An owner of a trade secret that has been misappropriated may seek remedies of injunctive relief and monetary damages, to compensate it for the economic harm resulting from the party that stole and benefitted from the theft of the trade secret. While injunctive relief is the gravamen of any trade secret misappropriation claim, the available monetary damages often drive litigation strategy and often drive a plaintiff’s business, commercial, or market response to the misappropriation.
The trade secret owner may seek injunctive relief and monetary damages under the Uniform Trade Secrets Act (“USTA”), and if applicable, the federal Defend Trade Secrets Act (“DTSA,” enacted 2016), or the Economic Espionage Act (“EEA,” enacted 1996) that criminalized a theft or misappropriation of trade secrets to benefit a foreign government, or agent. Forty nine states, the District of Columbia, and the United States Territories of Puerto Rico and the Virgin Islands have adopted the UTSA (the state of New York remains the sole holdout. Remedies vary and depend upon specific language of the state’s version of the UTSA.
Consequently, rules governing the recovery of monetary damages are not uniform across the fifty two jurisdictions and can be difficult to apply. Here, we discuss monetary remedies under the UTSA and the DTSA. To ensure fairness of the monetary relief awarded to plaintiff – without interfering with lawful competition by the defendant – courts have identified the following categories of recoverable damages, and utilize one or more of these categories to arrive at the total amount awarded to the plaintiff trade secret owner:
- Actual Loss. Pecuniary losses recoverable by plaintiff include lost profits, including lost sales to customers that were diverted to the defendant, price erosion, and increased costs, and loss in value of the trade secret caused by defendant’s misappropriation.
- Unjust Enrichment. Plaintiff is entitled to recover defendant’s net profits attributable to use of the misappropriated trade secret. Plaintiff has the burden of proof that defendant profited from sales and/or other improper use of plaintiff’s trade secret, and defendant has the burden of proof for claims that its profits, or a(ny) portion thereof, were not attributable to use of plaintiff’s trade secret. A court may also consider: costs incurred by plaintiff in the development of its trade secret; costs defendant ‘saved’ or did not incur, but nevertheless benefitted from, by misappropriating the trade secret developed by plaintiff; and defendant’s profits during the ‘lead time’ or ‘head start’ defendant gained in developing its competitive product or business.
- Reasonable Royalty. A reasonable royalty is the payment for a hypothetical license, that plaintiff and defendant would have negotiated at the time the defendant’s improper use of plaintiff’s trade secret began, and continuing for the duration of defendant’s use. This hypothetical negotiation scenario may rely on a calculation of the “fair market value” for the license to use the trade secret, and/or comparable licenses plaintiff may have negotiated with other parties over the relevant time period.
- Exemplary Damages. If defendant’s conduct in the misappropriation of plaintiff’s trade secret is willful, malicious, or in bad faith, the court may award: (a) an additional amount not exceeding twice any award made to fairly compensate the trade secret owner for actual losses and defendant’s unjust enrichment resulting from misappropriation; and (b) attorneys’ fees.
Comparatively, the New York statute governing trade secrets claims allows for money damages for plaintiff’s actual lost profits (defendant’s gains/profits that are not plaintiff’s actual losses are not considered), and unjust enrichment (except defendant’s ‘saved’ or avoided development costs), other costs and attorneys’ fees, and in egregious circumstances such as willful and malicious misappropriation, punitive damages (i.e., exemplary damages) in addition to damages awarded for economic harms suffered by plaintiff. New York law also allows the owner of the trade secret to seek remedies, including monetary awards, for claims of breach of contract, unfair competition, breach of fiduciary duty, the criminal offense of larceny.
The trade secret owner, as the plaintiff, must decide which specific claims to assert, and often, the venue in which they proceed. Recovery of monetary damages, and the trade secret owner’s business interests, rest upon timely decisions: a close reading of the version of the UTSA adopted by the state in which the claims may proceed; consideration of applicable case law in that jurisdiction; potential applicability of the federal DTSA; and even the potential applicability of the EEA. Familiarity with all available options is key when time is of the essence.