New Sixth Circuit Decision on Uniform Trade Secrets Act Underscores Importance of Proving Lost Profits In Trade Secrets Cases

Lawrence H. Pockers and Gregory S. Bombard

Trade secret plaintiffs have a bevy of remedies available. On the monetary remedies side, plaintiffs often choose to measure their damages based on the profits realized by their competitor. Focusing on the defendant’s wrongfully-gained profits is in many cases easier than proving that the plaintiff’s profits diminished as a result of the theft. Plaintiffs are often also skittish about revealing the amount of their own losses to their competitors.

But a new case from the Sixth Circuit — Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Inc., No. 14-3563, 2015 WL 6685380, at *1 (6th Cir. Nov. 3, 2015) — demonstrates why proving the plaintiff’s “actual loss” at trial is an important part of protecting a plaintiff’s business from further harm. 

The Allied decision is the culmination of nine years of litigation between a father and his son relating to the manufacturing and marketing of industrial demolition equipment. In 2003, the son left the family business and joined a competitor. In 2006, the father’s company sued the son’s company for theft of trade secrets and won a substantial jury verdict, but the damages were based only on an “unjust enrichment” theory because the father’s company could not prove that it had lost a customer or otherwise been directly harmed as a result of the son’s theft of trade secrets. The trial court denied the father’s company any prospective relief, and the denial of prospective relief was affirmed by the Sixth Circuit.

After the first trial, the son’s company continued to use the father’s company’s trade secrets in its products. In response, in 2013, the father’s company filed a new suit, seeking damages for the ongoing use of its trade secrets. The district court dismissed that suit, holding that the statute of limitations for the theft of trade secrets (which had occurred in 2003 and continued thereafter) had run.

On appeal, the Sixth Circuit ruled that the statute of limitations applied to bar the claims, but that the case should also have been dismissed based on the preclusive effect of the prior judgment. In essence, the Sixth Circuit ruled that the plaintiff had already sought and been denied prospective relief at trial. The “new” claim based on the defendant’s continuing conduct was barred by the prior judgment.

Allied heavily underscores the need to “get it right” in the first instance and prove lost profits, lost customers, or other direct harm to the plaintiff’s business. In Allied, the plaintiff’s failure to do so in the first trial ultimately led to the plaintiff’s inability to recover for ongoing harm caused by the defendant.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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