Versata v. Ford And The Power Of Trade Secrets – A Series (2 of 2)

Written by Ben Esplin

To recap the dispute: Ford licensed Versata’s vehicle configuration software under a Master Subscription and Services Agreement (MSSA) that strictly prohibited unauthorized copying or use. Instead of complying, Ford utilized its licensed access to reverse-engineer and build a competitive replacement, subsequently terminating the agreement. When Versata sued, a jury awarded $82.26 million for breach of contract, which the trial judge dramatically reduced to a nominal three dollars.

While our first post focused on how, separately, the Federal Circuit resurrected Versata’s trade secret damages, this contract-side holding provides a masterclass in how to build a layered, highly defensible intellectual property moat. Sophisticated companies commercializing software do not rely on trade secret law alone. Instead, they structure their security in overlapping layers, binding business partners to clear, restrictive licensing agreements. In the event of a breach, these contracts act as an independent, bulletproof backstop, shielding the innovator even when statutory trade secret claims are being hotly contested.

Reinstating the Contract Backstop

The district court's decision to gut the jury's contract award to a mere three dollars turned on the concept of certainty. The trial judge ruled that because Versata had not presented detailed evidence isolating its internal performance costs from its base license fees, the jury's $82.26 million award was impermissibly speculative.

The Federal Circuit resoundingly rejected this hyper-technical standard, clarifying that a plaintiff is not required to establish contract damages with mathematical certainty. Rather, reasonable certainty is all that is required. Versata had presented a clean, logical path for the jury: multiplying Ford’s historical annual base licensing fee of $10.95 million by the 7.5 years of Ford’s unauthorized use. The jury's calculation was not a guess; it was a common-sense assessment that sat safely within the range of proof presented at trial.

The Power of the "Wrongdoer Rule"

At the heart of the Federal Circuit's contract ruling is a foundational first principle of commercial law that every IP licensor should memorize: the "Wrongdoer Rule." Under this doctrine, when a party's breach of contract creates the very uncertainty or complexity that makes calculating damages difficult, the risk of that uncertainty is cast squarely upon the wrongdoer, not the injured party.

This rule is a massive shield for innovators of non-patentable technology. It prevents a breaching licensee from capitalizing on the complexity of their own misconduct to escape liability. If a licensee breaks your trust to build a replacement system, they cannot demand impossible levels of mathematical precision or use accounting technicalities to avoid paying for the value they took.

Ultimately, Versata proves that the most resilient IP programs are structured in layers where contract law and trade secret protection reinforce one another. By coupling trade secret protections with an enforceable, contract-based backstop protected by the Wrongdoer Rule, software innovators can securely license their crown jewels with maximum leverage. In our next and final installment, we will shift from damages to liability, examining how the Federal Circuit defeated the "atomic" defense to protect software architecture as a whole.