Remedies Scrutinized in Trade Secrets Case Even After Default

The allegations in Autopartsource, LLC v. Bruton presented a fairly egregious case of stolen trade secrets. Due to a defendant’s failure to answer, those allegations were deemed true. As remedies, Autopartsource sought $1,131,801.55 in compensatory damages, $350,000 in punitive damages (the statutory maximum), $59,409.72 in attorneys’ fees and costs, a worldwide production injunction to last seven years, and a permanent injunction prohibiting the use of Autopartsource’s trade secrets. The court held an evidentiary hearing and ruled that while Autopartsource was entitled to an injunction and substantial damages, the scope of the requested injunction would be narrowed and the damages would be reduced.

Autopartsource designated employee Stephen Bruton to spearhead the company’s effort to develop business in China, where it sources its automobile parts. Bruton secretly developed his own competing business, BBH Source Group, and misappropriated Autopartsource’s trade secrets in doing so, using them to redirect prospective Autopartsource customers to BBH. After Autopartsource discovered Bruton’s actions and fired him, Bruton broke into an Autopartsource facility and deleted proprietary information from its database.

Autopartsource sued for violation of the Virginia Uniform Trade Secrets Act, tortious interference with business expectancy, and tortious interference with contract. The court found that Autopartsource had established liability on all three theories but that, under Virginia law, it could not recover damages under both VUTSA and its claim for tortious interference with business expectancy, as a party cannot receive damages for a common law tort if the underlying conduct involves an intentional misappropriation of a trade secret.

Even where a defendant is in default, courts have an independent duty to ensure that the damages awarded are justified. The court scrutinized Autopartsource’s $1,131,801.55 damages calculation and found it somewhat excessive. Under VUTSA, topsecret.jpgdamages for misappropriation of a trade secret can include both the plaintiff’s actual loss and the defendant’s unjust enrichment. The court awarded damages for lost profits, cost to recreate data that Bruton had deleted, misappropriation of time and resources, a portion of Bruton’s salary, benefits and expenses, and the compensation and reimbursements paid to an Autopartsource contractor who BBH employed. The court’s analysis resulted in a reduction of compensatory damages and an award of $980,047.84.

Autopartsource requested $350,000 in punitive damages, the maximum allowed under Virginia law. Virginia disfavors punitive damages awards and allows them only in cases of the most egregious behavior. The court held that the plaintiff had the burden of demonstrating the defendant’s ability to pay the punitive damages and that it failed to meet this burden. Because Autopartsource offered no evidence about BBH’s ability to pay punitive damages, the court found $350,000 excessive and awarded $75,000 instead – the maximum that an individual would face for analogous criminal conduct.

Autopartsource was entitled to reasonable attorneys’ fees and costs because the court found BBH’s misappropriation of trade secrets to be willful and malicious. Autopartsource sought $59,409.72 in fees and costs. The court noted that the lodestar method (the product of the hours reasonably expended times a reasonable hourly rate) generates a presumptively reasonable fee. A court may determine the amount of the fee and adjust it upward or downward as it deems appropriate, but it must do so on a principled basis. Here, the court accepted an attorney affidavit attesting to the reasonableness of the hourly rates charged, but because more than half of the time on the case was spent after the default had been entered, the court found the total number of billed hours to be excessive. The court decreased the hours each attorney spent by 25% and awarded $38,946 in attorneys’ fees plus $7,797.96 in costs.

As to the injunctive relief requested, the court found it appropriate to permanently enjoin BBH’s use of stolen trade secrets, but it held that an injunction from production throughout the world for a period of seven years was too broad. To obtain a permanent injunction under VUTSA, Autopartsource needed only to show that the balance of hardships and the public interest favored injunctive relief. Here, a trusted employee of Autopartsource willfully misappropriated valuable trade secrets, and Autopartsource lost at least one customer as a direct result. An injunction was necessary to prevent further loss of business. The harm to Autopartsource clearly outweighed any interests of BBH. Additionally, courts have recognized the strong public interests at stake when trade secrets are stolen, and while there is a public interest in competition, that interest is subordinate to the protection of trade secrets.

The court opted not to force BBH to stop all production. For one thing, neither company was engaged in “production.” Rather, the companies were both “sourcing” products to others to manufacture. The court enjoined BBH from sourcing those products that Autopartsource sourced in China during Bruton’s tenure there. The court found it reasonable to limit the scope of the sourcing injunction to commerce within the Chinese and United States markets as both companies were conducting business there and the stolen trade secrets related to those markets. The court also held that a sourcing injunction of three years was adequate to counteract the unfair advantage BBH received.

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