Punitive Damages Clause Of The Virginia Uniform Trade Secrets Act Not So Punishing, Says The Eastern District Of Virginia In A Case Of First Impression

Punitive damages under the Virginia Uniform Trade Secrets Act ("VUTSA") may have relatively little impact per a recent decision by the Eastern District of Virginia. In E.I. DuPont De Nemours and Co. v. Kolon Industries, Inc., a case of first impression on this point, the Court capped VUTSA punitive damages at $350,000 regardless of the number of misappropriations or the amount of compensatory damages awarded.

The VUTSA permits punitive damages if trade secrets are willfully and maliciously misappropriated. The Act provides in part that a "court may award punitive damages in an amount not exceeding twice any award [of compensatory damages], or $350,000 whichever amount is less." Va. Code Ann. § 59.1-338(B) (2011). Under the Uniform Trade Secrets Act, punitive damages up to twice the amount of compensatory damages are available for willful and malicious misappropriations.

Background of the DuPont Litigation

In DuPont, a jury found in September of 2011 that Kolon, a South Korean company, willfully and maliciously misappropriated 149 trade secrets related to DuPont's production and marketing of its trademarked product, Kevlar. The jury returned a verdict of $919 million in compensatory damages to DuPont under the VUTSA. DuPont argued it was entitled to $350,000 in punitive damages for each of the 149 trade secrets that Kolon maliciously misappropriated, for a total of $52.15 million –or approximately 5% of the compensatory award.

The Court's Conclusion

The Court disagreed with DuPont and, in predicting how the Virginia Supreme Court would rule, decided that the General Assembly did not intend for the cap to apply to each trade secret at issue in a lawsuit.

In reaching this conclusion, the Court borrowed reasoning applied by the Fourth Circuit Court of Appeals in its interpretation of Va. Code Ann. § 8.01-38.1, the Virginia statute which generally limits punitive awards granted under Virginia law to $350,000. In Al-Abood v. El-Shamari, the Fourth Circuit held that the cap in Va. Code...