how much it would have cost for the misappropriating party to have developed the trade secret had it developed the trade secret legitimately. The Fourth District Court of Appeal of the State of Florida has defined this head-start period as “the amount of time it would have taken [the misappropriating party] to independently develop its product without the benefit of [the victim’s] trade secrets.” Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 94 So. 3d 640 (Fla. 4th DCA 2012), quoting Sensormatic Elec. Corp. v. TAG Co. US, 632 F.Supp.2d 1147 (S.D.Fla.2008).

A third method of calculating damages is by calculating the hypothetical royalties which would be paid for said misappropriated trade secret. “A reasonable royalty is ‘simply that amount which the trier of facts estimates a person desiring to use a […] right would be willing to pay for its use and a [rights] owner desiring to license the [rights] would be willing to accept.’” Perdue Farms Inc. v. Hook, 777 So. 2d 1047 (Fla. 2d DCA 2001), quoting Olson v. Nieman’s, Ltd., 579 N.W.2d 299 (Iowa 1998).

Ultimately, the method of calculating the damages is within the discretion of the court. In Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 94 So. 3d 640 (Fla. 4th DCA 2012), a company misappropriated from another company design of a machine used in production. Premier Lab Supply v. Chemplex Indus., Inc. evaluated whether it was proper for the trial court to calculate damages based upon the victim’s losses as asserted by an expert, rather than the advantage provided to the misappropriating party. The misappropriating party asserted that damages against it should be limited to the amount of a “head start” that it had wrongfully acquired instead of the victim’s losses. The misappropriating party further contended that the trade secret acquired was available publicly at a particular time and so it did not provide any special advantage to justify any more than what the “head start” provided it. The Fourth District Court of Appeal disagreed, and affirmed the trial court’s decision to use damages incurred by the victim instead of advantages provided to the misappropriating party.

The trial court also has discretion to award exemplary damages. Exemplary/punitive damages are appropriate when “willful and malicious misappropriation” of trade secrets occurs. Section 688.004 (2). FUTSA limits exemplary/punitive damages to “an amount not exceeding twice any award made under subsection (1)” of Section 688.004 (2). An example of a circumstance sufficiently egregious to justify exemplary damages is when a company hacks its competitor’s computers to steal its trade secrets. Four Seasons Hotels & Resorts B.V. v. Consorcio Barr, S.A., 267 F. Supp. 2d 1268 (S.D. Fla. 2003), aff’d in part, rev’d in part sub nom. Four Seasons Hotels v. Consorcio Barr S.A., 138 Fed. Appx. 297 (11th Cir. 2005).

The trade secret litigation attorneys at the Mavrick Law Firm have substantial experience in trade secret litigation and have successfully litigated many significant trade secret cases. For 27 years, Peter Mavrick has successfully represented clients in trade secret litigation and has substantial trial and arbitration experience, obtaining favorable jury trial, bench trial, and arbitration verdicts. Mr. Mavrick has the highest peer-review rating from Martindale-Hubbell, of AV. He also has a rating of 10 out of 10 from lawyer rating service AVVO. Mr. Mavrick graduated with honors from Harvard Law School in 1992. He was awarded entry to Phi Beta Kappa.