E.J. Brooks Company,, Appellant-Respondent,v.Cambridge Security Seals, Respondent-Appellant.

Brief

N.Y.June 20, 2017

To be Argued by: HOWARD W. SCHUB (Time Requested: 30 Minutes) CTQ-2017-00003 United States Court of Appeals for the Second Circuit Docket Nos. 16-207 and 16-259 Court of Appeals of the State of New York E.J. BROOKS COMPANY d/b/a TydenBrooks, Appellant-Respondent, - against - CAMBRIDGE SECURITY SEALS, Respondent-Appellant. BRIEF FOR RESPONDENT-APPELLANT DANIEL J. FETTERMAN HOWARD W. SCHUB AMBER T. WALLACE KASOWITZ BENSON TORRES LLP Attorneys for Respondent-Appellant 1633 Broadway New York, New York 10019 Tel.: (212) 506-1700 Fax: (212) 506-1800 Date Completed: November 1, 2017 i RULE 500.1(F) DISCLOSURE STATEMENT There are no publicly held corporations that own more than 10% of the stock of Respondent-Appellant Cambridge Security Seals. ii STATEMENT OF RELATED LITIGATION There are no related cases to the knowledge of Respondent-Appellant Cambridge Security Seals. iii TABLE OF CONTENTS CERTIFIED QUESTIONS ACCEPTED FOR REVIEW ...................................... xii STATEMENT OF THE CASE .................................................................................. 1 STATEMENT OF FACTS ........................................................................................ 3 A. TydenBrooks Begins Losing Domestic Customers After Consolidating Domestic Security Seals Manufacturers ............................... 3 B. TydenBrooks Files Lawsuit Against CSS to “Slow Them Down” ............. 4 C. The Trial Court Permits TydenBrooks to Recover Non-Compensatory “Avoided Costs” as Damages for Every Claim .......... 7 D. Post-Trial Proceedings ...............................................................................10 ARGUMENT ...........................................................................................................11 I. New York Law Does Not Permit Non-Compensatory “Avoided Costs” Damages for Misappropriation of Trade Secrets or Unfair Competition .........11 A. New York Law Only Permits Compensation for Plaintiff’s Actual Losses ......................................................................12 B. Permitting “Avoided Costs” as Damages Would Negate Fundamental Principles of New York Law and Public Policy ..................27 C. Other Courts Do Not Support Permitting “Avoided Costs” as Compensatory Damages ........................................................................33 II. Prejudgment Interest Is Not Available on “Avoided Costs” Damages .........43 CONCLUSION ........................................................................................................54 iv TABLE OF AUTHORITIES CASES PAGE(S) 23/23 Commc’ns Corp. v. G.M. Corp., 257 A.D.2d 367 (1st Dep’t 1999) ................................................................. 45, 47 Aldridge v. Brodman, 100 A.D.3d 1537 (4th Dep’t 2012) ..................................................................... 18 Alexander’s Dep’t Stores v. Ohrbach’s, Inc., 269 A.D. 321 (1st Dep’t 1945) ........................................................................... 28 Allan Dampf, P.C. v. Bloom, 127 A.D.2d 719 (2d Dep’t 1987) ........................................................................ 16 Altavion, Inc. v. Konica Minolta Sys. Lab. Inc., 226 Cal. App. 4th 26 (Cal. 2014) ........................................................................ 51 American Elecs., Inc. v. Neptune Meter Co., 30 A.D.2d 117 (1st Dep’t 1968) ......................................................................... 16 American Elecs., Inc. v. Neptune Meter Co., 33 A.D.2d 157 (1st Dep’t 1969) ............................................................. 18, 21, 29 Ball v. United Artists Corp., 13 A.D.2d 133 (1st Dep’t 1961) ......................................................................... 20 Bamira v. Greenberg, 295 A.D.2d 206 (1st Dep’t 2002) ........................................................... 43, 44, 46 In re Barnes, 140 N.Y. 468 (1893) ........................................................................................... 49 Bethmann v. The Widewaters Grp., Inc., 306 A.D.2d 923 (4th Dep’t 2003) ....................................................................... 47 Biltmore Pub. Co. v. Grayson Pub. Corp., 272 A.D. 504 (1st Dep’t 1947) ........................................................................... 21 BioCore, Inc. v. Khosrowshahi, 183 F.R.D. 695 (D. Kan. 1998) .......................................................................... 41 v Boule v. Hutton, 320 F. Supp. 2d 132 (S.D.N.Y. 2004) ................................................................ 50 Bourns, Inc. v. Raychem Corp., 331 F.3d 704 (9th Cir. 2003) .............................................................................. 38 Brian E. Weiss, D.D.S., P.C. v. Miller, 166 A.D.2d 283 (1st Dep’t 1990) ................................................................. 18, 24 Brian E. Weiss, D.D.S., P.C. v. Miller, 78 N.Y.2d 979 (1991) ................................................................................... 21, 29 Burnham v. Burnham, 46 A.D. 513 (1st Dep’t 1900) ............................................................................. 33 Callaway Golf Co. v. Dunlop Slazenger Group Am., Inc., 01-cv-0669, 2004 WL 1534786 (D. Del. May 21, 2004) ................................... 41 Carbo Ceramics, Inc. v. Keefe, 166 F. App’x 714 (5th Cir. 2006) ................................................................. 37, 41 Cargill, Inc. v. Sears Petroleum & Transp. Corp., 03-cv-0530, 2004 WL 3507329 (N.D.N.Y. Aug. 27, 2004) .............................. 50 In re Chase Manhattan Bank, 16 Misc. 3d 1123(A), 2007 N.Y. Slip Op. 51552 (Surr. Ct. Monroe Cnty. Aug. 13, 2007) .......................................................................................... 44 Cicio v. City of N.Y., 98 A.D.2d 38 (2d Dept. 1983) ............................................................................ 17 Connaughton v. Chipotle Mex. Grill, Inc., 29 N.Y.3d 137 (2017) ......................................................................................... 19 Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777 (2012) ................................................................................... 26, 48 De Long Corp. v. Morrison-Knudsen Co., 20 A.D.2d 104 (1st Dep’t 1963) ......................................................................... 50 Delulio v. 320-57 Corp., 99 A.D.2d 253 (1st Dep’t 1984) ......................................................................... 50 vi Downes v. Culbertson, 153 Misc. 14 (Sup. Ct. N.Y. Cnty. 1934) ........................................................... 17 Duane Jones Co. v. Burke, 306 N.Y. 172 (1954) ............................................................................... 14, 24, 28 E.G.L. Gem Lab Ltd. v. Gem Quality Inst., Inc., 90 F. Supp. 2d 277 (S.D.N.Y. 2000) .................................................................. 22 E.I. DuPont De Nemours & Co. v. Kolon Indus., Inc., 564 F. App’x 710 (4th Cir. 2014) ....................................................................... 37 E.W. Bruno Co. v. Friedberg, 28 A.D.2d 91 (1st Dep’t 1967) ........................................................................... 18 Eighteen Holding Corp. v. Drizin, 268 A.D.2d 371 (1st Dep’t 2000) ....................................................................... 50 Electrolux Corp. v. Val-Worth, Inc., 6 N.Y.2d 556 (1959) ............................................................................... 17, 20, 22 Empire Fin. Servs., Inc. v. Bellatoni, 53 A.D.3d 1095 (4th Dep’t 2008) ....................................................................... 26 Evans v. City of Johnstown, 96 Misc. 2d 755 (Sup. Ct. Fulton Cnty. 1978) ................................................... 26 Florczak v. Oberriter, 50 A.D.3d 1440 (3d Dep’t 2008) ........................................................................ 19 General Rubber Co. v. Benedict, 215 N.Y. 18 (1915) ............................................................................................. 32 Gibbs v. Breed, Abbott & Morgan, 271 A.D.2d 180 (1st Dep’t 2000) ....................................................................... 19 GlobeRanger Corp. v. Software AG U.S.A., Inc., 836 F.3d 477 (5th Cir. 2016) .............................................................................. 38 Gomez v. Bicknell, 302 A.D.2d 107 (2d Dep’t 2002) ........................................................................ 19 vii Gostkowski v. Roman Catholic Church of Jesus & Mary, 262 N.Y. 320 (1933) ........................................................................................... 27 Gottesman v. Havana Importing Co., 72 N.Y.S.2d 426 (Sup. Ct. N.Y. Cnty. 1947) ............................................... 45, 46 Gressman v. Morning Journal Ass’n, 197 N.Y. 474 (1910) ..................................................................................... 12, 19 H.E. Allen Mfg. Co. v. Smith, 224 A.D. 187 (4th Dep’t 1928) ........................................................................... 16 Hertz Corp. v. Avis, Inc., 106 A.D.2d 246 (1st Dep’t 1985) ..................................................... 16, 21, 22, 30 Hillsley v. State Bank of Albany, 24 A.D.2d 28 (1st Dep’t 1965) ........................................................................... 50 Hyde Park Prods. Corp. v. Maximilian Lerner Corp., 65 N.Y.2d 316 (1985) ................................................................................... 13, 17 International Indus., Inc. v. Warren Petroleum Corp., 248 F.2d 696 (3d Cir. 1957) ......................................................................... 34, 38 J.B. Preston Co. v. Funkhouser, 261 N.Y. 140 (1933) ........................................................................................... 12 Johns-Manville Corp. v. Guardian Indus. Corp., 718 F. Supp. 1310 (E.D. Mich. 1989) ................................................................ 51 Kassis v. Teachers’ Ins. & Annuity Ass’n, 13 A.D.3d 165 (1st Dep’t 2004) ......................................................................... 43 Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90 (1993) ..................................................................................... 24, 25 Langer v. Miller, 305 A.D.2d 270 (1st Dep’t 2003) ....................................................................... 45 Lesjac Realty Corp. v. Mulhauser, 43 Misc. 2d 439 (Sup. Ct. Nassau Cnty. 1964) ...................................... 45, 48, 49 viii Lightlab Imaging, Inc. v. Axsun Techs., Inc., 469 Mass. 181 (Mass. 2014) ............................................................................... 35 LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d 492 (S.D.N.Y. 2002) ................................................................ 38 LinkCo, Inc. v. Fujitsu Ltd., 232 F. Supp. 2d 182 (S.D.N.Y. 2002) ................................................................ 37 Little Genie Prods. LLC v. PHSI Inc., 12-cv-0357, 2014 WL 3050326 (W.D. Wash. July 2, 2014) ............................. 51 Litton Sys., Inc. v. Ssangyong Cement Indus. Co., 107 F.3d 30 (Fed. Cir. 1997) ........................................................................ 33, 34 Lough v. Outerbridge, 143 N.Y. 271 (1894) ........................................................................................... 33 Lucini Italia Co. v. Grappolini, 01-cv-6405, 2003 WL 1989605 (N.D. Ill. Apr. 28, 2003) ................................. 34 M.D. Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753 (10th Cir. 2009) ............................................................................ 51 Manufacturers’ & Traders Trust Co. v. Reliance Ins. Co., 8 N.Y.3d 583 (2007) ........................................................................................... 49 MAR Oil Co. v. Korpan, 973 F. Supp. 2d 775 (N.D. Ohio 2013) ............................................ 34, 35, 39, 41 Matarese v. Moore-McCormack Lines, 158 F.2d 631 (2d Cir. 1946) ......................................................................... 37, 38 McRoberts Protective Agency, Inc. v. Lansdell Protective Agency, Inc., 61 A.D.2d 652 (1st Dep’t 1978) ................................................................... 16, 20 Men’s World Outlet, Inc. v. Estate of Steinberg, 101 A.D.2d 854 (2d Dep’t 1984) ........................................................................ 45 Mersereau v. Phoenix Mut. Life Ins. Co., 66 N.Y. 274 (1876) ............................................................................................. 33 ix Michel Cosmetics v. Tsirkas, 282 N.Y. 195 (1940) ......................................................................... 13, 19, 21, 42 Mosesson v. 288/98 W. End Tenants Corp., 294 A.D.2d 283 (1st Dep’t 2002) ....................................................................... 44 In re Mud King Prods., Inc., 14-cv-2316, 2015 WL 862319 (S.D. Tex. Feb. 27, 2015) ................................. 36 In re Mud King Prods., Inc., 514 B.R. 496 (Bankr. S.D. Tex. 2014) ............................................................... 36 PQ Labs, Inc. v. Yang Qi, 12-cv-0450, 2014 WL 4954161 (N.D. Cal. Sept. 30, 2014) .............................. 35 Rasmussen & Assoc., Inc. v. Kalitta Flying Serv., Inc., 132 F.3d 39 (9th Cir. 1997) ................................................................................ 37 Ronson Art Metal Works, Inc. v. Gibson Lighter Mfg. Co., 3 A.D.2d 227 (1st Dep’t 1957) ............................................ 15, 18, 20, 21, 28, 32 Rose Assocs. v. Lenox Hill Hosp., 262 A.D.2d 68 (1st Dep’t 1999) ......................................................................... 50 Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478 (2007) ............................................................................... 12, 27, 42 Matter of Rothko’s Estate, 43 N.Y.2d 305 (1977) ......................................................................................... 24 Salsbury Labs., Inc. v. Merieux Labs., Inc., 735 F. Supp. 1555 (M.D. Ga. 1989) ................................................................... 40 Santa’s Workshop, Inc. v. Sterling, 2 A.D.2d 262 (3d Dep’t 1956) ............................................................................ 16 Sharapata v. Town of Islip, 56 N.Y.2d 332 (1982) ............................................................................. 12, 27, 42 Slingerland v. International Contracting Co., 169 N.Y. 60 (1901) ............................................................................................. 24 x Small v. Lorillard Tobacco Co., 94 N.Y.2d 43 (1999) ..................................................................................... 19, 24 Sonoco Prods. Co. v. Johnson, 23 P.3d 1287 (Colo. 2001) ................................................................ 34, 39, 41, 51 Sperry Rand Corp. v. A-T-O, Inc., 447 F.2d 1387 (4th Cir. 1971) ............................................................................ 35 State v. Barclays Bank of N.Y., N.A., 76 N.Y.2d 533 (1990) ......................................................................................... 26 Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555 (1931) ............................................................................................ 24 Straus v. Notaseme Hosiery Co., 240 U.S. 179 (1916) .......................................................................... 14, 21, 24, 28 Suburban Graphics Supply Corp. v. Nagle, 5 A.D.3d 663 (2d Dep’t 2004) ...................................................................... 15, 24 Swain v. Schieffelin, 134 N.Y. 471 (1892) ........................................................................................... 19 Telex Corp. v. IBM Corp., 510 F.2d 894 (10th Cir. 1975) ...................................................................... 35, 42 Toledo v. Iglesia Ni Christo, 18 N.Y.3d 363 (2012) ......................................................................................... 49 Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326 (2d Cir. 1993) ......................................................................... 45, 46 Underhill v. Schenck, 238 N.Y. 7 (1924) ......................................................................................... 14, 33 Universal Engraving, Inc. v. Metal Magic, Inc., 08-cv-1944, 2010 WL 4922703 (D. Ariz. Nov. 29, 2010) ................................. 38 University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Circ. 1974)........................................................... 35, 36, 39, 40 xi Vanleigh Carpet Corp. v. Gene Schoor’s Iron Forge, 65 Misc. 2d 504 (Civ. Ct. N.Y. Cty. 1971) ........................................................ 26 Vermont Microsystems, Inc. v. Autodesk, Inc., 138 F.3d 449 (2d Cir. 1998) ......................................................................... 36, 37 W.L. Gore & Assoc., Inc. v. GI Dynamics, Inc., 872 F. Supp. 2d 883 (D. Ariz. 2012) ...................................................... 34, 35, 40 Wathne Imports, Ltd. v. PRL USA, Inc., 101 A.D.3d 83 (1st Dep’t 2012) ................................................................... 24, 29 Weeks v. Angelone, 528 U.S. 225 (2000) ............................................................................................ 47 Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867 (5th Cir. 2013) .............................................................................. 37 Westcott Chuck Co. v. Oneida Nat. Chuck Co., 199 N.Y. 247 (1910) ........................................................................................... 21 Winifred Warren, Inc., v. Turner’s Gowns, Ltd., 285 N.Y. 62 (1941) ............................................................................................. 21 OTHER AUTHORITIES Restatement (Third) of Unfair Competition ............................................................ 42 xii CERTIFIED QUESTIONS ACCEPTED FOR REVIEW 1. Under New York law, can a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment recover damages that are measured by the costs the defendant avoided due to its unlawful activity? No. The measure of damages in trade secret cases must correspond to a plaintiff’s losses as a means of compensation. A plaintiff who cannot or elects not to prove any actual losses sustained by virtue of a defendant’s misappropriation and unfair competition cannot measure damages by the costs the defendant avoided. Under settled New York law, and for compelling policy reasons, trade secret damages must be connected to a plaintiff’s losses. 2. If the answer to the first question is “yes,” is prejudgment interest under New York Civil Practice Law and Rules § 5001(a) mandatory where a plaintiff recovers damages as measured by the defendant’s avoided costs? No. Prejudgment interest is not mandatory because avoided costs are not compensatory and already capture all damages sustained through the date of verdict. Any award of interest on top of avoided costs would provide a windfall to the plaintiff. 1 STATEMENT OF THE CASE E.J. Brooks Company d/b/a TydenBrooks (“TydenBrooks”) is the largest manufacturer and distributor of security seals in the United States. It sells a variety of products, including plastic seals, many of which it manufactures in Georgia. After Cambridge Security Seals (“CSS”) started a small competing business in Pomona, New York, TydenBrooks filed suit, asserting a host of claims under federal and state law against CSS and several of its employees.1 Asserting that it “knew full well the cost of developing” its manufacturing process, that CSS was “poaching its customers,” and that it suffered a “loss of market share,” TydenBrooks sought compensatory and punitive damages in an amount to be proved at trial. However, before trial, TydenBrooks elected to abandon any claim for compensatory damages based on financial losses caused by CSS. Instead, it opted to pursue what it called an “avoided cost” theory of damages, which was based on expert testimony as to what it hypothetically would have cost CSS to create the same manufacturing process from scratch. 1 The trial court dismissed TydenBrooks’s claims for false advertising under Lanham Act 15 U.S.C. § 1125(a), false designation of origin under Lanham Act 15 U.S.C. § 1125(a), false advertising under G.B.L. § 350, unfair and deceptive business practices under G.B.L. § 349, and intentional interference with business relations. 2 At trial, TydenBrooks submitted no evidence of lost market share or financial losses. It argued that whatever CSS gained by starting its business, by definition, constituted a loss to TydenBrooks. However, it was undisputed that there were many companies selling plastic security seals, and TydenBrooks did not prove that it lost any customers to CSS or that it could have or would have sold seals to any of CSS’s customers. For its “avoided costs” damage claim, TydenBrooks’s expert postulated that damages were somewhere in the range of $7.8 to $16 million, but neither he or TydenBrooks submitted any proof that any number in that range bore any relationship to TydenBrooks’s own development costs or its actual losses. In fact, any number in that range is millions of dollars more than CSS’s total sales or the profits TydenBrooks could have made on those sales. The trial court erroneously allowed TydenBrooks to measure damages by the costs CSS avoided rather than the losses TydenBrooks sustained by virtue of the misappropriation and unfair competition. On appeal, the Second Circuit Court of Appeals correctly observed that New York courts require that trade secret damages bear some connection to a plaintiff’s losses. Indeed, this Court and lower courts in New York have recognized for over a century that trade secret damages cannot be awarded where a plaintiff has not sustained any losses. This well-settled rule is based on fundamental policies regarding compensatory damages. There is 3 no consensus to the contrary in other jurisdictions or any countervailing policies that warrant the creation of a new “avoided cost” measure of damages in trade secret cases where a plaintiff has suffered no financial loss. Nor is there any reason to award prejudgment interest on an award of avoided costs. It is not mandatory under the statute and would provide a windfall to plaintiffs like TydenBrooks. STATEMENT OF FACTS A. TydenBrooks Begins Losing Domestic Customers After Consolidating Domestic Security Seals Manufacturers TydenBrooks was formed through the private-equity fueled consolidation of five of the largest seal manufacturers in North America, and is the largest manufacturer of plastic security seals in the United States. (A.830.)2 After completing a series of acquisitions and mergers between 2005 and 2010, TydenBrooks began implementing an integration plan that was premised upon reducing headcount and closing domestic manufacturing plants and opening new manufacturing facilities in China and Mexico. (A.829.) As a direct result of its integration plan and general mismanagement, TydenBrooks began experiencing significant operational problems, including defects in the security seals, increased 2 References to the Joint Appendix shall be “A.” 4 lead times, backlogs of customer orders, and non-responsiveness to customer questions and complaints. (A.978, A.980-81, A.1005.) By the start of 2012, TydenBrooks was in crisis mode and was losing customers to other manufacturers as a consequence of its layoffs, offshoring initiatives, and never-ending operational deficiencies. (A.978, A.980-81, A.1005, A.1025.) TydenBrooks was losing increasing amounts of money each year. (A.876, A.1126.) B. TydenBrooks Files Lawsuit Against CSS to “Slow Them Down” As TydenBrooks was struggling to address its endemic manufacturing and service problems, CSS - a start-up founded in late 2010 - began manufacturing plastic security seals at the end of 2011. (A.227, A.756, A.916.) CSS was joined by several former TydenBrooks employees, including salespeople and engineers, who were either laid off or resigned from TydenBrooks during the tumultuous time of integration. (A.192-93, A.226, A.263, A.291, A.299.) None of the employees were subject to non-competition agreements, none took any materials with them when they departed, and none were told that any part of TydenBrooks’s manufacturing process was a secret. (A.191, A.193, A.198, A.218, A.225, A.227, A.234, A.263-64, A.302, A.808, A.811.) CSS’s security seals were manufactured locally, giving CSS the advantage of offering many customers higher quality seals 5 at cheaper prices with faster delivery times, and better customer service than TydenBrooks. (A.1006, A.1028-29.) In early 2012, TydenBrooks recognized that it could not compete with CSS’s quality, prices, lead times, or service, and that CSS was a threat to its “largest domestic market share, highest gross margins” and its “leading market share where it is most vulnerable and most profitable.” (A.1029.) Unable to respond competitively, TydenBrooks’s executives brainstormed ideas to shut down CSS as a competitor, or possibly even acquire it to further consolidate the domestic market. (A.622, A.970-72, A.980, A.1008, A.1010, A.1025, A.1040.) TydenBrooks ultimately decided to file a lawsuit in April 2012 to “slow [CSS] down” and to “punch[ ] them hard, in the face, with the legal action.” (A.651, A.1027-28.) One TydenBrooks executive, Ralph Mallozzi, led the litigation crusade against CSS, and in particular sought to use the lawsuit as a means to strike back at the individual defendants - one of whom he considered his “protégé” - whom he had a deep-seated, well-documented animus toward. (A.971, A.974, A.1018, A.1021, A.1025.) The stated purpose of the lawsuit, which was also filed against many of CSS’s individual employees, was to “create the most disruption to the business internally, externally and individually.” (A.1027.) TydenBrooks’s lawsuit claimed that CSS and the individual defendants had misappropriated an 6 alleged secret process for manufacturing plastic security seals, stolen secret customer information, falsely advertised its products in violation of the Lanham Act and New York General Business Law, and unfairly induced TydenBrooks’s former employees to leave. (A.474-510.) During the course of discovery, CSS discovered that TydenBrooks filed this lawsuit without any prior investigation into the merits for the express purpose of disrupting or destroying CSS’s competing business. (A.970.) CSS also uncovered evidence that TydenBrooks had shared all of its manufacturing processes, including drawings, videos, and photos, with Unisto, a competing seal manufacturer (A.313-15, A.811), never told its employees that any part of its manufacturing process was a secret (A.191, A.225, A.264, A.808, A.811), had no corporate records identifying any manufacturing process as a trade secret (A.142, A.207), and gave tours of its manufacturing facilities to hundreds (if not thousands) of visitors without telling any of them that any part of the manufacturing process was a trade secret (A.147-52, A.192, A.212-13, A.225-26, A.317-18, A.808, A.811). On the eve of trial, TydenBrooks withdrew almost all of its claims and settled with most of the defendants in exchange for nothing or a nominal payment, leaving CSS and three individual defendants. (A.79-80 (at Dkt. 203, 214).) TydenBrooks also withdrew nearly all of its claims against CSS, leaving only 7 misappropriation of trade secrets, conspiracy to misappropriate trade secrets, unfair competition, and unjust enrichment. (A.372.) C. The Trial Court Permits TydenBrooks to Recover Non- Compensatory “Avoided Costs” as Damages for Every Claim From the inception of this case, TydenBrooks sought to recover damages for its own losses. In each of its complaints, TydenBrooks alleged that it suffered damages in the form of lost business and loss of market share, and separately sought disgorgement of CSS’s profits. (A.500, A.502-03, A.507-08.) TydenBrooks alleged in its complaints and later during factual hearings and depositions that TydenBrooks had evidence available to establish its losses. (A.491-93, A.566-76, A.905-08.) At a deposition, TydenBrooks’s corporate representative testified that TydenBrooks had lost profits of at least $600,000 as a result of CSS’s conduct. (A.566-76.) TydenBrooks also retained an expert, Dr. Vigil, who issued an expert report (which he later amended) detailing TydenBrooks’s lost profits, CSS’s sales revenues, and a speculative theory of damages premised upon CSS’s “avoided development costs.” (A.909-68.) Dr. Vigil reported that TydenBrooks did lose “sales and profits” as a result of CSS’s conduct, although he did not attempt to calculate these, and calculated CSS’s sales revenues of $4.1 million. (A.911-12, A.939-43.) Dr. Vigil then determined that CSS’s avoided research and development costs were somewhere between $7.8 and $16.6 million, based on a 8 series of assumptions made by another witness as to the hypothetical amount of time and labor it may have taken CSS to build a new manufacturing process. (A.276, A.278, A.913, A.943-46.) At no time did Dr. Vigil opine that avoided costs were the more appropriate method of calculating damages. (A.943.) Nor did Dr. Vigil ever attempt to calculate a royalty for CSS’s use of TydenBrooks’s manufacturing process. (A.911.) Prior to trial, TydenBrooks brought several motions in limine to exclude evidence regarding TydenBrooks’s struggles to close domestic manufacturing facilities, execute massive layoffs, and the ensuing operational problems caused by its consolidation and integration plan. (A.454-55.) After CSS argued that these documents were relevant to establish that any lost sales were caused by TydenBrooks’s own mismanagement, TydenBrooks withdrew all claims for damages except for recovery of CSS’s hypothetical “avoided development costs.” TydenBrooks did so to avoid having its damages limited to the minimal losses it alleged were caused by CSS, and instead sought to rely exclusively on a novel theory of “avoided costs” that would allow it to assert tens of millions of dollars of damages. The trial court granted TydenBrooks’s motions, holding that all such evidence was irrelevant because TydenBrooks had permanently waived any claim for damages based on its own financial losses. (A.458-59, A.464.) 9 Trial by jury commenced on April 20, 2015. CSS, through the trial court’s continuous adverse rulings excluding CSS’s proposed evidence, was prevented from attacking several key elements of TydenBrooks’s avoided costs damages measurement, including challenging TydenBrooks’s measure of damages, presenting the jury with alternative damages calculations, or introducing evidence that showed that TydenBrooks’s losses were small or non-existent. CSS was not permitted to introduce, among other things, a contemporaneous third-party valuation report that listed a reasonable royalty rate for TydenBrooks’s manufacturing technology (A.257-58, A.332-33), TydenBrooks’s 2010, 2011, and 2012 financial statements (A.280), or TydenBrooks’s complaint, which acknowledged that TydenBrooks knew exactly how much it spent on its own development costs (A.207). During trial, TydenBrooks presented its damages expert, who testified exclusively about CSS’s hypothetical avoided development costs; Dr. Vigil never testified about the availability or appropriateness of any other measure of damages, including TydenBrooks’s lost profits. (A.275, A.280- 81.) In fact, CSS was precluded from cross-examining Dr. Vigil on the availability of other measures of damages that Dr. Vigil had evaluated but refused to include in his damages calculation, including TydenBrooks’s lost sales, because the trial 10 court held that the only applicable measure of damages was CSS’s avoided costs.3 (A.280-81.) The jury rendered a verdict in the amount of $3.9 million against CSS,4 awarding TydenBrooks $1.3 million on each of three claims: misappropriation of trade secrets, unfair competition, and unjust enrichment. (A.396-97.) The jury did not award any punitive damages. (A.397.) The trial court entered judgment on May 13, 2015. (A.399.) D. Post-Trial Proceedings CSS filed a motion to vacate or modify the judgment, which was denied by the trial court on December 23, 2015.5 (A.408-45.) TydenBrooks also filed a motion to modify the judgment to include prejudgment interest, which was denied by the trial court on December 22, 2015. (A.403-07.) Both CSS and TydenBrooks appealed these decisions to the Second Circuit. (A.446, A.1148.) The Second 3 Given the trial court’s rulings that precluded CSS from introducing any evidence concerning other measures of damages, CSS did not call its own damages expert in rebuttal. 4 The jury also rendered a verdict against the three individual defendants totaling $16,000, who settled with TydenBrooks and are no longer part of these proceedings. 5 In upholding its decision to allow avoided costs, the trial court erroneously concluded that Dr. Vigil testified that he could not calculate TydenBrooks’s lost sales. (A.421-22.) But Dr. Vigil said nothing at trial about lost sales. (A.421-22, A.280-81.) He did state in his expert report that he had not yet been able to calculate lost sales, but his report, which was prepared a year before trial, was not submitted as evidence at trial and states that he could calculate the losses if he were provided with more data. (A.911, A.939-41.) 11 Circuit heard argument on November 14, 2016, and issued its decision on June 5, 2017, certifying the two questions set forth above to this Court. (A.2-22.) ARGUMENT I. New York Law Does Not Permit Non-Compensatory “Avoided Costs” Damages for Misappropriation of Trade Secrets or Unfair Competition Under New York law, the guiding principle for damages in trade secret misappropriation and unfair competition cases is to allow a plaintiff to recover compensatory damages for the injury sustained. A plaintiff is not entitled to recover more than the extent of its own injury, and New York courts do not examine the benefit to the defendant in lieu of injury to the plaintiff. “Avoided costs,” by contrast, does not measure the injury to the plaintiff, but rather purports to measure the gain enjoyed by the defendant in the form of time and labor that the defendant might have saved as a result of its conduct. As the Second Circuit correctly articulated, such damages are not compensatory. (A.18.) New York courts have never discussed “avoided costs” as a form of damages for misappropriation of trade secrets, unfair competition, or unjust enrichment. This Court and other New York courts have repeatedly recognized that trade secret damages must have some connection to a plaintiff’s actual losses. As a defendant’s avoided costs are not correlated to a plaintiff’s losses, this theory of damages is inconsistent with settled New York law. 12 To permit this new measure of damages would undermine several important policies underlying existing law. It would eliminate the requirement to prove proximate causation, eliminate the requirement for a plaintiff to prove injury with certainty, permit recovery of speculative damages, and eliminate the distinction between compensatory and punitive damages. TydenBrooks’s reliance on select authorities from other jurisdictions is not compelling, as these cases are contrary to New York law and many are premised upon express statutes that permit recovery of non-compensatory damages. A. New York Law Only Permits Compensation for Plaintiff’s Actual Losses “Compensation is a fundamental principle of damages.” J.B. Preston Co. v. Funkhouser, 261 N.Y. 140, 144 (1933) (citation omitted). Under New York law, “the fundamental purpose of damages . . . is to have the wrongdoer make the victim whole.” Sharapata v. Town of Islip, 56 N.Y.2d 332, 335 (1982); see also Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 489 (2007). Compensatory damages are intended “to assure that the victim receive fair and just compensation commensurate with the injury sustained.” Ross, 8 N.Y.3d at 489. Compensatory damages “should be precisely commensurate with the injury[.]” Gressman v. Morning Journal Ass’n, 197 N.Y. 474, 480 (1910). The same rule has been applied by this Court in cases alleging unfair competition and misappropriation of trade secrets. 13 This Court’s decision in Michel Cosmetics v. Tsirkas, 282 N.Y. 195 (1940) is instructive. In Michel, this Court reversed an award of damages based on the defendants’ profits from its use of the plaintiff’s manufacturing process. The plaintiff, a lipstick manufacturer, brought an action against the defendants for wrongfully manufacturing lipsticks in accordance with formulas and processes belonging to the plaintiff and placing the lipsticks in containers similar to the container used by the plaintiff, with the object of deceiving buyers into the belief that they were buying the product of the plaintiff. The lower court awarded damages for all profits that the plaintiff would have made on the lipsticks sold by the defendants. This Court reversed the award of damages because there was no evidence in the record (such as a reduction in the plaintiff’s sales volumes) to support measuring the plaintiff’s damages by the sales gained by the defendants. In so holding, this Court stated that in all cases, there must be evidence showing that the defendant’s wrongful acts have caused the plaintiff to suffer a commensurate decrease of profits. This is because “[t]here is no presumption of law or of fact that a plaintiff would have made the sales that the defendant made.” Id. at 202 (citation omitted). This Court held that although the evidence may have been sufficient to permit the inference that the defendants caused some loss of profits to the plaintiff, it was insufficient to sustain even a partial recovery. Id. at 204; see also Hyde Park Prods. Corp. v. Maximilian Lerner Corp., 65 N.Y.2d 316, 14 322 (1985) (vacating award of damages premised solely on defendants’ profits on sales to plaintiff’s customers absent proof of plaintiff’s ability to service the needs of such customers); Duane Jones Co. v. Burke, 306 N.Y. 172, 190-91 (1954) (affirming damages award limited to “plaintiff’s losses [that] were a proximate result of defendants’ conduct”) (citation omitted); Underhill v. Schenck, 238 N.Y. 7, 20 (1924) (“The award may not exceed the proportion of the receipts that would be payable if the wrong had not been done.”). The requirement articulated by this Court that damages in trade secret cases have some connection to a plaintiff’s losses was recognized by the United States Supreme Court in Straus v. Notaseme Hosiery Co., 240 U.S. 179 (1916). In that case, the Supreme Court reversed an award of damages to the plaintiff for all profits the defendant gained from sales generated after it engaged in unfair competition. There, the parties were both sellers of hosiery and the defendant used a label on its hosiery that was deceptively similar to the plaintiff’s label. Reversing the award of damages, the Supreme Court observed that there was no evidence showing a direct connection between the defendant’s sales gains and any injury to the plaintiff. Indeed, there was evidence that the defendant’s sales gains may not have had any impact on the plaintiff. The Court held that “[t]he liability of the defendant must be derived from unfair competition if it exists,” concluding that “to charge the defendants with all the profits would be unjust.” Id. at 181, 182. Thus, 15 proof of unfair competition and gain to the defendant was inadequate to establish that the defendant proximately caused an injury to the plaintiff. Applying the principles articulated by this Court in Michel and by the Supreme Court in Straus, New York courts have uniformly held that a plaintiff is entitled to receive compensatory damages limited to the amount of plaintiff’s injury caused by the defendant’s wrongdoing, and no more. For example, in Ronson Art Metal Works, Inc. v. Gibson Lighter Mfg. Co., 3 A.D.2d 227 (1st Dep’t 1957), an unfair competition case, the First Department rejected the plaintiff’s contention that “it was only required to prove the defendants’ profits.” Id. at 229. There, the defendants copied plaintiff’s designs, slogans, and advertising for their lighters to create confusion as to which products were plaintiff’s and which were defendants’. The plaintiff “offered no proof to establish any causal relationship between [defendants’] profits and its own losses, if any, or any other monetary detriment which it might have suffered,” arguing exclusively that it could recover the defendants’ entire profits because the defendants had engaged in wrongdoing. Id. The First Department refused to award all of the defendants’ profits, holding that “[i]t is generally recognized that a defendant’s profits are not awarded as a matter of course, nor is there any presumption that a defendant’s profits are attributable to the adjudged unfair competition.” Id. at 230 (citation omitted). See also Suburban Graphics Supply Corp. v. Nagle, 5 A.D.3d 663, 666 (2d Dep’t 16 2004) (limiting damages where evidence showed that plaintiff’s lost profits were, in part, due to customer dissatisfaction); Allan Dampf, P.C. v. Bloom, 127 A.D.2d 719, 719 (2d Dep’t 1987) (“[T]he plaintiff’s damages are limited to lost profits resulting from the defendant’s actual diverting and treatment of patients.”); Hertz Corp. v. Avis, Inc., 106 A.D.2d 246, 251 (1st Dep’t 1985) (“[I]n an unfair competition case a plaintiff is entitled to recover as damages the amount of loss sustained by it . . . on the accounts diverted from it through defendants’ conduct.”) (quotation and citation omitted); McRoberts Protective Agency, Inc. v. Lansdell Protective Agency, Inc., 61 A.D.2d 652, 655-56 (1st Dep’t 1978) (limiting damages to “the net amount which plaintiff would have earned on the diverted accounts, . . . not the profit or revenue received or earned by [defendant]”); American Elecs., Inc. v. Neptune Meter Co., 30 A.D.2d 117, 119 (1st Dep’t 1968) (remanding for assessment of compensatory damages and instructing trial court to calculate “the amount plaintiff would have made except for defendant’s wrong”) (citation omitted); Santa’s Workshop, Inc. v. Sterling, 2 A.D.2d 262, 267 (3d Dep’t 1956) (reducing damages award noting that the basic rule of damage in unfair business competition is not defendant’s increased profits but the amount which plaintiff would have made except for defendant’s wrong); H.E. Allen Mfg. Co. v. Smith, 224 A.D. 187, 193 (4th Dep’t 1928) (reversing for new trial where “no sufficient, much less conclusive, evidence to show that plaintiff would have made 17 all or any substantial part of the sales made by the defendant”); Downes v. Culbertson, 153 Misc. 14, 26 (Sup. Ct. N.Y. Cnty. 1934) (declining to award damages where “the record [did] not warrant an award of damages” because “[n]o evidence was offered connecting the decline in [plaintiff’s] sales with the acts of the defendants”). TydenBrooks ignores this entire body of jurisprudence - including the New York authority expressly referenced in the Second Circuit’s decision.6 (A.14-15.) However, the law is clear: a plaintiff unable to meet its burden of proof to establish its own losses is not permitted to recover damages, even where wrongdoing has been established. See Hyde Park, 65 N.Y.2d at 322 (“The burden of establishing their ability to service the needs of such customers would rest upon plaintiffs and only those damages resulting from [defendant]’s willful solicitation of [plaintiff]’s customers may be recovered) (citation omitted); Electrolux Corp. v. Val-Worth, Inc., 6 N.Y.2d 556, 572 (1959) (plaintiff has the burden of proving 6 TydenBrooks fails to cite a single New York state case addressing damages for trade secret misappropriation or unfair competition. Of the 51 cases it cites in the section of its brief concerning avoided costs, TydenBrooks includes a mere 11 New York state cases, almost all of which concern general principles unrelated to the claims in question. Several of TydenBrooks’s citations are dissenting opinions. TydenBrooks’s failure to address this well-established body of New York law that addresses the certified question on avoided costs is inconsistent with its obligations of candor to this Court. See, e.g., Cicio v. City of N.Y., 98 A.D.2d 38, 40 (2d Dept. 1983) (“The function of an appellate brief is to assist, not mislead, the court. Counsel have an affirmative obligation to advise the court of adverse authorities” and “[h]ad even a modicum of thought and research been given to this case, it would have been self-evident . . . that its position was untenable”). 18 “any loss in business which can be traced directly to respondents’ disparagement of” plaintiff’s product) (citation omitted); E.W. Bruno Co. v. Friedberg, 28 A.D.2d 91, 94 (1st Dep’t 1967) (“The plaintiff had the burden of proving by competent and sufficient evidence its loss of sales and consequent loss of profits arising from defendants’ wrong.”) (citation omitted).7 At best, “[n]ominal damages will be awarded to a plaintiff where the law recognizes a technical invasion of his right or a breach of defendant’s duty, but where the plaintiff has failed to prove actual damages or a substantial loss or injury to be compensated.” Brian E. Weiss, D.D.S., P.C. v. Miller, 166 A.D.2d 283, 283 (1st Dep’t 1990) (citation omitted); see also American Elecs., Inc. v. Neptune Meter Co., 33 A.D.2d 157, 160 (1st Dep’t 1969). Injunctive relief may also be available to plaintiffs who are unable to establish the causal relationship between the defendant’s wrongdoing and the plaintiff’s losses. See, e.g., Ronson, 3 A.D.2d at 231. The notion that a plaintiff must prove its losses to recover compensatory damages is not novel in trade secret cases. This Court and the lower courts apply this requirement throughout New York tort law, including claims for: 7 “Where a party has failed to come forward with evidence sufficient to demonstrate damages flowing from the defendants’ conduct and relies, instead, on wholly speculative theories of damages, dismissal of the causes of action at issue are in order.” Aldridge v. Brodman, 100 A.D.3d 1537, 1539 (4th Dep’t 2012). 19 • patent and trademark infringement, Michel, 282 N.Y. at 200 (“An infringer must compensate the owner of a trade-mark, a patent, a process or a formula for the profits which the owner would have acquired in his business except for such infringement.”); • violations of General Business Law § 349, Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 56 (1999) (dismissing for failure to state a cause of action where plaintiffs failed “to demonstrate that they were ‘actually harmed’ or suffered pecuniary injury by reason of any alleged deception”); • fraudulent inducement, Connaughton v. Chipotle Mex. Grill, Inc., 29 N.Y.3d 137, 144 (2017) (“[A]ctual harm is an element of fraudulent inducement[.]”); • false advertising, Florczak v. Oberriter, 50 A.D.3d 1440, 1441-42 (3d Dep’t 2008) (affirming dismissal of false advertising claim where plaintiff failed to establish any losses as a result of defendant’s wrongdoing); • breach of non-competition agreements, Gomez v. Bicknell, 302 A.D.2d 107, 114 (2d Dep’t 2002) (“[A]n employer must prove its own loss of profits, not what the employee’s profits were.”); • breach of fiduciary duty, Gibbs v. Breed, Abbott & Morgan, 271 A.D.2d 180, 189 (1st Dep’t 2000) (“[T]he proponent of a claim for a breach of fiduciary duty must, at a minimum, establish that the offending parties’ actions were ‘a substantial factor’ in causing an identifiable loss.”); • libel, Gressman, 197 N.Y. at 478 (“[T]he plaintiff [ ] is entitled to what the law calls compensatory damages, being such damages as would be full and complete compensation for the actual wrong done to him, or her.”); and • breach of warranty, Swain v. Schieffelin, 134 N.Y. 471, 473 (1892) (“Losses sustained and gains prevented are proper elements of damage.”). 20 TydenBrooks’s arguments in support of deviating from settled New York law are not compelling. First, TydenBrooks argues that while it did not prove that it suffered any pecuniary harm as a result of CSS’s wrongdoing, if CSS gained something, TydenBrooks must have lost something of equal value.8 TydenBrooks’s attempt to paint avoided costs as a means of measuring a defendant’s gain is of no use, as New York courts have repeatedly held that plaintiffs are only entitled to collect their own losses, regardless of the defendant’s gain. See, e.g., Electrolux, 6 N.Y.2d at 571-72 (overturning award for defendant’s profits); see also McRoberts, 61 A.D.2d at 655-56 (limiting damages to “the net amount which plaintiff would have earned on the diverted accounts, . . . not the profit or revenue received or earned by [defendant]”); Ball v. United Artists Corp., 13 A.D.2d 133, 140 (1st Dep’t 1961) (“[T]he damages generally recoverable for unfair competition are not what the defendant gained but are limited to the losses actually sustained by the plaintiff by reason of defendant’s deceptive acts.”); Ronson, 3 A.D.2d at 230-32 (overturned 8 At trial, after the jury asked the trial court for clarification as to what “injury to TydenBrooks” means during deliberations concerning the conspiracy claim (A.377), TydenBrooks argued that CSS’s gains were TydenBrooks’s injury. (A.381 (“The injury that we’re measuring is avoided costs[.]”), id. (“If CSS had avoided costs, by definition, there’s injury.”); see also A.378, A.379, A.380.) CSS requested that the trial court instruct the jury that “injury to Plaintiff” means that TydenBrooks must prove it was injured by the avoided costs (A.378), or that it suffered financial harm proximately caused by CSS (A.380). The trial court rejected CSS’s requested language, and instead instructed the jury that injury means “the conspiracy to steal TydenBrooks’s trade secrets proximately caused injury to TydenBrooks.” (A.381.) 21 decision permitting recovery of defendant’s profits). The reason for this rule is clear: “There is no presumption of law or of fact that a plaintiff would have made the sales that the defendant made.”9 Michel, 282 N.Y. at 202 (quotation omitted). This is a fundamental principle of law concerning compensatory damages, and this “general rule has been established by an unbroken line of decisions in the courts of this State and of the United States[.]” Id. at 200; see also Straus, 240 U.S. at 182. Moreover, TydenBrooks fails to articulate what the loss was, or how much it lost. (A.378.) In fact, TydenBrooks waived its right to recover actual losses as part of a strategic move to exclude all evidence of its self-inflicted losses that led to dissatisfied customers, increased operational costs, and lost profits. (A.458-59, A.464.) However, where a plaintiff chooses to avoid discovery into its own losses (or, as here, lack thereof), the plaintiff forgoes compensatory damages altogether and is “entitled only to nominal damages.” American Elecs., 33 A.D.2d at 160 (mandating that plaintiffs produce own financial records to compute lost profits); see also Brian E. Weiss, D.D.S., P.C. v. Miller, 78 N.Y.2d 979, 980-81 (1991) 9 There is a unique set of cases involving “palming off” (i.e., where a defendant has passed his goods off as the plaintiff’s goods) where an accounting for profits is permitted. See Winifred Warren, Inc., v. Turner’s Gowns, Ltd., 285 N.Y. 62 (1941); Westcott Chuck Co. v. Oneida Nat. Chuck Co., 199 N.Y. 247 (1910). However, “[t]he accounting for profits in such cases is not in lieu of damages but is the method of computing damages.” Hertz, 106 A.D.2d at 251; see also Ronson, 3 A.D.2d at 230 (same); Biltmore Pub. Co. v. Grayson Pub. Corp., 272 A.D. 504, 507 (1st Dep’t 1947) (same). Additionally, even these cases do not permit recovering a defendant’s avoided costs, being confined exclusively to the defendant’s profits from the misleading products. 22 (awarding “only nominal damages” where plaintiff “produced no hard evidence of any damage” and “failed to provide the court with any of the documents that would have reflected gross receipts for the relevant periods of time”). Such strategic waiver of seeking recovery for one’s own losses has been held to be a bar to recovery of compensatory damages. See, e.g., Hertz, 106 A.D.2d at 251; E.G.L. Gem Lab Ltd. v. Gem Quality Inst., Inc., 90 F. Supp. 2d 277, 308-09 (S.D.N.Y. 2000). Second, TydenBrooks argues that avoided costs should be allowed because losses are “difficult to calculate.” (TydenBrooks Br.10 at 2-3, 17-19.) However, this Court has not excused plaintiffs from proving their actual losses simply because those losses might be difficult to calculate. While establishing the losses caused by CSS’s wrongdoing as opposed to TydenBrooks’s own mismanagement “will no doubt be most difficult to prove,” Electrolux, 6 N.Y.2d at 572, that is TydenBrooks’s burden of proof. Moreover, it is not always difficult to prove lost sales and TydenBrooks, as a mature operating company, could have proven any financial losses. It had access to all of its own financial records, customer orders, operating costs, and profits. The only reason these records were not utilized by TydenBrooks at trial is because they show that TydenBrooks lost customers and 10 “TydenBrooks Br.” refers to TydenBrooks’s brief filed with this Court on September 21, 2017. 23 profits as a result of its own mismanagement, not because of CSS’s conduct.11 Additionally, TydenBrooks has all of CSS’s financial records from which to track the sales made by CSS, and TydenBrooks’s damages expert acknowledged that there was evidence of TydenBrooks’s lost sales and CSS’s gross revenues. (A.280, A.911-12, A.939-43.) At a deposition, TydenBrooks’s corporate representative testified that TydenBrooks had lost profits of at least $600,000.12 (A.566-76.) Thus, in many cases, while difficult, it is not impossible to prove actual losses even if it cannot be done with mathematical certainty.13 As TydenBrooks points out (TydenBrooks Br. at 18-19), uncertainty as to the amount of damages is permissible and expected given the difficulty of proof; however, there cannot be uncertainty as to the existence of damages, and a plaintiff still must prove that its loss was caused by the defendant’s wrongdoing. See, e.g., 11 TydenBrooks argues that it is somehow unable to establish its own losses “[b]ecause CSS was a startup.” (TydenBrooks Br. at 3, 18.) This makes no sense. TydenBrooks should be able to quantify any lost sales regardless of whether CSS was a startup or a mature business. To the extent TydenBrooks is arguing that CSS, given its startup expenses, was not yet realizing profits on its sales, that argument is also defective because CSS’s sales figures were disclosed and damages could easily be measured by the profits TydenBrooks could have made on those sales. 12 TydenBrooks misrepresents its corporate representative’s testimony concerning TydenBrooks’s lost profits, falsely stating that the representative “was unable to estimate the total damages to Tyden.” (TydenBrooks Br. at 32 n.3.) What he actually testified was that TydenBrooks was still actively engaged in calculating TydenBrooks’s lost profits, which calculations - performed over the course of more than two years - came nowhere near the $8-16 million in avoided costs damages it sought to recover from CSS. (A.571, A.573-74.) 13 Moreover, even if it were impossible to prove lost sales, a plaintiff could prove what it lost by calculating an objectively reasonable royalty for the use of its trade secret. 24 Straus, 240 U.S. at 181; Duane Jones, 306 N.Y. at 190-91; Suburban Graphics, 5 A.D.3d at 666. None of the authority cited by TydenBrooks is to the contrary, permitting recovery only where “there was uncertainty as to the extent of the damage, but there was none as to the fact of damage.” Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562 (1931); see also Matter of Rothko’s Estate, 43 N.Y.2d 305, 323 (1977) (existence of loss not at issue); Wathne Imports, Ltd. v. PRL USA, Inc., 101 A.D.3d 83, 88-89 (1st Dep’t 2012) (requiring the existence of damage to be certain before permitting recovery of damages). Third, TydenBrooks argues that the interference to its “right to exclude others” is its injury (TydenBrooks Br. at 17), but this Court has been clear that plaintiffs must prove actual financial losses to collect damages, not injuries to amorphous rights: “[m]ore than an inchoate ‘disadvantage’ would be required to indicate actual economic loss.” Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90, 97 (1993). Compensation for infringing such exclusionary rights is confined to, at best, nominal damages. Id. at 95; Slingerland v. International Contracting Co., 169 N.Y. 60, 73 (1901); Brian E. Weiss, 166 A.D.2d at 283; see also Small, 94 N.Y.2d at 56 (rejecting “deception as injury” theory of loss). This Court has also expressed some doubt that nominal damages are appropriate for any tort claims 25 beyond trespass to land, which has the potential to deprive a landowner to title, holding that: [t]o recognize nominal damages element of tort claims would be to wrest the cause of action from its traditional purposes - the compensation of losses - and to use it to vindicate nonexistent or amorphous inchoate rights when unlike in trespass to property, there is no compelling reason to do so. Kronos, 81 N.Y.2d at 95-96. Even if TydenBrooks is correct that exclusive ownership of its trade secret manufacturing process constitutes “an important technical right,” id. at 95, absent proof of actual loss and injury, a plaintiff is only entitled to, at most, nominal damages to compensate for the loss of that right to exclude others.14 Fourth, TydenBrooks argues that it is entitled to recover avoided costs “as a form of unjust enrichment.” (TydenBrooks Br. at 21.) But unjust enrichment is a cause of action, not a measure of damages, and rarely applicable where a defendant has been found liable of tortious wrongdoing. Unjust enrichment cannot be used as a stopgap for a plaintiff’s failure of proof on other tort claims such as 14 Federal patent law, which is also based on the lawful right to exclude others from the market (see F.T.C. v. Actavis, Inc., 133 S. Ct. 2223, 2230 (2013) (“Patent holders have a ‘lawful right to exclude others from the market.’”) (quotation and citation omitted)), also measures compensatory damages by a plaintiff’s lost profits or a reasonable royalty, not the defendant’s gains. See, e.g., Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275, 1283-86 (Fed. Cir. 2017). 26 misappropriation of trade secrets or unfair competition. As described recently by this Court: [U]njust enrichment is not a catchall cause of action to be used when others fail. It is available only in unusual situations when, though the defendant has not breached a contract nor committed a recognized tort, circumstances create an equitable obligation running from the defendant to the plaintiff. . . . An unjust enrichment claim is not available where it simply duplicates, or replaces, a conventional contract or tort claim. . . . [I]f plaintiffs’ other claims are defective, an unjust enrichment claim cannot remedy the defects. Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777, 790-91 (2012) (citation omitted). Additionally, damages for unjust enrichment claims are similarly limited to compensation for the plaintiff’s loss. See, e.g., State v. Barclays Bank of N.Y., N.A., 76 N.Y.2d 533, 540 (1990) (“The general rule is that the plaintiff must have suffered a loss and an action not based upon loss is not restitutionary.”) (emphasis in original) (quotation and citation omitted); Empire Fin. Servs., Inc. v. Bellatoni, 53 A.D.3d 1095, 1097 (4th Dep’t 2008) (limiting recovery to what plaintiff lost, not what defendant gained). New York courts have refused to award plaintiffs more than they have lost, even when awarding damages for unjust enrichment: “[t]he defendant is not required to give the plaintiff the total benefit arising out of the plaintiff’s property[; . . . ] the claim for the ‘expense saved’ does not state a cause of action.” Evans v. City of Johnstown, 96 Misc. 2d 755, 764-65 (Sup. Ct. Fulton Cnty. 1978); see also Vanleigh Carpet Corp. v. Gene Schoor’s Iron Forge, 27 65 Misc. 2d 504, 506 (Civ. Ct. N.Y. Cty. 1971) (“[I]t would be equally unjust to permit the plaintiff to recover, in addition to its actual loss, a profit[. . . . ] The soundest result . . . is to make the plaintiff whole[.]”). Thus, New York law does not allow trade secret damages to be measured by a defendant’s avoided costs rather than the losses the plaintiff sustained by virtue of the misappropriation or unfair competition. B. Permitting “Avoided Costs” as Damages Would Negate Fundamental Principles of New York Law and Public Policy To permit plaintiffs to recover a defendant’s “avoided costs” as damages for trade secret misappropriation and unfair competition would undermine several important principles of New York law. First, allowing avoided costs as a measure of damages would eliminate the distinction between compensatory and punitive damages. Unlike compensatory damages, “[p]unitive damages are not to compensate the injured party but rather to punish the tortfeasor and to deter this wrongdoer and others similarly situated from indulging in the same conduct in the future.” Ross, 8 N.Y.3d at 489 (citation omitted); see also Sharapata, 56 N.Y.2d at 335. Punitive damages are directed at measuring the “defendants’ wrong rather than a value set on plaintiff’s loss.” Gostkowski v. Roman Catholic Church of Jesus & Mary, 262 N.Y. 320, 325 (1933) (citation omitted); see also Sharapata, 56 N.Y.2d at 335. Avoided costs are unrelated to compensating a plaintiff for its injury; rather, avoided costs would 28 operate to punish the defendant for their wrongdoing. This is not compensatory damages, this is punitive.15 And it is contrary to the fundamental purposes of New York tort and damage law. New York courts strive to grant relief that is “tailored to achieve the nice balance of adequately redressing the wrong without the imposition of punishment[.]” Ronson, 3 A.D.2d at 231. “[P]laintiff may not have a judgment of vengenance in terrorem of other wrongdoers.” Alexander’s Dep’t Stores v. Ohrbach’s, Inc., 269 A.D. 321, 335 (1st Dep’t 1945). Measuring the benefit obtained by the defendant without regard to the actual injury to the plaintiff is incompatible with the principles of compensatory damages, and would permit plaintiffs to reap windfall recoveries. Second, permitting avoided costs would wipe out the requirement of proximate causation. Plaintiffs would not be required to demonstrate that they suffered an injury as a direct result of any wrongdoing to collect damages from defendants. This is contrary to fundamental precepts of tort law. See, e.g., Straus, 240 U.S. at 181; Duane Jones, 306 N.Y. at 190-91. Third, recognizing avoided costs would create an inherently speculative measure of damages because they represent expenditures that never took place, and will never be reflected in actual invoices, time sheets, or financial statements. 15 The jury did not award TydenBrooks any punitive damages, and TydenBrooks did not appeal. (A.397.) 29 “New York law does not countenance damage awards based on speculation or conjecture.” Wathne, 101 A.D.3d at 87 (quotation and citation omitted); Brian E. Weiss, 78 N.Y. at 980 (affirming dismissal of compensatory damages where “plaintiff’s proof of lost profits was too speculative”); American Elecs., 33 A.D.2d at 159 (rejecting compensatory damages that was “not only highly speculative but patently subject to many contingencies, depending upon market fluctuations, and the chances of business”). TydenBrooks’s formulation, premised upon nothing more than an expert affixing a dollar value to another witness’s assumptions (A.276, A.943-46), is particularly problematic, lacking “hard evidence of any damage.” Brian E. Weiss, 78 N.Y. at 980-81 (affirming dismissal of compensatory damages where “plaintiff’s only proof of damages was the testimony of its accountant” and plaintiff “failed to provide the court with ‘any of the documents that would have reflected gross receipts for the relevant periods of time’”). TydenBrooks’s damages calculation is especially suspect because it is not derived from TydenBrooks’s own development costs or the development costs of any third-party manufacturer. The wide range of TydenBrooks’s damages calculation (i.e., $8-16 million) is a product of the fact that this measurement is not linked to any record evidence, but rather hypotheses and speculation, which generated such an unreliable result. Without requiring a benchmark to real-world development 30 costs - i.e., the costs incurred by the plaintiff or third-party competitor - avoided costs are imaginary. Fourth, avoided costs also encourage plaintiffs to hide relevant financial information that could disclose the huge discrepancies between the damages sought as avoided costs and any actual financial losses the plaintiff experienced. TydenBrooks, unable to show lost profits anywhere near the $8-16 million it was seeking in damages, and inclined to hide its pre-existing (and self-inflicted) losses caused by its poorly executed integration plan, objected to the introduction of any of its own financial documents, and objected to cross-examination of its damages expert as to anything beyond CSS’s avoided costs. (A.257-58, A.332-33, A.280- 81.) The trial court sustained all such objections on the rationale that the only measure of damages applicable in the case was CSS’s avoided development costs, and that any evidence concerning TydenBrooks’s losses was therefore irrelevant. (A.257-58, A.280.) CSS was thus foreclosed from establishing TydenBrooks’s actual loss, which took away CSS’s ability to argue that the damages put forward by TydenBrooks was inflated. TydenBrooks thus effectively hid its lack of losses from the jury. New York courts do not, and should not, permit plaintiffs to engage in such gamesmanship. See, e.g., Hertz, 106 A.D.2d at 248 (disapproving of plaintiff’s refusal to provide financial data showing plaintiff had increased profits, not losses, during the time of alleged injury). Recognizing “avoided costs” as a 31 new measure of damages under New York law will only serve to incentivize such gamesmanship in future trials. This case provides an excellent example of the injustice that would result from recognizing this new measure of damages that is untethered from the plaintiff’s actual losses. TydenBrooks sought $8-16 million in compensatory damages,16 representing the hypothetical labor and capital costs CSS would have spent to replicate TydenBrooks’s manufacturing process. (A.114, A.943-46.) Even assuming that CSS had entered the market on an accelerated basis as a result of its wrongdoing, and further assuming it took sales that would have otherwise gone to TydenBrooks, CSS’s gross revenues (not just profits) from all sales of all products (including unrelated products manufactured on other, non-proprietary machinery) was only $4.1 million over the relevant time period. (A.912, A.941- 43.) TydenBrooks sought to collect two to four times CSS’s total revenues as its compensation. Put another way, TydenBrooks would collect a 200 - 400% profit margin on all of CSS’s improper sales. To the extent TydenBrooks is alleging that it lost profits from licensing its manufacturing technology to CSS, its disclosed royalty rate of 4.5% would have yielded no more than $184,500 on CSS’s total revenues. (A.1088.) However, by pursuing avoided costs, TydenBrooks would 16 TydenBrooks also sought up to $12 million in punitive damages, which the jury denied. (A.114, A.367, A.397.) 32 reap more than 40 to 85 times the maximum potential lost licensing profits. In essence, TydenBrooks becomes $8-16 million richer because of CSS’s wrongdoing, and earns more money from CSS’s unfair competition than it ever could have earned had CSS never existed in the first place. TydenBrooks argues that “there is no wrong without a remedy.” (TydenBrooks Br. at 2, 16-17.) New York has already established a remedy: compensatory damages only “to the extent of the resulting damage” to the plaintiff. General Rubber Co. v. Benedict, 215 N.Y. 18, 26 (1915). New York permits plaintiffs to establish losses in many different ways, including lost profits, reduced market share, price erosion, and lost licensing profits. New York also permits plaintiffs to seek injunctive relief, particularly where plaintiffs are unable to establish their losses: Unfair competition has often been restrained without monetary reparation, either because the proof failed to establish sufficient causal relationships between the prohibited conduct and the profits earned by the defendant, or the damages were de minimis, or there was insufficient evidence to establish that, absent the unfair competition, the plaintiff would have made the sales which the defendant did. Ronson, 3 A.D.2d at 231 (citation omitted). Where, as here, the plaintiff chooses to avoid discovery into its own de minimis losses, the plaintiff is only entitled to, at most, nominal damages. TydenBrooks, like every other trade secret and unfair competition plaintiff, has a remedy, and was entitled to be compensated for any 33 losses proximately caused by CSS’s wrongdoing. “He can have no more to-day.” Underhill, 238 N.Y. at 19. C. Other Courts Do Not Support Permitting “Avoided Costs” as Compensatory Damages TydenBrooks claims that there is a consensus across the country to measure compensatory damages in trade secret and unfair competition claims by avoided costs even where the plaintiff has not suffered pecuniary losses. This is not true. As a preliminary matter, New York courts do not fashion new law, contrary to well-established New York law, simply because a different court applying a different law reaches a different conclusion. “[W]hatever may be found to the contrary in the cases cited by the learned counsel for the plaintiff originated in the application of statutory regulations in other states and countries” and does not justify a change from “well settled” principles of New York law. Lough v. Outerbridge, 143 N.Y. 271, 279 (1894) (citation omitted); see also Mersereau v. Phoenix Mut. Life Ins. Co., 66 N.Y. 274, 286 (1876) (Miller, J., dissenting) (“[N]or can the decisions of other States affect the question so well settled by authority in our own courts.”); Burnham v. Burnham, 46 A.D. 513, 515 (1st Dep’t 1900) (“The principle is so well established in this State that further discussion is not necessary upon this point.”). Many of the non-New York cases cited by TydenBrooks are in fact directly contrary to New York law. See, e.g., Litton Sys., Inc. v. Ssangyong Cement Indus. Co., 107 F.3d 30 (Fed. Cir. 1997) (“The court adopted a 34 ‘deterrence-based approach’ to calculating damages[.]”); International Indus., Inc. v. Warren Petroleum Corp., 248 F.2d 696, 699 (3d Cir. 1957) (“The appropriate measure of damages . . . is not what plaintiff lost, but rather the benefits, profits, or advantage gained by defendant in the use of the trade secret.”). Such principles simply cannot be equated with long-standing New York law concerning compensatory damages. Moreover, the non-New York cases cited by TydenBrooks involve express statutory authority for damages beyond actual losses, something that does not exist in New York. See, e.g., MAR Oil Co. v. Korpan, 973 F. Supp. 2d 775, 781-82 (N.D. Ohio 2013) (Ohio Uniform Trade Secrets Act); W.L. Gore & Assoc., Inc. v. GI Dynamics, Inc., 872 F. Supp. 2d 883, 888 (D. Ariz. 2012) (Arizona Uniform Trade Secrets Act); Lucini Italia Co. v. Grappolini, 01-cv-6405, 2003 WL 1989605, at *19 (N.D. Ill. Apr. 28, 2003) (Illinois Trade Secrets Act); Sonoco Prods. Co. v. Johnson, 23 P.3d 1287, 1289 (Colo. 2001) (Colorado Uniform Trade Secrets Act); Litton, 107 F.3d at 37 (California Uniform Trade Secrets Act and Lanham Act). These cases do not stand for the proposition that a plaintiff’s loss may be equated with a defendant’s gain. Rather, the express statutory authority clearly distinguishes between “actual loss” and “unjust enrichment,” making clear that “unjust enrichment damages” is, in fact, completely divorced from the plaintiff’s actual losses. See, e.g., MAR Oil, 973 F. Supp. 2d at 781-82 (“Ohio law 35 treats actual loss and unjust enrichment caused by misappropriation as two distinct theories of recovery.”); see also PQ Labs, Inc. v. Yang Qi, 12-cv-0450, 2014 WL 4954161, at *11 (N.D. Cal. Sept. 30, 2014); W.L. Gore, 872 F. Supp. 2d at 888. TydenBrooks’s attempt to shoehorn other states’ statutory-authorized “unjust enrichment damages” into New York’s compensatory damages to permit recovery beyond the plaintiff’s own actual losses must fail. Many courts, even when applying these statutes, disfavor development costs, recognizing that “damages to [plaintiff] is the more appropriate measure of recovery than [defendant’s] profits.” Sperry Rand Corp. v. A-T-O, Inc., 447 F.2d 1387, 1393 (4th Cir. 1971). No damages are permitted where the plaintiff fails to prove an actual loss. See, e.g., University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 547 (5th Circ. 1974). As one court noted, “the absence of [plaintiff’s] lost sales may be highly probative of the speculative nature of a claim of damages.” Lightlab Imaging, Inc. v. Axsun Techs., Inc., 469 Mass. 181, 192 (Mass. 2014). Additionally, the plaintiff is still obligated to prove with reasonable certainty that its loss was proximately caused by defendant’s misappropriation; “there must be a demonstrable link between misappropriation of the trade secret and [plaintiff’s] loss.” MAR Oil, 973 F. Supp. 2d at 783 (citation omitted); see also Telex Corp. v. IBM Corp., 510 F.2d 894, 933 (10th Cir. 1975) (denying recovery of 36 plaintiff’s increased security costs because not proximately caused by defendant’s wrongdoing in hiring plaintiff’s employees). A recent decision acknowledged that “no case allows development costs where defendant’s profits are shown,” further restricting the availability of avoided cost damages to discrete circumstances in which the defendant did not successfully utilize the misappropriated information. In re Mud King Prods., Inc., 514 B.R. 496, 524 (Bankr. S.D. Tex. 2014); see also In re Mud King Prods., Inc., 14-cv- 2316, 2015 WL 862319, at *6 (S.D. Tex. Feb. 27, 2015) (“[W]here . . . the defendant has used the plaintiff’s trade secrets and derived profits from that use, development costs that the defendant avoided generally are not available.”); University Computing, 504 F.2d at 539 (“If the defendant enjoyed actual profits, a type of restitutionary remedy can be afforded the plaintiff[.]”). Courts have also expressly refused to award damages that act to punish the wrongdoer rather than compensate the plaintiff: “a punitive deterrent award does not fall within the description of actual loss caused by misappropriation.” Vermont Microsystems, Inc. v. Autodesk, Inc., 138 F.3d 449, 452 (2d Cir. 1998). Similar to New York trade secrets law, courts across the country do not permit a plaintiff to recover all of a defendant’s profits but only that amount that caused an actual loss to the plaintiff, because “an award to the plaintiff of defendant’s entire profit may be unjust.” Id. at 450. 37 Many of the cases cited by TydenBrooks do not even award avoided development costs.17 See, e.g., Carbo Ceramics, Inc. v. Keefe, 166 F. App’x 714, 724-25 (5th Cir. 2006) (awarding nothing because “[t]here is no sound and reliable evidence from which to derive a dollar value for the alleged trade secrets.”); Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867, 880-81 (5th Cir. 2013) (damages measured by market value of business before and after misappropriation). Courts frequently choose to calculate a reasonable royalty as a means of compensating the plaintiff for lost earnings on licensing the misappropriated property. See, e.g., Rasmussen & Assoc., Inc. v. Kalitta Flying Serv., Inc., 132 F.3d 39 (9th Cir. 1997) (unjust enrichment calculated as amount of unpaid licensing fee rather than defendant’s additional revenue utilizing unlicensed airplane); Vermont Microsystems, 138 F.3d at 451 (calculating reasonable royalty as negotiated amount defendant would be willing to pay to plaintiff); LinkCo, Inc. v. Fujitsu Ltd., 232 F. Supp. 2d 182, 188 (S.D.N.Y. 2002) (calculating royalty based on “license structures [that] are common in the industry”) (citation omitted). Other cases calculate the day-to-day savings experienced by using the trade secrets, i.e., the operational savings. See, e.g., Matarese v. Moore-McCormack Lines, 158 F.2d 631, 635-36 (2d Cir. 1946) (awarding damages equal to operational savings from 17 One of TydenBrooks’s citations reflects a nearly billion dollar verdict that was overturned on appeal. See E.I. DuPont De Nemours & Co. v. Kolon Indus., Inc., 564 F. App’x 710, 716 (4th Cir. 2014). 38 use of trade secret);18 International Indus., 248 F.2d at 699 (comparing cost of transportation with and without use of trade secret). Such authority does not justify a departure from New York’s well-established damages principles. Of the limited universe of courts that do permit a plaintiff to collect a defendant’s gains (again, applying express statutory authority), many base the calculation of “gains” on the actual, documented amount of the plaintiff’s own research and development costs, essentially compensating the plaintiff for its lost investment in the research and development.19 See, e.g., LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d 492, 504 (S.D.N.Y. 2002) (“A jury may choose to award damages solely for the amount of money or time plaintiff invested in developing the information.”); GlobeRanger Corp. v. Software AG U.S.A., Inc., 836 F.3d 477, 499 (5th Cir. 2016) (“The costs a plaintiff spent in development . . . can be a proxy for the costs that the defendant saved.”). Although sometimes phrased as a “proxy” for the defendant’s improper gains, these are more akin to compensatory 18 As the Second Circuit correctly identified (A.12-13), the court in Matarese did not award the plaintiff the defendant’s development savings, but rather enforced “a specific promise to pay” the plaintiff the earned savings from use of the invention as a form of quasi-contract, not the savings in developing the invention. Matarese, 158 F.2d at 632. 19 Some courts have also permitted calculation based on “credible evidence from the industry” showing the time and costs expended by competitors. See, e.g., Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 709-10 (9th Cir. 2003). One court premised its award on a written communication in which the defendant admitted the amount of cost savings achieved as a result of the use of the plaintiff’s misappropriated information. Universal Engraving, Inc. v. Metal Magic, Inc., 08-cv- 1944, 2010 WL 4922703, at *8 (D. Ariz. Nov. 29, 2010). 39 damages because the plaintiff lost the benefit of its investment. See, e.g., MAR Oil, 973 F. Supp. 2d at 782 (awarding plaintiff’s own cost in creating secret data that defendant used to acquire profitable oil and gas reserves). In Sonoco, 23 P.3d at 1287, the trial court expressly rejected the plaintiff’s expert’s testimony about the defendant’s capital savings, which were estimated to be $19-25 million, instead awarding only $4.6 million, to be “consistent with the Court’s notion of compensation based in large measure on plaintiff’s effort and expense over time as opposed to [defendant’s] less expensive method of acquisition.” Id. at 1288-89. TydenBrooks made no effort at trial to prove the amount of labor or capital invested in developing its manufacturing process, and in fact prevented CSS from presenting evidence that showed this amount was de minimis.20 (A.280, A.332-33, A.454-65.) Additionally, even when plaintiffs are permitted to use their own development costs as a proxy for the defendant’s improper gains, courts are wary of permitting a plaintiff to recover the entirety of its investment in the research and development of the trade secret when the plaintiff continues to use that trade secret in its own business. See, e.g., University Computing, 504 F.2d at 535 (“Where the 20 TydenBrooks damages expert, Dr. Vigil, included in his expert report a section entitled “TydenBrooks’s Investment in the Trade Secrets,” and fails to articulate any basis for his recitation of facts beyond the deposition testimony of a single TydenBrooks employee, Mr. Mallozzi. (A.929.) 40 plaintiff retains the use of the secret . . . the total value of the secret to the plaintiff is an inappropriate measure.”); Salsbury Labs., Inc. v. Merieux Labs., Inc., 735 F. Supp. 1555, 1574 (M.D. Ga. 1989) (refusing to permit recovery of entirety of plaintiff’s research, development, and marketing costs where plaintiff “has benefitted and continues to benefit from the time and costs it expended”). “[T]he value of the secret to the plaintiff is an appropriate measure of damages only when the defendant has in some way destroyed the value of the secret.” University Computing, 504 F.2d at 535; see also W.L. Gore, 872 F. Supp. 2d at 892 (same). To allow the plaintiff to recover all development costs while also enjoying the fruits of that development is viewed as a windfall. In essence, a plaintiff like TydenBrooks gets to have its cake (i.e., damages equal to the cost of developing its secret manufacturing process) and eat it too (i.e., benefit from the use of that secret manufacturing process). TydenBrooks’s damages calculation of $8-$16 million did not derive from its own development costs, nor did that number derive from the development costs of any of the dozens of competing security seals manufacturers.21 This is a failure of proof in all courts, because “[p]utting a dollar figure in front of the jury on the 21 CSS intended to introduce approximately four dozen plastic security seals from competitor plastic security seals manufacturers to establish that TydenBrooks’s manufacturing process did not give it a competitive advantage. (A.640-50.) TydenBrooks moved to exclude the physical evidence, but there was no dispute at trial that there were many other manufacturers. 41 basis of its own financial and other records is [plaintiff]’s direct burden.” MAR Oil, 973 F. Supp. 2d at 783 (emphasis added). Courts across the country regularly dismiss claims where, as here, the plaintiff’s damages calculation “is not shown to represent anything but a number pulled from thin air.” BioCore, Inc. v. Khosrowshahi, 183 F.R.D. 695, 700 (D. Kan. 1998) (dismissing expert opinion based exclusively on the opinion of plaintiff’s management); Sonoco, 23 P.3d at 1289 (“[I]f there is no competent evidence to support a damage award, it is clearly erroneous.”); Carbo Ceramics, 166 F. App’x at 724-25 (holding that plaintiff “has not met its burden” when it failed to provide “sound and reliable evidence from which to derive a dollar value for the alleged trade secrets”). Courts have also expressed great skepticism toward the exact type of expert testimony upon which TydenBrooks premised its entire avoided cost calculation. See, e.g., Sonoco, 23 P.3d at 1289 (affirming trial court’s determination that expert testimony of defendant’s savings was “broad in scope and somewhat speculative”); Callaway Golf Co. v. Dunlop Slazenger Group Am., Inc., 01-cv-0669, 2004 WL 1534786, at *3-4 (D. Del. May 21, 2004) (precluding expert from testifying as to dollar amount of unjust enrichment where opinion “based solely on his personal knowledge and experience rather than any methodology, analysis, or factual support”). TydenBrooks’s citation of the Restatement (Third) of Unfair Competition fares no better. First, as correctly noted by the Second Circuit, New York has not 42 adopted this Restatement (A.13-14); TydenBrooks does not even attempt to argue that New York has incorporated the Restatement into its black letter law. Second, the Restatement is directly contrary to New York law by expressly permitting recovery of non-compensatory damages called “restitutionary relief measured by the unjust gain to the defendant.” Restatement § 45 cmt. a. Nowhere does New York condone “restitutionary damages,” nor can such damages be harmonized with New York’s compensatory damages principles. See, e.g., Michel, 282 N.Y. at 199- 200; Sharapata, 56 N.Y.2d at 335; Ross, 8 N.Y.3d at 489. Third, the Restatement itself holds that in the parties’ situation in this case, where the defendant has “little or no profit from the exploitation of the trade secret and the loss to the plaintiff cannot otherwise be established, a reasonable royalty may be the best available approximation of the plaintiff’s loss.” Restatement § 45 cmt. g (emphasis added). TydenBrooks’s argument that avoided development costs is a “standard measure of trade secret damages across the country” (TydenBrooks Br. at 28), is wrong. As its own cited authority states, “the general law as to the proper measure of damages in a trade secrets case is far from uniform.” Telex, 510 F.2d at 930 (emphasis added). There is no reason to overturn and negate long-standing New York law to adopt scattered case law interpreting other states’ statutes to create a speculative measure of damages that is unconnected to reality and awards windfalls to plaintiffs where no actual losses were suffered. 43 II. Prejudgment Interest Is Not Available on Avoided Costs Damages To the extent this Court decides that an award of a defendant’s “unjust enrichment” in the form of avoided research and development costs is within the scope of permissible compensatory damages under New York law, prejudgment interest should not be added pursuant to CPLR § 5001(a). Avoided costs - constituting the entirety of the defendant’s cost savings - is sufficient to make the plaintiff whole, because the plaintiff was never deprived of money or property for any period of time, and the defendant was never in possession of improper funds from which it could earn interest itself. Prejudgment interest on avoided costs would serve no purpose other than as a windfall recovery to the plaintiff. It is well-settled under New York law that the purpose of an award of prejudgment interest is to make an aggrieved party whole by compensating for the loss of the use of money, and prejudgment interest is not permitted where a party has already been fully compensated by a jury verdict. See, e.g., Kassis v. Teachers’ Ins. & Annuity Ass’n, 13 A.D.3d 165, 165-66 (1st Dep’t 2004) (denying prejudgment interest on award of costs where damages award put plaintiff “in the same position as if there had been no breach” and award of “prejudgment interest would bestow an unwarranted windfall”) (citation omitted); Bamira v. Greenberg, 295 A.D.2d 206, 207 (1st Dep’t 2002) (denying prejudgment interest as a “windfall double recovery” where the verdict fully compensated plaintiff for its loss); 44 Mosesson v. 288/98 W. End Tenants Corp., 294 A.D.2d 283, 284 (1st Dep’t 2002) (denying prejudgment interest “where plaintiff’s proof of damages set forth the costs of repair at the time of trial” and award of prejudgment interest “would bestow an unwarranted windfall”) (citation omitted); In re Chase Manhattan Bank, 16 Misc. 3d 1123(A), 2007 N.Y. Slip Op. 51552, at *3 (Surr. Ct. Monroe Cnty. Aug. 13, 2007) (denying prejudgment interest where unnecessary “to make the injured party whole”). TydenBrooks concedes that prejudgment interest is not mandatory where the plaintiff has already been made whole by the verdict. (TydenBrooks Br. at 36-37.) The First Department’s decision in Bamira is instructive. There, the plaintiff sued for damages based upon the defendant’s misappropriation of an opportunity to purchase stock and the jury awarded damages based on the present value of the stock, which had significantly appreciated during the period between the defendant’s misappropriation and the verdict. Id., 295 A.D.2d at 206-07. The plaintiff prevailed and won prejudgment interest on the verdict. On appeal, the defendant moved to vacate the prejudgment interest award, arguing that the purpose served by a prejudgment interest award (i.e., “to make the aggrieved party whole”) was achieved through the damages figure, which represented the value of stock through the date of the verdict. Id. at 207. The First Department agreed and vacated the award of prejudgment interest, observing that “the charge made clear 45 that the verdict should make plaintiff whole by putting him ‘in the same position he would have been had defendant complied with his contractual obligations,’ and the jury presumably followed the court’s instruction.” Id.; see also Langer v. Miller, 305 A.D.2d 270, 271 (1st Dep’t 2003) (denying prejudgment interest where plaintiff awarded current value of diverted partnership asset). Where there is a possibility that the jury already awarded prejudgment interest, New York law does not permit the award of prejudgment interest. See, e.g., Men’s World Outlet, Inc. v. Estate of Steinberg, 101 A.D.2d 854, 854 (2d Dep’t 1984); Lesjac Realty Corp. v. Mulhauser, 43 Misc. 2d 439, 441-42 (Sup. Ct. Nassau Cnty. 1964); Gottesman v. Havana Importing Co., 72 N.Y.S.2d 426, 428 (Sup. Ct. N.Y. Cnty. 1947) (“[T]he court should not direct the addition of interest unless it is at least reasonably clear that the jury has not already allowed interest in the amount of the recovery fixed by the verdict.”) (citation omitted); see also Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 342 (2d Cir. 1993). In particular, New York courts will not add prejudgment interest to lump sum verdicts, such as the award here, where the jury never detailed the calculations underlying the verdict. See, e.g., 23/23 Commc’ns Corp. v. G.M. Corp., 257 A.D.2d 367, 367-68 (1st Dep’t 1999); Lesjac, 43 Misc. 2d at 441-42; see also Trademark Research, 995 F.2d at 342. The relevant question is whether the jury’s verdict made the plaintiff whole, not whether the jury received a specific 46 instruction on prejudgment interest. See Bamira, 295 A.D.2d at 207; see also Gottesman, 72 N.Y.S.2d at 428 (denying prejudgment interest even where “the subject of interest was not mentioned in the charge or otherwise referred to upon the trial”). Avoided costs will inevitably be awarded as a lump sum, given the nature of the calculation (i.e., what the defendant should have spent on development vs. what the defendant actually spent), and thus should not have prejudgment interest added unless there is clear evidence that the jury did not intend to assess damages through the date of the verdict. This case exemplifies the windfall that results from awarding prejudgment interest on avoided costs. Here, TydenBrooks’s proposed jury instruction - which closely mirrors the language of CPLR § 5001(b) (“[i]nterest shall be computed from the earliest ascertainable date the cause of action existed”) - directed the jury that the avoided cost “[d]amages are assessed from the date of the misappropriation and/or unfair use through the date on which the verdict is given.”22 (A.375, A.406.) Given the trial court’s express instruction to assess 22 TydenBrooks’s argument that the trial court erred in relying on “one line of the admittedly ‘routine’ jury instructions” (TydenBrooks Br. at 38), is a mischaracterization of the record and an incorrect application of the law. As the Second Circuit observed, although the trial court referred to its instruction to the jury that “[c]ompensatory damages are only meant to make a plaintiff whole again” as “routine,” the trial court was clear that its ultimate ruling was based upon the non-routine instruction to the jury to assess damages “from the date of the misappropriation and/or unfair use through the date on which the verdict is given.” As the Second Circuit 47 damages “from the date of the misappropriation and/or unfair use through the date on which the verdict is given”23 (A.375), and the lump sum award untethered to any record evidence,24 “there is a clear reason to believe that the jury’s damage award was intended to compensate Plaintiff for injuries suffered during the same time period that an award of prejudgment interest would otherwise account for[.]” (A.406.) As the Second Circuit correctly observed, to award prejudgment interest on top of such a verdict would result in a massive windfall to TydenBrooks. (A.18.) An award of prejudgment interest on avoided costs is not mandatory under New York law. CPLR § 5001(a) only requires that prejudgment interest be awarded “upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or recognized, through this instruction the trial court “instructed the jury to make TydenBrooks whole by assessing damages up through the date of the verdict.” (A.18.) 23 The jury is presumed to have followed the trial court’s instructions, and to have therefore awarded TydenBrooks damages sufficient to compensate it through the date of the verdict. See, e.g., Weeks v. Angelone, 528 U.S. 225, 234 (2000) (“A jury is presumed to follow its instructions.”) (citation omitted); Bethmann v. The Widewaters Grp., Inc., 306 A.D.2d 923, 924 (4th Dep’t 2003) (same). 24 TydenBrooks’s assertion that the jury’s lump sum verdict is half of the lowest range of its damages expert’s opinion is pure conjecture; it is just as likely that the jury discounted Dr. Vigil’s damage figures by 70-80% as suggested by CSS’s plastics expert (A.338), or used a metric driven by the cost of new seal machines (A.282-83). “[A]ny analysis of the arithmetic computations on which the lump sum figures may have been based can be speculative only[.]” 23/23 Commc’ns, 257 A.D.2d at 367-68 (quotation and citation omitted). 48 possession or enjoyment of, property[.]”25 Avoided costs, however, are unrelated to a contract or the deprivation of property. Avoided costs do not compensate a plaintiff for a pecuniary loss, or for property damage. Rather, avoided costs represent the reasonable value of the savings earned by the defendant by utilizing the plaintiff’s information. Such damages are not encompassed within the language of CPLR § 5001(a). See, e.g., Lesjac, 43 Misc. 2d at 439-40 (denying prejudgment interest on award calculated to measure the “reasonable value of work, labor and services rendered and performed,” finding prejudgment interest inappropriate where damages did not “represent a pecuniary loss”). Here, there was no contract between the parties. TydenBrooks’s witnesses admitted that no property was taken. (A.218.) CSS’s use of TydenBrooks’s information did not interfere with TydenBrooks’s use of its own information; TydenBrooks retained its manufacturing process and was free to use and enjoy it without restriction. CSS did not damage TydenBrooks’s manufacturing process at all, reducing its value. 25 To the extent that avoided costs are, as TydenBrooks argues (TydenBrooks Br. at 19-21), a form of “unjust enrichment,” such damages would be equitable and computed “in the court’s discretion.” CPLR § 5001(a); see also Corsello, 18 N.Y.3d at 790 (unjust enrichment is the return of a benefit “which in equity and good conscience should be paid to the plaintiff”) (quotation and citation omitted). 49 Avoided costs are unrelated to any pecuniary loss to the plaintiff.26 Such damages do not represent an award of money the plaintiff lost, but rather money that the defendant did not pay. Other states expressly distinguish avoided development costs from plaintiffs’ actual losses. (See supra at 34-35.) As the Second Circuit observed, “TydenBrooks was not deprived of the use of those avoided costs.” (A.18.) Additionally, prejudgment interest acts as the defendant’s cost for use of the plaintiff’s money. See Toledo v. Iglesia Ni Christo, 18 N.Y.3d 363, 369 (2012); Lesjac, 43 Misc. 2d at 440. Requiring defendants like CSS to pay the time value of money they never had in their possession, and thus could never invest or otherwise “enjoy,” does nothing to serve this purpose. See, e.g., Manufacturers’ & Traders Trust Co. v. Reliance Ins. Co., 8 N.Y.3d 583, 588-89 (2007) (denying prejudgment interest where interpleader defendants received no pecuniary benefit from interpleaded funds during pendency of action); In re Barnes, 140 N.Y. 468, 471-72 (1893) (“[W]e do not think a trustee can properly be made liable for interest not earned[.]”). The New York authority TydenBrooks relies upon to argue that prejudgment interest is “mandatory” under CPLR § 5001(a) is inapposite, as every decision 26 As discussed above (see supra 24-25), TydenBrooks alleges no pecuniary injury, only injury to its “right to exclude others.” (TydenBrooks Br. at 17.) 50 relates to damages awarded to compensate for the plaintiff’s own financial losses. For example, the plaintiff in De Long Corp. v. Morrison-Knudsen Co., 20 A.D.2d 104 (1st Dep’t 1963), was awarded prejudgment interest on lost profits arising from a diverted government defense contract. Id. at 106. The plaintiff in Rose Assocs. v. Lenox Hill Hosp., 262 A.D.2d 68 (1st Dep’t 1999), was awarded prejudgment interest for fair market value of use and occupancy of apartments. Id. at 69; see also Eighteen Holding Corp. v. Drizin, 268 A.D.2d 371, 372 (1st Dep’t 2000) (awarded prejudgment interest on improperly diverted partnership funds); Delulio v. 320-57 Corp., 99 A.D.2d 253, 253 (1st Dep’t 1984) (awarded prejudgment interest for damage to apartment); Hillsley v. State Bank of Albany, 24 A.D.2d 28, 31 (1st Dep’t 1965) (awarded prejudgment interest on forged checks that caused plaintiff to lose mechanic’s lien); Cargill, Inc. v. Sears Petroleum & Transp. Corp., 03-cv-0530, 2004 WL 3507329, at *16 (N.D.N.Y. Aug. 27, 2004) (awarded prejudgment interest for lost profits and lost royalties on patents); Boule v. Hutton, 320 F. Supp. 2d 132, 139-40 (S.D.N.Y. 2004) (awarded prejudgment interest on diminution in value of artwork). Not a single case involves using a defendant’s gains as a proxy for the plaintiff’s losses. TydenBrooks’s citation to non-New York state decisions is similarly flawed. As a preliminary matter, these cases are irrelevant in interpreting the requirements of the CPLR and, just like every other non-New York case cited by TydenBrooks 51 in support of its argument for permitting avoided costs, apply explicit statutes such as the Copyright Act and the Lanham Act to permit recovery of non-compensatory damages. (See supra at 34-35.) More fundamentally, TydenBrooks misrepresents the holdings of these cases as being related to a defendant’s avoided costs when, in fact, every single cited case awarded prejudgment interest on the plaintiff’s losses, including: • plaintiff’s lost profits (Little Genie Prods. LLC v. PHSI Inc., 12-cv- 0357, 2014 WL 3050326, at *6 (W.D. Wash. July 2, 2014));27 • plaintiff’s lost licensing fees and royalties (Johns-Manville Corp. v. Guardian Indus. Corp., 718 F. Supp. 1310, 1317 (E.D. Mich. 1989); M.D. Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753, 766 (10th Cir. 2009); Altavion, Inc. v. Konica Minolta Sys. Lab. Inc., 226 Cal. App. 4th 26, 70 (Cal. 2014)); • plaintiff’s lost investment costs (Sonoco, 23 P.3d at 1288-89);28 and • plaintiff’s lost physical property (id. at 1288). Thus, these cases represent the award of money “for loss of the use of the royalty funds [plaintiff] should have received at the time of misappropriation,” Altavion, 226 Cal. App. 4th at 70, and not a defendant’s savings. 27 The plaintiff in Little Genie expressly sought only its own profits, declining to pursue disgorgement of the defendant’s gains. Little Genie, 2014 WL 3050326 at *6. 28 TydenBrooks’s misleading descriptions of these cases is particularly egregious with regard to Sonoco, where the court explicitly rejected the defendant’s avoided costs as being “broad in scope and somewhat speculative.” Sonoco, 23 P.3d at 1289. 52 Avoided costs are also not “damages incurred” (CPLR § 5001(b)) such that the amount due to the plaintiff can be computed from a date certain, because the plaintiff was never owed “savings” prior to the jury’s verdict. The flaw in awarding prejudgment interest on avoided costs is showcased by TydenBrooks’s request in this case. TydenBrooks argues that it was entitled to a lump-sum payment from CSS for the totality of CSS’s savings from utilizing TydenBrooks’s manufacturing process - i.e., $3.9 million - on the day that a CSS employee sent an email in February 2011 utilizing a single measurement for a table that CSS never acquired or used.29 (A.362, A.404.) According to TydenBrooks, CSS accrued the entirety of its savings on a single day such that TydenBrooks should have been compensated on that day for the entirety of CSS’s gains, and TydenBrooks may therefore earn interest on the unpaid savings to compensate it for the loss of its use of these funds through the date of judgment.30 If TydenBrooks had proven deprivation of or interference with its own property, such as lost sales as TydenBrooks originally conceptualized the case, it would have been eligible for prejudgment interest on such a damage award from 29 TydenBrooks failed to present any evidence about the accrual date during trial, failed to request an instruction in the jury charge, and failed to include a start date for the jury to select on the itemized verdict form. It revealed its chosen start date only after judgment was entered, seeking to have the trial court determine the start date in place of the jury. (A.404.) 30 TydenBrooks admits that its damages expert used capital costs from 2013, yet seeks to collect prejudgment interest starting from 2011 without any discount. (TydenBrooks Br. at 38; see also A.282.) 53 the date the claim arose. Having sought and received an award based on CSS’s avoided development costs - a tactic likely chosen to maximize its recovery well beyond that to which it would have been entitled had it pursued its original damages theories - TydenBrooks cannot recover prejudgment interest as if it had pursued a traditional claim for damages. When TydenBrooks abandoned its original claim for financial loss and pursued its avoided costs theory, it divorced the damages award from its own pecuniary losses. As such, it cannot now recover prejudgment interest as if it received an award for deprivation of property under its original abandoned theory of the case, which it did not prove at trial. The statute does not provide prejudgment interest absent a deprivation of property, and no New York court has ever awarded prejudgment interest on avoided development costs or any similar type of damages. CONCLUSION For the foregoing reasons, CSS respectfully requests that this Court answer the certified questions in the negative, and hold that (i) a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment may not recover damages that are measured by the costs the defendant avoided rather than the losses the plaintiff sustained by virtue of the misappropriation or unfair competition, and (ii) prejudgment interest under CPLR § 5001(a) is not mandatory when a plaintiff recovers damages as measured by a defendant’s avoided costs. Dated: New York, New York November 1, 2017 Respectfully submitted, By: Daniel J. Fetterman Howard W. Schub Amber T. Wallace KASOWITZ BENSON TORRES LLP 1633 Broadway New York, New York 10019 Tel: (212)506-1700 Fax: (212)506-1800 Attorneys for Respondent-Appellant Cambridge Security Seals 54 CERTIFICATE OF COMPLIANCE This brief for Respondent-Appellant Cambridge Security Seals1. complies with the type-volume limitation of rule 500.13(c) because this brief contains 13,417 words, excluding the parts of the brief exempted by Rule 500.13(c)(3). This brief for Respondent-Appellant Cambridge Security Seals2. complies with the typeface and typestyle requirements of Rule 500.1 because this brief has been prepared in a proportionately spaced typeface using Microsoft Word 2013 in Times New Roman 14-point font. Dated: November 1, 2017 Howard W. Schub 55