One year after the Defend Trade Secrets Act (DTSA) took effect, fig jam maker Dalmatia Import Group Inc. became the first plaintiff to be awarded damages for federal trade secret misappropriation. The company’s trade secrets suit alleged that its former manufacturer and distributor used its jam recipe to create a competing product that nearly drove Dalmatia out of business.
Defend Trade Secrets Act
The DTSA created a federal cause of action for trade secret misappropriation. Prior to the federal law taking effect one year ago, businesses had to rely on a patchwork of state intellectual property laws to protect their trade secrets. The key provision of the DTSA provides that “an owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”
The DTSA offers several legal remedies that were not available under state law. Notably, the federal law allows trade secret owners to seek a civil seizure “to prevent the propagation or dissemination of the trade secret.” When “exceptional circumstances” exist that render injunctive relief “inequitable,” courts are also authorized to order the defendant to pay a reasonable royalty for the continued use of the trade secret. Once the court determines that a trade secret has been unlawfully misappropriated, the owner is entitled to compensatory damages, which may include (i) “actual loss of the trade secret”; (ii) “any unjust enrichment”; or (ii) a reasonable royalty for the use. Punitive damages are available when a trade secret is “willfully and maliciously misappropriated,” while attorneys’ fees are available in cases of bad faith.
Dalmatia’s DTSA Suit
In Dalmatia Import Group, Inc. et al. v. FoodMatch, Inc. et al., Dalmatia alleged that FoodMatch, Inc., Lancaster Fine Foods, Inc., and Earth Pride Organics, LLC (Defendants) misappropriated the proprietary recipe and production process for the company’s fig jam. Its complaint included claims for misappropriation of trade secrets, trademark infringement, trademark counterfeiting, conversion, and breach of contract. Dalmatia initially filed suit in a Pennsylvania state court but removed the case to federal court following the enactment of the DTSA.
According to Dalmatia, FoodMatch conspired with Lancaster and Earth Pride to use Dalmatia's proprietary fruit spread recipes and production processes to launch a copycat line of fruit spreads under FoodMatch's Divina brand. After Dalmatia terminated its distribution agreement with FoodMatch in 2015, the company hired Lancaster, Dalmatia's fig spread manufacturer in the United States, to create FoodMatch's own fig and orange fig spreads. “As Dalmatia's contract manufacturer for more than seven years, Lancaster had full knowledge of Dalmatia's proprietary recipes and manufacturing processes - information it was obligated to keep confidential and to use only for Dalmatia's benefit,” Dalmatia’s complaint alleged. “Lancaster used that knowledge to create fig and orange fig spreads for FoodMatch to sell in competition with Plaintiff's fig spread products.”
In February, a Pennsylvania jury returned a verdict in favor of Dalmatia for trade secret misappropriation, trademark infringement, trademark counterfeiting, and additional state law violations. The jury awarded $500,000 in damages for misappropriation of trade secrets. Overall, the jury awarded $2.5 million in damages.
On May 10, U.S. District Judge Edward Smith of the Eastern District of Pennsylvania entered judgment, rejecting the defendants’ argument that Dalmatia failed to prove it incurred damages after DTSA’s effective date. The court also awarded treble damages on the trademark counterfeiting claim, which brings the final award to $5.2 million.
Do you have any questions regarding the DTSA? Would you like to discuss the matter further? If so, please contact me, Fred Zemel, at 201-806-3364.