Punitive Damage and Attorney Fee Awards in Trade Secret Cases

Marquette Intellectual Property Law Review Volume 20 | Issue 1 Article 7 Punitive Damage and Attorney Fee Awards in Trade Secret Cases Richard F. Dole Jr. Follow this and additional works at: http://scholarship.law.marquette.edu/iplr Part of the Intellectual Property Law Commons Repository Citation Richard F. Dole Jr., Punitive Damage and Attorney Fee Awards in Trade Secret Cases, 20 Marq. Intellectual Property L. Rev. 1 (2016). Available at: http://scholarship.law.marquette.edu/iplr/vol20/iss1/7 This Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion in Marquette Intellectual Property Law Review by an authorized editor of Marquette Law Scholarly Commons. For more information, please contact . DOLE.FINAL (DO NOT DELETE) 3/10/2017 2:38 PM ARTICLES PUNITIVE DAMAGE AND ATTORNEY FEE AWARDS IN TRADE SECRET CASES RICHARD F. DOLE, JR.* I. INTRODUCTION ..................................................................................... 2 II. THE NATURE OF PUNITIVE DAMAGES ................................................. 2 III. AMERICAN TRADE SECRET LAW........................................................ 4 A. The Restatements .................................................................... 4 B. The Uniform Trade Secrets Act ............................................. 5 C. The Uniform Act Punitive Damage and Attorney’s Fee Provisions....................................................... 6 D. Nonuniform Amendments ...................................................... 8 IV. CONSTITUTIONAL CONSIDERATIONS ............................................... 10 A. The Constitutional Right to a Jury Trial with Respect to Punitive Damages and Attorney’s Fees ................................ 10 B. Constitutional Limitations Upon the Award of Punitive Damages and Attorney’s Fees ................................ 15 1. The Supreme Court Cases ............................................... 15 2. The Constitutionality of the Uniform Act Punitive Damages and Attorney’s Fees Provisions ......... 17 a. Willful and Malicious Misappropriation .................... 17 b. Application of the Gore/Campbell Guideposts .......... 19 V. OTHER FACTORS AFFECTING PUNITIVE DAMAGE AND ATTORNEY’S FEE AWARDS IN TRADE SECRET CASES ................ 23 A. The Defendant’s Inability-to-Pay Defense............................ 23 B. Exclusion of the Defendant’s Profit From Misappropriation from Punitive Damages ........................................................ 30 C. Either Inclusion or Exclusion of the Successful Plaintiff’s Reasonable Attorney’s Fees in Punitive Damages ............... 30 VI. CONCLUSION .................................................................................... 31 * B.W. Young Professor of Law, University of Houston Law Center. DOLE.FINAL (DO NOT DELETE) 2 3/10/2017 2:38 PM MARQ. INTELL. PROP. L. REV. [Vol. 20:1 I. INTRODUCTION This article deals with the safeguards against excessive punitive damages and attorney’s fee awards in American trade secret law. Because defendants frequently include former employees of the plaintiff, the effect of excessive liability upon the mobility of employees is a concern.1 Following an overview of American trade secret liability, including the widely-enacted Uniform Trade Secrets Act,2 the United States Supreme Court doctrine forbidding excessive punitive damages and other safeguards against imposition of excessive punitive damages and attorney’s fees are discussed. Future development of the Supreme Court doctrine and additional experience with the Uniform Act could require reassessment. At the present time, however, the Act is calibrated to avoid constitutionally excessive punitive damage and attorney’s fee awards with one exception. In cases with large compensatory damage recoveries and defendants without subjective evil intent, the Act’s two times compensatory damages cap upon punitive damages3 is too generous and is superseded by the Supreme Court’s Gore/Campbell guideposts.4 II. THE NATURE OF PUNITIVE DAMAGES Punitive or exemplary damages are imposed for the commission of serious misconduct with a bad state of mind.5 The Restatement of Torts (Second), for example, states “[p]unitive damages may be awarded for conduct that is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others.”6 Punitive damages are intended to punish the defendant and to deter future misconduct by the defendant and others.7 The imposition of 1. Cf. Edmund W. Kitch, The Expansion of Trade Secrecy Protection and the Mobility of Management Employees: A New Problem for the Law, 47 S.C. L. REV. 659, 664 (1996) (trade secret protection creates tension with the ability of ex-employees to change jobs). 2. See infra notes 28–35. 3. See infra note 36. 4. See infra notes 96–104. 5. 3 DAN B. DOBBS, PAUL T. HAYDEN & ELLEN M. BUBLICK, THE LAW OF TORTS 35 (2d ed. West 2011). 6. RESTATEMENT (SECOND) OF TORTS § 908(2) (AM. LAW. INST. 1979). 7. Id. §908(1). However, in Connecticut and Michigan common-law punitive damages are regarded as compensatory. Connecticut views them as compensation for a successful plaintiff’s legal expenses and Michigan as compensation for a successful plaintiff’s intangible injuries. See 1 JOHN J. KIRCHER & CHRISTINE M. WISEMAN, PUNITIVE DAMAGES: LAW & PRACTICE §§ 4.2–4.4 (2013). DOLE.FINAL (DO NOT DELETE) 2016] 3/10/2017 2:38 PM DAMAGE AND FEE AWARDS IN TRADE SECRET CASES 3 punitive damages is discretionary with the trier of fact.8 In most states,9 punitive damages can be awarded in tort actions for intentional or reckless misconduct,10 including trade secret misappropriation.11 The amount of punitive damages traditionally has been discretionary with the trier of fact, subject to review for excessiveness by the trial judge and on appeal.12 A trial judge can order a successful plaintiff to choose between remitting excessive punitive damages and a new trial,13 whereas an appellate court can reverse a judgment for excessive punitive damages14 and remand the case for further proceedings.15 On the other hand, under the “American rule,”16 a successful plaintiff’s attorney’s fees ordinarily are not recoverable compensatory damages. Each litigant bears its own attorney’s fees under the American rule.17 A punitive 8. RESTATEMENT (SECOND) OF TORTS § 908 cmt. d. (“Whether to award punitive damages and the determination of the amount are within the sound discretion of the trier of fact, whether judge or jury.”). 9. Louisiana, Massachusetts, Nebraska, New Hampshire, and Washington do not allow recovery of punitive damages for common-law torts. See 1 KIRCHER & WISEMAN, supra note 7, §§ 4.6–4.10. 10. See 3 DOBBS et al., supra note 5, at 41–43 (punitive damages have been approved “in a wide variety of cases”). 11. E.g., Mattel, Inc. v. MGA Entm’t, Inc., 801 F. Supp. 2d 950, 958 (C.D. Cal. 2011) (award of $85 million (...truncated)