Long recognized for its acumen in handling complex corporate disputes, the Delaware Court of Chancery is quickly becoming a leading forum for technology and trade secret disputes as well. With the Court of Chancery’s subject matter jurisdiction recently expanded to include the litigation, mediation, and arbitration of a broad array of patent, technology, and contract-related disputes, a growing number of companies have brought their trade secret disputes to Delaware for resolution. Delaware courts have personal jurisdiction over not only the corporations, LLCs, and partnerships formed under Delaware law (including the vast majority of public companies), but also the directors, officers, and managers of those entities who under Delaware’s consent statutes are deemed to have consented to jurisdiction in the Delaware courts for actions related to their positions. Litigants prize the Chancery Court’s expedited handling of complex technical disputes, its stellar judges, its ability as a court of equity to mete out fair and creative forms of relief as well as traditional damage awards, and the fact that all trials are bench trials—leading to more consistent decisions and detailed opinions. For plaintiffs who want more confidentiality and speed for their matters, the Court also offers mediation and a new 90-day arbitration option handled by the same business-savvy judges; both of these options are completely confidential.
The detailed post-trial opinions in two recent trade secret cases showcase the Court’s ability to delve into complex technologies on an expedited basis and to award prompt and creative forms of relief, as well as damages. In both cases, the Court also awarded the plaintiffs their attorneys’ fees under the Delaware Uniform Trade Secret Act (DUTSA). These decisions stand out in an era when courts in other states are increasingly less likely to recognize trade secrets as such or to punish employees who reveal them to their next employers.
Within one month, the Chancery Court recently released two post-trial decisions involving claims for misappropriation of trade secrets: Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC, C.A. No. 3718-VCP, 2010 WL 338219 (Del. Ch. Jan. 29, 2010) and Agilent Technologies, Inc. v. Kirkland, C.A. No. 3512-VCS, 2010 WL 610725 (Del. Ch. Feb. 18, 2010). These cases provide a framework for proving misappropriation at trial while also illustrating the kind of willful and malicious behavior that will justify an award of fees under the DUTSA.
In Great American, the Court found that the plaintiff had proven that the defendants (former employees of the plaintiff) had willfully and maliciously misappropriated its trade secret information, which included its customer contact and purchasing information, sales volume information and rankings for its sales representatives, and compilations of information regarding its customers and sales representatives. To determine whether the information was a trade secret, the Court focused largely on whether the claimed trade secret “derived independent economic value by virtue of its secrecy.” Great American, 2010 WL 338219, at *17. In examining the willfulness aspect of the claim, the Court found that the defendants had the requisite intent to cause injury to the plaintiff. Consequently, the Court awarded compensatory damages to Great American, awarded exemplary damages equal to the compensatory damages award, and also awarded Great American half of its attorneys’ fees arising from the plaintiff’s pursuit of that claim pursuant to the DUTSA.
In Agilent, former employees were found to have breached their employment contracts with Agilent, willfully and maliciously misappropriated Agilent’s trade secrets, and used them to create high-performance liquid chromatography (HPLC) products at Advanced Materials Technology, Inc. (AMT), a company they founded that competed with Agilent in the HPLC market. Consequently, Vice Chancellor Strine awarded compensatory damages and damages for unjust enrichment and also awarded attorneys’ fees for the willful and malicious misappropriation. In reaching this conclusion, the Court outlined the process for proving a trade secret claim under the DUTSA, noting that it requires that trade secrecy be proven by showing that the trade secrets have “independent economic value, with the potential to give [the party alleging trade secret misappropriation] some advantage from not being generally known or readily ascertainable, and are subject to reasonable efforts to maintain secrecy.” Agilent, 2010 WL 610725, at *18. The Court found that the plaintiff had taken reasonable efforts to protect its trade secrets and that the defendants acquired the confidential information knowing that it was the plaintiff’s and that they were under a contractual obligation not to use that information beyond their work for the plaintiff. After finding that each of the plaintiff’s claimed secrets was a trade secret under the DUTSA, the Court outlined its reasoning for finding misappropriation by the defendants. Notably, even though the defendants had developed a new product, the Court observed that misappropriation could still occur where “a trade secret acts as a starting point for improvements, or a guide by which pitfalls may be avoided.” Id. at *22. The Court also emphasized that the time saved by the defendants by their use of the trade secrets, as opposed to developing the technology on their own, also contributed to the misappropriation. In crafting its damages award, the Court opted not to restrain the defendant from selling the new product, because it would injure AMT’s innocent customers. Rather, after awarding the plaintiff compensatory damages and the entirety of its attorneys’ fees, the Court issued a permanent injunction preventing the defendants from further using the trade secrets and requiring the return of the plaintiff’s property and ordered the defendants to either assign the patent applications for their product to the plaintiff or withdraw those applications.
Both Great American and Agilent illustrate the consequences of a defendant’s willful and malicious misappropriation of trade secrets. More important, these cases provide a useful road map for litigating trade secret cases to completion and detail the circumstances where the Court may find misappropriation willful and malicious, justifying a fee award under the DUTSA.
For more information about these cases and issues related to trade secret litigation in the Delaware Court of Chancery, please contact Joseph B. Warden.