{"id":1605,"date":"2022-01-06T15:25:59","date_gmt":"2022-01-06T15:25:59","guid":{"rendered":"https:\/\/www.bfvlaw.com\/trial-mistakes-weaken-a-trade-secret-misappropriation-appeal\/"},"modified":"2022-08-04T19:20:37","modified_gmt":"2022-08-04T19:20:37","slug":"trial-mistakes-weaken-a-trade-secret-misappropriation-appeal","status":"publish","type":"post","link":"https:\/\/www.bfvlaw.com\/trial-mistakes-weaken-a-trade-secret-misappropriation-appeal\/","title":{"rendered":"Trial Mistakes Weaken a Trade-Secret Misappropriation Appeal"},"content":{"rendered":"\r\n

One of my favorite Warren Buffet quotes is: \u201cIt\u2019s good to learn from your mistakes. It\u2019s better to learn from other people\u2019s mistakes.\u201d A recent Eleventh Circuit decision, Financial Information Technologies, LLC v. iControl Systems, USA, LLC<\/em>, — F.4th<\/sup> — (11th Cir. Dec. 22, 2021), offers practitioners the opportunity to learn from a defendant\u2019s mistakes in a trade-secret misappropriation<\/a> trial.\u00a0<\/p>\r\n\r\n\r\n\r\n

The trade-secret misappropriation trial<\/strong>
The facts of the case are typical of a trade-secret misappropriation<\/a> 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\u2019s former employees, started selling a product similar to Fintech\u2019s software at a lower price, and lured away some of Fintech\u2019s customers, Fintech sued iControl for trade-secret misappropriation.<\/p>\r\n\r\n\r\n\r\n

The case went to a jury trial. iControl\u2019s 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.<\/p>\r\n\r\n\r\n\r\n

Looking back, iControl made two strategic errors at trial that doomed its appeal of the jury\u2019s verdict against it.<\/p>\r\n\r\n\r\n\r\n

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.<\/p>\r\n\r\n\r\n\r\n

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.<\/p>\r\n\r\n\r\n\r\n

The Eleventh Circuit went out of its way to explain how each of these missteps\u2014especially combined\u2014made an appeal of the jury\u2019s verdict \u201can especially steep climb\u201d for iControl. Consequently, this made the liability verdict against iControl much easier for the Court to affirm.\u00a0 \u00a0\u00a0<\/p>\r\n\r\n\r\n\r\n

Mistake #1: Allowing a general verdict on many trade secrets<\/strong>
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 \u201cneedn\u2019t assess each secret individually to determine whether each one was readily ascertainable.\u201d Instead, it could affirm so long as at least one of the alleged trade secrets was not readily ascertainable.<\/p>\r\n\r\n\r\n\r\n

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\u2019s discretion), it could have had a better chance appealing the verdict if the jury chose a \u201ctrade secret\u201d 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 <\/em>trade secret rather than just one or two.<\/p>\r\n\r\n\r\n\r\n

Mistake #2: Not moving for a JMOL on liability<\/strong>
iControl\u2019s 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.<\/p>\r\n\r\n\r\n\r\n

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<\/em>. But because \u201cfor whatever reason\u201d iControl failed to do so, iControl was \u201cstuck with the more deferential abuse-of-discretion standard applicable to new-trial motions.\u201d Under that standard, the only question for the appellate court was whether there was an \u201cabsolute absence of evidence\u201d to support the verdict. \u00a0<\/p>\r\n\r\n\r\n\r\n

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 \u201cabsolute absence of evidence\u201d that each<\/em> 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.<\/p>\r\n\r\n\r\n\r\n

iControl\u2019s failure to move for judgment as a matter of law on liability had another dire consequence. The \u201cabsolute absence of evidence\u201d standard also applied to iControl\u2019s appeal of the jury\u2019s award of exemplary damages for \u201cwillful and malicious misappropriation.\u201d<\/p>\r\n\r\n\r\n\r\n

The Eleventh Circuit explained that \u201c[g]iven the standard of review\u201d it \u201csimply can\u2019t say that there is an \u2018absolute absence of evidence\u2019 that would justify setting aside the jury\u2019s findings.\u201d 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 <\/em>standard of review.<\/p>\r\n\r\n\r\n\r\n

Notably, on a separate damages issue on which iControl did<\/em> move for judgment as a matter of law, the Eleventh Circuit reversed the district court\u2019s 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 <\/em>issue was de novo<\/em> because iControl moved for judgment as a matter of law on damages.<\/p>\r\n\r\n\r\n\r\n

In short, iControl\u2019s appeal as to damages was successful based on it making the right motion at trial, which determined the standard of review. iControl\u2019s appeal as to liability for trade-secret misappropriation and as to exemplary damages was doomed based on being \u201cstuck\u201d with a much more deferential standard of review\u2014a consequence of failing to move for judgment as a matter of law on liability at trial.<\/p>\r\n\r\n\r\n\r\n

The bottom line<\/strong>
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:<\/p>\r\n\r\n\r\n\r\n

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  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.<\/li>\r\n<\/ol>\r\n\r\n\r\n\r\n