United States District Court, E.D. Virginia, Richmond Division
E. Payne Senior United States District Judge.
matter is before the Court on PLAINTIFF STEVES AND SONS,
INC.'S MOTION FOR SUMMARY JUDGMENT ON JELD-WEN
COUNTERCLAIMS (ECF No. 885), to the extent that Steves and
Sons, Inc. ("Steves") seeks summary judgment on
JELD-WEN, Inc.'s ("JELD-WEN") federal and Texas
trade secret misappropriation damages claims. The motion was
denied as to those arguments made by Steves in its original
briefing, but the Court ordered supplemental briefing as to
Steves' request for summary judgment on the basis that
JELD-WEN's damages expert failed to apportion damages
between specific trade secrets. See ECF No. 1290.
For the reasons set forth below, the motion was also denied
on the grounds raised in the supplemental briefs.
See ECF No. 1536.
background underlying this dispute is described at length in
the Court's recent opinion concerning summary judgment on
other aspects of JELD-WEN's counterclaims. See
Summary Judgment Op. (ECF No. 1424) at 2-16. However, some
additional procedural details are relevant to this motion.
retained a damages expert, John Jarosz ("Jarosz"),
in connection with its counterclaims. JELD-WEN served
Jaros'z opening report ("the Jarosz Report") on
November 3, 2017. See ECF No. 1124-2 (Under Seal).
The Report's calculations were based on JELD-WEN's
then-operative statement of trade secrets to be asserted at
trial, id. at 62 n.310, which had been filed on
November 2, Summary Judgment Op. at 12. On November 29,
JELD-WEN filed an amended statement of trade secrets to be
asserted at trial ("the Amended Trial Statement"),
which added two rows of information. Id. at 12-13.
On December 22, JELD-WEN served Jarosz's rebuttal report
("the Jarosz Rebuttal Report"), which responded to
the opinions expressed by Steves' damages expert, Michael
Wallace ("Wallace"). See Jarosz Rebuttal
Report (ECF No. 1124-3) (Under Seal). The Rebuttal Report
relied on the information contained in the Amended Trial
Statement. Id. ¶ 13 n.10. Jarosz was
then deposed about the substance of his reports on January
12, 2018, while the Amended Trial Statement was still in
effect. Jarosz Dep. (ECF No. 884-18) (Under Seal) at 1.
March 21, 2018, in response to the Court's order,
JELD-WEN filed an updated statement of trade secrets to be
asserted at trial ("the Second Amended Trial
Statement"), which separated the rows of information
from the Amended Trial Statement into sixty-seven individual
trade secrets. Summary Judgment Op. at 15. A redlined version
of the Second Amended Trial Statement, provided by JELD-WEN
at the Court's request, showed that information
constituting approximately sixteen trade secrets that were in
the Amended Trial Statement had been removed in the Second
Amended Trial Statement. See ECF No. 1304-3 (Under Seal). As a
result, the trade secrets for which JELD-WEN will seek
damages at trial are different than those underlying
Jarosz's reports and testimony.
Fed.R.Civ.P. 56, a court "shall grant summary judgment
if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a
matter of law." Fed.R.Civ.P. 56(a). Rule 56 requires the
entry of summary judgment "after adequate time for
discovery and upon motion, against a party who fails to make
a showing sufficient to establish the existence of an element
essential to that party's case, and on which that party
will bear the burden of proof at trial." Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986) . For a court
to enter summary judgment, "there can be no genuine
issue as to any material fact, since a complete failure of
proof concerning an. essential element of the nonmoving
party's case renders all other facts immaterial."
Id. at 323 (internal quotations omitted).
reviewing a motion for summary judgment, a court must
interpret the facts and any inferences drawn therefrom in the
light most favorable to the nonmoving party. See
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986); Lee v. Town of Seaboard, 863
F.3d 323, 327 (4th Cir. 2017). To successfully oppose a
motion for summary judgment, the nonmoving party must
demonstrate to the court that there are specific facts that
would create a genuine issue for trial. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). However,
"'[c]onclusory or speculative allegations do not
suffice' to oppose a properly supported motion for
summary judgment, 'nor does a mere scintilla of
evidence.'" Matherly v. Andrews, 859 F.3d
264, 280 (4th Cir. 2017) (quoting Thompson v. Potomac
Elec. Power Co., 312 F.3d 645, 649 (4th Cir. 2002)).
"Where . . . the record taken as a whole could not lead
a rational trier of fact to find for the non-moving party,
disposition by summary judgment is appropriate."
United States v. Lee, 943 F.2d 366, 368 (4th Cir.
Damages Claims for Trade Secret Misappropriation
seeks summary judgment on JELD-WEN's damages claims under
the federal Defend Trade Secrets Act ("DTSA") and
the Texas Uniform Trade Secrets Act ("TUTSA") for
two primary reasons. First, Steves asserts that Jarosz's
damages scenarios are speculative and inconsistent with
JELD-WEN's allegations and Steves' conduct. Second,
Steves contends that the removal of numerous trade secrets in
the Second Amended Trial Statement makes Jarosz's
calculations unreliable because he valued damages
collectively instead of allocating them between specific
Legal Standard and Background
are available under both the DTSA and the TUTSA. The DTSA
permits a plaintiff to seek damages: (1) "for actual
loss caused by the misappropriation, " and (2) "for
any unjust enrichment caused by the misappropriation . . .
that is not addressed in computing damages for actual
loss"; or (3) "in lieu of damages measured by
[those] methods, the damages . . . measured by imposition of
liability for a reasonable royalty for the
misappropriator's unauthorized disclosure or use of the
trade secret." 18 U.S.C. § 1836(b)(3)(B). The same
damages are recoverable under the TUTSA. Tex. Civ. Prac.
& Rem. Code § l34A.OO4(a).
discussed, JELD-WEN initially sought damages for actual loss
and/or unjust enrichment, and alternatively sought damages
reflecting a reasonable royalty based on Steves' past use
of the misappropriated trade secrets. However, Jarosz
testified that, although JELD-WEN had suffered some actual
loss, he did not have enough information to calculate those
losses with a reasonable degree of certainty. Jarosz Dep. at
44:19-45:5. Accordingly, JELD-WEN now seeks damages only for
Steves' unjust enrichment or, alternatively, a reasonable
royalty based on Steves' use of JELD-WEN's trade
statutes adopting the Uniform Trade Secrets Act
("UTSA") (as the DTSA and the TUTSA do) allow for
multiple types of damages that are based on different
calculations, "[c]omputing damages in a trade secrets
case is not cut and dry." Am. Sales Corp. v.
Adventure Travel, Inc., 8 62 F.Supp. 1476, 1479 (E.D.
Va. 1994). The Fourth Circuit has said little about damages
in trade secrets cases, noting only that
[t]here are two basic methods for assessing damages for
misappropriation of trade secrets: one, the damages sustained
by the victim (the traditional common law remedy), and the
other, the profits earned by the wrongdoer by the use of the
misappropriated material (an equitable remedy which treats
the wrongdoer as trustee ex maleficio for the victim of the
wrongdoer's gains from his wrongdoing).
Sperry Rand Corp. v. A-T-O, Inc., 447 F.2d 1387,
1392 (4th Cir. 1971) . However, Sperry Rand has been
supplanted by the more elastic approach called for by the
UTSA, which permits recovery of several types of damages.
See Am. Sales, 862 F.Supp. at 1479; Sw. Energy
Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 710-11 (Tex.
2016) . This flexibility is not unlimited; one of the leading
cases on damages for trade secret misappropriation,
University Computing Co. v. Lykes-Youngstown Corp.,
504 F.2d 518 (5th Cir. 1974), recognizes that "[t]he law
governing protection of trade secrets essentially is designed
to regulate unfair business competition, and is not a
substitute for criminal laws against theft or other civil
remedies for conversion." Id. at 539. However,
University Computing also "stressed that
'each case is controlled by its own peculiar facts and
circumstances, ' and that courts should remain
'flexible and imaginative'" when determining
proper damages. Am. Sales, 862 F.Supp. At 1479
(quoting Univ. Computing, 504 F.2d at 539). For that
reason, even where "damages are uncertain, . . . that
uncertainty should [not] preclude recovery; the plaintiff
should be afforded every opportunity to prove damages once
misappropriation is shown"- assuming, of course, that
the plaintiff "introduces evidence by which the jury can
value the rights the defendant has obtained." Univ.
Computing, 504 F.2d at 539, 545.
with this framework, Jarosz computed damages under three
different scenarios. First, Jarosz calculated Steves'
gains in the event that it uses the trade secrets to build a
doorskin manufacturing plant ("Scenario One"). In
that case, Jarosz theorizes, Steves' misappropriation
would allow it to "to increase the plant's
profitability through a reduction in its per skin
costs." See Jarosz Report ¶ 157. This
increased profit would result from Steves' possession of
trade secrets about important manufacturing components like
wood thickness, resin, and primer, which would allow Steves
to spend less on each element than it would otherwise. To
realize these cost savings without the misappropriation,
Steves would need to devote years of research and development
to doorskin manufacturing, as JELD-WEN has. See id.
¶¶ 159-65. Using this misappropriated information,
a "hypothetical Steves plant" would save about
$0.58 per doorskin, leading to between $11.8 million and
$13.3 million in increased profits, depending on how quickly
such a plant reaches target productivity. See id.
Jarosz calculated the benefits that have accrued, and will
continue to accrue, to Steves as a result of the
misappropriation even if it never builds a plant
("Scenario Two") . Id. ¶ 172. For
instance, Steves' actions allowed it "to avoid the
expenditures necessary to learn of the feasibility of
building a door skin plant" because it had a
"comprehensive blueprint" to the doorskin industry,
including information about factors like the profitability of
certain doorskin sizes and configurations, viable and
non-viable activities, input costs by location, and potential
vendors. Id. ¶ 173. Similarly, Steves'
acquisition of "plant-level cost information [and] plant
capacity information" through Pierce may help Steves
negotiate lower doorskin prices than it could have based
solely on the information it was entitled to under its
long-term doorskin supply agreement with JELD-WEN ("the
Supply Agreement"). Id. ¶¶ 174-76.
This price reduction would allow Steves to save between $10.8
million and $12.7 million over the next ten years, depending
on its annual doorskin consumption. See id.
Jarosz determined an appropriate reasonable royalty based on
a number of factors applied in the course of a hypothetical
negotiation between JELD-WEN and Steves at the time the
misappropriation first occurred, in or around March 2015
("Scenario Three"). See id. ¶¶
179-89. Scenario Three considered two possible quantitative
methods for calculating the royalty. The first, the
incremental benefits approach, determined a royalty based on
the benefits to Steves from the misappropriation, whether it
builds a doorskin manufacturing plant or not. The benefits
were the same gains that Steve would make or has already made
under Scenarios One and Two-reduced doorskin manufacturing
costs and the ability to more easily assess the feasibility
of building a plant or more effectively negotiate with
doorskin suppliers, respectively. Valuing those benefits at
between $0.12 and $0.58 per doorskin, this first approach
leads to a royalty rate of between 2.8% and 13.4% per skin.
See id. ¶¶ 191-201. The second, the
licensing comparables approach, considered "the terms of
actual . . . licenses involving similar technology."
Id. ¶ 202. Jarosz identified only three
comparable licensing agreements in the doorskin context, and
several more in other manufacturing settings, all of which
were based on future sales or uses of the licensed
technology. See id. ¶¶ 203-22. The
doorskin licenses suggested a royalty rate of up to 2% net
sales, and the other licenses suggested a rate of between
2.5% and 10% of net or gross sales. Id. ¶¶
223-26. Then, after applying a number of qualitative factors
detailed in Georgia-Pacific Corp. v. U.S. Plywood
Corp., 318 F.Supp. 1116 (S.D.N.Y. 1970),  Jarosz settled on
a royalty rate of 3%. Applying that rate to Steves'
"likely future revenues for 10 years from the start of
production [at a hypothetical doorskin manufacturing plant],
discounted back to March 2015, amounts to $9.9 million"
in reasonable royalty damages, assuming the plant would reach
a certain capacity. See Jarosz Report ¶¶
makes several arguments as to JELD-WEN's damages claims.
First, it contends that all of Jarosz's scenarios are
flawed because they improperly calculate damages based on
Steves' future use of the misappropriated trade
secrets, instead of Steves' actual, past use of
the trade secrets to assess the feasibility of building a
doorskin manufacturing plant. Indeed, Steves says, Jarosz and
JELD-WEN consciously avoided damages based solely on
Steves' actual use because that harm was minimal. Second,
Steves claims that JELD-WEN's unjust enrichment damages
do not rely on Steves' actual benefits, as those damages
must, but instead on gains that Steves might make if it takes
certain steps in the future. Third, given the need for
speculation, Steves believes that Jarosz could not have
applied either quantitative method to calculate a royalty
rate with reasonable certainty. Fourth, Steves argues that
JELD-WEN's current position effectively makes its damages
claims duplicative of the injunctive relief that JELD-WEN is
also seeking. Finally, its supplemental briefs, Steves
contends that it is impossible to determine the amount of
damages that JELD-WEN actually suffered because Jarosz's
calculations are based on the misappropriation of some
information that JELD-WEN no longer claims as trade secrets.
Nature of Use Underlying Damages Scenarios
argument about the basis of Jarosz's damages calculations
centers on an apparent inconsistency between Steves' use
of the misappropriated trade secrets as alleged in the
Counterclaims and the use that supports the damages figures
proposed by Jarosz. JELD-WEN stated in the Counterclaims
Steves has planned to use, and will continue to use,
JELD-WEN's trade secrets and confidential information
to assess whether it is feasible for the company to
develop a door skin manufacturing operation in direct
competition with JELD-WEN. . . . Steves either has used or
may use this information to develop such an
operation, and/or to determine whether it wants to
make the investment necessary to build a door skin plant
itself, or partner with another firm to do so.
(ECF No. 252) (Under Seal) ¶ 39 (emphasis added).
Consistent with these allegations, JELD-WEN sought relief for
its actual loss and unjust enrichment, which would
necessarily be based on Steves' actual misuse of the
trade secrets, and a reasonable royalty for Steves' past
use of that information. See id. at 47.
reads these statements to indicate that Steves' only
possible actual use of the misappropriated trade secrets was
to conduct the Feasibility Study at a cheaper cost than it
could have without the trade secrets. Indeed, as Jarosz
stated in his Report, one of Steves' gains from the trade
secret misappropriation was "avoid[ing] the expenditures
necessary to learn of the feasibility of building a door skin
plant." Jarosz Report ¶ 68. Steves contends,
however, that Jarosz's damages scenarios "flow
entirely from projected future activity of Steves,
i.e., uses that have not yet even occurred"-such as
building a doorskin manufacturing plant or negotiating with
doorskin suppliers for lower doorskin prices in reliance on
JELD-WEN's trade secrets. Steves Br. (ECF No. 884) (Under
Seal) at 26. In fact, Jarosz confirmed that his damages
figures were not based on costs saved by Steves in the
Feasibility Study. See Jarosz Dep. at 68:22-69:4
("I haven't separately quantified ...