New Study Yields Information on Trade Secret Litigation Metrics

New Study Yields Information on Trade Secret Litigation Metrics

New Study Yields Information on Trade Secret Litigation Metrics

By Richard Reice

 

Lex Machina, a Silicon Valley-based legal data analytics firm now owned by LexisNexis, recently published its first Trade Secret Litigation Report. Drawing statistics from about 800 or so federal district court cases, presumably brought via statute and diversity, the report by the legal data analytics firm examines a number of case-related metrics.[1] While the lack of detail somewhat limits the report’s utility, the report does provide some useful information about case timing and win/loss statistics. Trade Secret Litigation Report 2018 (Lex Machina, July 2018).

First, the report confirms that the passage of the Defend Trade Secrets Act (DTSA) has led to an increase in trade secret cases in federal district courts. In 2009, there were 933 “trade secret” cases (at least one claim from misappropriation under federal, state, or common law). That number held relatively constant until 2017, when it jumped to 1,134 with the passage of the DTSA. Of course, that does not mean an overall increase in trade secret litigation as the statistic may simply reflect the fact that with a new statute in place, plaintiffs elected not to file under state law in a state court, but rather in the district court under the DTSA (along with their pendent state law claims). The report further reflects that there has been a slow uptick in DTSA cases. From 2016 to Q2 of 2018, there have been 1,339 DTSA cases filed: 116 cases were filed in Q3 of 2016, with a peak of 200 in Q1 of 2018. Prior to the DTSA, trade secret filings steadily hovered around the 900 per year mark since 2009. The majority of trade secret cases are being filed, as expected, in the Central District of California, the Northern District of Illinois, and the Southern District of New York.

Second, the report looked at timing and odds. The median time to obtain a temporary restraining order (TRO) was six days (12 days to lose), a number that seems extraordinarily long given that TROs are usually obtained on an emergency basis and in a day or two. A preliminary injunction, 47 days; a permanent injunction, 205 days. Who usually wins? With regards to TROs, out of 764 cases, 522 resulted in the plaintiff being awarded a TRO, 242 were denied. Regarding permanent injunctions, 476 were awarded, 376 were denied. The vast majority of cases were settled. For cases seeking a permanent injunction, 748 were settled. Of the rest, 131 resulted in a default judgment (assume the defendant never appeared), and 117 went to judgment with the plaintiff prevailing in 92 of those.

With regards to damages, the report indicates that “trade secret cases are characterized by large jury awards.” Yet it is difficult to determine if that statement is accurate. At the height of the report’s top 10 list of jury awards is the stratospheric $919 million jury award in E.I. du Pont de Nemours v. Kolon Industries, involving the misappropriation of trade secrets about the manufacture of Kevlar (the award was vacated by the 4th Circuit) to a low of $15 million in GlobeRanger Corp. v. Software AG et al. But the report does not look at the 900 or so remaining cases, and provides neither averages nor medians because the authors lacked the data, given that most matters settle. With regards to DTSA cases specifically, there have only been two reported jury decisions: one for $2.4 million (Steves & Sons), the second for $500,000 (Dalmatia Import Group).

The Lex Machina report is but a rudimentary starting place. While several more years of detailed data will be needed before we can gain solid insight into the impact of the DTSA on state court trade secret litigation, it is clear that the DTSA is diverting trade secret cases from state courts to federal courts. It’s also clear that a plaintiff can reasonably expect to obtain relief provided they have compelling facts. No doubt as lawyers become more comfortable with the DTSA and case law arising under the DTSA becomes available, DTSA cases will increase exponentially.

[1] The report states that it draws on a “data-set of 9,800” cases, presumably the number of “trade secret” cases filed since 2009 but only reports findings on about a tenth of those cases, and in many instances far less than that.  The report is unclear as to whether such cases were filed pursuant to statute or if they are common law diversity cases.

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