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Eastern District of Virginia Holds that Plaintiff’s Reasonable Royalty Testimony Precludes a Permanent Injunction

By Heath Coffman

The Eastern District of Virginia has issued multiple opinions addressing the Texas Uniform Trade Secret (TUTSA) in Steves & Sons, Inc. v. JELD-WEN, Inc., No. 3:16CV545, 2018 WL 6272893 (E.D. Va. Nov. 30, 2018). Its latest opinion addressed whether plaintiff was entitled to both reasonable royalty damages and a permanent injunction following trial. Defendant argued that allowing both would constitute an impermissible double recovery. Surprisingly, the Court agreed.

Typically, a plaintiff in a trade secret case is entitled to both damages and injunction relief. This is clear from the statutory language in both TUTSA and the federal Defend Trade Secret Act. The Court noted this fact and that several courts had held that awarding both reasonable royalty damages and a permanent injunction does not constitute a double recovery because the reasonable royalty arose from some “use of the misappropriated information prior to the issuance of the injunction.”  (A recent Texas case held that a reasonable royalty and permanent injunction did not constitute a double recovery.  For an explanation of that case and reasonable royalty damages, see my 2018 Trade Secret Update.)

The Court, though, determined that this case was different. Specifically, plaintiff’s expert witness testified that his reasonable royalty calculation was based on the assumption that plaintiff “would be able to use this information for as long as they want in any way that they want.” Since this was the assumption upon which the jury’s $9.9 million damage award was based, the plaintiff could not argue that defendant should not be allowed to use the trade secret:

Whether inadvertently or intentionally, JELD-WEN put forth Jarosz’s view of things to entice the jury to award royalty damages. Indeed, Jarosz’s testimony that, if JELD-WEN received a reasonable royalty (in the amount that he posited), Steves could use the misappropriated trade secrets for as long as it wanted in any way that it wanted was reasonably calculated to be the predicate of a damage award in the amount that Jarosz postulated. Having secured a reasonable royalty award based on what Jarosz told the jury, JELD-WEN cannot now be heard to argue that Steves should be enjoined permanently from using the misappropriated trade secrets that Jarosz said that Steves could use for as long as it wanted in any way that it wanted if the jury would award damages in the amount of $9.9 million.

The Court’s ruling—if it is upheld on appeal—is an important warning to plaintiffs to carefully consider the testimony associated with their reasonable royalty damages to make sure that such an award would not preclude permanent injunctive relief.