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Approaches to Damages in Trade Secret Cases

In Damages, Practice articles, Reasonable Royalty, Unjust enrichment on October 20, 2010 at 7:59 pm
Trade Secrets NL 03-01-2006
Image by Bernard Flach via Flickr

Once a trade secret lawsuit progress beyond the preliminary injunction stage, the key battleground usually shifts to damages.  Assessing damages can be particularly difficult in a trade secret case because of the problematic uncertainty in measuring the value of trade secrets.  Marc Pensabene and Christopher Loh summarized some of the flexible approaches that plaintiffs and defendants might pursue in arguing for and against trade secrets damages calculations.

From the plaintiff’s perspective, the authors offer the following aggressive approaches (not all of which have been accepted by California courts):

  • In calculating lost profits, argue that the amounts should include not only lost sales that were diverted from the plaintiff to the defendant, but also losses attributable to price erosion or to increased costs cause by the misappropriation, such as the costs of an advertising campaign to recoup market share stolen by defendant
  • Argue for provable future profits, overhead costs, general and administrative expenses, lost profits on reorder or spare parts or other natural follow-on items
  • Ask the court to calculate plaintiff’s lost profits by applying the defendant’s profit margins to the plaintiff’s lost sales
  • In seeking unjust enrichment, if the defendant does not incorporate the trade secret into a product but rather uses it to promote its existing products or to develop new and different products, ask for a portion from those products
  • If plaintiff is unable to prove lost profits or unjust enrichment, seek development costs (so-called “head-start” damages), the diminution of the value of the plaintiff’s business or stock, or a reasonable royalty based either on the actual royalties that have been paid to the plaintiff, or a hypothetical royalty that the litigants would have negotiated at the time of the misappropriation Read the rest of this entry »
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