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Misappropriation of Trade Secrets Warrants an Ongoing “Reasonable Royalty”

John C. Low, Ph.D.

Comparing and contrasting Texas trade secret law to jurisprudence relating to patent infringement damages, the U.S. District Court for the Eastern District of Texas held that post-verdict royalty fees may be appropriate for an extended period to compensate damage resulting from trade secret misappropriation.  Sabatino Bianco, M.D., v. Globus Medical, IncCase No. 2:12–CV–00147 (E.D. Tex., July 2, 2014) (Bryson, J., sitting by designation).

The plaintiff, Dr. Bianco, provided drawings relating to implantable medical devices to the defendant, Globus Medical.  Dr. Bianco alleged that the drawings contained trade secret information, which Globus Medical misappropriated when it incorporated the plaintiff’s proprietary information into three commercial products.  The jury found that Dr. Bianco’s drawings did constitute a trade secret and that the secret was misappropriated by Globus Medical.  The jury then awarded Dr. Bianco a 5 percent royalty based on net sales of the three Globus Medical products.  Although permissible under Texas law, Globus Medical was not enjoined from making the three products or required to disgorge its profits derived from those products.

The parties disputed whether a post-verdict royalty was warranted and, if so, what the royalty rate should be and whether enhanced damages were warranted.  Globus Medical argued that the initial damage award (for past damages) fully compensated Dr. Bianco for the misappropriation, because the trade secret information merely provided Globus Medical a “head start” in making the products at issue in the litigation and that the “head start” period would have ended by the time of the jury verdict.  Globus Medical also argued that its engineers did not rely on the drawings, so there was no continuing damage.  Dr. Bianco argued that the royalty rate should be higher based on certain fact issues that the jury resolved in his favor, which would improve his bargaining position in a “hypothetical negotiation,” as described in Georgia-Pacific Corp. v. U.S. Plywood Corp., which provides a favored framework for determining a reasonable royalty in patent infringement cases.

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Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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