On May 25, 2023, the Second Circuit issued an opinion in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Group, Inc., No. 21-1370 (2d Cir. 2023) that provides guidance regarding recoverable damages in trade secret misappropriation disputes under the Defend Trade Secrets Act ("DTSA").
The Second Circuit held that under the DTSA unjust enrichment damages cannot be awarded for avoided development costs absent evidence that the trade secret's value was diminished by the misappropriation. The Second Circuit also provided clear instruction on what remedies are available under the DTSA, limiting the amount that a plaintiff can recover. An injured party may be entitled to both equitable relief and monetary damages upon a finding of liability under the DTSA. As to compensatory damages, the DTSA permits the recovery of: (1) "damages for actual loss caused by the misappropriation;" and (2) "damages for any unjust enrichment caused by the misappropriation...that is not addressed in computing damages for actual loss."
The Second Circuit clarified that damages for unjust enrichment are meant to apply to instances such as "where the value of the secret is damaged, or worse yet – destroyed." On this basis, the court vacated the jury's $285 million compensatory damage award to TriZetto which was predicated on Syntel's avoided development costs, that is, the money Syntel saved by misappropriating a competitor's trade secret rather than developing it itself. The court declared that when deciding whether unjust enrichment in the form of avoided costs is available to an injured party, the relevant inquiry is into whether the misappropriation injured the party beyond its actual lost profits.
In this instance, the Second Circuit held that because Syntel's misappropriation "did not diminish, much less destroy," the commercial value of TriZetto's trade secrets, and because the district court had enjoined Syntel's use of the trade secrets, "TriZetto suffered no compensable harm" beyond its lost profits. Thus, as a matter of law, TriZetto was "not entitled to avoided costs as a form of unjust enrichment damages." In reaching this conclusion, the Second Circuit expressed concern that by focusing only on the misappropriating party's saved expenses to award avoided costs without also examining the damage suffered by the injured party and the effect of injunctive relief, "avoided costs would be available as unjust enrichment damages in any case of misappropriation, even where a trade secret owner suffers no compensable harm beyond its lost profits or profit opportunities." In the view of the court, this "would permit avoided costs awards that are more punitive than compensatory."
Syntel Sterling demonstrates that, at least in the Second Circuit, unjust enrichment damages, including avoided costs, are not available without evidence that the misappropriation harmed the commercial value of the trade secret.
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