Virginia Trade Secrets Act -- No Competition Necessary
In Geographic Services, Inc. v. Anthony Collelo, et al., ___ Va. ___ (2012) (copy here), the Supreme Court of Virginia held that Virginia's Trade Secrets Act, Virginia Code Section 59.1-336 et seq., does not require competitive use of a stolen trade secret. While this holding is unremarkable, Justice McLanahan in dissent offered a critique of plaintiff's evidence of damages that, if followed, could lead to the result rejected by the majority.
Graphic Services, Inc. ("GSI") claimed that a former employee, Collelo, breached the provisions of his employment agreement by using GSI's proprietary information at his new job for Boeing, Inc. While the evidence strongly supported GSI's claim, the trial court granted the defendants' motion to strike at the conclusion of GSI's case-in-chief on the ground that "even if Mr. Collelo had taken something,... Boeing is not doing and has not been doing the same work as GSI" and "[t]here has been no [showing] that Boeing has made more money because it has used these trade secrets." There is no way, the trial court concluded, "that the jury could find that Boeing has taken GSI's secret in order to do the work that the secret was designed for." The Virginia Trade Secrets Act, however, does not require any proof of competition or competitive use of the trade secret, and the Supreme Court rightly reversed the trial court's clear error of law.
As Justice Lemons explained, "the Trade Secrets Act does not require that one who is accused of misappropriating a trade secret use the allegedly misappropriated trade secret to compete with the holder of the trade secret." Slip Op. at 19. Rather, "all that GSI was required to show ... was that Boeing ... acquired GSI's trade secrets and they knew or had reason to know that the trade secrets were acquired by improper means and that GSI suffered compensable damages or was otherwise entitled to relief." Id. GSI, the Court held, presented sufficient evidence to make such a showing, and reversed on that basis.
While the Supreme Court's ruling on the competition issue is on sound footing, what is more interesting is Justice McLanahan's partial dissent regarding the sufficiency of GSI's proof of damages. At trial, GSI presented two damages experts, one of whom testified as to GSI’s diminution in value as a result of Boeing’s use of GSI’s trade secrets, and the other who testified about the cost GSI incurred in developing its trade secrets and offered a reasonable royalty theory of damages. Neither expert testified that GSI sustained any actual losses, which Justice McLanahan found to be fatal to GSI’s claim. Thus, in Justice McLanahan's view, the trial court reached the right result if for the wrong reason. The majority took a pass on this issue, commenting only that “we cannot say as a matter of law that GSI did not present sufficient evidence on the question of damages to survive a motion to strike.” Slip Op. at 23.
Justice McLanahan’s insistence on proof of actual losses, if followed, would raise a significant issue for plaintiffs in trade secrets cases. It may be difficult, if not impossible, to show where the trade secrets are being used by a non-competing party. If Boeing was not competing with GSI and not taking business away from GSI, how could GSI show actual losses? Thus, requiring proof of actual losses may limit the scope of trade secrets claims in the same way that the majority rejected.
