The Tenth Circuit recently issued a decision clarifying the cap on punitive damages under the Kansas Uniform Trade Secrets Act.  The decision also reinforces the importance of preparing written confidentiality agreements that expressly identify the company’s trade secrets.  

In ICE Corp. v. Hamilton Sundstrand Corp., the Tenth Circuit affirmed the district court’s finding that the defendants violated the KUTSA when they misappropriated ICE Corporation’s trade secrets.  Specifically, the defendants were working together to supply propellers for a proposed military aircraft and chose ICE as an independent contractor to supply a deicing controller for the propellers.  The parties entered into an agreement wherein ICE would supply the deicing controller, and after ICE began performance, the agreement fell through and the defendants selected a new company to provide the deicing controller.  Thereafter, ICE sued the defendants alleging they had, among other things, misappropriated trade secrets under KUTSA by furnishing the new company with ICE’s proprietary information.

The Tenth Circuit affirmed that, by virtue of the parties’ written agreements, ICE did in fact own the trade secrets and the defendants had willfully misappropriated those trade secrets.  The Tenth Circuit also affirmed the jury’s award of $4,795,300 in compensatory damages against one defendant.  However, the Tenth Circuit reversed the district court’s award of punitive damages against the same defendant in the amount of $9,590,600. 

ICE argued that the punitive damages award against the defendant was permissible because the punitive damages provision of KUTSA allowed an award of up to twice of the amount of compensatory damages.  The Tenth Circuit held that Kansas’s general punitive damages statute trumps KUTSA’s punitive damages provision.  Thus, any punitive damages award for a violation of KUTSA is limited to the lesser of either the annual gross income earned by the defendant or $5 million. 

The Tenth Circuit did recognize an exception to the punitive damages cap wherein the court could exceed the $5 million cap upon a finding that the profitability of a defendant’s misconduct exceeds or is expected to exceed the cap, and award up to one-and-a-half times the profit.  The Tenth Circuit was unable to make a determination as to punitive damages, however, because the district court did not make any finding as to the profitability of the defendant’s misconduct.  The Tenth Circuit therefore remanded for a determination of a punitive damages award in accord with its holding.

ICE is also notable because it highlights the importance of drafting clear and precise contracts that explicitly identify confidential, privileged, and proprietary information.  As the Tenth Circuit recognized, ICE made clear in the relevant written agreements that the information it provided to the defendant was confidential, privileged and proprietary.  Indeed, the district court relied on the written agreements between the parties in deciding that there was sufficient evidence to conclude that ICE owned the alleged trade secrets.  If ICE had neglected to identify its trade secrets as confidential in the written agreements between the parties, the threshold determination of ownership could have been very different.