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Federal Circuit Holds No Seventh Amendment Right to Jury Determination of Disgorgement Remedy in Trade Secret Cases

On May 1, 2018, in Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., Nos. 2016-2121, -2208, -2235 (Fed. Cir. May 1, 2018), the Federal Circuit held that there is no Seventh Amendment right to have a jury decide whether to award disgorgement of profits in trade secret cases or how much to award. In 2008, Texas Advanced Optoelectronic Solutions, Inc. (“TAOS”) sued Intersil Corporation (“Intersil”), alleging trade secret misappropriation under Texas common law, patent infringement, breach of contract, and tortious interference with contractual relations. These companies each develop ambient light sensors, which are used in devices such as smartphones, and in 2004, had explored a possible merger. During those discussions, TAOS disclosed confidential technical designs for new sensors, which were later used by Intersil to develop its own sensors after the merger fell through. A jury returned a verdict for TAOS on all claims, including over $48 million in disgorgement of Intersil’s profits for the trade secret misappropriation.

On review, Intersil argued that the district court should not have left the issue of disgorgement up to the jury, and that, as an equitable remedy, the district court should have decided the issue with its own findings of fact and conclusions of law. TAOS conceded that unless there was a Seventh Amendment right to a jury decision, disgorgement was to be determined by the court. The Federal Circuit thus limited its analysis to the Seventh Amendment question and conducted a historical analysis of whether disgorgement of profits was available at law for trade secret misappropriation or similar wrongs at the time of the amendment’s adoption in 1791.

First, the court noted that there was no attempt by TAOS to use disgorgement of Intersil’s profits as a proxy for TAOS’s losses or a reasonable royalty, so the historical analysis should focus on disgorgement of profits alone, not on any measure of harm. Next, the court explained that trade secret misappropriation claims, and disgorgement remedies for such, were first recognized by American and English equity courts in the 19th century, and that no such remedy was available through law courts of the time. Finally, “[f]or Seventh Amendment purposes,” the court considered patent, copyright, and trademark claims as “appropriate analogues,” and because no disgorgement remedy was available at law for those actions in 1791, the Federal Circuit concluded that “no such remedy would have been available at law for the trade secret misappropriation here, either.” Thus, the court held that TAOS had no Seventh Amendment right to a jury decision on disgorgement for Intersil’s misappropriation of TAOS’s trade secrets.

What This Means for You

The Federal Circuit’s decision here addressed a narrow question concerning whether there is a Seventh Amendment right to have a jury decide whether to disgorge profits for a trade secret misappropriation claim brought under Texas common law. Thus, this decision may not apply to trade secret claims brought under the Defend Trade Secrets Act, the Texas Uniform Trade Secret Act, or any other state’s trade secret statute. Further, in view of TAOS’s concession limiting the court’s analysis to the Seventh Amendment, this decision does not consider the right to a jury trial offered by many state constitutions, including the Texas Constitution. However, even for common law trade secret cases, disgorgement of profits may still be properly sent to the jury under the Seventh Amendment if the disgorgement is characterized as an alternative measure of the plaintiff’s losses or a reasonable royalty.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.