Steves and Sons, Inc. v. Jeld-Wen, Inc., No. 3:2016cv00545 - Document 1581 (E.D. Va. 2018)
Court Description: PUBLIC REDACTED VERSION MEMORANDUM OPINION. Signed by District Judge Robert E. Payne on 05/10/2018. (tjoh, )
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Steves and Sons, Inc. v. Jeld-Wen, Inc. Doc. 1581 fp L E ri) HAY 1 0 2018 iJ b IN THE UNITED STATES DISTRICT COURT CLEH.<, U.S. DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMO'^n, VA Richmond Division STEVES AND SONS, INC., Plaintiff, Civil Action No. 3:16-cv-545 V. JELD-WEN, INC., PUBLIC REDACTED VERSION Defendant. MEMORANDUM OPINION This SONS, matter INC.'S is before MOTION the FOR Court on SUMMARY PLAINTIFF JUDGMENT STEVES ON AND JELD-WEN COUNTERCLAIMS (ECF No. 885), to the extent that Steves and Sons, Inc. ("Steves") ("JELD-WEN") seeks federal summary and Texas judgment trade on JELD-WEN, secret Inc.'s 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 The background underlying this dispute is described at length in the Court's recent opinion concerning summary judgment Dockets.Justia.com on other aspects of JELD-WEN's counterclaims. See Summary Judgment Op. (EOF No. 1424) at 2-16. However, some additional procedural details are relevant to this motion. JELD-WEN 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 EOF 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 Jarosz's rebuttal report ("the December 22, JELD-WEN served Jarosz Rebuttal Report"), which responded to the opinions expressed by Steves' damages expert, Michael Wallace ("Wallace"). See Jarosz Rebuttal Report (EOF No. 1124-3) (Under Seal). The Rebuttal Report relied on the information contained in the Amended Trial Statement.^ Id. f 13 n.lO. 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. (EOF No. 884-18) (Under Seal) at 1. ^ Jarosz's conclusions in the Rebuttal Report do not appear to have been affected much, Amended Trial Statement. if at all, by the additions in the On 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. 15. Amended Trial A redlined provided by information version the at JELD-WEN of the constituting Second Court's approximately request, sixteen at Statement, showed trade that 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 damages at trial are secrets for which JELD-WEN different than those will underlying seek Jarosz's reports and testimony. DISCUSSION I. Legal Standard Under Fed. R. Civ. P. 56, a court "shall grant summary judgment if the movant shows that there is no genuine dispute as ^ One trade secret Amended Trial (which Statement) was one of the had already been rows added in the removed by JELD-WEN before it filed the Second Amended Trial Statement, see ECF No. 1081 (Under Seal), but the other fifteen had not. The exact number of trade different secrets organization Second Amended Trial explanations provided removed is hard to of the Amended Trial discern given the Statement and the Statement, but the Court accepts the in Steves' analysis of the redlined version of the Second Amended Trial Statement. See ECF No. 1304- 4 (Under Seal). In any event, the number of secrets is not crucial to the Court's decision judgment on the damages claims. removed trade as to summary 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 party's case an essential element of the nonmoving renders all other facts immaterial." Id. at 323 (internal quotations omitted). When reviewing a motion for summary judgment, a court must interpret the facts and any inferences drawn therefrom in the light most Elec. Indus. (1986); Lee favorable Co. v. to v. Town the Zenith of nonmoving Radio Seaboard, party. Corp., 863 F.3d 475 323, See Matsushita U.S. 327 574, (4th 587 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. However, "^[c]onclusory suffice' to judgment, Liberty oppose Lobby, a or Inc., 477 U.S. speculative properly supported 242, 250 allegations motion for (1986). do not summary ^nor does a mere scintilla of evidence.'" Matherly v. Andrews, 859 F.3d 264, 280 (4th Cir. 2017) (quoting Thompson v. Potomac Elec. Power "Where . . . the rational Co., 312 record trier of F.3d taken fact to as 645, 649 (4th a find whole for Cir. could the 2002)). not lead non-moving a party, disposition by summary judgment is appropriate." United States V. Lee, 943 F.2d 366, 368 (4th Cir. 1991). II. Damages Claims for Trade Secret Misappropriation Steves seeks summary judgment on JELD-WEN's damages claims under Texas the federal Uniform reasons. Defend Trade Trade Secrets Secrets Act Act ("DTSA") ("TUTSA") for and two the primary First, Steves asserts that Jarosz's damages scenarios are speculative and inconsistent with JELD-WEN's allegations and Steves' conduct. numerous trade Second, secrets Steves in the contends Second that Amended the removal Trial of Statement makes Jarosz's calculations unreliable because he valued damages collectively instead of allocating them between specific trade secrets.^ A. Legal Standard and Background Damages The are available DTSA permits a under both the DTSA and the TUTSA. plaintiff to seek damages: (1) "for actual loss caused by the misappropriation," and (2) "for any unjust ^ Steves also argued that the verdict in the antitrust trial contradicted the assumptions underlying Jarosz's calculations, Steves Reply (ECF No. 1124) (Under Seal) at 19-25, but that argument has been stricken, see ECF No. 1207. enrichment caused by the misappropriation . . . that is not addressed in computing damages for actual loss"; or (3) "in lieu of damages measured damages . . . measured reasonable royalty disclosure or by by [those] imposition for the use liability misappropriator's of U.S.C. § 1836(b)(3)(B). The of methods, the trade same damages are the for a unauthorized secret." 18 recoverable under the TUTSA. Tex. Civ. Prac. & Rem. Code § 134A.004(a). As 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 JELD-WEN certainty. now seeks Jarosz damages Dep. at only for 44:19-45:5. Steves' Accordingly, unjust enrichment or, alternatively, a reasonable royalty based on Steves' use of JELD-WEN's trade secrets. Because statutes adopting the Uniform Trade Secrets Act ("UTSA") (as the DTSA and the TUTSA do) allow for multiple types of damages "[cjomputing that are damages in dry." Am. Sales Corp. based a trade on different secrets case is calculations, not v. Adventure Travel, Inc., 862 cut F. and 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-Q, 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. 1479; Prod. Sw. Energy Co. See Am. v. Sales, 862 Berry-Helfand, 710-11 (Tex. 2016). This flexibility is not 491 F. Supp. S.W.3d at 699, 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. Consistent under three Steves' with this different framework, scenarios. Jarosz First, computed Jarosz damages calculated 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 profit about would costs." See result important resin, each skin and than savings without devote years Steves' manufacturing primer, element from Jarosz which it the of manufacturing, as possession components would would Report SI 157. allow otherwise. misappropriation, research JELD-WEN and of like Steves To trade 159-65. less these would to secrets thickness, spend realize Steves increased wood to development has. See id. This need on cost to doorskin 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. SISl 166-71. Second, and will Jarosz calculated the continue misappropriation to even Two"). Id. SI 172. accrue, if it to benefits that Steves never as builds a a have accrued, result plant of the ("Scenario 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 acquisition potential vendors. Id. f 173. of "plant-level cost Similarly, information Steves' [and] plant capacity information" through Pierce may help Steves negotiate lower doorskin information supply it prices than was agreement it could entitled with to JELD-WEN have under based its ("the solely on the long-term Supply doorskin Agreement"). Id. fSI 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. 5SI 177-78. Finally, 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. M 179-89. Scenario Three considered two possible quantitative methods for calculating the royalty. The first, royalty the incremental based on misappropriation, the whether benefits approach, benefits it to builds a determined Steves doorskin from a the manufacturing plant or not. The benefits were the same gains that Steve would make or doorskin has already made manufacturing under costs Scenarios and the One ability and to Two—reduced more easily assess the feasibility of building a plant or more effectively negotiate benefits with at doorskin between suppliers, respectively. $0.12 and $0.58 per Valuing those doorskin, this first approach leads to a royalty rate of between 2.8% and 13.4% per skin. See id. fSI 191-201. The second, the licensing comparables approach, considered "the terms of actual . . . licenses[] involving similar technology." Id. 1 202. 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. SISI 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. SISt 223- 26. Then, after applying a number 10 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 fSI 228-65. Steves makes several arguments as claims. First, it contends that all of flawed because they improperly to JELD-WEN's damages Jarosz's scenarios are 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 based says, solely Jarosz on and Steves' JELD-WEN actual consciously use because avoided that damages 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 ^ At oral argument on the supplemental briefing, Steves' counsel appeared to argue that the Georgia-Pacific analysis represented a third, independent approach for calculating a reasonable royalty. That is mistaken—Jarosz stated that the incremental benefits and licensing comparable approaches were the only guantitative methods being used to determine a reasonable royalty, whereas the Georgia-Pacific factors provided a purely gualitative framework that helped set the appropriate royalty within the range suggested by those quantitative approaches. See Jarosz Report SISI 190, 228-71. 11 certain steps in the future. Third, given the need for speculation, Steves believes that Jarosz could not have applied either quantitative reasonable current method certainty. position duplicative of to calculate Fourth, Steves effectively the royalty argues makes injunctive a its relief that that rate with JELD-WEN's damages JELD-WEN claims is also seeking. Finally, its supplemental briefs, Steves contends that it is impossible to determine the amount of damages that JELDWEN actually suffered because Jarosz's calculations are based on the misappropriation of some information that JELD-WEN no longer claims as trade secrets. B. Nature of Use Underlying Damages Scenarios Steves' calculations argument centers about on the an basis apparent of Jarosz's damages 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 that: Steves has planned to use, and will continue to use, JELD-WEN's confidential trade information to secrets assess and 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 investment necessary to build plant itself, or partner with to do so. 12 to make the a door another skin firm Counterclaims (EOF No. 252) (Under Seal) f 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. Steves 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 misappropriation Steves' gains from the trade was "avoid[ing] the expenditures secret necessary to learn of the feasibility of building a door slcin plant." Jarosz Report f 68. scenarios Steves, Steves "flow i.e., contends, entirely uses building a doorskin suppliers that doorskin however, from have projected not manufacturing for lower that yet doorskin future even plant Jarosz's damages activity of occurred"—such as or prices negotiating in with 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 the ^ The background of the Feasibility Study is discussed in the Court's original Summary Judgment Opinion. ECF No. 1424 at 6. 13 cost of that feasibility study. I would expect . . . that it was modestly costly, but I have not put a dollar amount on that."); id. at 69:16-17 ("No, I don't have a number just associated with the feasibility study."). Steves' argument misstates the scope of JELD-WEN's damages claims and ignores evidence that Steves' actual use of the trade secrets has not been limited to the Feasibility Study. The Counterclaim allegation that Steves quotes clearly states that Steves may have used the trade secrets to assess the feasibility of building a doorskin manufacturing plant and "to develop such an operation." Counterclaims f 39. Therefore, contrary to what Steves asserts, JELD-WEN's theory of misappropriation has always included Steves' Feasibility use Study of the and to trade secrets fulfill other both to aspects conduct of the Steves' doorskin manufacturing project ("the MDS Project"). Steves thus cannot credibly theories on assert the fly that to JELD-WEN fit the changed evidence in its damages the record. Furthermore, even if JELD-WEN had not specifically alleged that Steves' use included steps beyond completing the Feasibility Study, understanding that use in the extremely narrow Steves does would be illogical. The evidence is way that clear that Steves undertook the Feasibility Study because it was interested in building its own doorskin plant as part of the MDS Project. If Steves then actually built that plant, or even if it only 14 took steps towards doing so, that conduct would necessarily flow directly from the Feasibility Study. From this perspective, Steves' anticipated future use of the trade secrets based on the outcome of the Feasibility Study is part and parcel of the use of the trade secrets to complete that study, so those uses cannot be separated as neatly as Steves would like. Consequently, instructions and about misappropriation keeping the damages, in mind University flexibility Steves' use of of the Computing's trade secret misappropriated trade secrets should not, for purposes of damages calculations, be limited to the use of the trade secrets to complete the Feasibility Study. That narrow construction might be appropriate if JELD-WEN had presented no evidence from which a jury could conclude that Steves had misused the trade secrets in other ways in furtherance of the MDS Project, or was likely to do so in the future. See Carbo Ceramics, Inc. v. Keefe, 166 F. App'x 714, 724 (5th Cir. 2006) (summary judgment granted because "[t]here [wa]s no sound and value for the not reliable alleged "demonstrat[ed] actual damages a evidence trade from which secrets," such triable issue recoverable of under to derive that dollar plaintiff had material its a fact trade as to secret misappropriation claim"). But JELD-WEN has highlighted evidence showing that Steves has continued to use the trade secrets even after finishing the Feasibility 15 Study, relying on that information to negotiate with potential partners that could help Steves build a manufacturing plant and, less clearly, to gain leverage in its doorskin pricing discussions with JELD-WEN. In addition, similar to the future uses justified by the Accordingly, extent that of the Jarosz's trade evidence in the Jarosz's scenarios do calculations secrets, that consider approach is record, as discussed below. not fail simply because he construes Steves' use of the trade secrets fairly broadly. C. Unjust Enrichment Although the DTSA and the TUTSA permit recovery of unjust enrichment damages, neither statute precisely defines the scope of those Civ. damages. Prac. generally benefit allowing & Rem. "requires on See 18 U.S.C. § 1836(b)(3)(B)(i)(II); Code § 134A.004(a). a showing a defendant that the defendant to the that a the enrichment plaintiff defendant retain Unjust knew benefit Tex. conferred about and without a that payment would be unjust." Quality Auto Painting Ctr. of Roselle, Inc. v. State Farm Indem. Co., 870 F.3d 1262, 1277 (11th Cir. 2017); see also Mowbray v. Avery, 76 ("[Unjust enrichment] can wrongfully secured unconscionable for or the S.W.3d 663, be applied passively 679 (Tex. where . . . a received receiving party Accordingly, in the trade secret misappropriation 2002) benefit which to App. was would be retain."). context, the proper measure of unjust enrichment damages is "the total gains 16 of [a defendant's] wrongdoing." Carter Prods.^ Palmolive Co., 214 F. Supp. 383, 403 (D. Md. 1963); see also Univ. Computing, 504 been destroyed specific F.2d at 536 ("[Wjhere the secret has not and where the injury. . . ., damages . . . is Inc. v. Colgate- not plaintiff the what is unable appropriate plaintiff lost, to prove measure but rather of the benefits, profits, or advantages gained by the defendant in the use of the Sales, trade 862 F. secret." (internal Supp. at 1479 quotations ("[Ajmount omitted)); Am. of . . . profit . . . would be the real measure of defendant's unjust enrichment."). As a result, unjust enrichment awards can in some sense "serve a legitimate deterrent function," because "a misappropriation claim involves an allegation of theft, and it is not unknown to require a thief to return not only what was stolen, but any additional consequential profits he or she reaped as a result of his or her wrongful actions." Russo v. Ballard Med. Prods., 550 F.3d 1004, 1021 (10th Cir. 2008). Jarosz's first two scenarios evaluate Steves' gains from JELD-WEN's trade secrets under different circumstances. Scenario One "examin[es] there's some the gains to Steves under the probability that [it] will build a plant"—specifically, the costs saved per belief that new door skin doorskin produced. Jarosz Dep. at 12:3-5; Jarosz Report f 157. Scenario Two, on the other hand, "looks to Steves' potential gains from the 17 use of financial information misappropriated from JELD-WEN"—namely, the costs that Steves avoided having to commit "to understand exactly what is entailed in building a door skin plant and to develop a feasibility analysis," as well as the lower doorskin prices Steves negotiating has gained position. Report fSI 172-74. These or will Jarosz gain Dep. scenarios from at its improved 12:7-10; ostensibly reflect Jarosz unjust enrichment damages because they focus on the benefits to Steves from the misappropriation. Nonetheless, Steves contends that neither scenario identifies any benefit that Steves has actually retained, as they are based only on Steves' speculative gains if certain events occur in the future. This contention is somewhat persuasive as to Scenario Two. Even though conducting Jarosz did not quantify the costs Steves saved in the Feasibility Study, Scenario Two includes other gains from uses that Steves may have already made of the trade secrets. WEN's For instance, Jarosz notes that Steves financial information to avoid the has used JELD- research and development costs that would normally be necessary to thoroughly understand the requirements for building a doorskin plant, Jarosz Report SI 173, and he details those savings in elsewhere in the Report, see id. SISI 122-53. Those avoided costs are appropriately considered as part of JELD-WEN's unjust enrichment damages. See E.I. Dupont De Nemours & Co. v. Kolon Indus., Inc., 18 No. 3:09CV58, 2011 WL 13079484, at *1 (E.D. Va. June 15, 2011); Sw. Energy Prod., 491 S.W.3d at 711 ("Value to the defendant may be measured by the defendant's actual profits resulting from the use or disclosure reasonably prudent of the trade investor secret . . ., would have paid the for value the a trade secret, or development costs that were saved." (emphasis added) (citing, inter alia, Univ. Computing, 504 F.2d at 536, 538-39)).® However, those present avoided costs appear to be a limited part of Scenario activity, like Two, Steves' which is primarily negotiations with based doorskin on future suppliers. JELD-WEN cites evidence suggesting that Steves recently pursued such negotiations with doorskin suppliers, and that the misappropriated trade secrets may have provided Steves with some "incremental value" in those and likely future negotiations. Russo, 550 F.3d at 1018. If the jury finds that to be the case, it could award JELD-WEN some appropriate percentage of Steves' savings from obtaining lower doorskin prices. See id. (portion of "present value of [defendant]'s expected net profits" from future use of misappropriated information recoverable as unjust enrichment damages); see also Univ. Computing, 504 F.2d at 539 (where defendant earns profits from misappropriation, plaintiff ® Jarosz's costs in quantification Scenarios One and consideration and Two below. See infra Section II.F.l. 19 is of these discussed in more avoided detail can recover "the defendant's between defendant's designed to correspond plaintiff's commercial the doorskin of the contribution total amount apportioned to whether At the seems Steves profits to secret financial negotiations judge trade success"). misappropriated pricing difficult full the some actual made to the time, same the link and the information dubious used or at best; per-plant it input is cost information (which it misappropriated, and to which it was not entitled under the Supply Agreement) or other input cost information (to which Steves was entitled) to seek lower prices from JELD-WEN. Similarly, the contention that Steves could use such per-plant information to secure some ambiguous benefit in future negotiations that have not yet occurred is speculative. JELD-WEN's to evidence is sufficient prevent summary judgment because there is a genuine dispute about whether Steves has used and will use financial trade secrets in doorskin negotiations. But, considering the problems noted above, JELD-WEN will need to present compelling evidence of Steves' use at trial to avoid judgment as a matter of law as to Scenario Two damages. Whether the unjust enrichment damages are impermissibly speculative is also uncertain as to Scenario One. Those damages undoubtedly reflect a benefit to Steves: increased profits for a hypothetical doorskin manufacturing plant, which would be facilitated by "a reduction in [Steves'] per skin costs" from 20 the trade secrets. Jarosz Report f 157. But, as with Scenario Two, the damages in Scenario One are not clearly connected to Steves' present use or likely future use of the trade secrets. To determine the precise profits that Steves would gain under this scenario, Jarosz assumed a "hypothetical plant," with two lines, twelve openings, two dies per opening, and "a 76-second press cycle, which is the slowest press cycle that [] Ambruz considered in his model of a hypothetical Steves plant." This plant could produce about 16 million doorskins annually, giving Jarosz a base from which to calculate the total annual profits based on the savings per doorskin. He also assumed that this plant would reach its target productivity within two to three years. Id. In a 167-69. sense, speculative as the the damages future in lost Scenario profits One damages are about that as Steves sought for its antitrust claim against JELD-WEN. Damages based on multiple plant favored and in predictions—like the operating the profits misappropriation production Steves cases, as capacity would of the earn-are not "defendant[s] [are] normally not assessed damages on wholly speculative expectations of profits." Univ. Computing, 504 F.2d at 536. Accordingly, in Carbo Ceramics, the court affirmed a grant of summary judgment on a trade secret misappropriation claim because 21 [defendant]'s financial which serve as predictions, the all foundation of for [plaintiff]'s damage theory, are simply too speculative. [Plaintiff]'s revenue projections and operating profits for [defendant]'s business enterprise . . . are inadmissible because they are speculative projections based on uncertain or changing market conditions, or on chancy business opportunities, or on promotion of untested products or entry into an unknown or unviable market, or on the success of a new and unproven enterprise. 166 F. App'x at 724 (internal quotations omitted). This case, however, is distinct because it does not involve untested products, an unknown market, or an unproven enterprise. To the contrary, Steves' hypothetical plant would be modeled on JELD-WEN's own manufacturing plants, which are successful and operate efficiently based on years of development. The time for Steves' plant to reach target productivity also has some basis in the evidence, as several witnesses have testified about that issue. Thus, in comparison to the projections in Carbo Ceramics, Jarosz's calculations are not very speculative, because they simply estimate Steves' expected profits within a business model mostly replicated from JELD-WEN's operations. There is some guesswork involved in deciding whether Steves will be able to build from a the plant trade that implements secrets, but all that of JELD-WEN's minor efficiencies uncertainty does not undermine the other, stronger assumptions on which Scenario One is based. Moreover, JELD-WEN's evidence suggests that Steves has 22 already taken steps to begin developing a manufacturing plant after finishing the Feasibility Study, such as negotiating with potential business partners. A jury could rely on this evidence to conclude that Steves is reasonably likely to actually build a plant, and that it would save certain costs in running that plant because of JELD-WEN's trade secrets. Consequently, JELDWEN has presented enough evidence to avoid summary judgment on its unjust enrichment claim to the extent that it is based on Scenario One. D. Reasonable Royalty As with unjust enrichment damages, the DTSA and the TUTSA are silent on defendant's what qualifies as a "reasonable use of a misappropriated U.S.C. § 1836(b)(3)(B)(ii); Code § 134A.004(a). The Tex. Fourth trade Civ. Circuit has royalty" for a secret. Prac. also not See & 18 Rem. addressed the issue. Consequently, courts within the Fourth Circuit have turned to University Computing, which "is a leading case on calculating a reasonable royalty." Check 'n Go of Va., Inc. v. Laserre, No. CIV.A.6:04 CV 00050, 2005 WL 1926609, at *5 (W.D. Va. Aug. 9, 2005); see also Am. Sales, 862 F. Supp. at 1479 ("University Computing . . . is especially helpful with damages in determining when to consider certain factors and in defining what a ^reasonable royalty' is."). 23 As that case explains, "a reasonable royalty is simply that amount which the trier of fact[] estimates a person desiring to use a [trade secret]^ would be willing to pay for its use and a [trade secret] owner desiring to license the [trade secret] would be willing to accept." Univ. Computing, 504 F.2d at 537 n.31. Calculations under this approach imagine a "hypothetical negotiation" between the plaintiff and defendant "to ascertain the royalty upon successfully which the parties would negotiated an have agreed agreement had they just before [misappropriation] began." Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009). "The hypothetical negotiation tries, as best as possible, to recreate the ex ante licensing agreement. occurred, negotiation In other willing scenario words, parties and if would to describe the resulting [misappropriation] have executed had a not license agreement specifying a certain royalty payment scheme." Id. at 1325. The ultimate goal of this theoretical frameworlc is to measure "the actual value of what has been appropriated." Univ. Computing, 504 F.2d at 537 (internal quotations omitted). ^ Given the relatively small number of cases involving trade secret misappropriation damages. University Computing and other courts have looked to patent infringement cases for guidance in assessing reasonable royalty claims. Am. Sales, 862 F. Supp. at 1479. Those cases suggest that the terms "trade "patent" are interchangeable in this context. 24 secret" and The threshold requirement for obtaining reasonable royalty damages is a showing that the defendant "actually put the trade secret to some commercial use." Id. at 539. "Employing the confidential information in manufacturing, production, research or development, marketing goods that embody the trade secret, or soliciting customers information, all through constitute the use." use 02 of Micro trade Int^l secret Ltd. v. Monolithic Power Sys., Inc., 399 F. Supp. 2d 1064, 1072 (N.D. Cal. 2005), amended sub nom. 02 Micro Int'l Ltd. v. Monolithic Power Sys., Inc., 420 also Bishop v. F. Miller, Supp. 412 2d 1070 (N.D. S.W.3d 758, 775 Cal. 2006); see (Tex. App. 2013) (commercial use includes uses where defendant "seeks to profit from the use of the secret," even if those efforts are unsuccessful (emphasis in original)). Assuming the plaintiff can show such use, to calculate the "fair licensing price" that constitutes the reasonable royalty, the trier of fact should consider such factors as the resulting and foreseeable changes in the parties' competitive posture; that prices past purchasers or licensees may have paid; the total value of the secret to the plaintiff, including the plaintiff's development costs and the importance of the secret to the plaintiff's business; the nature and extent of the use the defendant intended for the secret; and finally whatever other unique factors in the particular case which might have affected the parties' agreement, such as the ready availability of alternative processes. 25 Univ. Computing, 504 F.2d at 539. These general factors are consistent with the recognition that reasonable royalty damages- like all trade secret with the commercial misappropriation setting of the damages—should injury, the "accord likely future consequences of the misappropriation, and the nature and extent of the use the defendant put the trade secret to after misappropriation." Id. at 538.® Steves' arguments as to Jarosz's reasonable royalty calculations in Scenario Three are unpersuasive. The first—that the reasonable royalty is improperly based on Steves' future use of the trade secrets instead of its actual, past use—has been addressed above, both independently and in the context of unjust enrichment damages. calculations do Steves not focus emphasizes on "the nature that and Jarosz's extent royalty of the use the defendant intended for the secret," as they should, because the Counterclaims allege trade secrets to conduct only that Steves intended to the Feasibility Study, and use the not for anything else. Univ. Computing, 504 F.2d at 539. As discussed, this assertion misreads the Counterclaims' allegations, and disregards evidence that creates a genuine dispute about Steves' ® Texas courts interpreting reasonable royalty damages available under the TUTSA have applied University Computing in the same way that federal courts have. See Sw. Energy Prod., 491 S.W.3d at 711-12; TMRJ Holdings, Inc. v. Inhance Techs., LLC, S.W.3d , 2018 WL 326421, at *5-6 (Tex. App. Jan. 9, 2018). 26 intentions for using the misappropriated trade secrets, as well as the actual uses to which they have put those trade secrets. Moreover, Steves focusing the asks by Court on this to factor ignore above all University others, Computing^ s recommendation to take a "flexible and imaginative approach to the problem of damages" and account for a variety of factors. Id. at 538-39. If anything, considering Steves' future uses is even more Scenarios states appropriate One that or for Two, "the Scenario since Three University likely future than it Computing is for explicitly consequences of the misappropriation" should be considered in deciding on the proper measure of reasonable royalty damages. Id. at 538; see also W.L. Gore & Assocs., Inc. v. GI Dynamics, Inc., 872 F. Supp. 2d 883, 893 (D. Ariz. 2012) (denying summary judgment because reasonable royalty calculation development but coincidences," accounted did and "not rely because in part for a series on "future risk was future of priced product fortuitous into the [present] value of the secrets"); TMRJ Holdings, 2018 WL 326421, at *5 expert (affirming testimony misappropriated reasonable that technology royalty award "contemplated into the that the future"). was use A based of on the reasonable royalty is by definition forward-looking because it contemplates a negotiation based on how the licensee will use the licensed information. Accordingly, it is appropriate to "incorporate both 27 the future earnings of the tortfeasor and the loss of revenue and future worth to the owner in determining the present value of the technology" for royalty purposes. TMRJ Holdings, 2018 WL 326421, at *6. Because the likelihood of Steves' future uses is supported by the evidence and is a clear factor in the reasonable royalty analysis, Scenario Three could properly rely on those potential uses as part of its calculations. Steves' second assertion, that Jarosz cannot assess the royalty rate with reasonable certainty, is mostly a retread of its first argument. This argument is somewhat misplaced to begin with, because determining a reasonable royalty is "by nature an approximation because [JELD-WEN] did not offer its [trade secrets] for sale" to Steves. Check 'n Go, 2005 WL 1926609, at *4. Both of the quantitative methods used in Scenario Three account for what the parties likely would have focused on during a negotiation at the time the misappropriation began: other comparable licenses; the substantial value of the trade secrets to JELD-WEN, learn those secrecy; including secrets and the and Steves' the development measures intended uses costs it for took the it to expended ensure to their misappropriated information, in connection with both the Feasibility Study and other potential uses, like negotiating with doorskin suppliers or taking steps towards actually building a manufacturing plant. Jarosz Rebuttal Report SI 111; see also Univ. Computing, 504 F.2d 28 at 539. Moreover, Steves is already a close competitor of JELDWEN in the doors market, and their competition would only increase if Steves eventually began operating its own doorskin plant based on the trade secrets. This "competitive posture" justifies a higher royalty rate than Steves might prefer. Univ. Computing, 504 F.2d at 539. Finally, Jarosz applied a 12% discount rate in recognition of uncertainty about Steves' future use of the trade secrets. Jarosz Rebuttal Report also W.L. Gore 60-61; see & Assocs., 872 F. Supp. 2d at 891 (possibility that product would never be brought to market did not render trade secrets valueless, since "[a] product that would be worth a billion dollars were it to reach the marketplace, but which has only a 20% chance of reaching the marketplace, may still be valued at $200 million by discounting the chance of failure from the present value of a marketable product"). Jarosz and Wallace may disagree about the appropriate discount rate to be applied here, see Jarosz Rebuttal Report SI 60, but that dispute does not make summary judgment appropriate. In addition, combines the that different the incremental circumstances benefits underlying approach Scenarios One and Two does not undermine Jarosz's calculations. Both scenarios are supported enrichment extent that by and the evidence, reasonable scenarios so Jarosz royalty are could damages under inconsistent, 29 calculate the each. jury unjust To is the well equipped to evidence that according decide to is which one presented their is at more trial, likelihood of consistent or to with apportion occurrence, as the them JELD-WEN suggests. Steves contends that Jarosz's failure to disclose this possibility in the Report is a violation of Fed. R. Civ. P. 26(a)(2)(B)(i), but that argument is difficult to follow. That provision requires that expert reports contain "a complete statement of all opinions the witness will express and the basis and reasons for them." But there would be no reason for Jarosz to have indicated in his Report which scenario is more likely, and it would be improper for him to replace the factfinder as the one tasked with doing so. Therefore, Steves' argument fails. Finally, Steves appears to criticize Jarosz for concluding that a lump-sum reasonable royalty is most appropriate here. See Jarosz Report f 265. A reasonable royalty can be paid out in different ways, including a "lump-sum royalty based on expected sales or a running royalty based on a percentage of actual sales." LinkCo, Inc. v. Fujitsu Ltd., 232 F. Supp. 2d 182, 188 (S.D.N.Y. 2002). dependent upon However, "the what proper form of the royalty is would have been the most likely agreement during the hypothetical negotiation." Id. Evidence of Steves and JELD-WEN's payment competitive is negotiations. a relationship possible Jarosz outcome Rebuttal 30 indicates of that their Report ^ 91 a lump-sum hypothetical ("'In some negotiations the two parties . . . are adversaries and do not want to work with each other because of a lack of trust or other issues. This situation would favor a lump sum agreement.'" (quoting Richard Razgaitis, Valuation and Pricing of TechnologyBased Inc. Intellectual V. 8849699, Emirates at Property NBD *13 Bank (C.D. 297 (2003))); PJSC, Cal. No. June see also InfoSpan^ SACV111062JVSANX, 2016 WL 8, 2016) ("[A] one-time arrangement would avoid the necessity of monitoring an ongoing relationship given the evident distrust which had grown up."). Jarosz also identified several comparable licenses that resulted in lump-sum payments. See Jarosz disputes, the jury must decide Report what the 1 226. proper Given these payment method for any royalty should be. See LinkCo, 232 F. Supp. 2d at 188. E. Effect of JELD-WEN's Request for Injunctive Relief Steves asserts that the injunctive relief sought by JELDWEN precludes it from also seeking damages that incorporate any harm from Steves' future the primary relief uses of the trade sought by JELD-WEN is secrets. As noted, damages for Steves' actual use of the trade secrets, as well as injunctive relief to prevent Steves from using the trade secrets in the future. If that injunctive relief is infeasible, JELD-WEN alternatively requests a running royalty for Steves' future uses of the trade secrets. According to Steves, JELD-WEN's stance here completely changes the relief sought, and—besides violating Rule 26(a)(1)— 31 -would allow JELD-WEN to recover damages based on future uses that, if injunctive relief is granted, would never occur. This sort of double recovery, Steves says, is unprecedented. This argument merely repackages Steves' contentions about the basis of Jarosz's calculations, which the Court has rejected above. The crux of Steves' assertions here is that the unjust enrichment entirely related and on to reasonable future harm injunctive uses that relief. royalty of the would damages trade only But, both secrets, occur again, are in this so the based they absence are of characterization misunderstands the evidence in the record and the scope of JELDWEN's counterclaims. Significant portions of Jarosz's scenarios are predicated Steves' work on uses beyond that the have already Feasibility occurred, Study including to build a manufacturing plant or investigate the possibility of doing so; its avoidance learn the of expensive doorskin information to research industry; negotiate and better and its development possible doorskin scenarios consider potential future uses. use costs of prices.® to pricing All three However, they do so ® The disconnect between how JELD-WEN has framed its damages theories and what Steves perceives also undermines its challenge based on Rule 26(a)(1). The scope of damages that JELD-WEN is seeking has not changed from its Rule 26(a)(1) disclosures; Steves just understands "past use" in a much narrower way than JELD-WEN does, even though Steves' reading is mostly inconsistent with the evidence. 32 not as the foundation for their calculations, but rather for the purpose of calculating the present value of the misappropriated trade secrets, which is affected by potential future uses that may or may not occur. Thus, although Jarosz's scenarios "contemplate[] the use of the misappropriated [information] into the future," the resulting damages are "not based on actual future use of the trade secret. Instead, they compensate purely for the misappropriation present value regardless Holdings, because of based WL JELD-WEN licensed, sold, injunctive in whether 2018 326421, or the part that "never relief of not potential c[o]me[s] *5-6. intended otherwise is on use at [information], As [its used by duplicative a for to a of future a use, particularly secrets] third the has fruition." TMRJ result, trade which to party," damages be id., sought because those two forms of relief will remedy different types of harm here. Thus, the Court will not grant summary judgment on this basis. F. Effect of Second Amended Trial Statement Steves contends calculations are now of trade as a last resort that Jarosz's damages worthless to the jury because the removal secrets in the Second Amended Trial Statement has made JELD-WEN's actual damages impossible to decipher using Jarosz's methods. This argument depends entirely on which trade secrets Jarosz considered in assessing damages, and whether those trade 33 secrets remain in the Second Amended Trial Statement. Accordingly, the Court must examine Jarosz's reports with some scrutiny to decide if summary judgment on these grounds is justified. Before describing his damages scenarios, Jarosz stated his general understanding that there is a "critical mass" to the utility the Trade Secrets provide. While each Trade Secret does provide some value individually, once the user has a sufficient number of Trade Secrets, in aggregate, they provide a significant level of knowledge and know-how to derive meaningful and substantial benefits. In other words, the value of an individual Trade Secret often depends on what the other important variables are, and therefore, awareness of a sufficient number of them provides Steves with that "critical mass" of knowledge and know-how. Jarosz Report f 74 statement as (footnotes practically omitted). dispositive, but Steves it is views this important to note that Jarosz made this observation in the background section of his Report, and not in reference to any particular unjust enrichment or reasonable royalty calculations. The Scenario secrets Report One. relate is vague However, to about context which makes manufacturing trade secrets support clear that those trade information that would allow Steves to reduce its per-skin input costs. See id. SI 158 ("The Trade Secrets cover, among other things, decreasing the skin thickness without reducing quality, the exact resin content that 34 should be used, the exact primer volume that should be used, and cost savings from producing primer in-house."); id. SISI 169-70. Moreover, Jarosz clarified that Scenario One "quantifie[s] the gains associated only with the process-oriented Trade Secrets," which "relate to door skin thickness, resin, and primer." Jarosz Rebuttal Report SI 118 (emphasis added). Subsequent paragraphs identified the contents of those exact "process-oriented" trade secrets. See does not id. SISI 119-21; see also id. SI 122 ("[M]y analysis quantify the gains from other process-oriented Trade Secret information related to wood, resin, and primer. Nor does it quantify the gains from other process-oriented Trade Secret information not unrelated to quantify the wood, resin, gain from the and primer. And it does financial information."). Given this description, the Trade Secrets parties agree that Scenario One relies on four trade secrets, all of which are in the Second Amended Trial Statement: Nos. 24, 26, 27, and 47. See EOF No. 1304-4 at 18-20, 29. The Report is similarly ambiguous about which trade secrets provide the stated that foundation "[t]he for Trade comprehensive blueprint to the Amended entire Scenario Secrets the Trial door Two. For provided skin Statement example, Steves Jarosz with a business," but cited in support. Jarosz Report f 173 & n.344. Nonetheless, he indicated that the theory depends on "the financial Trade Secret information." Id. SI 174 35 (emphasis Scenario added). Two in He the used an identical Rebuttal Report, and phrase in listed discussing the specific trade secrets in the same way as with Scenario One. See Jarosz Rebuttal Report SI 123; id. SI 124 ("[M]y analysis does not quantify the gains from other financial Trade Secret information related [to] per skin plant specific costs. Nor does it quantify the gains unrelated quantify from to per the relies skin gains information."). Two other on financial plant from specific the Consequently, twelve trade Trade Secret costs. And process-oriented the parties secrets that it does Trade agree that remain Amended Trial Statement: Nos. 36, 37, 38, 44, information in not Secrets Scenario the Second 45, 46, 47, 48, 49, 50, 51, and 52. S^ EOF No. 1304-4 at 25-26, 28-30; JELD-WEN Suppl. 0pp. (EOF No. 1351) (Under Seal) at 6 & n.2. As JELD-WEN points out, Jarosz also considered three other trade secrets—Nos. Jarosz noted 1, that 2, and Steves 3—in could calculating use the Scenario Two. misappropriated information, which included per-skin costs (in the trade secrets noted Nos. above) 1-3), and to plant-by-plant argue that capacities JELD-WEN should (in trade allow secrets Steves to purchase doorskins under the Supply Agreement using the per-skin cost of the plant that was producing doorskins most cheaply. Jarosz Report SI 176; see also Jarosz Rebuttal Report SI 74. 36 Finally, as to Scenario Three, the incremental benefits approach is derivative of Scenarios One and Two, and detailed how that improvements" and approach "financial above. Jarosz Report the licensing Report. stated See comparables the Trade on the Secret same "process information" noted 195, 201. The trade secrets underlying id. 1 202. that depends Jarosz total approach However, are in reasonable not the apparent from the Reply royalty Report, calculation Jarosz (reached after merging the incremental benefits and licensing comparable analyses) is "based on the value of the process-related Trade Secrets that [he] could quantify, the process-related Trade Secrets that [he] was unable to quantify, and financial-related Trade Secrets"—in other words, all (or some significant portion of) the trade secrets. Jarosz Rebuttal Report 1 125. He noted that "[a]ssigning economic value to individual secrets in an IP license covering multiple IP assets is extremely difficult" because "a party is typically paying for access to a field of knowledge," not specific IP assets. Id. 1 126. As a result, agreements often "treat the terms of the license, including the royalty rate, as constant, even as some of the portfolio of IP expands or contracts over time." This reality was consistent with Jarosz's "critical mass" framework, at least with respect to Scenario Three. Id. 11 131-32. However, Jarosz also explained that the reasonable royalty can 37 be allocated "between the process-oriented and financial Trade Secret information. Since the gains financial to Steves Trade related Secret to the information process-oriented is roughly and equal, the Reasonable Royalty would be apportioned equally between the two categories." Id. SI 133. 1. Unjust Enrichment To the extent that Steves' supplemental briefing touches on the effect of the removal of trade secrets on the viability of Scenarios One and Two, those arguments do not demand significant attention.^® As noted, Jarosz indicated in his reports that those two theories were based solely on a total of fifteen specific trade secrets, all of which are still part of the case. Even if those underlying trade secrets were not clearly disclosed in the Report, Jarosz clarified any ambiguity in the Rebuttal Report, and Steves' analysis of Statement reflects its generally JELD-WEN arguments assertions EOF is No. about as redlined Second Amended Trial understanding of Jarosz's guidance. 1304-4 right only the that to (correctly Steves Scenario collective identifying, asserted Three. valuation its with on one disaggregation Nonetheless, bear See both Steves' reasonable royalty and unjust enrichment, and its opening supplemental brief hints at the possibility that Jarosz's failure to allocate damages between trade secrets could affect Scenarios One and Two. See Steves Suppl. Br. (EOF No. 1304) (Under Seal) at 4. Moreover, the supplemental briefing implicates other pertinent aspects of Jarosz's unjust enrichment theories. Accordingly, the Court will address these arguments despite Steves' failure to clearly raise the issue in its briefing. 38 exception, the trade secrets underlying Scenarios One and Two). Consequently, the filing of the Second Amended Trial Statement has not "left reasonable [the basis, to damages." 02 Micro JELD-WEN can jury] without determine Int^l, establish 399 that sufficient [JELD-WEN's] F. Supp. all the 2d evidence, unjust or a enrichment at 1077. Assuming information underlying Scenarios One and Two is a trade secret and was misappropriated, Jarosz's analysis will allow the jury to determine unjust enrichment damages. Steves makes two last-ditch attempts to undermine these damages scenarios, but neither is convincing. First, it contends that JELD-WEN has conceded that the information in trade secret Nos. 1, 2, and 3—which Jarosz relies on in part for his Scenario Two calculations—does not, in fact, constitute trade secrets. In support of this assertion, Steves points to a statement by JELD- WEN's counsel at the recent post-trial remedies hearing in the antitrust case about the design capacities of JELD-WEN's doorskin plants. See Apr. 11 Transcript at 328:9-13 ("There [is] design capacity, which is . . . almost a theoretical number of what a plant is capable of doing. That number, we believe, is out in the ethos partially because you have companies . . . like Dieffenbacher who build these lines."). However, Steves ignores the difference between the capacities asserted as trade secrets in Nos. 1 through 3 and the capacities discussed at the remedies 39 hearing. The remark at the remedies hearing explicitly referred to the general knowledge of design capacities that are "almost a theoretical number of what a plant is capable of doing," id. at 328:9-11 (emphasis added), which is not the same as the "actual capacity that [JELD-WEN's plants] have been running at," id. at 329:19-20 (emphasis added). JELD-WEN's counsel reiterated that the latter was claimed as a trade secret. Accordingly, the statement at the remedies hearing does not operate as a waiver of JELD-WEN's claim to design capacities as trade secrets. Second, recycling arguments from its original summary judgment briefing, Steves insists that Jarosz did not quantify or rely on Steves' avoided costs for Scenarios One and Two. The Court has already addressed this issue above. See supra Section II.C. However, even Court does not find first time around. considering misappropriated them any more Jarosz's trade Steves' contentions compelling Report explains secrets would than here, the it did the in detail how the allow Steves to avoid certain capital and operating expenditures. With respect to the latter type of expense, Jarosz sought to quantify the savings associated with, for instance, doorskin thickness, resin content and percentage, primer application, and optimal plant inventory. See Jarosz Report fSI 132-51. His calculations in Scenarios One and Two are replete with citations to key developments based on JELD-WEN's research, necessarily 40 implying that Steves avoided the costs it advances. See^ would have otherwise incurred to realize these e.g., id. S[ 160 ("With JELD-WEN's knowledge that door skins without compromising quality, Steves can 1."); id. f 161 ("Through R&D trials, JELD-WEN . knowledge, Steves With this would achieve beginning its production |."); id. 1 163 ("[W]ithout knowledge of the target, Steves would likely |. . . . Steves would [therefore] be able to start its production at id. f 173 ("Steves learned the exact profitability of door skin plants of various sizes and configurations, the costs of various inputs by location, which activities have worked and which have not, potential avenues for cost savings, potential vendors, and much more."). JELD-WEN admits that Steves' avoided costs are not identical to the discover its id. SIf 126-51. correlation defendant's development trade Yet between avoided costs secrets. Steves a Compare cites no plaintiff s costs, and expended cases JELD-WEN fSl 79-119 requiring development Jarosz's 41 id. by a with perfect costs calculations to can and a still be seen as incorporating Steves' unjust gains even if those figures are different. Thus, given the Report's references to avoided costs, quantified nor Steves is wrong considered to such claim costs that in Jarosz neither calculating unjust enrichment damages. Consequently, summary judgment on Scenarios One or Two is not appropriate. 2. Reasonable Royalty Unlike with those two scenarios, Steves says, the removal of trade secrets has a more noticeable impact on Scenario Three. Steves whether argues that applying Jarosz's the calculations incremental under benefits that or theory, licensing comparables approaches, depend on Steves having misappropriated some "critical mass" of trade utility to Steves secret lacked Report SI 74. as an aggregate significant However, secrets that unit, individual because some provided even if value. trade a certain each See secrets trade Jarosz have been eliminated in the Second Amended Trial Statement, according to Steves, there is no way to determine with any certainty whether the remaining sixty-seven trade secrets establish the "critical mass" underlying Jarosz's $9.9 million reasonable royalty calculation. Steves relies International and Industries, Inc., almost E.I, No. du entirely Font de on two Nemours cases, & Co. 3:09CV58, 2011 WL 4625760 (E.D. 42 02 Micro v. Kolon Va. Oct. 3, 2011), in support of this argument. In the first, the plaintiff's expert calculated unjust enrichment damages based on the misappropriation of twelve trade secrets, but the jury found that only five trade secrets were misappropriated and awarded unjust enrichment damages for only one trade secret. Considering the expert's aggregate calculations, the court granted judgment as a matter of law because "the jury's award of unjust enrichment damages was based on speculation and guesswork, not on evidence." 02 Micro Int'l, 399 F. Supp. 2d at 1077. Similarly, in Kolon Industries, the plaintiff's damages expert— coincidentally, also enrichment damages identical to the misappropriation Jarosz—had for plaintiff s same claim, confidential information concluded did conversion damages even that claim for its jury found not constitute trade if the the unjust would be trade secret that certain secrets. 2011 WL 4625760, at *9. The Court rejected the underlying premise of Jarosz's approach—that misappropriated information will have the same value whether or not it is a trade secret—because the Court recognized that, "if the jury finds that all, or some of, the information obtained by [defendant] is not a trade secret, then it will necessarily have concluded that, even if the converted information is confidential, it has been stripped of some, or all, of its value as a trade secret." Id. Given this fundamental problem with Jarosz's analysis, the Court granted judgment as a 43 matter of law because the jury would "simply be guessing" at the proper damages amount for conversion of information that did not qualify as a trade secret. Id. As an initial matter, it is not certain that Steves' argument even applies to both approaches in Scenario Three. The "critical mass" language that Steves cites prominently appears in the background section of the Report, and not in any of the Report's calculations. Jarosz may have had that idea in the back of his mind as a general proposition, necessarily make summary judgment description of Scenario Three reasonable royalty analysis. but that appropriate presented if a This contrast is would his more not detailed concrete relevant to the incremental benefits approach, which plainly depends on Jarosz's calculations discussing Secrets" in in the "process the Jarosz stated Steves to business," Scenarios reduce and of "the its and an Trade to For Secret the to the benefits information expenses same instance, related incremental operating cites Two. improvements context that One tab once of his Trade analysis, will it when allow enters Report the that calculates Scenario One cost savings. See Jarosz Report ff 194- 94 & n.373 (emphasis added). Likewise, Jarosz used identical language from Scenario Two to describe how "the financial Trade Secret dealing information with its has given Steves suppliers." 44 See negotiating leverage id. fSt 199-200 in (emphasis added). Given these similarities, it is reasonable to infer that Jarosz simply imported Scenarios One and Two into the reasonable royalty context and used the same fifteen trade secrets from those theories to calculate a royalty rate. If this reading is proper, then the incremental benefits approach should survive summary judgment for the same reason as Scenarios One and Two. However, Jarosz's reports do not lend themselves to such a straightforward interpretation. In the Rebuttal Report, Jarosz— discussing combining the the total reasonable incremental approaches—said that royalty benefits and figure reached licensing after comparables he "quantified the appropriate Reasonable Royalty based on the value of the process-related Trade Secrets that [he] could quantify, the process-related Trade Secrets that [he] was unable to quantify, and financial-related Trade Secrets." Jarosz Rebuttal Report SI 125. He did not specify which trade secrets this statement included, and it can be fairly read as including Amended most, Trial reiterated comparables that if not Statement. his all, of Several the trade secrets paragraphs later, "approach"-again, approach, the incremental possibly benefits the in the Jarosz licensing approach, or both—was "consistent with the ^critical mass' analysis" from the Report. Id. SI 132. This is the only other reference to a "critical mass" besides in paragraph 74 of the Report, but it renders uncertain the foundation of both approaches in Scenario 45 Three. Even though the incremental benefits approach could be based only on the fifteen trade secrets given the language of the Report, no reasonable reader could be confident in that conclusion after seeing the two paragraphs above in the Rebuttal Report. As a result, the Court will consider the incremental benefits approach in the same light as the licensing comparables approach for purposes of resolving Steves' motion. Despite this ambiguity, Steves' contentions are unpersuasive. Even assuming that Jarosz considered all or most of the trade conducting analyses, prevent secrets the the the in the incremental removal jury of from Amended benefits some of and the determining Trial Statement licensing trade the when comparables secrets applicable does not reasonable royalty. As Jarosz explained, the exact number of trade secrets was not critical to Scenario Three, as a party paying for an intellectual property license like the theoretical one here "is typically paying for access to a field of knowledge, not knowing which IP assets will be terms of that license subject to the this their logic, removal, would license the removal are most important." Id. SI 126. Thus, the stay fixed change of even over time. trade as See IP id. i 131. secrets—which, presumably of minimal the value by to assets Using virtue of JELD-WEN—is unlikely to affect the royalty rate or anything else about the reasonable royalty calculated in Scenario Three. 46 This uncertainty is not nearly as problematic in the reasonable royalty context as it would be with unjust enrichment damages. Indeed, "[w]hen royalty, the damages calculation approximation and are based ^necessarily uncertainty. '" W.L. upon involves Gore & a reasonable an element Assocs., 872 of F. Supp. 2d at 893 (quoting Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 517 (Fed. Cir. 1995)). Moreover, doubts about particular damages figures should be resolved by the jury, not the Court, as long as Jarosz's reports and testimony gives the jury enough direction. See Univ. Computing, 504 F.2d at 545/ W.L. Gore & Assocs., 872 F. Supp. 2d at 892-93. Jarosz has done just that. His reports show that his two reasonable royalty approaches are based on process and financial trade secrets that he could quantify, information that Report f 125. reasonable and he In royalty are could not addition, could supplemented quantify. Jarosz be even apportioned by See process-related Jarosz suggested equally Rebuttal that the between the process and the financial trade secrets, "[sjince the gains to Steves related Secret information even if to JELD-WEN process-related the is process-oriented roughly could not information and financial equal." Id. f 133. show at constituted trial trade that Trade Accordingly, all of its secrets or was misappropriated, the jury could still apply Scenario Three to 47 calculate damages if the financial information qualified as trade secrets, or vice versa. 02 Micro International and Kolon Industries do not support a different conclusion. Indeed, in 02 Micro International, the court rejected expert's estimate the exact collective if some argument valuation trade pressed dooms secrets cannot by a be Steves: that reasonable established an royalty at trial. The court noted that the expert had "determined that the parties in a hypothetical negotiation would agree to a $900,000 paid-up reasonable royalty apparently including misappropriated. 02 for any a group Micro one group of the jury that Int'l, 399 F. trade found Supp. 2d at secrets," had been 1077-78. Here, as in that case, the standard with respect to reasonable royalty damages is considerably more lenient, to recognize Jarosz's well-defined and Steves fails process and financial categories as the "groups" they are. Therefore, notwithstanding the removal Statement, of Jarosz trade has secrets provided in an the Second adequate Amended framework to Trial allow For this reason, the Court's holding in Kolon Industries is also inapposite, as the unjust enrichment damages in that case had to be proved with more certainty than the disputed reasonable royalty damages here. 48 the jury to calculate an appropriate reasonable royalty • trial, and surainary judgment on those grounds will be denied. at 12 CONCLUSION For INC.'S the MOTION foregoing FOR reasons, SUMMARY PLAINTIFF JUDGMENT ON STEVES JELD-WEN AND SONS, COUNTERCLAIMS (ECF No. 885) was denied as to those arguments about JELD-WEN's trade secret misappropriation damages claims made by Steves in its original briefing and in its supplemental briefing. It is so ORDERED. /s/ Robert E. Payne Senior United States District Judge Richmond, Virginia Date: May (O, 2018 Having declined to grant summary judgment on damages sought under Scenario Three, the Court will not address JELD-WEN's arguments about the independent relevance of the fifty-two trade secrets that Jarosz considered as part of Scenario Three but not as part of Scenarios One and Two. 49
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