Trial Mistakes Weaken a Trade-Secret Misappropriation Appeal

Posted by Jeremy L. Kahn on

One of my favorite Warren Buffet quotes is: “It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.” A recent Eleventh Circuit decision, Financial Information Technologies, LLC v. iControl Systems, USA, LLC, — F.4th — (11th Cir. Dec. 22, 2021), offers practitioners the opportunity to learn from a defendant’s mistakes in a trade-secret misappropriation trial. 

The trade-secret misappropriation trial
The facts of the case are typical of a trade-secret misappropriation case. Fintech, the plaintiff trade secret owner, sold software that rapidly processed electronic payments between alcohol retailers and distributors. After a newcomer to the market, iControl, hired a couple of Fintech’s former employees, started selling a product similar to Fintech’s software at a lower price, and lured away some of Fintech’s customers, Fintech sued iControl for trade-secret misappropriation.

The case went to a jury trial. iControl’s primary defense was that the alleged trade secret information did not qualify as protectable trade secrets because they were readily ascertainable. The jury disagreed. It returned a verdict for Fintech, along with an award of exemplary (i.e., punitive) damages.

Looking back, iControl made two strategic errors at trial that doomed its appeal of the jury’s verdict against it.

First, iControl failed to ask for a special verdict or special interrogatories to the jury. The jury simply rendered a general verdict of liability for trade-secret misappropriation that did not specify which of seven alleged trade secrets it found were protectable trade secrets that were misappropriated.

Second, iControl failed to move for judgment as a matter of law on liability for trade-secret misappropriation, limiting its motion to only damages issues.

The Eleventh Circuit went out of its way to explain how each of these missteps—especially combined—made an appeal of the jury’s verdict “an especially steep climb” for iControl. Consequently, this made the liability verdict against iControl much easier for the Court to affirm.    

Mistake #1: Allowing a general verdict on many trade secrets
iControl based its appeal on its defense that the allegedly misappropriated trade secret information did not include protectable trade secrets because the alleged trade secrets were readily ascertainable. But because the jury returned a general verdict that did not identify which trade secrets it found were misappropriated, the Eleventh Circuit noted that it “needn’t assess each secret individually to determine whether each one was readily ascertainable.” Instead, it could affirm so long as at least one of the alleged trade secrets was not readily ascertainable.

Had iControl insisted on a special verdict or special interrogatories that required the jury to specify which trade secrets it based its verdict on (which, to be fair, would have been at the district judge’s discretion), it could have had a better chance appealing the verdict if the jury chose a “trade secret” that was readily ascertainable and thus not a protectable trade secret. Instead, iControl made its task much harder, requiring it to prevail as to every trade secret rather than just one or two.

Mistake #2: Not moving for a JMOL on liability
iControl’s second mistake compounded its difficulty on appeal. At trial, iControl moved for judgment as a matter of law only as to damages rather than on liability for trade-secret misappropriation. After the jury returned a verdict that iControl was liable, it moved for a new trial, which the district court denied.

The Eleventh Circuit pointed out that, had iControl previously moved for judgment as a matter of law as to liability for trade-secret misappropriation, its review of the denial of such a motion would have been de novo. But because “for whatever reason” iControl failed to do so, iControl was “stuck with the more deferential abuse-of-discretion standard applicable to new-trial motions.” Under that standard, the only question for the appellate court was whether there was an “absolute absence of evidence” to support the verdict.  

Combined with the mistake of not requiring the jury to identify which alleged trade secret it based its verdict on, this standard meant that iControl had the unenviable task of having to show that there was an “absolute absence of evidence” that each of the seven alleged trade secrets were not protectable trade secrets. On the other hand, to affirm, the Eleventh Circuit needed to find only that there was at least some evidence presented at trial that at least one of the trade secrets was not readily ascertainable.

iControl’s failure to move for judgment as a matter of law on liability had another dire consequence. The “absolute absence of evidence” standard also applied to iControl’s appeal of the jury’s award of exemplary damages for “willful and malicious misappropriation.”

The Eleventh Circuit explained that “[g]iven the standard of review” it “simply can’t say that there is an ‘absolute absence of evidence’ that would justify setting aside the jury’s findings.” Again, had iControl moved for judgment as a matter of law on this issue, it would have had the benefit of the more generous de novo standard of review.

Notably, on a separate damages issue on which iControl did move for judgment as a matter of law, the Eleventh Circuit reversed the district court’s denial of the motion and remanded for the district court to recalculate the damages award. Of course, the Eleventh Circuit noted that its review on that issue was de novo because iControl moved for judgment as a matter of law on damages.

In short, iControl’s appeal as to damages was successful based on it making the right motion at trial, which determined the standard of review. iControl’s appeal as to liability for trade-secret misappropriation and as to exemplary damages was doomed based on being “stuck” with a much more deferential standard of review—a consequence of failing to move for judgment as a matter of law on liability at trial.

The bottom line
Though unfortunate for iControl, its missteps during its trade-secret misappropriation trial can be a teaching tool for the rest of us. There are two takeaways:

  1. When faced with allegations of misappropriation of more than one trade secret, a defendant should insist that the jury specify which trade secrets were misappropriated if it finds the defendant liable.
  • A defendant should almost always contest liability in a motion for judgment as a matter of law at trial.

Doing both will put defendants accused of trade-secret misappropriation in a far superior position on appeal if they end up on the wrong side of a jury verdict.

As always, please let me know if I can help.