June 18, 2019

Tenth Circuit: $2.92 Million Jury Award in Utah Trade Secret Case Affirmed

The Tenth Circuit Court of Appeals published its opinion in Storagecraft Technology Corporation v. Kirby on Tuesday, March 11, 2014.

James Kirby said the jury’s award against him was too much. True, he helped start and served as a director of StorageCraft, a computer software company. True, after a falling out with his colleagues he stole the computer source code on which the company’s products depended. True, he shared the source code with NetJapan, a rival company that quickly produced a competing software product much like StorageCraft’s. But he said the jury’s $2.92 million trade secret misappropriation award was still too much. Too much, Mr. Kirby said, because he never used the secret for his own personal profit. And too much because StorageCraft never sought to prove at trial that NetJapan made commercial use of its trade secret. Maybe he was angry about how his former colleagues had treated him, maybe he disclosed the trade secret to a rival out of vengeance. But without firmer proof that someone profited from his misdeed, Mr. Kirby insisted the jury’s verdict should be overturned.

The trouble was, Utah law doesn’t distinguish between a misappropriator’s motives. When someone steals a trade secret and discloses it to a competitor, he effectively assumes for himself an unrestricted license in the trade secret. And that bears its costs. After all, what value does a trade secret hold when it’s no longer a secret from the trade? The misappropriator may act with a wish to line his pockets or satisfy a vendetta or for some other purpose still. All the same, Utah’s trade secret statute holds him to account for the full value of the license he arrogated to himself. Just as the district court held.

Utah’s trade secret statute, Utah’s Uniform Trade Secrets Act, Utah Code Ann. § 13-24-4(1), the law governing Mr. Kirby’s case, expressly allows a reasonable royalty measure of damages when the misappropriator uses or discloses the trade secret. And no one disputed that Mr. Kirby did at least that — disclosed the secret to NetJapan. Nothing in the state’s trade secret statute categorically restricts the availability of reasonable royalty damages to cases in which the misappropriator used a trade secret commercially rather than disclosed it to others.

Mr. Kirby still argued the jury’s award was unreasonable based on the facts. The court stated it is important when setting a reasonable royalty award to account for the scope of the license the defendant assumed for himself, to aim at a price that reflects the particular use of the trade secret made by the defendant. While a defendant in Utah can’t avoid reasonable royalty damages because he disclosed the trade secret to others without anyone making commercial use of it, the amount of reasonable royalty damages he must pay depends on what he did with the secret — what uses he made of it. Even acknowledging all this, however, did nothing to help Mr. Kirby. His problem lied in the record. The evidence at trial showed that Mr. Kirby took StorageCraft’s trade secret and intentionally disclosed it to NetJapan, aware that NetJapan was an able competitor, and aware that NetJapan could well use the secret to compete with StorageCraft.

Judgment AFFIRMED.

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