Court Reduces Jury’s Trade Secret Award

In this dispute over development of an anti-abuse product for Internet domain names and a jury award of $10 million to plaintiff for trade secret misappropria­tion, conversion and civil conspiracy, the Alexandria U.S. District Court sets aside the $5 million jury award for conspiracy and conversion and remits the remain­ing $5 award to $2 million.

Plaintiff Afilias PLC, an Irish corpora­tion headquartered in Dublin, Ireland, wholly owns subsidiaries in Canada and the U.S. and is a domain registrar man­aging the world’s second largest domain registry, including the registry for the .info top-level domain (TLD). Defendant Architelos, which manages new and ex­isting internet domains, is incorporated in Delaware and headquartered in Lees­burg, Va. Architelos has three full-time employees and employs approximately six independent contractors. Co-defen­dant Alexa Raad co-founded Architelos in 2001 and serves as the company’s CEO.

Plaintiff alleged two persons who had worked with or for Afilias, Stephen Van Egmond and Greg Aaron, misappropri­ated trade secret and proprietary infor­mation they gained through working on plaintiff ’s anti-abuse tool and then used that information to develop defendant’s NameSentry product and to apply for five different European, Canadian and U.S. patents in their names and in Ar­chitelos’ name. One of these patents, the ‘801 patent, became the focus of the lit­igation. Afilias claimed the NameSentry product and the ‘801 patent were de­rived from Afilias’ proprietary method of taking many abuse data feeds and con­solidating them into a single data feed, which plaintiff refers to as the many-to-one-method; Afilias’ method of filtering these data feeds; and Afilias’ method of grouping customized abuse feed data.

Damages evidence

Regardless of which exhibit or what testimony the jury relied upon in calcu­lating Architelos’ future profits, plaintiff provided the jury with a large range of figures from which it could calculate a damages amount. The range was sup­ported by plaintiff’s expert testimony and by a number of exhibits, the authen­ticity and accuracy of which were essen­tially uncontested. Moreover, Architelos did not present any contrary evidence or expert testimony on damages, meaning the record contains only evidence sup­porting Afilias’ estimations of the value of its misappropriated information. Be­cause the court cannot reweigh that ev­idence on a Rule 50(b) motion, the jury’s award will not be overturned on defen­dant’s motion for judgment as a matter of law and such motion has been denied in total.

By failing to present any expert tes­timony to counter plaintiff ’s damages expert, defendant left itself vulnera­ble to a large damages award. There is also nothing in the record upon which to find that the verdict is based on false evidence. Although defendant’s inability to pay the award and the disparity be­tween the award and defendant’s actual revenue and profits may indicate there is a miscarriage of justice, that issue is properly addressed through remittitur rather than a new trial. The award is far less than the $48.8 million calculated by plaintiff ’s expert.

Preemption

The court will set aside the $5 million award for the civil conspiracy and con­version claims, which are preempted by the Virginia Uniform Trade Secrets Act. The court did not instruct the jury on preemption and instead regarded the is­sue as a matter of law unresolved by the jury verdict. In fact, the conversion in­struction repeated plaintiff ’s allegation that defendant converted both its con­fidential and trade secret information but did not explain to the jury that the conversion claim would be preempted if it found that the converted information qualified as trade secret material. The jury’s decision to award separate dam­ages amounts for the conspiracy and conversion claims does not indicate that they found that non-trade secret infor­mation was the basis for those claims or that those claims could survive apart from plaintiff ’s allegations regarding trade secrets.

The record supports the conclusion that the conspiracy and conversion claims were likely premised on the trade secret misappropriation allegations and were intended to serve as a backstop for those allegations. Because those allega­tions were resolved by the jury’s finding of trade secret misappropriation, the jury verdict as to these counts was pre­empted by the jury’s trade secret misap­propriation finding.

Finally, the multi-million dollar dis­connect between defendant’s projections and its actual revenue and profits does indicate the jury award here is exces­sive. That gap is also reflected in the dif­ference between plaintiff ’s research and development costs and the profits made by defendant on the NameSentry prod­uct, because plaintiff spent $1.3 to $1.5 million on developing its anti-abuse tool, from which defendant has obtained less than $300,000 in revenue from NameS­entry in the roughly four years it has of­fered the product. The $5 million award for the misappropriation claim is still ex­cessive when considered in the context of plaintiff ’s damages and defendant’s actual profits. The judgment has been remitted to $2 million.

Afilias PLC v. Architelos Inc. (Brinke­ma) No. 1:15cv14, March 23, 2016; USDC at Alexandria, Va.; Scott A. Cunning for plaintiff; Alan A. Wright for defendant. VLW 016-3-138, 23 pp.