TAOS v. Renesas: Disgorgement, Apportionment, and the Head-Start Clock

Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., Appeal Nos. 2016-2121, -2208, -2235 (Fed. Cir. May 1, 2018), is the rare decision that touches nearly every contested question in trade-secret damages in a single opinion. A jury in the Eastern District of Texas had awarded TAOS $48,783,007 in disgorgement of the defendant’s profits for trade-secret misappropriation, plus $10 million in exemplary damages, in a fight between two makers of ambient light sensors — the components that dim a phone screen in a dark room. The Federal Circuit vacated the monetary award in its entirety and remanded, holding that disgorgement was not for the jury to decide, that the award improperly lumped together secrets that did not all qualify, and that any recovery had to be confined to a head-start period bounded by lawful reverse engineering.

At a glance

• Case: Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., Appeal Nos. 2016-2121, -2208, -2235 (U.S. Court of Appeals for the Federal Circuit), on appeal from the Eastern District of Texas
• Decision date: May 1, 2018
• Jury award: $48,783,007 disgorgement of profits + $10 million exemplary damages for trade-secret misappropriation
• Holdings: No Seventh Amendment jury-trial right on disgorgement (it is equitable); the unapportioned award could not stand where only one of three asserted secrets survived; disgorgement must be limited to a head-start period defined by when the defendant could have reverse-engineered the technology
• Outcome: Monetary award vacated and remanded for the district court to make equitable findings

Disgorgement is equitable — so the jury should not have set it

The first holding is procedural but consequential. TAOS sought disgorgement of the defendant’s profits — an unjust-enrichment remedy that asks not what the plaintiff lost but what the defendant gained. The Federal Circuit, applying the Seventh Amendment’s historical test, held there was no right to a jury determination of disgorgement for trade-secret misappropriation, because disgorgement of an infringer’s profits was historically an equitable remedy tried to the court, not to a law jury.

The practical upshot is that the $48.8 million figure the jury returned had no legal force as a damages verdict; on remand, the judge would have to make findings of fact and conclusions of law to fix any disgorgement amount. For litigants, the lesson is to plan the trial structure around the remedy sought: a plaintiff that wants the rhetorical and anchoring power of a jury number should pair disgorgement with a legal measure (actual loss or a reasonable royalty) that a jury can decide, rather than rely on equitable disgorgement alone.

Apportionment: you cannot recover for secrets you did not prove

TAOS had asserted three trade secrets, and the jury’s monetary award rested on all three without separating their respective contributions. On appeal, the structure narrowed dramatically: the court concluded that the protectable, misappropriated secret was the specific photodiode array structure using a 1:1 ratio of interleaved shielded and unshielded wells — and that the other asserted secrets did not support the recovery in the same way.

Because the award was a single, unapportioned sum tied to all three theories, the court could not salvage it; it vacated the entire monetary award and remanded for fresh factual findings. This is the apportionment principle in its starkest form: when damages are built on a bundle of asserted secrets and some fall away, an aggregate number that does not isolate the contribution of the surviving secret cannot stand. Plaintiffs who present secrets as an undifferentiated portfolio invite exactly this kind of total vacatur — a risk that has only grown as courts demand secret-by-secret proof.

The head-start clock and the limit of reverse-engineerable secrets

The most doctrinally rich holding concerns timing. The technology at issue could, in principle, be reverse engineered by proper means. Trade-secret law does not punish a competitor for eventually arriving at information it could have obtained legitimately; it remedies the head start the misappropriator gained by taking a shortcut. The Federal Circuit held that disgorgement therefore had to be confined to the period the defendant saved by misappropriating rather than reverse engineering — the time it would lawfully have taken to develop the technology independently.

That principle reorients the damages inquiry around a question of fact: how long is the head start? Once the reverse-engineering window closes, the defendant’s continued profits are not attributable to the misappropriation, and unjust enrichment ends. The opinion makes the head-start theory not a soft equitable gloss but a hard ceiling on disgorgement — and it ties the ceiling to the defendant’s lawful alternatives, not to the plaintiff’s preferred recovery period.

Open questions

The remand left the actual disgorgement figure unresolved, and with it the practical mechanics of measuring a head-start period for a technology that evolves quickly. How does a court fix the reverse-engineering timeline with precision — by expert reconstruction, by the defendant’s own development records, by industry benchmarks? The opinion also sharpens, without fully resolving, the tension between the jury’s role and the court’s: when a case blends a legal measure (a royalty) with an equitable one (disgorgement), how should overlapping fact-finding be allocated so the two do not double-count or contradict each other?

Implications

• Match the remedy to the fact-finder. Disgorgement is equitable and decided by the judge; if you want a jury number, plead and prove a legal measure (actual loss or reasonable royalty) alongside it.
• Apportion from the outset. Tie damages proof to each asserted secret individually; an aggregate award resting on secrets that later fail is vulnerable to total vacatur.
• The head start is the ceiling. Where information is reverse-engineerable, unjust-enrichment recovery ends when lawful development would have caught up; build (or attack) the timeline as a core damages fact.
• Reverse-engineerability cuts both ways. It does not defeat liability, but it powerfully limits the recovery window — defendants should develop it as a damages defense even after losing on liability.

Frequently asked questions

Why did the Federal Circuit say the jury could not award disgorgement? Disgorgement of a defendant’s profits is an equitable remedy that, historically, was tried to a court rather than a jury. Under the Seventh Amendment’s historical test, there was no jury-trial right on it, so the judge must determine the amount on remand.

What is a “head-start” damages period? It is the time advantage the misappropriator gained by stealing information instead of obtaining it lawfully — here, by reverse engineering. Disgorgement is limited to that window; profits earned after lawful development would have caught up are not attributable to the misappropriation.

Why was the entire award vacated when one secret survived? Because the jury’s monetary award was a single, unapportioned sum based on all three asserted secrets. With the recovery resting principally on one surviving secret, the court could not separate out the proper amount and remanded for new findings.

Authorities and sources

• Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., Nos. 16-2121, -2208, -2235 (Fed. Cir. May 1, 2018): opinion (Justia).
• Analysis: Orrick, “Federal Circuit Illuminates Right to Disgorgement as Remedy for Trade Secret Misappropriation”; IPWatchdog, “Jury Cannot Award Disgorgement of Profits in Trade Secret Misappropriation Cases”.
• Damages and apportionment discussion: Carstens Allen Gourley, “Disgorgement of Defendant’s Profits as Damages for Trade Secret Misappropriation”.