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IP LitigationTrade Secrets

A new bonanza for trade secret plaintiffs in Texas: Eastern District of Texas grants future royalties in place of a permanent injunction

July 17, 2014

IP LitigationTrade Secrets

A new bonanza for trade secret plaintiffs in Texas: Eastern District of Texas grants future royalties in place of a permanent injunction

July 17, 2014

Back to Fish's Litigation Blog

 

Permanent injunctions have long been difficult to obtain in patent infringement cases involving parties who are not competitors.  In lieu of an injunction, many courts impose the payment of future royalties. Given the subject matter similarity between cases involving patent infringement and trade secret theft, one might wonder whether Texas courts will permit/require a similar remedy-scheme in cases alleging trade secret theft.  That is, may a trade secret plaintiff obtain the remedy of future royalties in lieu of a permanent injunction?

Judge William Bryson of the Federal Circuit, sitting by designation in the Eastern District of Texas, recently examined that very question in Bianco v. Globus, a case involving the alleged misappropriation of trade secrets relating to a medical device design.  In a previous post, we summarized the dispute at issue in Bianco and pointed out that Judge Bryson had confirmed a significant damages award on past royalties in favor of the plaintiff-doctor based, but the court denied the plaintiff-doctor’s request for a permanent injunction under the four-part test of eBay Inc. v. MercExchange, L.L.C. (“eBay”).  Instead, Judge Bryson ordered the negotiation of a future royalty rate, even though the jury had not considered future royalties.  The Court based its decision on the rationale of Paice v. Toyota Motor Corp., a 2007 Federal Circuit case upholding such a remedy in the context of patent infringement.  On July 2, after the parties had reached an impasse on the future royalty rate, Judge Bryson found that the plaintiff was entitled to a judgment imposing a future royalty at the same rate the jury had awarded for past misappropriation, with the total royalty period to be 15 years, as supported by expert testimony and the terms of license agreements entered by the defendant for other technologies.  In reaching that conclusion, he drew a distinction between the ongoing nature of patent infringement and the singular nature of trade secret misappropriation, finding a single hypothetical royalty negotiation date more appropriate than the two-part pre- and post-judgment willfulness analysis seen in patent cases.

Awarding royalties for trade secret misappropriation is not a foreign concept to Texas courts.  A quick Westlaw search reveals that both state courts of appeals and the Fifth Circuit have affirmed the granting of past royalties as damages.  However, Bianco v. Globus does appear[1] to be the first example of future royalties being granted in a trade secret case in Texas.  As such, it is an important decision, and one to watch on appeal.  At least one blogger has raised questions about the authority of the court to award such equitable relief without satisfying the four-part eBay standard.

It should be noted, however, that Bianco v. Globus involves Texas common law, not the recently-adopted Texas Uniform Trade Secrets Act (“TUTSA”), because the complained of misappropriation occurred before the effective date of TUTSA.  Though that distinction is footnoted in the opinion, and the statutory injunctive power is mentioned, there is no mention of § 134A.003(b), the provision of the TUTSA which specifically provides for the issuance of injunctions requiring the payment of a future royalty under “exceptional circumstances.”  Given that express statutory relief, the relevance of Bianco v. Globus and the precedential effect of any appeal thereof will presumably be limited to claims arising from pre-TUTSA trade secret misappropriation in Texas—a vanishing species, due to the three-year limitations period for such common law claims.


[1] State district court opinions are not published in Texas.

Article co-authored with former Fish attorney, Stephen E. Fox

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Trade Secrets
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