Key Takeaways:

  • Although calculating damages in trade secrets cases can be challenging, courts have flexibility in fashioning an award to fairly compensate the victim of a trade secret theft.
  • The Third and Fifth Circuits recently upheld two very different measures of damages: (1) the benefit conferred on the defendant (unjust enrichment), and (2) the objective value to a reasonably prudent investor for the trade secret (actual loss). Counsel's selection of a damages theory is a critical strategic choice.

Trade secret law affords plaintiffs flexibility in fashioning a damages calculation. As detailed in the Defense of Trade Secrets Act, remedies can include (1) injunctive relief, (2) damages for the plaintiff's actual loss, (3) damages for unjust enrichment of the defendant, (4) assessment of a reasonable royalty for use of the trade secret, payable to the plaintiff, and (5) exemplary damages for up to two times the amount of an actual damages award. 18 U.S.C. § 1836(b)(3). The Third and Fifth Circuits recently illustrated how very different measures can be used depending on the facts.

The Third Circuit upheld an award of unjust enrichment damages. PPG Indus. v. Jiangsu Tie Mao Glass Co., 2022 U.S. App. LEXIS 24411 (3d Cir. Aug. 30, 2022). The court awarded the plaintiff the additional costs the defendant would have incurred to develop the misappropriated technology—a new kind of plastic for airplane windows – without the benefit of the trade secrets. Id. at *11. The Third Circuit agreed with the lower court that the plaintiff's development costs—around $8.8 million—were an adequate indicator of actual damages. Although the defendant had not sold a product with the technology, it had used the technology, and therefore enjoyed the benefits of the plaintiff's R&D process. Id. at *12-13. The Court also upheld the lower court's exemplary damages award of $17.6 million. The lower court had doubled the monetary damages award, finding the defendant's misappropriation to be willful and malicious. In total, the Third Circuit upheld a $26.4 million dollar award.

The Third Circuit then highlighted that injunctive relief and monetary damages can coexist. The Court noted that "injunctive relief ordinarily will preclude a monetary award for a period in which the injunction is effective[,]" but both are appropriate when the injunctive relief covers the defendant's future conduct, while the monetary relief compensates the plaintiff for damages that have already occurred. Id. at *14-15.

The Fifth Circuit also upheld a monetary award in a trade secrets case, measuring damages for actual loss using a "reasonable royalty" approach. In DHI Group, Inc. v. Kent, the jury awarded $3 million after being instructed to award the amount a reasonably prudent investor would have paid for the trade secrets at issue—a resume database sold on a subscription basis to oil and gas companies. 2022 U.S. App. LEXIS 24585 at *11 (5th Cir. Aug. 30, 2022). The Fifth Circuit agreed with the lower court that actual damages "may be measured by . . . the value a reasonably prudent investor would have paid for the trade secret." Id. at *11-12 (citations omitted).

These two opinions, issued the same day, illustrate the flexibility afforded to plaintiffs in measuring the value of misappropriated trade secrets. A plaintiff's R&D costs and the trade secrets market value are each viable valuation methods for trade secrets. Determining a trade secret's value is still often complicated by the unique nature of each trade secret. Counsel for the plaintiff must look at all the facts to determine which measure is both (1) supported by provable facts and/or expert testimony, and (2) yields the largest potential damages award.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.