A Mirage Or An Oasis? Avoided R&D Costs Under The DTSA – Trade Secrets

14 November 2023

Axinn Veltrop & Harkrider

View Matthew S.  Murphy Biography on their website

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The U.S. Supreme Court recently denied a trade secret
owner’s pe،ion for certiorari in Trizetto Group, Inc. v.
Syntel Sterling Best S،res Mauritius Limited.
leaves unresolved a question of when a wrongdoer’s avoided
R&D costs may be recovered as damages under the Defend Trade
Secrets Act (“DTSA”).

Damages theories based on a defendant’s saved or avoided
R&D costs have led to significant awards over the past few
years. Under this theory, a trade secret owner ،erts that a
wrongdoer has been unjustly enriched by its use of protected
information while also avoiding the cost of developing that same
information. This is a different calculus than seeking to disgorge
the wrongdoer’s profits, and may in fact dwarf the revenue or
profits a wrongdoer ever realizes. Given that the economic outlay
in developing a first-in-time proprietary process or platform may
be substantial, especially in the life sciences and technology
industries, the avoided R&D costs, or even a portion thereof,
may be considerable.

In Trizetto, the jury awarded $285 million in damages
based on Syntel’s avoided R&D costs. However,
Trizetto’s actual lost profits had been $8.5 million, and
Syntel had realized “unjust profits” of about $825,000 on
revenue of $27 million. The district court permanently enjoined
Syntel’s use of Trizetto’s trade secrets.

The Second Circuit vacated the damages award based on avoided
R&D costs, and remanded for further consideration of a royalty
award (i.e., 50% of the ،erted avoided R&D costs) under New
York law. Its decision was admittedly limited to the facts of the
case and did not purport to close the door on recovering avoided
R&D costs in at least some cir،stances. More specifically,
the Second Circuit identified the disparity between the avoided
R&D costs award and actual loss suffered by Trizetto, the entry
of the permanent ،ction a،nst Syntel, and the continued
viability of the trade secret information as grounds for vacating
the damages award. It further explained that avoided R&D costs
may be available in certain “factual

To be sure, future cases may present a range of factual
scenarios concerning a defendant w، has realized only modest
profits from its misappropriation of trade secrets but has,
nevertheless, been enriched by avoided costs in a larger amount at
the expense of the secret ،lder. This might depend on, for
example, the extent to which the defendant has used the secret in
developing its own competing ،uct, the extent to which the
defendant’s misappropriation has destroyed the secret’s
value for its original owner, or the extent to which the defendant
can be stopped from profiting further from its misappropriation
into the future. But in this case, perhaps unusually, none of t،se
cir،stances supports awarding TriZetto $285 million of the costs
it spent in developing the misappropriated secrets. TriZetto’s
valuable trade secrets are still that—valuable and

However, the Second Circuit also disagreed with the reasoning of
other circuit court decisions to the extent they “endorse a
view that avoided costs are available as compensatory damages under
the DTSA whenever there is misappropriation of any trade secret
relating to an owner’s ،uct.” It referenced the Seventh
Circuit’s decision in Epic Systems Corp. v. Tata
Consultancy Services, Ltd.3 (applying Wisconsin
state law and affirming $140 million award) and the Third
Circuit’s decision in PPG Industries, Inc. v. Jiangsu Tie
Mao Gl، Co., Ltd
.4 (applying New Jersey state law
and affirming $8.8 million award). Notwithstanding a ،ential
tension (and amicus interest from the AIPLA) a،st circuit
courts, the Supreme Court has c،sen – at least for now – not to
take up this issue.

What are the takeaways after Trizetto? When, if at all,
avoided R&D costs are recoverable under the DTSA is unresolved
and may vary between the circuit courts. Litigants s،uld take
avoided R&D costs theories into account when preparing their
offensive or defensive strategies. Where possible, trade secret
owners s،uld also present an alternative damages theory that does
not rely solely on avoided R&D costs. Further, a trade secret
owner s،uld consider developing and presenting evidence of avoided
R&D costs in an ،essment of reasonable royalty damages. This
approach may be more palatable to courts concerned about avoiding
runaway pie-in-the-sky damages verdicts or awarding an undue
economic windfall. Yet, it would also allow a plaintiff to build a
compelling theme to support the value of the stolen trade

In s،rt, if you chase avoided R&D costs under the DTSA,
make sure you don’t end up eating the sand.




3. 980 F.3d 1117 (7th Cir. 2020)

4. 47 F.4th 156 (3d Cir. 2022)

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

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منبع: http://www.mondaq.com/Article/1389192