Ninth Circuit Clarifies Trade Secret Burden of Proof, Vacates $40M Verdict

At a Glance

• The Ninth Circuit vacated a $20 million compensatory damages award, $20 million in punitive damages, a permanent injunction, and more than $17 million in attorney fees, and remanded for a new trial on liability and damages.
• The court held that the district court erred by instructing the jury that the defendant bore the burden of proving that the plaintiff’s alleged trade secrets were “readily ascertainable” by proper means — under the DTSA, the burden to prove that trade secrets are not readily ascertainable rests with the plaintiff.
• A concurrence opined that, consistent with decisions from the Third and Seventh Circuits, a DTSA plaintiff may recover both avoided-cost unjust enrichment damages and a permanent injunction without an impermissible double recovery, citing the Trade Secrets treatise that Faegre Drinker attorneys co-author.
• A dissent agreed the jury instruction was erroneous but concluded the error was harmless in light of the trial evidence.

Summary

Comet Technologies USA, Inc. sued XP Power, LLC under the DTSA, alleging misappropriation of trade secrets related to semiconductor manufacturing components. A jury found for Comet and awarded $20 million in compensatory damages and $20 million in punitive damages; the district court also entered a permanent injunction and awarded Comet more than $17 million in attorney fees. On appeal before the Ninth Circuit, a divided panel vacated the judgment and remanded for a new trial, concluding that the jury had been given an incorrect instruction on the burden of proof for ready ascertainability — one of the threshold requirements for trade-secret protection.

Burden of Proof and Ready Ascertainability

The DTSA defines a “trade secret” to exclude information that is “readily ascertainable through proper means” by others. At trial, the district court instructed the jury that the defendant bore the burden of proving that the alleged trade secrets were readily ascertainable. The Ninth Circuit held this was error. Because the statutory definition of a trade secret excludes readily ascertainable information, the plaintiff bears the burden of proving that its information was not readily ascertainable by proper means.

As the appellate court noted, some states — including California under the California Uniform Trade Secrets Act (CUTSA) — put the burden of proof on the defendant by making ready ascertainability an affirmative defense. Although the plaintiff had originally asserted claims under both the federal DTSA and CUTSA, it voluntarily dropped its CUTSA claim several days into trial to streamline the issues for the jury. With just the DTSA claim remaining, the court held the burden of proof was squarely on the plaintiff to prove that its trade secrets were not readily ascertainable.

Concurrence: Avoided-Cost Damages and Permanent Injunctive Relief

Judge Hamilton concurred separately to address a remedies issue he expects to recur on remand: whether a plaintiff may recover both unjust enrichment damages, measured by the defendant’s avoided research-and-development costs, and a permanent injunction, without running afoul of the rule against double recovery. The concurrence opined that the plaintiff may recover both, aligning with the Third and Seventh Circuits. Distinguishing between the retrospective and prospective nature of the two remedies, Judge Hamilton reasoned that avoided-cost damages force a defendant to disgorge the benefit of the research-and-development costs it saved through past misappropriation, while a permanent injunction addresses the risk of future misuse and competitive injury. Because the two remedies compensate for different harms occurring in different time periods, awarding both does not duplicate recovery for the same loss. In support, the concurrence repeatedly cited James Pooley, Trade Secrets — the trade secret treatise co-authored by Faegre Drinker attorneys.

Dissent

Judge Bumatay dissented. He agreed with the majority that the jury instruction improperly shifted the burden of proving ready ascertainability to the defendant, but he concluded the error was harmless and would have affirmed the judgment. In his view, the trial record contained overwhelming, largely undisputed evidence that the trade secrets consisted of sophisticated and voluminous technical materials that were not readily ascertainable through proper means. He also pointed to the jury’s findings on independent economic value, as well as the size of the compensatory and punitive damages awards, as strong indicators that the jury would have reached the same result even under a correctly worded instruction.

Key Takeaways

• Plaintiffs pursuing DTSA claims should expect to address every trade-secret element, including ready ascertainability, and consider how to prove those elements at trial.
• Litigants seeking both avoided-cost unjust enrichment damages and a permanent injunction should consider how the two remedies address non-overlapping harms.
• Expect continued attention to trade-secret remedies. The concurrence’s alignment with the Third and Seventh Circuits on avoided-cost damages and injunctive relief signals an emerging majority view that companies litigating DTSA claims nationwide should track.