U.S. Court of Appeals for the Second Circuit Ruling Restricts Trade Secret Damages

July 20, 2023

This May in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., Inc., the U.S. Court of Appeals for the Second Circuit ruled on the availability of damages in cases involving trade secrets under the Defense Trade Secrets Act (the “DTSA”).

The dispute in Syntel involved the theft of a trade secret related to healthcare insurance software against a rival software company. The Second Circuit affirmed the lower court’s finding that Syntel stole trade secrets from TriZetto under the DTSA, but the Second Circuit vacated the jury’s $285 million award for compensatory damages for avoided development costs, i.e., the costs the trade secret holder spent which the thief of the secret saved.

Typically, under the DTSA, avoided costs are recoverable as damages for unjust enrichment. But in Syntel, the Second Circuit vacated the jury’s award of avoided costs, reasoning that such damages are only available when a party’s injury “is not adequately addressed by lost profits”.

The Restatement (Third) of Unfair Competition and most States have adopted a rule that allows avoided costs as a damages measure in trade secret cases. New York is the only state that has not passed a version of the Uniform Trade Secrets Act (“UTSA”) that explicitly allows avoided cost damages. As New York is a major hub of nearly every industry, many are urging New York to finally pass legislation following the USTA and ensure that parties have equal access to equitable remedies.

To read the full opinion in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., Inc., click here.

To read how Castaybert PLLC can assist you in employment and IP trade secret matters, click here and here.