How Much Are Your Trade Secrets Worth? Determining Damages When Trade Secrets Are Stolen

How Much Are Your Trade Secrets Worth? Determining Damages When Trade Secrets Are Stolen

Trey Hendershot

Trey Hendershot

August 5, 2021 05:19 PM

In a recent article, we covered the different types of damages business owners can seek as reparations from other parties who infringe on trade secrets, which are protected by the Texas Uniform Trade Secrets Act, or TUTSA. In this article, we look at how the courts determine the value of these damages – vital information if you are seeking an equitable resolution for the misappropriation of your trade secrets.

Five Ways the Courts Assess Monetary Damages for Stolen Trade Secrets

Frequently, one of the most difficult aspects of trade secret-related cases for plaintiffs is proving how much the theft harmed your business.

1. Actual Damages or Lost Profits

A common measure of damages is to estimate the profits lost as a result of the misappropriation. One method is to add the profit margin of your business, as a multiplier, to the sales volume of the defendant (considering that sales volume as though it were your own). The resulting figure may prove an indication of the profits you lost due to the misappropriation of trade secrets.

Once you calculate your lost profits, it may be possible to pursue further damages in addition to the baseline value of said lost profits. For example, plaintiffs may be able to obtain additional damages in the forms of overhead and administrative costs accrued due to the loss of trade secrets. Plaintiffs may also be able to seek compensation for efforts their business made to counteract misappropriated trade secrets, such as advertising campaigns aimed at recouping lost market share.

2. Unjust Enrichment

Actual damages calculate your lost profits; unjust enrichment takes the defendant’s profits into account. Frequently, unjust enrichment damages are requested either in place of, or in conjunction with, lost profits damages.

To calculate how much a plaintiff is owed in unjust enrichment damages, courts often look to how much the defendant's profits increased due to the misappropriation of a trade secret, and how much time in research and development the defendant saved as a result of that theft.

For example, if you spent 10 years and invested half a million dollars developing a unique formula or method, and a former employee takes that method and competes against you, they have profited from your hard work, and you may be able to recover those profits.

3. Diminution of Value

A lesser-used calculation, diminution of value generally relies on expert testimony to estimate the amount a trade secret’s value has been eroded by the loss of its secrecy. It can be a useful measure when more traditional measures of damages cannot be easily established or do not accurately reflect the economic loss. It is difficult to monetize, however, and courts often reject such valuations as too speculative.

4. A Reasonable Royalty

In lieu of damages measured by other methods, the courts may assess damages either based on actual royalties paid to the plaintiff, or hypothetical royalties the parties would have negotiated had they entered into a licensing agreement at the time of the misappropriation.

5. Exemplary Damages

If willful and malicious misappropriation – defined as "intentional misappropriation resulting from the conscious disregard of the rights of the owner of the trade secret" – can be proven through clear and convincing evidence, exemplary damages may be awarded.

For example, if a defendant steals a trade secret to knowingly start up a competing business and then seeks to cover up the theft by fabricating evidence, the courts may consider that willful and malicious misappropriation. In that event, exemplary damages may be awarded not as compensation to the plaintiff but as a punishment to the defendant. Exemplary damages are limited to twice the amount of any compensatory damages.

In some trade secrets cases, courts may also award attorney’s fees, especially for claims brought in bad faith or where willful and malicious misappropriation was proven.

At Hendershot Cowart P.C., we understand just how important trade secrets are to your company's success. We will fight aggressively for your rights in and out of the courtroom, helping you pursue the most decisive path forward in your trade secrets case.

Related Articles

Trending Top Five: Critical Corporate Components for 2022

by Justin Smulison

It’s no longer “business as usual” for most of Corporate America. With a growing list of challenges facing the legal and financial health of many companies, we talked to several major General Counsel about the biggest areas in which businesses should remain vigilant.

Corporate Advice From General Counsel

Staunch Competition

by Andrea E. Nieto, Catherine H. Molloy and Jennifer W. Corinis

On the other side of the pandemic, after record numbers of employee resignation, protecting trade secrets is both challenging and being challenged.

Protecting Trade Secrets During Period of Res

Property Protectors

by Best Lawyers

Georg Schönherr and Thomas Adocker discuss the theft of trade secrets, patent infringement, and strategies to combat fake goods.

An Interview With Schwarz Schönherr Rechtsanw

This German Firm Protects Their Clients in the Face of Emerging Technologies

by Best Lawyers

Johannes Heselberger discusses theft of trade secrets, the pharmaceutical industry, and fake goods.

An Interview With Bardehle Pagenberg

Protect Your Intellectual Property From Patent Trolls

by Best Lawyers

Michael Ritscher discusses how he advises clients to better protect their trade secrets.

An Interview With Meyerlustenberger Lachenal

Oklahoma Finds Tort-Reform Statute Unconstitutional

by T. Luke Abel

The Beason family had a strong case, and the jury responded by awarding them a sizable payout. But, the court invoked a tort-reform statute that capped the family's winnings, much to the surprise of the jury.

Oklahoma Tort-Reform Unconstitutional Damages

Changing for the Better

by Justin Smulison

Joseph Brophy’s Austin-based boutique firm comprises some of the most talented and experienced civil litigators in Texas.

Betting on Finance, Civil Litigation Success

Trending Articles

The Real Camille: An Interview with Johnny Depp’s Lawyer Camille Vasquez

by Rebecca Blackwell

Camille Vasquez, a young lawyer at Brown Rudnick, sat down with Best Lawyers CEO Phillip Greer to talk about her distinguished career, recently being named partner and what comes next for her.

Camille Vasquez in office

Announcing the 2022 Best Lawyers® in the United States

by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

Famous Songs Unprotected by Copyright Could Mean Royalties for Some

by Michael B. Fein

A guide to navigating copyright claims on famous songs.

Can I Sing "Happy Birthday" in Public?

Choosing a Title Company: What a Seller Should Expect

by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

Johnny Depp and Amber Heard: The Best Lawyers Honorees Behind the Litigation

by Gregory Sirico

Best Lawyers takes a look at the recognized legal talent representing Johnny Depp and Amber Heard in their ongoing defamation trial.

Lawyers for Johnny Depp and Amber Heard

Announcing the 2022 Best Lawyers in Canada™

by Best Lawyers

The results include an elite field of top lawyers listed in the 16th Edition of The Best Lawyers in Canada™ and 1st Edition of Best Lawyers: Ones to Watch in Canada.

Announcing the 2022 Best Lawyers in Canada™

Why Cariola Díez Pérez-Cotapos Developed Its Own Legal Tech

by Best Lawyers

Juan Pablo Matus of Cariola Díez Pérez-Cotapos, 2019 "Law Firm of the Year" award for Corporate and M&A Law in Chile, discusses his firm's joint venture with Cognitiva in creating Lexnova, a legal AI system.

Cariola Díez Pérez-Cotapos Interview

Announcing the 2022 "Best Law Firms" Rankings

by Best Lawyers

The 2022 “Best Law Firms” publication includes all “Law Firm of the Year” recipients, national and metro Tier 1 ranked firms and editorial from thought leaders in the legal industry.

The 2022 Best Law Firms Awards

Best Lawyers: Ones to Watch – The Future of Legal Talent Looks Bright

by Justin Smulison

Best Lawyers: Ones to Watch is launching its second edition in the United States, and after talking with both a company leader and esteemed lawyers on the list, the importance of this prestigious list is evident.

Best Lawyers: Ones to Watch in America 2022

Education by Trial: Cultivating Legal Expertise in the Courtroom

by Margo Pierce

The intricacies of complex lawsuits require extensive knowledge of the legal precedent. But they also demand a high level of skill in every discipline needed to succeed at trial, such as analyzing technical reports and deposing expert witnesses.

Cultivating Legal Expertise in the Courtroom

How A Claim Can Create A ‘Class’ of Its Own

by Justin Smulison

One civil claim can help a victim recover, prevent others from the same harm and even save lives. Tom Connick has experienced this directly, having been at the ground floor of injury claims that have led to high-value class action settlements.

Fire Consuming Paper Money

Announcing the 2022 Best Lawyers™ in Australia

by Best Lawyers

The results include an elite field of top lawyers and firms.

Announcing the 2022 Best Lawyers™ in Australi

Caffeine Overload and DUI Tests

by Daniel Taylor

While it might come as a surprise, the over-consumption of caffeine could trigger a false positive on a breathalyzer test.

Can Caffeine Cause You to Fail DUI Test?

Wage and Overtime Laws for Truck Drivers

by Greg Mansell

For truck drivers nationwide, underpayment and overtime violations are just the beginning of a long list of problems. Below we explore the wages you are entitled to but may not be receiving.

Truck Driver Wage and Overtime Laws in the US

Announcing The Best Lawyers in Australia™ 2023

by Best Lawyers

The results include an elite field of top lawyers and firms from Australia.

The Best Lawyers in Australia™ 2023

Georgia Laws Taking Effect in 2022

by Gregory Sirico

Three new pieces of Georgia legislation aim to improve medical bill transparency, lower the sales tax on vehicles and enact further safeguards to protect children in foster care.

New Georgia Laws Enacted in 2022