Trade Secret Remedies After Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd.

This is the second of two updates on the impact of Motorola Solutions, Inc. v. Hytera Communications Corp. Ltd., No. 22-2370, ___ F.4th ___ (7th Cir. 2024) on trade secret cases. The first update focused on the extraterritorial reach of the Defend Trade Secrets Act (DTSA).

At a Glance

The Seventh Circuit’s recent opinion in Motorola v. Hytera provides helpful guidance on several remedies-related issues for trade secret cases:

• As in copyright cases, the plaintiff can meet its burden of proof to recover a defendant’s unjust enrichment resulting from sales of infringing products by proving the sales and profits caused by the misappropriation, and then the burden shifts to the defendant to apportion those sales to something other than the misappropriation.
• A trade secret plaintiff can preserve conflicting damages models through trial to recover under the model that ultimately results in the highest award.
• The cap of a 2-to-1 ratio of exemplary (punitive) damages to compensatory damages in the DTSA does not violate a defendant’s constitutional due process rights. Likewise, at least given the facts in Motorola, a defendant’s unjust enrichment damages can be used to calculate exemplary damages.
• The Seventh Circuit agreed with the Second Circuit’s recent decision in Syntel Sterling Best Shores Mauritius Ltd. v. The TriZetto Grp., Inc., that avoided costs are recoverable as damages for unjust enrichment under the DTSA when the defendant’s misappropriation injures the trade secret owner beyond its actual loss. Even after Motorola, there remains a split between the circuits over whether the recovery of avoided costs requires a corresponding harm to the trade secret owner.
• In deciding whether to issue a permanent injunction, the trial court can and should consider evidence that a defendant is unlikely to comply with a narrower order, such as paying an ongoing royalty on sales of infringing products.

Motorola v. Hytera arose after Hytera had poached three Motorola engineers, “offering them high-paying jobs in exchange for Motorola’s proprietary information.” (Opinion at 2.) Hytera then used the stolen materials to develop a competing line of products indistinguishable from Motorola’s product. Much of the theft occurred from 2010 to 2014, but the sales of infringing products went on for years. In 2017, after the passage of the DTSA, Motorola filed suit. A jury found Hytera had violated the DTSA and, as relevant here, the district court awarded Motorola the profits from Hytera’s worldwide sales, and exemplary damages in the amount of two times the compensatory damages.

Some of the issues on appeal related to the damages awarded (both compensatory and exemplary) and the denial of Motorola’s motion for a permanent injunction. While the Seventh Circuit ultimately found the district court’s errors were largely harmless, it remanded with some helpful guidance on calculating trade secret damages and evaluating requests for permanent injunctive relief. 

Calculating Unjust Enrichment Damages

In calculating unjust enrichment damages, the Seventh Circuit in Motorola noted the parallels between calculating damages under the DTSA and the Copyright Act. As with unjust enrichment damages under the Copyright Act, a trade secret plaintiff has the initial burden to demonstrate the sales and profits caused by the misappropriation. Once the plaintiff makes its showing, then the burden shifts to the defendant which “has an opportunity to seek apportionment by proving how its own efforts contributed.” (Opinion at 45.) 

Preserving Conflicting Damages Models

In addition, the Seventh Circuit provided additional guidance on presenting trade secret damages at trial. A trade secret plaintiff may have different and conflicting damages models, and won’t know which results in the largest award until after the trial. Faced with such a choice, the Seventh Circuit explained a plaintiff can preserve multiple, conflicting theories through the close of trial and any relevant post-trial motions. The plaintiff will then be awarded the largest amount. 

Applying this approach in Motorola, the plaintiff sought to recover at trial its actual losses, Hytera’s profits and Hytera’s avoided R&D expenses. The lost profits were a legal remedy submitted to the jury. The unjust enrichment damages, while initially presented to the jury, were ultimately decided by the trial court as an equitable remedy. 

Given the separate factfinders, the trial court had to determine which damages to ultimately award and whether any were duplicative. For example, the Seventh Circuit noted that throughout the trial Motorola and the trial court mistakenly thought Motorola could recover both Hytera’s unjust enrichment resulting from infringing sales and its avoided R&D expenses. But the Seventh Circuit also noted that, post-trial, the trial court corrected this mistake, finding the recovery of unjust enrichment from both infringing sales and avoided R&D expenses would amount to a double recovery. After analyzing all of the competing damages models, the Seventh Circuit noted that the proper measure of damages resulting in the highest award would have been Motorola’s lost profits plus Hytera’s avoided R&D expenses, instead of just the awarded unjust enrichment resulting from Hytera’s infringing sales. 

Punitive Damages

The DTSA also expressly allows for exemplary (punitive) damages “in an amount not more than 2 times the amount” of compensatory damages when the misappropriation is willful and malicious. 18 U.S.C. § 1836(b)(3)(C). In Motorola, Hytera challenged the exemplary damages award (which was exactly two times the compensatory damages award) as violating Hytera’s constitutional due process rights. The Seventh Circuit rejected this argument. In doing so, the Seventh Circuit distinguished its prior ruling in Epic Systems Corp. v. Tata Consultancy Services Ltd., 980 F.3d 1117 (7th Cir. 2020), which had limited punitive damages in a trade secret case to a one-to-one ratio of compensatory damages to punitive damages. In Motorola, the Seventh Circuit limited Epic Systems Corp. by explaining that case was focused on a general state statute allowing punitive damages and not, as the case was in Motorola with the DTSA, a specific statutory scheme that allowed double or treble punitive damages. 

The Seventh Circuit also concluded that unjust enrichment damages could — at least given the facts in Motorola — be used to calculate the punitive damages. In Epic Systems Corp., the Seventh Circuit had questioned whether unjust enrichment damages “could provide an appropriate measuring stick for punitive damages” given that they do not reflect a harm to the plaintiff. (Opinion at 68.) The Seventh Circuit in Motorola declined to announce “a sweeping rule about unjust enrichment, punitive damages, and the due process clause [of the Constitution]” (id.) but did affirm the award of punitive damages calculated in part using unjust enrichment damages. (Id. at 71.)

Recovery of Avoided Development Costs

Under the DTSA, a trade secret plaintiff can recover any actual losses plus the defendant’s unjust enrichment to the extent not duplicative of the actual loss. 18 U.S.C. § 1836(b)(3)(B). In a footnote, the Seventh Circuit agreed with the Second Circuit’s decision in Syntel Sterling Best Shores Mauritius Ltd. v. The TriZetto Grp., Inc., 68 F.4th 792, 809-10 (2d Cir. 2023) that “avoided costs are recoverable as damages for unjust enrichment under the DTSA when the defendant’s misappropriation injures plaintiff beyond its actual loss.” (Opinion at 47 n.10 (cleaned up)). This is notable because, in Syntel, the Second Circuit disagreed with the Seventh Circuit’s decision in Epic Systems Corp. v. Tata Consultancy Services Ltd., 980 F.3d 1117 (7th Cir. 2020) (and other circuit courts), which allowed the recovery of avoided R&D costs without a corresponding harm to the trade secret owner. See Syntel Sterling Best Shores Mauritius Ltd., 68 F.4th at 813 n.42. The court in Motorola did not attempt to reconcile Epic and Syntel, finding that Hytera’s misappropriation injured Motorola beyond its actual losses. (Opinion at 47 n.10.)

Permanent Injunction

The district court denied Motorola’s motion for a permanent injunction, opting instead to require Hytera to pay a royalty on future sales of infringing products. Motorola moved for reconsideration; but by then Hytera had appealed, and the district court erroneously determined it lacked jurisdiction to resolve the motion to reconsider. Motorola therefore appealed the denial for the motion for permanent injunction. While the appeal was pending, Hytera continued to sell infringing products and refused to pay a royalty. In addition, Hytera filed in secret a declaratory action in China seeking an order finding its new products were clean of the misappropriation. In response, Motorola moved for contempt and obtained an antisuit injunction to stop the ongoing Chinese action. On remand on the motion to reconsider, the Seventh Circuit noted that Motorola could supplement its motion to reconsider to bring in all of Hytera’s post-verdict conduct. The Seventh Circuit ordered that the district court “must take a fresh look” and consider “whether the new evidence of Hytera’s non-payment and other post-judgment conduct and events call for a different result [i.e., the entry of a permanent injunction].” (Opinion at 77.) Indeed, the Seventh Circuit noted that, “[s]ince that denial [of the motion for permanent injunction], Hytera has acted in ways that might well have surpassed the judge’s worst-case predictions.” (Id.)

Takeaways

In Motorola, the Seventh Circuit provided useful direction on navigating complex remedies issues in trade secret cases. In light of this decision, the plaintiff in trade secret cases should consider preserving conflicting damages models through trial to allow for the recovery of the largest award. Likewise, a trade secret plaintiff should consider utilizing the burden-shifting approach to recover unjust enrichment sales. The trade secret plaintiff can also rely — at least in circumstances like those in Motorola — on unjust enrichment damages to calculate exemplary damages. In addition, the court can consider a defendant’s litigation conduct in deciding the scope of the injunctive relief ordered.