Available Damages in Trade Secret Misappropriation Cases

Assessing monetary damages in suits for trade secret misappropriation presents a unique set of challenges not found in other intellectual property litigation. Patents, copyrights and trademarks are easy to identify because they cover discrete items of intellectual property. Trade secrets, on the other hand, protect more nebulous categories of information, such as know-how, manufacturing processes and business practices, which can be harder to assign a dollar value to.

Under both the Illinois Trade Secrets Act and the federal Defend Trade Secrets Act, a plaintiff can recover money damages caused by the misappropriation of trade secrets. In addition to money damages, Illinois and federal trade secret law permit for injunctive relief as well. To obtain injunctive relief, a plaintiff must establish that the misappropriation has or threatens to cause irreparable harm to the plaintiff. Irreparable harm comes in many forms including loss of goodwill and reputational harm. The Illinois Trade Secrets Act and the federal Defend Trade Secrets Act both permit a court to award a successful plaintiff its attorney’s fees and costs.

Actual damages for trade secret violations include both (1) “actual loss” suffered by the plaintiff as a result of the misappropriation and (2) any “unjust enrichment” realized by defendant because of the misappropriation. “Actual loss” consists of the trade secret owner’s lost profits, lost customers or lost market share. “Unjust enrichment” refers to the defendant’s profits resulting from the misappropriation. Unjust enrichment can be calculated based on (1) the defendant’s profits on sales attributable to use of the misappropriated trade secret, (2) the amount of defendant’s increase in sales after misappropriation, provided plaintiff can show a causal connection between the increase in sales and the appropriation, or (3) the plaintiff’s cost of developing the trade secrets that were misappropriated.

In certain cases, it may be too difficult to prove the amount of actual losses or unjust enrichment with any degree of certainty. If neither can be proved by a preponderance of the evidence, a court may award damages in terms of a reasonable royalty for the defendant's unauthorized disclosure or use of the plaintiff’s trade secret. A reasonable royalty is simply that amount which the trier of facts estimates a person desiring to use the trade secret would be willing to pay for its use and the trade secret owner desiring to license the trade secret would be willing to accept. The amount of the royalty can be calculated based on evidence of the development costs and the value of the trade secrets covering the period of the defendant’s use. If the court determines that the misappropriation was willful and malicious, the court may award exemplary damages up to twice the amount of actual damages awarded.

Injunctive relief is granted when a court orders the defendant to stop engaging in certain activities or to take certain steps to preserve the secrecy of the plaintiff's trade secrets. Importantly, a court has the authority to order a defendant to stop manufacturing a product using a process that constitutes a misappropriated trade secret or to stop contacting customers included on a misappropriated customer list.

The standard for awarding attorney’s fees differs based on who prevails in the lawsuit. If the plaintiff prevails, the court may award attorney fees if the court finds that the defendant acted willfully or maliciously. If the defendant prevails, the court may award attorney fees if it finds that the plaintiff filed the lawsuit in bad faith. A court may also award attorney fees if a motion to terminate an injunction is made or resisted in bad faith.

Trade secret litigation can be costly and protracted. Engaging in emergency litigation to obtain a preliminary injunction at the outset of the case can bring about an early resolution if granted. However, if an injunction is not granted at the outset of the case, a defendant may feel entitled to retain and use the information during the pendency of the case. Whether you are a plaintiff or defendant in a trade secret misappropriation lawsuit, it is vital to retain experienced trade secret and business litigation counsel who will be able to determine what evidence is needed and whether an expert witness will be needed to prove misappropriation or damages.

The attorneys at Lubin Austermuehle have over thirty years of experience defending and prosecuting trade secret, intellectual property, and complex business lawsuits. We are committed to fighting for our clients' rights in the courtroom and at the negotiating table. Conveniently located in Chicago and Elmhurst, Illinois, we have successfully litigated intellectual property and emergency business litigation cases for clients all over the Chicago area. To schedule a consultation with one of our skilled attorneys, you can contact us online or give us a call us at 630-333-0333.