In May 2023, the U.S. District Court for the Eastern District of Michigan overturned a jury verdict of nearly $105 million in a trade secret case. The court found that, because the plaintiff failed to provide sufficient evidence of damages, the jury’s finding of liability supported only a reduced, nominal award of $3.
In Versata Software, Inc. v. Ford Motor Company, plaintiffs Versata Software Inc., Trilogy Development Group Inc. and Trilogy Inc. (collectively, Versata) sued Ford Motor Company for breach of contract and trade secret misappropriation, alleging that Ford improperly used Versata’s computer software to more efficiently configure cars. No. 15-cv-10628, 2023 WL 3175427 (E.D. Mich. May 1, 2023).
According to Versata, it previously had shared four “combination” trade secrets with Ford that comprised different elements. Versata allegedly licensed this software to Ford under a master subscription and services agreement, which Ford chose not to renew, and Ford rolled out its own automotive configuration software. After trial, the jury found in Versata’s favor and awarded $82.26 million in damages for breach of contract and $22.37 million in damages for misappropriation of trade secrets. Ford filed a renewed motion for judgment as a matter of law, in part asserting that Versata failed to provide sufficient evidence to support the damages awards. The court agreed.
Initially, Ford argued that Versata did not adequately disclose its combination trade secrets to Ford. Versata allegedly pointed to a mountain of documents to assure the jury that the each element of the combinations was “in there somewhere.” The court was persuaded by Ford’s argument and went so far to say, if the court “had been sitting as a juror,” it would have found in favor of Ford on this issue. However, “the question [was] whether the evidence, taken in the light most favorable to Versata, was sufficient to support a finding that Versata disclosed the combination trade secrets to Ford. It was.” Thus, the court deferred to the jury’s determination on the disclosure issue. The court also affirmed the findings that: (i) Versata’s combination trade secrets had synergistic value (i.e., that the combination trade secrets were more valuable than the sum of their parts); and (ii) Ford misappropriated three out of four of the combination trade secrets.
Damages, in contrast, were not given deference. The court determined that the damage award could not stand because Versata failed to introduce evidence sufficient to enable the jury to calculate damages for the combination trade secrets. Specifically, damages should have been limited to the amount of time it would have taken Ford to independently develop the combination trade secrets. Further, the jury’s damages award must be predicated on proof of that time period. Although Versata’s damages expert provided a calculation for the period of time it would have taken Ford to develop all four of the combination trade secrets, he said nothing about the time it would have taken Ford to develop less than all of the four combination trade secrets or to develop any of the trade secrets individually. Versata’s expert also failed to provide the jury with the tools to make that determination independently.
Accordingly, the jury could not reliably determine how long it would have taken Ford to develop the three trade secrets it determined Ford misappropriated nor the corresponding damages. Drawing parallels to a prior Northern District of California case, the court emphasized that because the jury did not find that Ford misappropriated all of Versata’s alleged trade secrets, its “all-or-nothing” damages opinion provided no basis for a partial damages award. Consequently, in the end, the court granted Ford’s judgment as a matter of law on the trade secret claims and reduced Versata’s breach of contract award to $3.
This federal opinion reminds parties on both sides to go back to the basics. Trade secret plaintiffs should tie damages to each element of misappropriation and provide the jury with partial damage calculations where appropriate. Trade secret defendants should put plaintiffs and their experts to the task of itemizing their damages and, when necessary, challenge or appeal “all-or-nothing” awards. Too often, attorneys focus on proving or defending against the liability aspects of their claims and relegate damages evidence to the backburner.
A successful trade secret case alleging misappropriation of two or more trade secrets may hinge on a plaintiff’s ability to provide the jury with ample evidence to find some liability and then calculate damages for a partial misappropriation award. Arm the jury with the requisite evidence to find for the plaintiff in more ways than one, or attack the other side if the plaintiff fails to do this. Otherwise, the opponent may drive off with a big win.