Broad Injunctive Relief and Damage Award for Misappropriation of Trade Secrets Upheld

Considering a jury verdict holding that the defendants had misappropriated the plaintiff’s trade secrets by using the plaintiff’s source code to create competing audio conferencing products, the U.S. Court of Appeals for the Tenth Circuit affirmed the judgment for the plaintiff and scope of injunctive relief and the award of exemplary damages.  ClearOne Communications, Inc., v. Bowers, et al., Case No. 09-4092, et al. (10th Cir., June 27, 2011) (Briscoe, J.)

ClearOne Communications filed sued against multiple defendants, including former employees,claiming, among other things, that the defendants had misappropriated its trade secrets by using the company’s Honeybee source code to make their products.  ClearOne alleged that former employees established their competing company using trade secrets obtained from ClearOne.  A jury found that the defendants had willfully and maliciously misappropriated ClearOne’s trade secrets and awarded ClearOne millions of dollars in damages.  The district court later permanently enjoined defendants “from disclosing, using or transferring in any way the trade secret owned by … [Plaintiff] … called the Honeybee Code (including its unique algorithms or sub-algorithms that are not in the public domain), whether in the form of source code, object code, or any other form, and any code or product substantially derived from the Honeybee Code, as well as disclosing, using, or transferring in any way the product development documentation for the Honeybee Code or any other documentation that revels the contents of the Honeybee Code.”  Later, the district court found that the defendants, in connection with multiple related parties, had violated the terms of the permanent injunction. Accordingly, the district court expanded to scope of the permanent injunction to include the activities of the related parties.  The defendants appealed.

In the ensuing appeal, the 10th Circuit ruled on 12 consolidated appeals.  The defendants argued that the district court erred and abused its discretion in the scope of the injunctive relief awarded to ClearOne because the relief was not limited in “geographic, temporal, or prohibitive scope.”  The defendants also argued that the district court’s post-verdict damage award, including an award of exemplary damages that was double the actual damages awarded by the jury, was impermissibly excessive. 

The 10th Circuit affirmed the trial court’s decision, holding that the lack of temporal restrictions on the permanent injunctive relief did not constitute an abuse of discretion and found that defendants’ “post-trial contemptuous conduct” supported the injunction’s unlimited duration since ClearOne “had established a cognizable danger that the [the defendants] would commit future violations.”  Further, the 10th Circuit observed that because ClearOne was likely to encounter problems collecting on the monetary judgments entered in its favor, the injunctive relief was likely the more meaningful remedy. 

Finally, the court found that the district court did not abuse its discretion by awarding exemplary damages that were double the amount of actual damages imposed by the jury.