Earlier this month, a federal judge in the Eastern District of Michigan overturned a jury verdict of nearly $105 million against Ford Motor Company for breach of contract and misappropriation of trade secrets. Finding that the plaintiff failed to present sufficiently specific evidence as to the damage calculation method or as to the development cost for each underlying trade secret, the court reduced the jury’s award to $3.

Background

In 2004, Ford hired Versata to develop software that would allow Ford to configure car manufacturing more efficiently. Versata licensed the software to Ford through a contract, which expired in 2014. Rather than renewing the contract, Ford developed and implemented its own software program.

At trial, Versata alleged that in developing its own software, Ford breached the contract between the parties and misappropriated trade secrets in the process. In October 2022, the jury awarded approximately $82 million for the breach of contract claim and $23 million for the trade secret misappropriation claim. Ford filed a post-trial motion for judgment notwithstanding the verdict.

Analysis

Breach of Contract: Although Versata proved breach of contract, the court ruled that Versata’s expert and lay testimony did not provide a method to the jury of how to calculate damages. Though Versata’s lawyer, in closing argument, argued that the damages were $17 million per year for seven and a half years, based upon the theory that Versata offered to license the software to Ford for that amount, that Ford had no alternative, and that Ford was in breach for seven and a half years, the court ruled that such an approach would necessarily put Versata in a better position than it would have been in absent the breach. This was because it did not account for any of the costs of performance Versata would have incurred had Ford renewed the contract. In short, even if the jury had attempted to account for these costs in its calculation of damages, it could not do so on a reliable basis because Versata did not present evidence relating to the costs.

Trade Secrets: The damages award for trade secret misappropriation suffered a similar fate. Ford successfully argued that the award could not stand because Versata did not introduce evidence that would enable the jury to calculate damages in the event that it found, as it did, that Ford had misappropriated anything less than all of the trade secrets. In other words, Versata did not present evidence of the value of each of the trade secrets at issue. Instead, Versata pursued an award of damages based on an “avoided costs” basis, essentially seeking to be made whole for the costs “avoided by Ford” by relying upon Versata’s trade secrets rather than expending the resources to develop them on its own. To that end, the court had instructed the jury that any award of trade secret damages needed to reflect the amount of time it would have taken Ford to independently develop the alleged trade secrets that it misappropriated.

In other words, Versata needed to present evidence as to how long it would have taken Ford to develop each trade secret that it misappropriated. Versata instead presented only evidence of how long it would have taken Ford to develop the combined sum of all four of Versata’s trade secrets. Because only three of these trade secrets were found to have been misappropriated, the all or nothing approach left the jury without evidence from which it could determine how long it would have taken Ford to develop just the three. As such, the court found that the award could not stand.

The decision is currently on appeal.

Takeaway

This case underscores two primary issues. First, juries are consistently demonstrating their willingness to issue very large monetary awards for trade secret cases. From a commercial perspective, this fact underscores that the risk/rewards in this area are very real. Second, the court’s reversal of a significant damages award, despite success on the underlying merits of the claims, underscores the critical importance for the entity seeking relief of identifying the appropriate damages calculation approach early and introducing precise evidence to support each element at trial.

As trade secrets claims become more ubiquitous and the considerable verdicts continue to roll in (read more about the rise of trade secrets claims and the substantial verdicts being awarded in our annual report here), businesses must carefully consider, protect, and be prepared to quantify the value of their proprietary information.