The Southern District of New York vacates nearly $200 million in damages after remand from Second Circuit

On March 13, 2024, in Syntel Sterling Best Shores Mauritius Ltd. v. The TriZetto Group Inc., the Federal District Court in the Southern District of New York vacated a 9-figure damages award for TriZetto on its trade secret and copyright claims. This decision leaves TriZetto with no damages award for the violation of its trade secrets, despite a jury verdict that Syntel misappropriated TriZetto’s trade secrets and infringed its copyright. The District Court did, however, award TriZetto $14 million in attorneys’ fees. Curiously, a $275 million punitive damages award seems to remains intact because Syntel did not challenge the punitive damages award on appeal and that award is not within the scope of the Second Circuit’s remand.

The District Court originally upheld the jury verdict of $285 million in unjust enrichment damages because it believed that Syntel was unjustly enriched by that amount due to a perceived head start arising from Syntel’s trade secret misappropriation. On appeal, the Second Circuit disagreed, finding that TriZetto was not entitled to an unjust enrichment award because TriZetto suffered an actual loss, a loss that was sufficient to compensate TriZetto for the harm caused by Syntel’s misappropriation. The Second Circuit remanded the case to the District Court so that it could address the propriety of the two remaining jury awards totaling over $200 million based on a reasonable royalty theory of recovery. One award was based upon violation of a New York trade secrets law, and the other was based upon copyright infringement.

On remand, the District Court vacated the jury’s additional damages awards. In its view, a reasonable royalty for trade secret misappropriation or copyright infringement “is not an appropriate measure of damages because it does not restore the plaintiff to the position it would have been in but for the infringement.” (internal quotation omitted).

The District Court also vacated the Copyright damages award because there was a lack of evidence that $59 million was a reasonable licensing fee for a use that earned $27 million in revenue and less than $1 million in profit.

Despite its loss of the awarded damages, TriZetto did prevail on its claim for a significant award of attorneys’ fees. The District Court awarded over $14.5 million in fees pursuant to the Federal Defense of Trade Secrets Act. The District Court did not try to disentangle the fees incurred prosecuting the trade secret claim from the copyright claim because the District Court concluded that they were based on a common core of facts.

Curiously, a $275 million punitive damages award seems to remains intact because Syntel did not challenge the punitive damages award on appeal and the punitive damages award is not within the scope of the Second Circuit’s remand. Further briefing is expected on this issue from the parties.

The District Court seemed sympathetic to the fact that, despite the “malicious and wanton” misappropriation, TriZetto could not recover any compensatory damages. In fact, the District Court effectively acknowledged that its decision seemingly punishes TriZetto by depriving it of any damages despite “the jury’s clear view about the harm to TriZetto and the maliciousness of Syntel’s conduct.” The District Court also noted that its ruling on damages, which was informed by the Second Circuit’s opinion in the same case, was at odds with a 2020 decision from the 7th Circuit, which may have (mis)guided TriZetto in formulating its damages case. The difference in approach is based upon the question of whether and to what extent avoided development costs can be included as part of a damages award, with New York law apparently less permissive in this area than the law of Wisconsin.

This decision amplifies how careful trade secret plaintiffs must be in presenting damages and structuring proposed verdict forms. In light of this decision, litigants will be more cautious about asking the jury to reach a decision on every damages theory separately, and that every damages theory be adequately supported by the evidence.

There is little doubt that the Syntel case will be making a second trip to the Second Circuit. It is likely that the Second Circuit will have to consider the proprietary of the decision to vacate the reasonable royalty damages awards, as well as whether the punitive damages award can remain intact in the event that there are absolutely no compensatory damages. We will continue to follow this case, and the case law the develops in its wake given its importance to understanding how trade secret plaintiffs pursue their damages cases.