FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET DAMAGE OPTIONS

A trade secret plaintiff usually will consider potential damages to be recovered from the defendant, and how you will present evidence to a jury establishing those damages. This aspect of a trade secret lawsuit is not always straight-forward because a trade secret plaintiff is entitled to different damage categories depending on the facts and circumstances of the lawsuit. A trade secret plaintiff can obtain damages for actual use or disclosure of the trade secret, unjust enrichment damages, exemplary damages, or a royalty. See 18 U.S.C.A. § 1836; Fla. Stat. § 688.004. Non-monetary relief is also available like an injunction, but such relief is beyond the scope of this article. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

A trade secret plaintiff seeking actual loss damages should consider the diminished use value of the trade secret and how the diminished use saved operational costs. Trade secret plaintiffs usually argue they sold less widgets because the defendants stole the trade secret and used it to unlawfully compete. See Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 94 So. 3d 640 (Fla. 4th DCA 2012) (confirming an appropriate definition of actual losses is “loss of profits, lost customers or lost market share to the owner of the trade secret caused by the misappropriation.”). The trade secret plaintiff is normally eager to present historical revenues demonstrating all the money he or she would have generated but for the defendant’s unlawful conduct. E.g., Fin. Info. Techs., LLC v. iControl Sys., USA, LLC, 21 F. 4th 1267 (11th Cir. 2021). However, pure revenue evidence is usually rejected or subject to intense scrutiny because it is does not account for variable costs the plaintiff saved by producing less widgets due to the newfound competition and resulting diminished demand. See Kutner Buick, Inc. v. Am. Motors Corp., 868 F.2d 614 (3d Cir. 1989) (“The effect on net income must be measured by revenue lost less costs avoided. This translates into lost revenue less the variable cost of producing this lost revenue.”). A trade secret plaintiff should be prepared to disclose a large portion of its operational revenues and expenses to demonstrate the value of his or her actual losses.

Unjust enrichment damages are determined from the perspective of the defendants. How much profit did the defendants generate by stealing the plaintiff’s trade secrets or what was the value of costs defendants avoided by using the plaintiff’s trade secrets? See KW Plastics v. U.S. Can Co., 131 F. Supp. 2d 1289 (M.D. Ala. 2001) (“unjust enrichment damages measure the benefits, profits, or advantages gained by the defendant in its use of a trade secret.”) (citing the Illinois Trade Secrets Act); Healthplan Services, Inc. v. Dixit, 2021 WL 4927434, at *6 (M.D. Fla. May 27, 2021), report and recommendation adopted, 2021 WL 4926752 (M.D. Fla. July 22, 2021) (calculating unjust enrichment damages by “determining the developmental costs the Dixit defendants avoided by using HealthPlan’s trade secrets”). Establishing these damages therefore requires evidence of the plaintiff to obtain documentation from the defendant’s establishing its revenues, expenses, and profits.

Exemplary damages are awarded in addition to actual losses or unjust enrichment damages when the defendants willfully and maliciously misappropriated the plaintiff’s trade secret. These damages are intended to punish the defendant’s improper conduct. Healthplan Services, Inc., 2021 WL 4927434, at *13. However, the Courts will generally cap exemplary damages to not more than twice the actual loss damages or unjust enrichment damages awarded by the trier of fact. U.S. Sec. Associates, Inc. v. Campos, 19-24290-CIV, 2020 WL 2494597 (S.D. Fla. May 13, 2020) (“[W]here a trade secret is willfully and maliciously misappropriated, a plaintiff is entitled to exemplary damages in an amount not more than double the actual or unjust enrichment damages.”).

Royalty damages can be imposed when the defendant’s fail to successfully implement the plaintiff’s trade secret or when the plaintiff’s trade secret is used to improve the defendant’s product or incorporated into the defendant’s larger product. Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir. 1974) (likening a trade secret lawsuit to a patent lawsuit and stating that “in a patent case [ ] the lack of actual profits does not insulate the defendants from being obliged to pay for what they have wrongfully obtained in the mistaken belief their theft would benefit them.”); id. (“Originally this measure was intended to deal with the situation where the misappropriated idea is used either to improve the defendant’s manufacturing process, or is used as part of a larger manufactured product.”). The court assumes for purposes of royalty damages that the plaintiff granted the defendant a license to use the trade secret as of the date of the misappropriation and then proceeds to determine the value of that license. Id. When the royalty price cannot be determined with exact precision, a reasonable estimate of trade secret’s value may be used. Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir. 1974).

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.