Both parties challenge a judgment of the United States District Court for the Southern District of New York (Preska, then C.J.) following a jury trial. At trial, plaintiff E.J. Brooks Company, d/b/a TydenBrooks (“TydenBrooks”), largely prevailed in its claims against defendant Cambridge
For these reasons, the appeal and cross-appeal present two damages-related questions that have not been resolved by the New York Court of Appeals and implicate significant New York State interests. As we reject CSS’s other challenges,
1. Whether, under New York law, a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment can recover damages that are measured by the costs the defendant avoided due to its unlawful activity.
2. If the answer to the first question is “yes,” whether prejudgment interest under New York Civil Practice Law and Rules § 5001(a) is mandatory where a plaintiff recovers damages as measured by the defendant’s avoided costs.
BACKGROUND
TydenBrooks is the largest manufacturer of plastic security seals in the United
At trial, TydenBrooks claimed that CSS had copied and profited from Tyden-Brooks’s automated process for manufacturing plastic security seals, which are used to detect and prevent tampering with containers and other products. In support of its claim, TydenBrooks introduced evidence that it treated the process as a trade secret. That contention was vigorously disputed by CSS, which sought to introduce evidence that TydenBrooks’s manufacturing process was neither secret nor unique. The jury ultimately found that CSS was liable for misappropriation of a trade secret, unfair competition, and unjust enrichment.
The issue of damages proved to be thornier. TydenBrooks initially sought recovery of its lost profits and sales and disgorgement of CSS’s gross profits. It later abandoned those theories, electing instead to pursue an “avoided costs” theory in which damages are calculated as the total costs CSS avoided by not developing its own manufacturing process. To support its avoided costs theory at trial, TydenBrooks relied primarily on the testimony of its damages expert, Dr. Robert Vigil. Dr. Vigil estimated that, as a result of its misappropriation of the manufacturing process, CSS saved between $6.1 million and $12.2 million in costs—or $7.8 million to $16.6 million when he included costs associated with employee benefit payments.
At TydenBrooks’s request, the District Court instructed the jury that Tyden-Brooks sought damages on each of its claims “based on the defendants’ avoided costs.” It explained that the jury would have to compare “actual costs incurred by the defendant ... with the costs it would have incurred to produce the same products without the use and knowledge of [TydenBrooks’s] manufacturing process.” The District Court also instructed the jury that it should consider three factors in measuring damages: (1) whether CSS “realized savings in research and development costs, including the time and resources typically devoted to researching and developing a new manufacturing process,” (2) whether CSS “gained a competitive advantage in being able to bring its plastic indicative security seals to market earlier than competitors,” and (3) whether CSS “realized any savings in [its] operating costs, including savings from the avoidance of certain labor expenses and from increased productivity resulting from the efficiencies of the [misappropriated] manufacturing process.”
On May 4, 2015, the jury rendered a verdict in favor of TydenBrooks and awarded it $3.9 million in total damages
This appeal and cross-appeal followed.
DISCUSSION
1. Damages and Avoided Costs
As noted, the District Court instructed the jury that TydenBrooks sought damages on each of its claims “based on the defendants’ avoided costs,” which required the jury to compare “actual costs incurred by the defendant ... with the costs it would have incurred to produce the same products without the use and knowledge of [TydenBrooks’s] manufacturing process.” Joint App’x 918-19. CSS argues that it was error to instruct the jury that damages could be calculated based on CSS’s “avoided costs.” It insists that New York law rejects such a measure of damages if the plaintiffs losses and the defendant’s profits are themselves calculable.
We have recognized that the profit unjustly received by a defendant in trade secret cases is “an appropriate measure of damages under New York law.” Softel, Inc. v. Dragon Med. & Sci. Commc’ns, Inc.,
Even the “avoided costs” measure of damages finds some support in New York law. A century ago in New York Bank Note Co. v. Hamilton Bank Note Engraving & Printing Co., the New York Court of Appeals suggested that awarding the plaintiff the amount of costs saved by the defendant as a result of its wrongful use of a proprietary device might reflect an appropriate measure of damages under some circumstances.
Our own Court also appears to have endorsed a course similar to the District Court’s avoided costs approach in a contract case. In Matarese v. Moore-McCormack Lines, we affirmed an award of damages under New York law based on a calculation of costs avoided by the defendant.
Recognizing that neither Matarese nor New York Bank Note fully answers the question before us, TydenBrooks urges that we turn to the Restatement (Third) of Unfair Competition (the “Restatement”) to determine how the New York Court of Appeals would decide the damages question in this case. Relying expressly on Matarese, the Restatement commends using the amount of avoided Costs as a measure of damages in unfair competition cases where “the benefit derived by the defendant consists primarily of cost savings, such as when the trade secret is a more efficient method of production.” Restatement § 45 cmt. f & Reporters’ Note to cmt. f (1995); see also id. cmt. d. Although we recognize that comments d and f of Section 45 in particular appear to support the avoided costs approach, we cannot say with certainty that those provisions of the Restatement accurately describe New York law with respect to calculating damages in trade secret and unfair competition cases. We note that the New York Court of Appeals has never even cited the Restatement, while the Appellate Division has cited it only four times, in ways that are not helpful to our resolution of this appeal. See N. State Autobahn, Inc. v. Progressive Ins. Grp. Co.,
In short, neither our Court nor the New York courts appear to have approved the specific type of award in this case—that is, the costs that CSS avoided by using TydenBrooks’s manufacturing process. To the contrary, New York courts have suggested that the measure of damages in trade secret cases, even when measured by reference to a defendant’s profits, should correspond to a plaintiffs losses as a means of compensation. See Epstein Eng’g, P.C. v. Cataldo,
2. Prejudgment Interest
TydenBrooks appeals the District Court’s denial of its motion to amend the judgment to include prejudgment interest pursuant to section 5001(a) of the CPLR. “New York law does not permit the trial court to exercise any discretion where a party is entitled to such interest as a matter of right.” New England Ins. Co. v. Healthcare Underwriters Mut. Ins. Co.,
In response to TydenBrooks’s motion to amend the judgment, the District Court concluded that prejudgment interest was not required because the jury’s award already compensated TydenBrooks for the entire pre-verdict period. To be sure, prejudgment interest was not specifically mentioned in the trial testimony, on the verdict form, or during the jury instructions. Nor was there any other concrete basis in the record to suggest that the jury included such interest. Cf. Bamira v. Greenberg,
Here, as we have explained, Tyden-Brooks received damages based on CSS’s avoided costs rather than losses Tyden-Brooks suffered. The damages award did not purport to compensate TydenBrooks “for the loss of the use of money [it was] entitled to receive.” Kassis v. Teachers’ Ins. & Annuity Ass’n,
In a case in which the damages awarded are not clearly compensatory under New York law, we find it hard to square the mandatory language of section 5001 with the import of the New York decisions, cited above, that suggest that prejudgment interest under the statute is not mandatory where a windfall is the likely result. Here, too, we think that resolving whatever tension exists between the statutory language of section 5001(a), the New York State court decisions, and the propriety of avoided costs as a measure of damages is better left to the New York Court of Appeals.
CERTIFICATION
Second Circuit Local Rule 27.2 permits us to certify to the New York Court of Appeals “determinative questions of New York law [that] are involved in a case pending before [us] for which no controlling precedent of the Court of Appeals exists.” N.Y. Comp. Codes R. & Regs. tit. 22, § 500.27(a); see also N.Y. Const. art. VI, § 3(b)(9). “In deciding whether to cer
First, as we have explained, no state appellate court has grappled with whether New York law permits a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment to recover damages that are measured by the costs the defendant avoided due to its unlawful activity. Nor has any New York State appellate court held that there are exceptions to section 5001(a)’s mandatory language in cases where damages are not meant to be compensatory. This factor weighs heavily in favor of certification: “ ‘New York has a strong interest in deciding the issue certified rather than having the only precedent on point be that of the federal court, which may be mistaken.’ ” Carney v. Philippone,
Second, issues relating to New York State law governing the protection of trade secrets, the form of remedy for victims of misappropriation, and the availability of prejudgment interest entail careful policy judgments. A New York court should determine in the first instance which of these policy judgments ought to prevail. See Sealed v. Sealed,
If on certification the New York Court of Appeals determines that avoided costs are an inappropriate measure of damages in trade secret cases, we would be required to vacate the judgment and remand for further proceedings, thereby ending the appeal. See Chauca v. Abraham,
CONCLUSION
For the foregoing reasons, we AFFIRM the District Court’s judgment as to liability, RESERVE decision as to damages, and CERTIFY the following two questions to the New York Court of Appeals:
1. Whether, under New York law, a plaintiff asserting claims of misappropriation of a trade secret, unfair competition, and unjust enrichment can recover damages that are measured by the costs the defendant avoided due to its unlawful activity.
2. If the answer to the first question is “yes,” whether prejudgment interest under New York Civil Practice Law and Rules § 5001(a) is mandatory where a plaintiff recovers damages ■ as measured by the defendant’s avoided costs.
In certifying these questions, we understand that the New York Court of Appeals may reformulate or expand the certified questions as it deems appropriate.
It is hereby ORDERED that the Clerk of this Court transmit to the Clerk of the New York Court of Appeals a certificate in the form attached, together with a copy of this opinion and a complete set of briefs,
CERTIFICATE
The foregoing is hereby certified to the Court of Appeals of the State of New York pursuant to Second Circuit Local Rule 27.2 and New York Codes, Rules, and Regulations title 22, § 500.27(a), as ordered by the United States Court of Appeals for the Second Circuit.
Notes
. Federal jurisdiction was initially premised on TydenBrooks's claims under the federal Lanham Act. The Lanham Act claims were dismissed by stipulation of the parties in 2015.
. CSS challenges the District Court's preclusion of certain evidence at trial that, according to CSS, supported its position that the trade secret at issue in this case was not valuable. Because we conclude that the District Court did not commit evidentiary "errors that were a clear abuse of discretion that were clearly prejudicial to the outcome of the trial,” we reject each of these challenges. Marshall v. Randall,
. Dr. Vigil’s estimate of the labor costs savings derived from the calculations of yet another TydenBrooks expert who determined the time savings that CSS enjoyed because it did not have to pay employees to develop the machines from scratch.
. A more recent Supreme Court decision asserted (in a footnote) that the Restatement "has been incorporated into New York’s trade secrets law,” but cited for support an Appellate Division case, Wiener, that itself merely refers to the Restatement’s definition of a trade secret, not to incorporation. Zylon Corp. v. Medtronic, Inc., No. 650523/08,