The US Court of Appeals for the Ninth Circuit reversed a district court ruling in a trade secret misappropriation case based on a non-disclosure agreement (NDA) that resulted in an award of more than $60 million, ruling that any disclosures that occurred after the termination date of the NDA were not subject to misappropriation claims. BladeRoom Group Ltd. v. Emerson Electric Co., Case No. 19-16583 (9th Cir. Aug. 30, 2021) (Murphy, J.) (Rawlinson, J., concurring).

BladeRoom and Emerson compete for contracts to design and build data centers. In August 2011, the companies explored a potential sale of BladeRoom to Emerson. BladeRoom drafted an NDA governed by English law, and the parties signed it. Critically, the 12th paragraph of the NDA provided that “this agreement shall terminate on the date 2 years from the date hereof.” The potential acquisition ultimately fell through.

Not long after, Facebook began plans to build a data center in northern Sweden. BladeRoom pitched a design in July 2012, and Emerson pitched a design several months later. In October 2012, Facebook verbally approved Emerson’s design although it was only 10% complete. Almost a year later, Facebook contacted BladeRoom asking about updates to its proposal. In November 2013, Facebook selected Emerson’s proposal. Facebook and Emerson signed a design-build contract in March 2014, at which point BladeRoom learned about the design Emerson had pitched. BladeRoom sued Facebook and Emerson, alleging that Emerson had breached the NDA and misappropriated BladeRoom’s trade secrets.

The case was tried to a jury. During trial, BladeRoom settled with Facebook but not Emerson. Before closing arguments, Emerson proposed a jury instruction excluding information disclosed or used after August 2013 (i.e., after the NDA allegedly expired). The district court denied the instruction. BladeRoom then moved in limine to prohibit Emerson from arguing that the NDA permitted it to use BladeRoom’s information after August 2013. The district court granted the motion. The jury found Emerson liable and awarded $10 million in lost profits and $20 million in unjust enrichment damages but did not distinguish between the breach and misappropriation claims in making its award. The district court awarded $30 million in punitive damages and further awarded pre-judgment interest beginning on October 30, 2012, and $18 million in attorney’s and expert witness’ fees. Emerson appealed.

The Ninth Circuit first considered whether the NDA expired after two years. Applying English law, the Court held that it did based on a primarily textual analysis. However, the Court could not determine from the record the date on which the alleged breach/misappropriation had occurred. Accordingly, it vacated the judgment and remanded for a new trial.

The Ninth Circuit also discussed several issues in the appeal that would be relevant if Emerson was found liable on remand. The Court stated that the punitive damages award was not supported by the record where the jury did not distinguish between the breach and misappropriation claims because punitive damages are not available for breach of contract under California law. The Court also discussed prejudgment interest, observing [...]

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