Trade secrets are undoubtedly the most diverse form of intellectual property. Unlike copyrights, trademarks, and patents which require the involvement of a government authority like the U.S. Patent and Trademark Office or Copyright Office, establishing a trade secret is the easiest form of intellectual property to create, the law simply requiring (1) secrecy and (2) that the trade secret contains value.

For many businesses, the value of its trade secrets can be immense. Whether it be client lists, top secret formulas, or years’ worth of research and development (R&D), trade secrets exposed to the wrong party could severely jeopardize a business’ future.

In a recent case, PPG Industries Inc. v. Jiangsu Tie Mao Glass Co. Ltd., this risk was well appreciated by Pittsburgh-based manufacturer PPG, which wasted no time in pursuing China-based competitor, Jiangsu Tie Mao Glass Co. Ltd. (“TMG”), when a treasure trove of PPG trade secrets was disclosed to the competitor by a former PPG employee.

Proving liability turned out to be a slam dunk thanks to TMG’s failure to respond to the complaint. Defending against PPG’s claim for damages, however, was cause for appeal before the United States Court of Appeals for the Third Circuit which examined the appropriate measure of liability for a party’s unjust enrichment.

This case illustrates that the breadth of damages a court can award against one who misappropriates trade secrets, even when those trade secrets have yet to be fully utilized by the liable party, and the great cost the misappropriating party can incur by attempting to cut corners and benefiting from another’s R&D.

For those that put value on trade secrets that keep their businesses running, the significance of safeguarding those secrets may already be clear. We supplement this clarity by emphasizing an effective avenue through which a company can seek to make itself whole again if its trade secrets are misappropriated and its business is compromised.

Factual Background

PPG specializes in manufacturing certain glass and plastic materials. Of importance, PPG invested heavily in the development of a new kind of plastic for airplane windows, called “Opticor™.”

In March 2013, TMG asked a former PPG employee, Thomas Rukavina, to turn over Opticor trade secrets. Rukavina had signed a number of nondisclosure agreements with PPG. Yet, in early 2014 he shared proprietary information, including a report detailing the Opticor technology, with TMG in exchange for employment and a signing bonus.

With knowledge from the report, TMG removed the burden of developing its own technology and began making plans to produce Opticor-quality windows, including the building of a new production facility and contacting a PPG subcontractor that made molds for Opticor windows, asking it to manufacture for TMG “the same molds” that it did for PPG.

Alerted to the misappropriation by the subcontractor, PPG sued TMG, TMG’s CEO, and a purchasing agent, under the federal Racketeer Influenced and Corrupt Organizations Act, Pennsylvania's Uniform Trade Secrets Act, and Pennsylvania common law.

TMG cavalierly failed to make an appearance in the litigation and PPG moved for default judgment, with the district court awarding a permanent injunction, exemplary damages for TMG's “willful and malicious” misappropriation, including both the actual loss caused by misappropriation and unjust enrichment of $8,805,929, trebled, and attorneys' fees, altogether totaling $29,729,061.93.

TMG’s Appeal 

On appeal, TMG did not dispute liability, but instead only challenged the amount of damages at which the district court arrived.  TMG argued that it “obtained no commercial benefit from any use of PPG's trade secrets,” as TMG had not sold any products based on the Opticor technology, so there was no use and no unjust enrichment.

The court of appeals disagreed, stating that unjust enrichment requires that a defendant pay to a plaintiff the value of the benefit conferred. This is not necessarily the profit that was realized but could be a cost that was avoided. Because TMG was able to skip the R&D process entirely and begin preparing for production without having to develop its own technology, the court found this shortcut to be “use” of the trade secrets.

At the crux of this decision, the district court and court of appeals accepted PPG’s argument that TMG's unjust enrichment could be measured by the costs TMG would have incurred to develop its own version of the Opticor technology without guidance from the purloined Opticor report and other misappropriated trade secrets.

Significantly, both courts looked to evidence of PPG’s own costs as indicative of what TMG would have spent on its R&D, and used such costs in the calculation to determine the damages award.

The court of appeals agreed with the district court that the R&D costs were not presented to directly reimburse PPG for developing the Opticor technology. Rather, the costs were simply representative of the costs TMG avoided by misappropriating the fruits of PPG's labor, and this inference is “a perfectly permissible way to find a damages amount with the requisite ‘reasonable certainty.’”

Rejecting all of TMG’s arguments, the court of appeals affirmed, finding the district court’s analysis and conclusion to be sound.

Conclusion

TMG made a number of false moves against PPG. First, it deliberately sought to steal its competitor’s protected, proprietary information. Then, it failed to answer PPG’s complaint, triggering default judgment. These errors culminated in a judgment requiring it to pay PPG over $25 million for misappropriating a trade secret.

A significant amount of time and money can be expended on research and development of a business’ trade secrets. If those secrets are exposed to the benefit of another party, the court can measure damages by looking at the costs the defendant avoided, and as evident in this case, the court can properly infer those costs with evidence of what the plaintiff actually spent in the development of the secret.

Protection of trade secrets should be highly important for any business. In the event of trade secret misappropriation, a business can seek damages against a wrongdoer.  With proper safeguards in place and diligent records to show the costs incurred in the development of a trade secret, a business can improve the likelihood of making itself whole.