In less than a year from its enactment, the Defend Trade Secrets Act (DTSA) has now yielded its first jury verdict with a victory for the Florida-based company Dalmatia Import Group, Inc. The center of controversy revolved around a gourmet fig spread made with a secret recipe and process. The jury returned a $500,000 award for theft of trade secrets, with another $2 million awarded for other claims. This case raises several important issues regarding damages and pleading both a state trade secret claim and a DTSA claim in the same lawsuit.
The facts of the case highlight the issues involved with disclosing trade secrets to vendors or distributors. Launched in 1999, Dalmatia’s Fig Spread by all accounts has become a popular gourmet article for many households. The recipe and production processes used to make the spread are claimed to be proprietary and extensively safeguarded. Dalmatia engaged New York-based company FoodMatch as an exclusive distributor and began using Pennsylvania company Lancaster Fine Foods as a contract manufacturer to expose the fig jam to a wider audience. To protect its trade secrets on the recipe and production process for the fig spread, Dalmatia required non-disclosure and non-competition agreements from FoodMatch and Lancaster.
The trio’s collaboration proved to be very successful for several years. However, in 2015 Dalmatia became dissatisfied with the quality of the fig spread from Lancaster and FoodMatch. Dalmatia then chose to engage another company for its manufacturing and distribution needs.
Shortly thereafter, FoodMatch and Lancaster together launched a competing fig spread. Dalmatia brought suit in the U.S. District Court for the Southern District of New York before the enactment of the DTSA, claiming misappropriation of trade secrets under the Pennsylvania Uniform Trade Secrets Act, trademark infringement under the Lanham Act, breach of contract, and unfair competition. The case was ultimately transferred to the U.S. District Court for the Eastern District of Pennsylvania. Dalmatia then added by amendment a claim for misappropriation under the DTSA after the law was enacted.
The case proceeded to trial in February 2017. After an 18-day trial and several days of deliberations, the jury returned a verdict for trademark infringement and trade secret misappropriation. The jury ultimately awarded more than $2.5 million in total damages, with $500,000 attributed to the trade secrets misappropriation claim.
But which trade secret claim: the Pennsylvania Uniform Trade Secret Act (PUTSA) or the DTSA? The defendants argue now that the jury instructions were improper because they did not sufficiently differentiate between the two claims at issue. On this predicate, the defendants contend that Dalmatia is not entitled to entry of judgment under the DTSA.
The defendants also argue that the damages should be set aside. In particular, defendants aver that the jury found no willfulness under the PUTSA trade secrets claim. And because the PUTSA willfulness standard is more stringent than the DTSA’s “exemplary damage” provision under 18 U.S.C. § 1836(b)(3)(B), the defendants believe that a finding of no willfulness under the state statute automatically means that no exemplary damages can be awarded under the DTSA. Further complicating the issue is the Defendants’ argument that the damages amount is improper because there was no separation between the two different misappropriation claims, resulting in an award for one lumped-up damages period that includes several months before the DTSA was actually enacted. These difficulties have all ensued from the jury instructions that the defendants argue failed to delineate between the two trade secret causes of action.
While Dalmatia has prevailed on the issue of liability, it remains to be seen how the district court ultimately rules on the propriety of the jury instructions and the awarded damages. It seems that this case is ultimately poised for an appeal. Going forward, litigants would be well-advised to be cautious about potential substantive differences between state claims of misappropriation and federal claims under the DTSA, as well as the specific jury instructions used for each statute. While an omnibus “trade secret misappropriation” verdict form may be desirable for a plaintiff to simplify deliberations in the jury room, they might complicate the issues on appeal.
Dalmatia Import Group, Inc. v. FoodMatch, Inc. et al., 16-cv-02767 (E.D. Pa. Feb. 24, 2017).
Updated 4/17/17. This blog entry has been updated to correct several statements regarding the respective trademarks and tradenames at issue in the case.