Trade secret misappropriation: No lost profits means no damages? Think again.
Adam Massaro
Partner | Akerman LLP | First-chair corporate, cannabis, and intellectual property litigator, who runs with the bulls
In theft of trade secret cases, the parties too often evaluate the case based on whether the trade secret holder lost profits or the accused improperly profited in the marketplace. The accused will in turn claim that if it did not profit from the misappropriation, then no harm, no foul. The analysis, however, is not so simple. Courts hold that trade secret “case[s] require[] a flexible and imaginative approach to the problem of damage.” Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 538 (5th Cir. 1974). Both sides in a trade secret suit should be mindful of the role of reasonable royalty damages.
What is a reasonable royalty? Generally speaking, the amount the accused would have paid to license the intellectual property had a hypothetical negotiation occurred with the owner of the intellectual property at or around the time of the misappropriation.
Does trade secret law allow a reasonable royalty? Yes. Both the Uniform Trade Secret Act (adopted by most states) and the federal Defend Trade Secrets Act explicitly allow for reasonable royalty damages.
When is a reasonable royalty proper in trade secret cases? In particular, used when actual damages are difficult to quantify or the accused has not commercialized the trade secret. See, e.g., Alcatel USA, Inc. v. Cisco Sys., Inc., 239 F. Supp. 2d 660, 667 (E.D. Tex. 2002).
Ways to compute a reasonable royalty? The reasonable royalty can come in multiple forms, such as a lump sum or running royalty. A lump sum (a guaranteed amount) makes particular sense where the parties “are adversaries and do not want to work with each other because of a lack of trust or other issues.’” Valuation and Pricing of Technology–Based Intellectual Property 297 (2003). Courts also allow hybrid royalties. Endress Hauser, Inc. v. Hawk Measurement Systems Pty. Ltd., 892 F. Supp. 1123, 1128 (S.D. Ind. 1995) (holding a reasonable royalty would have been a lump sum payment of $100,000.00 and 15% on all sales of licensed products).
Next week we’ll cover head start damages in trade secret cases.
For more information on the author: https://www.lrrc.com/Adam-Massaro#overview
Virtual Assistant, Executive Assistant and 2iC Yoda. Leadership. Entrepreneurship. Founder at Executive Assistant Institute. Founder at WeTeachMe.
3 年I certainly didn't expect to learn this subject-matter today. Thanks for putting this together and sharing your insights Adam Massaro.
Founder and President of Bergman Consulting, LLC
3 年Great article, Adam. I agree that the use of reasonable royalties in trade secret cases isn’t well known. I’ve calculated reasonable royalties in a couple of trade secret cases by following a modified version of the Georgia-Pacific factors. I look foward to the next article!
B2B Marketing Executive (SaaS)
3 年Great info. on IP and how to determine a reasonable royalty. #intellectualpropertylaw
Serial entrepreneur - striving to add value to those people around me, as well as the businesses I'm a part of
3 年Great article! Keep creating such valuable stuff.
CEO @ Hexagon Studios, where we build mobile crypto games with rewarded gameplay
3 年Hoping I never need this info, but great to at least have a better understanding. Thanks for the education. Side note: I love the style of this post.