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Energy & Intellectual Property
DTSA provides that a court may award:
(i)(I) damages for actual loss caused by the misappropriation of the trade secret; and
(II) damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss; or
(ii) in lieu of damages measured by any other methods, the damages caused by the misappropriation measured by imposition of liability for a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret.8
The first measure of damages is a trade secret owner’s actual loss that is caused by the misappropriation. One example of actual loss would be a situation where the trade secret is misappropriated and the owner no longer has access to the trade secret. Without access, the owner loses revenue and, ultimately, profits. However, the more common situation is where the owner still has possession of the trade secret, but it has been replicated and used by a competitor. The owner would have to prove that it lost profits through that misappropriation by the competitor.
The second category of damages does not require an owner to prove its actual loss. Instead, the owner may recover the unjust enrichment gained by the person or entity that misappropriated the trade secret. Most commonly, a court looks to the use of the trade secret and the gross profit resulting from the misappropriation.
Finally, a court may award a reasonable royalty as the measure of damages caused by the misappropriation. Presumably, this method would allow for future damages if the misappropriation is ongoing into the future.
A COURT MAY AWARD EXEMPLARY DAMAGES AND ATTORNEYS’ FEES
“If the trade secret is willfully and maliciously misappropriated,” the court may “award exemplary damages in an amount not more than 2 times the amount of the [compensatory] damages awarded.”9 The statute does not define the terms “willfully” and “maliciously,” so the courts that have considered the issue have looked to a number of factors. For example, in Caudill Seed & Warehouse Co. v. Jarrow Formulas, Inc., No. 3:13CV82-CRS, 2021 WL 863203, *7 (W.D. Ky. March 8, 2021), the court approved a jury instruction stating that “[w]illful and malicious means behavior motivated by spite or ill will and a disregard for the rights of another with knowledge of probable injury.” Put another way, “willful and malicious conduct is calculated, deliberate, and reprehensible.” Id. (analyzing claim made under UTSA rather than the DTSA, whose languages are substantially similar). In another important case, the court looked to considerations such as “the degree of reprehensibility associated with the wrongdoer’s actions,” “the duration of appropriative misconduct,” the defendant’s consciousness of resulting injury and any efforts to cover up malfeasance,” “the need to deter similar misconduct in the future,” the amount of compensatory damages awarded,” and “the wealth of the particular defendant.” See Proofpoint, Inc. v. Vade Secure, Inc., No. 19CV04238-MMC, 2021 WL 5407521, *2 (N.D. Cal. Nov. 18, 2021).
Additionally, if the misappropriation is willful and malicious, or the trade secret claim is made in bad faith, the court may also award “reasonable attorney’s fees to the prevailing party.”10 Given the complexity of most trade secret litigation, the amount of attorneys’ fees incurred by both sides can be significant. However,
8 18 U.S.C. § 1836(b)(3)(B)(i)-(ii).
9 18 U.S.C. § 1836(b)(3)(C).
10 18 U.S.C. § 1836(c).
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FDCC ANNUAL FIVES 2023