Takeaway:

• Trade secret plaintiffs should be as careful in their damages evidence as in their liability evidence.

In 2023, a Michigan federal judge rejected a jury’s nearly $105 million breach of contract and trade secret misappropriation verdict against Ford Motor Company, finding that the plaintiff failed to present sufficient evidence to back up its damages theories. The court accepted the jury’s finding of liability but substituted a nominal damages award ($3.00). The disappointed plaintiff recently filed its Appellant’s brief.

Plaintiff, Versata Software Inc., developed computer software for configuring Ford vehicles. Ford licensed the software in 2004. In 2014, the license expired and Ford began using its own software, which it had created by reverse engineering Versata’s. The license agreement forbade Ford from “misuing” Versata’s confidential information and reverse engineering Versata’s software. Versata brought breach of contract and trade secret misappropriation claims against Ford.

A jury found for Versata and awarded it nearly $105 million in damages. The jury’s award was in two parts: Trade secret damages ($22.4 million) and breach of contract damages ($82.3 million). The breach of contract damages broke down into $31.3 million for misuse and disclosure of confidential information, $50.2 million for reverse engineering and also $750,000 for preventing Versata from verifying Ford’s compliance with the license.

Ford moved for judgment as a matter of law, asking the court to set aside the damages verdicts for insufficient evidence and the trial judge agreed.

The court rejected the jury’s trade secret award because Versata did not introduce evidence sufficient to enable the jury to calculate damages if the jury found, as it did, that Ford had misappropriated less than all of Versata’s trade secrets.  Versata argued that it would have taken Ford over 8 years to develop a replacement for Versata’s software starting from scratch, but that assumed that all of Versata’s trade secrets were used. The court said that there was a “complete lack of evidence on the critical issue of how long it would have taken Ford to develop” Versata’s proprietary software without the use of each of Versata’s trade secrets.  The court held that because Versata did not apportion the time necessary to reproduce each of its trade secrets, the jury had “no way to reliably determine how long it would have taken Ford to [independently] develop” its software using only some of the trade secrets.

The court also rejected the contract damages verdict. Versata’s main theme on breach of contract was that Ford would have had to take a new license for Versata’s software for 7 ½ years if it had not used Versata’s trade secrets in violation of the 2004 license to create its own software. However, during discovery, Versata did not present a lost profits theory of contract damages until the reply stage of expert reports. The court barred the lost profits theory for late disclosure and, paralleling its rejection of damages on the trade secrets claim, because the lost profits theory did not present a reliable basis for calculating damages if only some of the trade secrets were used. At trial, Versata argued instead that Versata should receive the entire license fee for the 7 ½ years. The court held that theory legally defective because Versata was only entitled to what its net profits would have been and, again, for Versata’s failure to give the jury any way to determine the right license period if Ford used less than all of Versata’s trade secrets.

In March 2024, Versata filed its Appellant’s brief. Versata is seeking a new trial on trade secrets damages or, alternatively, to reinstate the jury’s award of both the trade secret and breach of contract damages.

Whether or not Versata prevails on appeal, the lesson of this case is that trade secret plaintiffs must be as careful in their damages proof as in their liability proof. Where there are multiple trade secrets, plaintiffs should, if possible, prove the damages attributable to each trade secret.

The Michigan district court’s decision is available at Versata Software, Inc. v. Ford Motor Co., No. 15-11264, 2023 WL 3175427, at *1 (E.D. Mich. May 1, 2023), modified, No. 15-CV-10628, 2023 WL 8622001 (E.D. Mich. June 8, 2023).  The appeal is Versata Software Inc. v. Ford Motor Co., No. 24-1140, in the U.S. Court of Appeals for the Federal Circuit.

If you have any questions regarding the information covered in this blog, please contact Michelle Cho, Daniel Hoffman, John Baranello, or your primary attorney at Moses Singer.