Oracle Corporation et al v. SAP AG et al

Filing 819

Declaration of Tharan Gregory Lanier in Support of 818 Reply in Support of Defendants' Motion for Partial Summary Judgment (FILED PURSUANT TO D.I. 810) filed by SAP AG, SAP America Inc, Tomorrownow Inc. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Exhibit 12, # 13 Exhibit 13, # 14 Exhibit 14, # 15 Exhibit 15, # 16 Exhibit 16, # 17 Exhibit 17, # 18 Exhibit 18, # 19 Exhibit 19, # 20 Exhibit 20, # 21 Exhibit 21, # 22 Exhibit 22, # 23 Exhibit 23, # 24 Exhibit 24, # 25 Exhibit 25, # 26 Exhibit 26, # 27 Exhibit 27, # 28 Exhibit 28, # 29 Exhibit 29, # 30 Exhibit 30, # 31 Exhibit 31, # 32 Exhibit 32, # 33 Exhibit 33, # 34 Exhibit 34)(Related document(s) 810 ) (Froyd, Jane) (Filed on 8/27/2010) Modified on 8/30/2010 (vlk, COURT STAFF).

Oracle Corporation et al v. SAP AG et al

Doc. 819 Att. 34

EXHIBIT 34

Dockets.Justia.com

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CHAPTER CHAPTER

44

TRADE SECRET DAMAGES
A n n a L. J o h n s , Esq., Dewey Ballantine, L L P

U n f o r t u n a t e l y , t h e r e is n o c o n s e n s u s a m o n g the v a r i o u s s t a t e c o u r t s r e g a r d i n g t h e a p p r o U p r i a t e w a y t o m e a s u r e d a m a g e s f o r t r a d e s e c r e t m i s a p p r o p r i a t i o n c a s e s . As a r e s u l t , t h e r e e are n u m e r o u s c o n f l i c t i n g state c o u r t o p i n i o n s on v a r i o u s i s s u e s related to t h e c a l c u l a t i o n are o f d a m a g e s for trade s e c r e t m i s a p p r o p r i a t i o n . o

44.1 1

SUMMARY OF TRADE SECRET DAMAGES

D a m a g e s for t r a d e s e c r e t m i s a p p r o p r i a t i o n may b e b a s e d on t h r e e di f f e r ent t h e o r i e s : tort, D fo c o n t r a c t i m p l i e d in law o r i m p l i e d in fact, a n d c o n t r a c t law. E a c h t h e o r y m e a s u r e s t h e c d a m a g e s a w a r d differently. d In the c o n t r a c t c a u s e o f a c t i o n , the m i s a p p r o p r i a t o r is t h e o r e t i c a l l y l i a b l e to the t r a d e he s e c r e t o w n e r for the loss o f v a l u e o f t h e t r a d e s e c r e t a s a r e s u l t o f the b r e a c h , a s w e l l as y any s p e c i a l o r c o n s e q u e n t i a l d a m a g e s , o f f s e t by a n y b e n e f i t the t r a d e s e c r e t o w n e r rece ves l r e c e iiv e s from t h e breach. U n d e r a c o n t r a c t i m p l i e d - i n - I a w o r i m p l i e d - i n - f a c t c a u s e o f ac on a c t iio n , t h e t r a d e s e c r e t o w n e r c a n r e c o v e r by way o f r e s t i t u t i o n the v a l u e o f t h e b e n e f i t s rece ved y r e c e iiv e d by the m i s a p p r o p r i a t o r . In a d d i t i o n to c o n t r a c t u a l t h e o r i e s , m o s t j u r i s d i c t i o n s r e c o g n i z e m i s a p p r o p r i a t i o n a s a o ttort.. M i s a p p r o p r i a t i o n r e q u i r e s p r o o f that:
ade · A trade s e c r e t e x i s t e d

· T h e trade s e c r e t was a c q u i r e d t h r o u g h a c o n f i d e n t i a l relationship · T h e d e f e n d a n t u s e d t h e t r a d e s e c r e t w i t h o u t a u t h o r i z a t i o n from t h e p l a i n t i f f
T h e t o r t is t h e b r e a c h o f the c o n f i d e n t i a l r e l a t i o n s h i p . T h e r e f o r e , t h i s t h e o r y l o o k s a t the in ju ry t o t h e r e l a t i o n s h i p r a t h e r t h a n the l o s s o f i n f o r m a t i o n t o e s t a b l i s h liability. A n he n u y t m reg ol iim p o r t a n t p o i n t r e g a r d i n g t h e tOr t t h e o r y is t h a t a c o u r t c a n u s e it to a w a r d p u n i t i v e d a m ages.. H o w e v e r , it r e q u i r e s a s h o w i n g t h a t t h e m i s a p p r o p r i a t o r k n e w o f t h e c o n f i d e n t i a l ges a t re a on r e lla ttiio n s h i p . In a d d i t i o n , t h e s t a t u t e o f l i m i t a t i o n s in m o s t j u r i s d i c t i o n s is s h o r t e r for t o r t s han tthan c o n t r a c t s , a n d m a y t h e r e f o r e l i m i t u s e o f t h i s a p p r o a c h . U s i n g a t o r t t h e o r y , a t r a d e secrett o w n e r m a y r e c o v e r " d a m a g e s for p a s t h a r m , o r . . . a n a c c o u n t i n g o f the w r o n g s ecre do do er's profits." S e c t io n 59.. II- 3 3 8 ( A ) o f t h e V i r g i n i a U n i f o r m T r a d e S e c r e t s A c t s t a t e s : o 9 -3 Excep whe u m Excep t whe re the u ser of a miisappropriated trade secret has made a material and prejudicial h pos pr h chang change in his posiition prior to having either knowledge o r reason to know o f the misappropriation l he cour de m mone ::I nd tthe courtt de term ines that a mone tary recovery would be inequitable. a complainant is entitled [ 0 recove damag misappropr Dm [ 0 recover d a m a g e s for misappropriation. Damages c an include both the actual loss caused by m sappropr un miisappropr iation .and the un just enrichment caused by misappropriation that is not taken into m
747

750 750

Ch. 44 T r a d e S e c r e t D a m a g e s

damages, even if the plaintiff has not shown that it lost any profits and the only advantage to the defendant is that it saved time in developing a new product. See Jet Spray Cooler, Inc. v. Crampton, 385 N.E.2d 1349 (Mass. '1979). [n Jet Spray Cooler, the c o u r t said that the measure o f damages in cases involving business torts such as the misappropriation o f trade secrets entitles a plaintiff to recover full compensation for his lost profits and requires a defendant to surrender the profits that he realized from his tortious conduct. T h e c o u r t explained that it is the policy o f the law, for the advantage o f the public, to e n c o u r a g e and protect invention and commercial enterprise. This en co ura ge ment and protection is afforded trade secrets because the public has a manifest interest not only in commercial innovation and development, but also in the maintenance o f standards o f commercial ethics. Thus, the court said, while a plaintiff in a trade secret misappropriation c a s e is not entitled to a double recovery, they are entitled to the profits they would have made had their secret not been unlawfully used, but not less than the monetary gain that the defendant reaped from his improper acts. Similarly, in Reinforced Molding Corp. v General Electric Co., 5 9 2 F S u p p . 1083 (W.O. Pa. 1984), an action by a manufacturer o f tiberglass products for misappropriation o f t r a d e s e c r e t s c o n c e r n i n g a m a n u f a c t u r i n g p r o c e s s o f c o i l b r a c e parts, t h e c o u r t h e l d that the appropriate measure o f damages would be benefits, profits, o r advantages gained by defendant in using trade secrets. T h e c o u r t also held that damages would c o m m e n c e from the time defendant began using the misappropriated trade secret and accrue for the period o f time it would have taken defendant to create its product absent its misappropriation, and, in accordance with "head start" doctrine, an accounting o f d e f e n d a n t ' s protits would be appropriate for time it saved by misappropriation. Rea'ioning from the rule that the appropriate measure o f damages in a trade secret c a s e is the benefits, profits, o r advantage gained by the defendant in the use o f the secret, the c o u r t in International Industries, Inc. v Warren Petroleum Corp., 248 F,2d 6 9 6 (3rd Cir. 1957), held that the advantage enjoyed by the defendant is to be measured by what is called the "standard o f comparison method," under which the measure o f recovery is the difference between the cost o f obtaining the result achieved by the use o f the infringing method o r device and the c o s t o f obtaining the same result by another method, the " s t a n dard o f comparison," available at the time o f the appropriation. T h e court asserted that there was no substantial distinction between the standard o f comparison measure, which m e a s u r e s s a v i n g s , and a d i r e c t m e a s u r e o f t h e d e f e n d a n t ' s p r o f i t s . However, in Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 407 N.E.2d 319 (Mass. 1980), the c o u r t held that the lower court incorrectly had limited the p l a i n t i f f ' s recovery to the a m o u n t o f the d e f e n d a n t ' s gain because such gain was exceeded by the a m o u n t o f the p l a i n t i f f ' s l o s t profits.

44.5

OTHER METHODS OF CALCULATING DAMAGES FOR MISAPPROPRIATION OF TRADE SECRET

In the absence o f proper p r o o f as to either the plaintiff's lost profits or the d e f e n d a n t ' s profits from the sales o f a specific trade secret product, or where such measures have been d e e m e d insufficient, the courts have resorted to o t h e r measures o f damages for trade s e c r e t m i s a p p r o p r i a t i o n .
(a) COST FOR DEFENDANT TO DEVELOP ITS PRODUCT WITHOUT USING PLAINTIFF'S lRADE SECRETS. For example, where a misappropriated device contained several technological innovations, some o f which may have been publicly disclosed at the time the

44.5 44.5 O t h e r M e t h o d s o f C a l c u l a t i n g D a m a g e s for M i s a p p r o p r i a t i o n o f T r a d e S e c r e t

751

d e v i c e w a s m i s a p p r o p r i a t e d . t h e c o u r t in Servo Corp. o f America v. General Electric Co., 393 F.2d 551 (4th Cir. 1968), held t h a t the mea~ure o f d a m a g e s would be t h e c o s t o f e x p e r i m e n t a t i o n to d e v e l o p t h e c o m p o n e n t o r c o m p o n e n t s n o t d i s c l o s e d a n d to d i s c o v e r how to c o m b i n e all c o m p o n e n t s , in a d d i t i o n to t h e c o s t o f d i s c o v e r i n g the d i s c l o s u r e o f t h e i n f o l m a t i o n t h a t had b e e n p u b l i c l y d i s c l o s e d . T h e c o u r t a c c o r d i n g l y r e m a n d e d f o r c o n s i d e r a t i o n o f the a m o u n t o f d a m a g e s . T h e c o u r t in Telex Corp. v. International Business Machines Corp., 5 1 0 F.2d 8 9 4 (10th Cir. 1975), held t h a t it was p r o p e r to m e a s u r e t h e s a v i n g s o f a trade s e c r e t m i s a p p r o p r i a t o r a c c o r d i n g to t h e o w n e r ' s c o s t o f d e v e l o p m e n t o f the t r a d e s e c r e t i n f o r m a t i o n . T h e c o u n t e r d e f e n d a n t w a s e n g a g e d in a p r a c t i c e o f h i r i n g a w a y key e m p l o y e e s o f t h e c o u n t e r p l a i n t i t f s o a s to a c q u i r e trade s e c r e t s and d e v e l o p c e r t a i n p r o d u c t s . As t o o n e o f the p l a i n t i f f ' s d e v e l o p m e n t p r o j e c t s , the d e f e n d a n t d i d its h i r i n g w h e n t h e p r o j e c t was a p p r o x i m a t e l y h a l f - t i n i s h e d . T h e d e f e n d a n t s u b s e q u e n t l y d e v e l o p e d its own p r o d u c t and d i v e r t e d s o m e o f the p l a i n t i f f ' s c u s t o m e r s t o i t s e l f , w h i l e a l s o g a i n i n g o t h e r c u s t o m e r s . T h e p l a i n t i f f w a s a w a r d e d its l o s t r e n t a l s o n t h e d i v e r t e d c u s t o m e r s . In a d d i tion, h o w e v e r , t h e d i s t r i c t c o u r t c a l c u l a t e d a n a w a r d by d i v i d i n g in h a l f t h e p l a i n t i f f ' s t o t a l d e v e l o p m e n t c o s t , s i n c e t h e key e m p l o y e e s h a d b e e n h i r e d a w a y w h e n t h e p r o j e c t was h a l f - d o n e , a n d by s u b t r a c t i n g t h e r e f r o m a f u r t h e r a m o u n t in c o n s i d e r a t i o n o f t h e award o f lost r e n t a l s to the plaintiff. Affirming t h e awards, the c o u r t o f a p p e a l s e x p l a i n e d t h a t t h e r e s u l t i n g f i g u r e r e p r e s e n t e d t h e a m o u n t by w h i c h t h e d e f e n d a n t h a d been e n r i c h e d unjustly. It h e l d that, w h i l e t h e l a w c o n c e r n i n g m e a s u r e o f d a m a g e s in a t r a d e s e c r e t c a s e is far f r o m u n i f o r m , a c o m m o n t h r e a d is to m a k e t h e p l a i n t i f f w h o l e , w h i l e a v o i d i n g d o u b l e recovery. In University Computing Co. v. Lykes- Youngstown Corp., 5 0 4 F.2d 5 1 8 (5th Cir. 1974), the c o u r t held it p r o p e r for t h e d i s t r i c t c o u r t to have i n s t r u c t e d the j u r y that it s h o u l d c o n s i d e r t h e d e v e l o p m e n t c o s t i n c u r r e d by the p l a i n t i f f in a r r i v i n g at the p r o p e r d a m a g e s f o r the d e f e n d a n t ' s m i s a p p r o p r i a t i o n o f t h e p l a i n t i t f ' s c o m p u t e r p r o g r a m , w h e r e t h e r e was no e v i d e n c e o f any s a l e s t h a t had been lost by the p l a i n t i f f o r g a i n e d by the defend<mt as a result o f the m i s a p p r o p r i a t i o n . However, in Sperry Rand Corp. v. A-T-O, Inc., 4 4 7 F.2d 1387 (4th Cir. 1971), t h e c o u r t held t h a t the plaintiff, w h i c h had been d e p r i v e d o f a c o n t r a c t as a r e s u l t o f the d e f e n d a n t ' s t r a d e s e c r e t m i s a p p r o p r i a t i o n , w a s n o t e n t i t l e d to r e c o v e r t h e a m o u n t s a v e d by the d e f e n d a n t in r e s e a r c h a n d d e v e l o p m e n t c o s t s while a l s o recovering its o w n losses o n the c o n t r a c t , i n c l u d i n g a m o u n t s a t t r i b u t a b l e to fixed a n d material o v e r h e a d and c e r tain " a d d i t i o n a l " g e n e r a l a n d a d m i n i s t r a t i v e e x p e n s e s , in an a m o u n t e x c e e d i n g the d e f e n d a n t ' s savings. (b) COSTS OF OTHER L I T I G A T I O N . In McNamara v. Powell, I I N.Y.S.2d 491 ( 1 9 3 9 ) , a p l a i n t i f f w h o s e i n v e n t i o n h a d b e e n m i s a p p r o p r i a t e d was h e l d e n t i t l e d to r e c o v e r l i t i g a tion fees and e x p e n s e s i n c u r r e d by him in d e f e n d i n g in s e p a r a t e litigat~on his r i g h t to the invention and to letters p a t e n t t h e r e o n , as an e l e m e n t o f c o m p e n s a t o r y d a m a g e s for the d e f e n d a n t s ' m i s a p p r o p r i a t i o n . T h e c o u r t r e a s o n e d that s i n c e the d e f e n d a n t s ' p a t e n t a p p l i c a t i o n was a part o f t h e i r s c h e m e to d e p r i v e the p l a i n t i f f o f his invention. and s i n c e they a p p a r e n t l y a n t i c i p a t e d t h a t the p l a i n t i f f w o u l d find it e x t r e m e l y b u r d e n s o m e to c a r r y on t h e l i t i g a t i o n , t h e e n s u i n g l i t i g a t i o n w a s u n d o u b t e d l y t h e i n t e n d e d r e s u l t o f t h e i r a c t i o n s . T h e c o u r t c o n c l u d e d t h a t the d e f e n d a n t s were r e s p o n s i b l e for t h e natural a n d p r o x i m a t e c o n s e q u e n c e s o f t h e i r m i s c o n d u c t , a n d i t a c c o r d i n g l y a f f i r m e d the t r i a l c o u r t ' s award o f d a m a g e s i n c l u d i n g s u c h litigation e x p e n s e s .