World Wide Prosthetic Supply, Inc. v. Mikulsky

• Decision Date: 19 March 2002
• Docket Number: No. 00-1751.,00-1751.
• Citation: 251 Wis.2d 45,2002 WI 26,640 N.W.2d 764
• Parties: WORLD WIDE PROSTHETIC SUPPLY, INC., Plaintiff-Appellant, v. Robert J. MIKULSKY and Karen Mikulsky, d/b/a Enterprise Machine and Voyager, Inc., Defendants-Respondents-Petitioners.
• Court: Wisconsin Supreme Court

251 Wis.2d 45

2002 WI 26

640 N.W.2d 764

WORLD WIDE PROSTHETIC SUPPLY, INC., Plaintiff-Appellant, v. Robert J. MIKULSKY and Karen Mikulsky, d/b/a Enterprise Machine and Voyager, Inc., Defendants-Respondents-Petitioners.

No. 00-1751.

Supreme Court of Wisconsin.

Oral argument January 15, 2002.

Decided March 19, 2002.

For the defendants-respondents-petitioners there were briefs by Winston A. Ostrow, Donald L. Romundson and Godfrey & Kahn, S.C., Green Bay, and oral argument by Donald L. Romundson.

For the plaintiff-appellant there was a brief by Terry J. Gerbers and Gerbers Law Offices, Green Bay, and oral argument by Terry J. Gerbers.

¶ 1. ANN WALSH BRADLEY, J.

The petitioners, Robert J. Mikulsky and Karen Mikulsky, doing business as Enterprise Machine and Voyager, Inc., seek review of a published court of appeals decision that reversed a circuit court order declaring a mistrial and remanded for a new trial.¹ They argue that the court of appeals erred in concluding that World Wide Prosthetic Supply, Inc. could recover as damages its lost profits allegedly resulting from Voyager's manufacture and distribution of a defective product incorporating World Wide's trade secret.

¶ 2. In essence, the petitioners assert that the court of appeals misinterpreted Wis. Stat. § 134.90(4)(a) (1999-2000),² which provides for damages in a claim for misappropriation of a trade secret. Because we determine that the phrase "actual loss" in § 134.90(4)(a) is correctly interpreted to include the damages World Wide seeks, and that evidence of such losses is admissible, we affirm the court of appeals.

I

¶ 3. World Wide, a company that designs and distributes endoskeletal prosthetic components, entered into a manufacturing arrangement with the Mikulskys, doing business first as Enterprise Machine and later as Voyager. Pursuant to the agreement, Voyager produced components for World Wide that World Wide delivered to a number of distributors.

¶ 4. When World Wide's customers began complaining that some of the components produced by Voyager were cracked and broken, the parties' relationship deteriorated. World Wide suspected that the problems were due to manufacturing defects. After attempting to reconcile the problems with Voyager, World Wide stopped marketing the defective product and made arrangements to have a different company manufacture its components. Upon the ending of the business relationship between Voyager and World Wide, Voyager continued to manufacture and also to distribute prosthetic components, without making changes to their appearance or design.

¶ 5. World Wide sued Voyager, the Mikulskys, and Enterprise Machine (hereinafter "Voyager"), alleging that Voyager misappropriated a trade secret.³ According to World Wide, Voyager's continued production of the prosthetic components constituted a misappropriation of a trade secret that caused World Wide to lose profits.⁴ World Wide claimed that it was entitled to trade secret damages because its lost profits were due to the fact that Voyager's components were defective and that these defective components, which looked like World Wide's components, caused buyers to lose confidence in World Wide's products.

¶ 6. The case proceeded to trial, and World Wide sought to introduce evidence to show that it lost profits because Voyager continued to manufacture and distribute defective components using World Wide's trade secret. Voyager objected to the introduction of the evidence, asserting that it was not relevant in a trade secret claim. Although the circuit court initially allowed some testimony that the components were defective, the court ultimately agreed with Voyager. The court determined that the evidence was not relevant, and thus not admissible to establish damages in a trade secret claim. The court concluded that it had erroneously admitted the evidence. Voyager moved for a mistrial, and the court granted the motion.

¶ 7. World Wide petitioned the court of appeals for leave to appeal, which the court granted. The court determined that under § 134.90(4), World Wide could recover damages that were the natural and proximate result of Voyager's wrongful conduct, including losses World Wide suffered because Voyager distributed a defective product incorporating World Wide's trade secret. Therefore, the court of appeals concluded, the evidence that Voyager marketed defective products incorporating World Wide's trade secret was admissible as evidence of damages under § 134.90(4), and the circuit court erred in determining that World Wide could not introduce the evidence. The court of appeals reversed the circuit court and remanded for a new trial.

II

[1]

¶ 8. The question before us is whether the court of appeals correctly interpreted § 134.90(4) to conclude that evidence that Voyager marketed defective products incorporating World Wide's trade secrets was admissible. In order to address whether such evidence is relevant, and thus admissible, we must determine whether the phrase "actual loss" under § 134.90(4)(a) may include World Wide's lost profits allegedly resulting from Voyager's manufacture and distribution of a defective product incorporating World Wide's trade secret. The interpretation and application of a statute to a given set of facts is a question of law for our independent review. Minuteman, Inc. v. L.D. Alexander, 147 Wis. 2d 842, 853, 434 N.W.2d 773 (1989).

[2, 3]

¶ 9. In answering this question we look to case law from both this state and other jurisdictions. Prior to this case, we have not had an opportunity to interpret § 134.90(4). However, since § 134.90 is Wisconsin's version of the Uniform Trade Secrets Act, we can look to decisions of other jurisdictions interpreting the Uniform Act for guidance. See Wis. Stat. § 134.90(7). Additionally, in addressing this question, we consider secondary authority, as well as the nature of trade secret claims under § 134.90.

III

[4]

¶ 10. Passed by the legislature in 1986, § 134.90 adopts the Uniform Trade Secrets Act. Minuteman, 147 Wis. 2d at 851. Section 134.90 defines a trade secret and outlines the remedies available to those injured by trade secret misappropriation. Id. In Minuteman, this court set out a three-prong framework for the analysis of trade secret actions under § 134.90:

When examining an alleged violation of sec. 134.90, Stats., three questions arise. First, whether the material complained about is a trade secret under sec. 134.90(1)(c), Stats. Second, whether a misappropriation has occurred in violation of sec. 134.90(2). And finally, if both of the above requirements are met, what type of relief is appropriate under sec. 134.90(3) or (4).

Id. at 853-54.

¶ 11. For the limited purpose of our review in this case, Voyager concedes the first prong, that the material complained about is a trade secret. In its brief and at oral argument, Voyager initially asserted that no misappropriation occurred. However, Voyager eventually conceded at oral argument that for purposes of this court's review that it used, and thus misappropriated, World Wide's trade secret.⁵

¶ 12. Therefore, the central question presented by this case falls within the third prong of the Minuteman framework, the type of relief available under § 134.90. Section 134.90(4), the portion of the trade secret statute addressing damages, states in part:

(a) . . . A court may award damages in addition to, or in lieu of, injunctive relief under sub. (3). Damages may include both the actual loss caused by the violation and unjust enrichment caused by the violation that is not taken into account in computing actual loss. Damages may be measured exclusively by the imposition of liability for a reasonable royalty for a violation of sub. (2) if the complainant cannot by any other method of measurement prove an amount of damages which exceeds the reasonable royalty.

(b) If a violation of sub. (2) is wilful and malicious, the court may award punitive damages in an amount not exceeding twice any award under par. (a).

(Emphasis added.)

¶ 13. Under the statute, total damages may be calculated by a number of measures, including, in appropriate cases, punitive damages. Our focus, however, is on the phrase "actual loss" in the statute. The statute states that damages may include "the actual loss caused by the violation ...." The question becomes whether "actual loss" encompasses lost profits allegedly resulting from Voyager's manufacture and distribution of defective products incorporating World Wide's trade secret.

¶ 14. As the court of appeals in this case recognized, the Seventh Circuit Court of Appeals anticipated the question before us in Micro Data Base Sys., Inc. v. Dharma Sys., Inc., 148 F.3d 649 (7th Cir. 1998). In Micro Data, several entities were involved in a four-way deal that led to a dispute between two software companies, Dharma and Micro Data Base Systems (MDBS). Id. at 651. Dharma, the defendant in the lawsuit arising from the dispute, counterclaimed and asserted a trade secret violation against MDBS. Id. at 652.

¶ 15. In addressing Dharma's trade secret claim, the Micro Data court focused on the question of whether Dharma had suffered injury. 148 F.3d at 657. Dharma put in evidence that in the course of the dispute that led to the trade secret claim, MDBS soured Dharma's relationship with another entity, who otherwise would have purchased at least 1,000 copies of Dharma's software program. Id.

¶ 16. The court concluded that Dharma was entitled to seek damages for its lost business. Micro Data, 148 F.3d at 658. Characterizing the misappropriation of a trade secret as a tort, the court in Micro Data reasoned that Dharma's lost business constituted reasonably foreseeable consequential damages. Id. The court gave an illustration to demonstrate further:

It's as if MDBS, having stolen a program from Dharma, inserted a bug in it as a result of which the program didn't work, and buyers blamed Dharma and refused to do any

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