Proofpoint, Inc. v. Vade Secure, Incorporated

Background

Proofpoint and Cloudmark moved for exemplary damages against Vade Secure, Inc. and Vade Secure SASU based on the jury’s findings in a trade-secret misappropriation case. The motion sought exemplary damages under the federal Defend Trade Secrets Act.

The jury found that Trade Secrets 1–7 and 9–20 qualified as trade secrets, except Trade Secret 8. It found that Vade misappropriated Trade Secrets 1–7 and 9–16, and that Vade’s misappropriation of those secrets was willful and malicious. The jury found that Olivier Lemarié misappropriated Trade Secrets 1–7 and 9–15 but did not find that his conduct was willful and malicious. The jury found that Proofpoint and Cloudmark suffered no actual loss from the misappropriation, but found Vade unjustly enriched in the amount of $13,495,659. The opinion also notes that the jury found copyright infringement by Vade and Lemarié and a breach of Cloudmark’s employment contract by Lemarié, but those findings were not the basis of the motion addressed here.

Legal standard and analysis

The federal Defend Trade Secrets Act permits a court to award exemplary damages of up to twice the damages awarded when a trade secret was willfully and maliciously misappropriated. The court explained that there is no single clearly defined test for deciding whether to award exemplary damages. It considered factors including the reprehensibility of the conduct, its duration, the defendant’s awareness of resulting injury and efforts to conceal wrongdoing, the need for deterrence, the amount of compensatory damages, and the defendant’s financial condition.

For the spear-phishing trade secrets, the plaintiffs argued that Lemarié incorporated secrets developed while working for Cloudmark into Vade’s products. The court noted that Lemarié replaced the allegedly secret code with publicly available code after learning of the claims, and that Vade hired a neutral non-party to redesign the relevant module. The court found no showing that any failure to eliminate all possible influence from Cloudmark’s secrets was intentional. It also found that the plaintiffs’ evidence concerning other Vade personnel, including an email, employee recruitment, statements by Vade’s chief executive officer, Lemarié’s placement on leave, and internal documents, was not strong enough to support exemplary damages.

For Trade Secret 16, which involved Gateway Daily Licensing Reports, the court noted that the reports did not contain trade secrets concerning the design of Cloudmark’s mail-transfer-agent product. The jury also found that Vade did not misappropriate Trade Secrets 17–20, which the plaintiffs had argued were used to design Vade’s competing product. The court therefore found that Vade’s misappropriation of the reports, whether considered alone or together with the spear-phishing evidence, was not sufficiently egregious to support exemplary damages.

The court further found that Vade had attempted to correct any misuse of the spear-phishing secrets and that the claimed misuse and harm from forwarding the licensing reports was essentially indirect. The court gave little weight to the plaintiffs’ theory that Lemarié’s shredding of computer files showed a cover-up because the jury apparently accepted his non-malicious explanation. Finally, the court noted that the jury found no actual loss, that unjust enrichment could support exemplary damages, and that no party or the court had yet determined how the unjust-enrichment amount should affect the exemplary-damages analysis. The court nevertheless found the nearly $13.5 million award sufficient to deter future misappropriation.

Ruling

The court found that imposing exemplary damages was not warranted. Judge Maxine M. Chesney therefore denied the plaintiffs’ motion for an award of exemplary damages.