Comparing and contrasting Texas trade secret law to jurisprudence relating to patent infringement damages, the U.S. District Court for the Eastern District of Texas held that post-verdict royalty fees may be appropriate for an extended period to compensate damage resulting from trade secret misappropriation.  Sabatino Bianco, M.D., v. Globus Medical, Inc. Case No. 2:12–CV–00147 (E.D. Tex., July 2, 2014) (Bryson, J., sitting by designation).

The plaintiff, Dr. Bianco, provided drawings relating to implantable medical devices to the defendant, Globus Medical.  Dr. Bianco alleged that the drawings contained trade secret information, which Globus Medical misappropriated when it incorporated the plaintiff’s proprietary information into three commercial products.  The jury found that Dr. Bianco’s drawings did constitute a trade secret and that the secret was misappropriated by Globus Medical.  The jury then awarded Dr. Bianco a 5 percent royalty based on net sales of the three Globus Medical products.  Although permissible under Texas law, Globus Medical was not enjoined from making the three products or required to disgorge its profits derived from those products.

The parties disputed whether a post-verdict royalty was warranted and, if so, what the royalty rate should be and whether enhanced damages were warranted.  Globus Medical argued that the initial damage award (for past damages) fully compensated Dr. Bianco for the misappropriation, because the trade secret information merely provided Globus Medical a “head start” in making the products at issue in the litigation and that the “head start" period would have ended by the time of the jury verdict.  Globus Medical also argued that its engineers did not rely on the drawings, so there was no continuing damage.  Dr. Bianco argued that the royalty rate should be higher based on certain fact issues that the jury resolved in his favor, which would improve his bargaining position in a “hypothetical negotiation,” as described in Georgia-Pacific Corp. v. U.S. Plywood Corp., which provides a favored framework for determining a reasonable royalty in patent infringement cases.

The court explained that the torts of misappropriation and patent infringement are sufficiently analogous to look to patent law to address the misappropriation issue.  Finding that Texas courts have applied the analytical framework of Paice LLC v. Toyota Motor Corp. (IP Update, Vol. 10, No. 11) in permitting ongoing royalties in several patent cases (imposing an adjusted, post-verdict royalty rate) and thatGeorgia Pacific did provide the relevant considerations, Judge Bryson concluded than an ongoing royalty was permissible in this case and favored based on the jury verdict.  The court further concluded that neither enhanced damages nor change in the royalty rate awarded by the jury was warranted.  With respect to enhanced damages, the court noted that the standards for enhanced damages for patent cases differed from cases decided under Texas trade secret law and found that Globus Medical was not required to pay exemplary damages because no “malice” was found attendant to the misappropriation, as required by Texas law.

Regarding the ongoing royalty, the court disregarded Globus Medical “head start” theory because it had not put on evidence of the theory at trial, despite representing that Globus Medical was prepared to try the issue of post-verdict damages.  Moreover, Globus Medical’s experts had provided testimony that the continuing rate would be the same going forward (albeit at a lower rate than the jury awarded).  Based on the jury finding of misappropriation, the court also disregarded Globus Medical’s arguments that its employees did not rely on the alleged trade secrets.

The court also rejected Dr. Bianco’s proposed framework for evaluating post-verdict damages.  Dr. Bianco argued that a second “hypothetical negotiation” should be deemed to occur after the verdict; i.e., at a time when most uncertainties had been resolved at trial.  Judge Bryson rejected Dr. Bianco’s contentions, noting that, unlike patent infringement, misappropriation is not an ongoing tort, so that a single hypothetical negotiation at the time of misappropriation is more appropriate and that any going-forward royalty rate resolution in favor of Dr. Bianco was offset by the resolution in favor of Globus Medical on the issue of disgorgement, injunction and enhanced damages.  The court also found that a higher rate was not warranted under the Georgia Pacific factors.

Finally, Judge Bryson concluded that the awarded royalties should continue for 15 years from the date that an agreement would have issued in 2007, not from the date of the verdict or subsequent entry of judgment, and that the royalty was owed on all products “not colorably different” from those at issue in the litigation.

Sabatino Bianco, M.D., v. Globus Medical, Inc.  Trade Secrets / Remedy Misappropriation