Unjust Enrichment Under the DTSA: A Nascent Circuit Split and Its Practical Implications

The U.S. Supreme Court has been asked to grant certiorari to resolve whether the Defend Trade Secrets Act (DTSA) permits an unjust enrichment award without any showing of actual loss resulting from the defendant’s misappropriation of trade secrets. The defendant in Tata Consultancy Services Ltd. v. Computer Sciences Corp. has petitioned for certiorari, arguing that actual loss is a prerequisite for an unjust enrichment award. The petition challenges a Fifth Circuit decision affirming a $56 million unjust enrichment award and a $112 million punitive award in favor of Computer Sciences Corp. (“CSC”), measured by the costs Tata Consultancy Services (TCS) avoided through its trade secret theft rather than by any proven actual loss to CSC.

According to Tata’s petition, the Fifth Circuit’s ruling conflicts with the Second Circuit’s decision in Syntel Sterling Best Shores Mauritius Ltd. v. The TriZetto Group. While the Second Circuit acknowledged that avoided costs can theoretically constitute unjust enrichment in some circumstances, it imposed significant restrictions and ultimately rejected such damages on the facts before it. The Seventh Circuit, in Motorola Solutions, Inc. v. Hytera Communications Corp., likewise affirmed a substantial unjust enrichment award but held that a plaintiff must demonstrate compensable harm beyond its actual loss to recover such damages.

Taken together, these decisions create a nascent circuit split on an important interpretive question: what is the nature of unjust enrichment as a compensatory DTSA remedy, and does it require a showing of harm to the plaintiff? In the more likely event that the Supreme Court denies certiorari, plaintiffs asserting DTSA misappropriation claims should carefully consider whether the Fifth Circuit offers a more favorable forum than the Second Circuit when proving actual damages may be difficult.

The DTSA’s Remedial Framework

The DTSA’s remedies for trade secret misappropriation are rooted in the common law development of misappropriation as a tort and are designed to make the plaintiff whole, with the recognition that some flexibility may be necessary to achieve that goal. Consistent with this purpose, the DTSA authorizes a court to impose an injunction “to prevent any actual or threatened misappropriation” and, where “determined appropriate by the court,” to require “affirmative actions to be taken to protect the trade secret.” The statute also authorizes damages for “actual loss caused by the misappropriation” and separately for “unjust enrichment caused by the misappropriation that is not addressed in computing damages for actual loss.” In exceptional circumstances rendering an injunction inequitable, a court may award a reasonable royalty “for no longer than the period of time for which such use could have been prohibited.”Finally, where the trade secret “is willfully and maliciously misappropriated,” a court may award exemplary damages up to twice the amount of the compensatory damages or royalty.

The Point of Agreement: No Double-Counting

Although both the DTSA and the Uniform Trade Secrets Act authorize injunctive relief and compensatory damages, those remedies cannot overlap. All three circuit decisions agree on this foundational point: unjust enrichment damages cannot simply double-count losses already captured in the actual loss calculation. The circuits also agree that unjust enrichment damages and injunctive relief can create duplicative recovery, and that such duplication must be avoided. The disagreement lies in how that problem should be resolved.

The Circuit Split

A. The Second Circuit: Injury Beyond Actual Loss Required

In Syntel, the Second Circuit held that an award of avoided-cost unjust enrichment requires “a comparative appraisal of all the factors of the case,” including “the nature and extent of the appropriation” and “the relative adequacy to the plaintiff of other remedies.” The dispositive question for the court was whether the defendant’s misappropriation injured the plaintiff “beyond its actual loss of $8.5 million in lost profits.” The court answered no, observing that the plaintiff retained the full and growing commercial value of its trade secrets and that a permanent injunction had terminated the defendant’s ability to profit from the avoided costs. On those facts, the court vacated a $285 million avoided-costs award as an impermissible windfall.

Beyond its specific facts, the Second Circuit articulated a general rule that to focus exclusively on defendants “saved expenses to avoid cost—ignores the extent to which [defendant’s] misappropriation injured [plaintiff] and impermissibly discounts the comparative appraisal that governs equitable trade secret remedial determinations. See Restatement (Third) of Unfair Competition § 45(2). Under that reading, avoided costs would be available as unjust enrichment damages in any case of misappropriation, even where a trade secret owner suffers no compensable harm beyond its lost profits or profit opportunities. If accepted, that view would permit avoided costs awards that are more punitive than compensatory. That would be a curious distortion of the DTSA’s remedial scheme and would ignore the significance and the reach of a district court’s permanent injunction power.”

B. The Seventh Circuit: Syntel Adopted, But Applied to Different Facts

In Motorola, the Seventh Circuit expressly adopted the Second Circuit’s injury-beyond-actual-loss framework. The court agreed that “avoided costs are recoverable as damages for unjust enrichment under the DTSA when the defendant’s misappropriation injures the plaintiff beyond its actual loss,” and found that standard satisfied because the defendant had “used the claimant’s trade secrets in developing its own product, thereby diminishing the value of the trade secret to the claimant.” Thus, while Hytera reached a pro-plaintiff outcome by permitting recovery of avoided costs, it did so by applying—not departing from—the Syntel standard.

C. The Fifth Circuit: Syntel Expressly Rejected

The Fifth Circuit expressly rejected Syntel‘s rule that a trade secret holder can never recover unjust enrichment damages where it suffers no harm beyond lost profits. The court acknowledged Syntel‘s holding but found that formulation “divorced from the text of the DTSA and from traditional understandings of the ‘unjust enrichment’ remedy.” In the Fifth Circuit’s view, the DTSA’s unjust enrichment provision does not separately require a compensable, quantifiable injury to the plaintiff. Drawing on the Restatement (Third) of Restitution and Unjust Enrichment § 1, the court stressed that the remedy focuses on the benefit to the defendant rather than the impact on the plaintiff, and that the phrase “at the expense of another” can mean “in violation of the other’s legally protected rights” without any requirement that the claimant suffered a loss. The court also found this understanding consistent with its own prior trade secret precedent.

On the question of the proper measure of damages, however, the Fifth Circuit agreed with Syntel that an unjust enrichment award should not duplicate the benefit already eliminated by an injunction: “If a misappropriator has been precluded from benefitting from the trade secrets by virtue of an injunction, there is no longer any unjust benefit. Imposing both an injunction and an unjust enrichment damages award in those circumstances would be duplicative and therefore punitive.” Finding that the permanent injunction and the unjust enrichment award did not fully overlap, the court held that the proper remedy was not to vacate the damages award but to narrow the injunction to eliminate the overlap. The court reasoned that “injunctions are an extraordinary remedy, to be granted only when a party is threatened with injury for which it cannot obtain a sufficient legal remedy,” and that adjusting the injunction—rather than recalculating damages—was both simpler and more doctrinally sound. The district court was ordered to carve out of the injunction any prohibition on the defendant’s use of software it had independently developed, while maintaining the bar on access to and use of the plaintiff’s trade secrets.

The Federal Circuit: A Developing Issue

In Insulet Corporation v. EOFlow Co.,currently on appeal to the Federal Circuit, the district court distinguished Syntel on the ground that the defendants had used the plaintiff’s trade secrets to develop their own competing products, creating a real risk of future illicit misappropriation that threatened the ongoing value of the plaintiff’s trade secrets. The court concluded that Syntel‘s reasoning did not require vacatur of the avoided-costs award even where an injunction was entered. The court nonetheless reduced the avoided-costs award from $72 million to $25.8 million to avoid duplicative recovery, citing the impossibility of determining which damages theory the jury had relied upon.

Practical Implications

The emerging circuit split over the injury threshold for unjust enrichment damages under the DTSA carries substantial consequences for trade secret litigants. For plaintiffs, the forum choice matters significantly. A plaintiff whose trade secrets remain intact and commercially valuable—and who has secured a permanent injunction—faces a far more restrictive damages environment in the Second Circuit than in the Fifth. Under Syntel, a robust permanent injunction may effectively foreclose avoided-cost unjust enrichment recovery by eliminating both the defendant’s future benefit and the doctrinal basis for the plaintiff’s damages claim. In the Fifth Circuit, that same injunction would require only calibration of the damages award to eliminate overlap, not forfeiture of the avoided-costs claim.

For defendants, the choice of forum is equally consequential. A defendant in the Fifth Circuit cannot use the plaintiff’s retention of trade secret value or the existence of a permanent injunction as an absolute defense to unjust enrichment; the dispute shifts instead to the proper scope of the injunction. In the Second Circuit, demonstrating that the plaintiff’s trade secrets remain commercially valuable and fully usable after misappropriation may be dispositive on the unjust enrichment question.

In the Seventh Circuit, the picture is more nuanced. Because that court adopted the Second Circuit’s framework but found the injury-beyond-actual-loss requirement satisfied on the facts in Hytera, it is unclear how it would resolve a case where—as in Syntel—the trade secret owner retains full value with no diminution. Litigants in the Seventh Circuit should expect arguments drawn from both the Second and Fifth Circuit approaches and should carefully document any diminution in trade secret value caused by the defendant’s misappropriation.

Finally, regardless of jurisdiction, plaintiffs must ensure that jury instructions clearly identify the basis for any damages award. Ambiguity as to the theory of recovery risks substantial reductions on post-trial review, as illustrated by the district court’s forced reduction in Insulet.

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Author: may1985
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