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Damage types in trade secret misappropriation claims

Depending on the nature of the business a company engages in, it is possible that a trade secret is a key component of its success. For businesses in this situation the misappropriation of a trade secret can be devastating. Accordingly, when this happens it is important to take legal action against the offender. This can be accomplished via a trade secret misappropriation claim.

There are several theories under which damages might be secured in a claim of this nature: unjust enrichment, reasonable royalty and actual damages.

In a successful case under the unjust enrichment theory, the benefit that the entity named as the defendant received will need to be returned to the plaintiff. In addition, it is possible that compensatory damages could also be secured. Compensatory damages could include a reasonable royalty, the diminished value of the plaintiff’s stock or business, the costs and time attributed to what developing a method would cost the defendant and the cost the plaintiff incurred in developing the trade secret.

Reasonable royalty is a good approach when the parties to the dispute do not compete directly, resulting in an artificially low amount of damages. The rate of reasonable royalty is reached via a hypothetical negotiation involving the parties regarding licensing the trade secret. Multiple factors are taken into consideration in the course of the hypothetical negotiation of the reasonable royalty rate. Ultimately an economic expert will assist in determining a damages figure that is derived from the percent of the defendant’s sales, a flat sum or a per-unit amount.

Actual damages is also an approach that may be used. In short this is essentially the profits lost by the plaintiff as a result of the misappropriation of the trade secret. The defendant’s profits based on the use of the trade secret could also be disgorged to plaintiff. In other situations a plaintiff will receive the value of price erosion that occurs as a result of the misappropriation by the defendant.

These types of cases are complicated. Accordingly a lawyer who has a thorough understanding of the process is important.

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