Damages in Trade Secret Cases

Trade secrets are information that confer a business advantage over competitors who do not know or use them. Misappropriation of trade secrets is the unauthorized acquisition, disclosure, or use of a trade secret.

In the US, trade secret owners can seek damages for actual loss, unjust enrichment, royalties, or exemplary damages up to double if there is willful misappropriation. Cash damages are available regardless of injunctive relief.

Monetary damages cover the period of misappropriation overlapping with trade secret protection and any additional time a thief benefits from the misappropriation.

Actual loss may include lost profits or measurable harm caused by the defendant’s actions.

The trade secret owner must prove actual damages with sufficient evidence; lack of evidence or speculation may prevent recovery. Clear proof of financial loss from misuse or theft is required.

A plaintiff can recover for unjust enrichment from misappropriation if not already included in the actual loss calculation. Enrichment may be based on the defendant’s profits, productivity gains, market share from trade secrets, or saved development costs.

The trade secret owner must show that the defendant profited at their expense. Courts will not award damages without evidence of a calculable benefit from misappropriation. Lack of evidence or speculation may prevent recovery.

A successful plaintiff may recover both actual loss and unjust enrichment damages, but there can be no double-counting. To recover both, the defendant’s unjust enrichment must be distinct from or in excess of the plaintiff’s actual loss.

If neither actual loss nor unjust enrichment can be proven, courts are generally authorized to award a reasonable royalty for the period the trade secret could have been used without permission.

A reasonable royalty estimates what would have been paid in a voluntary licensing agreement. Courts usually consider what parties would have agreed to in a hypothetical negotiation at the start of the misappropriation. They often begin with real-world comparables, like licensing agreements or transactions involving similar trade secrets. The court then adjusts the royalty based on case-specific facts, often supported by an expert. Factors include market value, cost savings, duration and scope of use, and the willingness to license, considering risks of disclosure, competitive advantage, and the party relationship.

To justify this alternative measure of damages, there must be competent evidence of the amount of a reasonable royalty. This remedy is discretionary and is typically applied when other forms of damages are unprovable. The court may not order payment of a reasonable royalty for longer than the period during which the use of the trade secret could have been prohibited.

If the misappropriation is found to be willful and malicious, the UTSA and the DTSA permit courts to award exemplary damages of up to twice the amount awarded for actual loss or unjust enrichment. Courts have interpreted “willful and malicious” to include conduct that is intentional and motivated by ill will or improper motives.

While the courts are granted discretion, judges often look to the following factors to determine the extent to which they will enhance damages: degree of intent, defendant’s state of mind, extent of harm, duration of misuse, efforts to conceal misuse, prior conduct involving similar misappropriations, and deterrence.

If a claim of misappropriation, or a motion related to it, is made, resisted, or occurs in bad faith, or if willful misappropriation occurs, the court may award reasonable attorney’s fees to the prevailing party.