## Facts

- Sperry Rand Corporation designed and manufactured radar equipment, including slotted array antennas, and maintained confidential manufacturing data, designs, and drawings for such antennas.
- John E. Zentmeyer, Jr. and Gus K. Tebell were Sperry Rand employees with access to the confidential antenna manufacturing information.
- Zentmeyer became president of Electronic Concepts, Inc. (ECI), and Tebell later worked for ECI.
- Sperry Rand alleged that Zentmeyer and Tebell misappropriated Sperry Rand’s confidential antenna manufacturing information and used it at ECI to compete with Sperry Rand.
- Sperry Rand also alleged misappropriation of confidential bid pricing information relating to a U.S. Coast Guard radar contract, enabling ECI to underbid Sperry Rand and win the contract.
- Automatic Sprinkler Corporation of America acquired ECI, changed its name to A-T-O, Inc., and assumed ECI’s liabilities.
- After a lengthy bench trial in diversity applying Virginia law, the district court found defendants liable, granted an injunction against use or disclosure of the information, and awarded compensatory damages (including an attorney’s fee component) and punitive damages.

## Issues

1. Whether the district court clearly erred in finding that defendants misappropriated and used Sperry Rand’s confidential manufacturing and bid-pricing information.
2. Whether the compensatory damages award improperly permitted double recovery by awarding both the “value to the defendant” of the misappropriated information and Sperry Rand’s lost profits on the Coast Guard contract.
3. Whether attorney’s fees were recoverable as compensatory damages under Virginia law in this trade secret action.
4. Whether punitive damages were permissible under Virginia law based on defendants’ conduct.

## Decision

- The Fourth Circuit affirmed the findings of liability and the injunction, holding the district court’s fact findings were not clearly erroneous under Federal Rule of Civil Procedure 52(a).
- The court vacated the compensatory damages award and remanded for recalculation because the award included an impermissible double recovery.
- The court held Virginia law did not permit attorney’s fees to be awarded as compensatory damages on the record presented and rejected that component.
- The court affirmed the punitive damages awards, concluding the misconduct was sufficiently deliberate to justify punishment under Virginia law.

## Legal Principles

- Appellate review of bench-trial factfinding is highly deferential; credibility resolutions and detailed findings are upheld absent clear error under Rule 52(a).
- Under Virginia trade secret/confidentiality principles, former employees may be liable for taking and using an employer’s confidential manufacturing or pricing information to compete, and successor entities assuming liabilities may be responsible for the predecessor’s misconduct.
- Trade secret damages may be measured by the plaintiff’s actual loss (e.g., lost profits) and/or the defendant’s unjust enrichment (e.g., value gained from the misappropriation), but courts must prevent double recovery for the same economic injury.
- Virginia follows the American Rule on attorney’s fees; absent a recognized basis (e.g., statute or contract), fees are not recoverable as compensatory damages.
- Willful and deliberate misappropriation can support punitive damages under Virginia law.

## Conclusion

The Fourth Circuit upheld liability and injunctive relief for misappropriation of confidential antenna manufacturing and bid-pricing information but required damages to be recalculated to avoid double recovery and disallowed attorney’s fees as compensatory damages under Virginia law, while leaving punitive damages intact.


Sperry Rand Corp. v. A-T-O, Inc., 447 F.2d 1387 (4th Cir. 1971)