In many commercial cases, damages models begin and end with a loss-profits analysis. But in trade-secrets cases, a plaintiff can go one step further.
Under the Uniform Trade Secrets Act, “Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss.”
Thus, in addition to lost profits (and injunctive relief, which I’m not addressing in this post), the plaintiff can also recover damages to the extent the defendant was unjustly enriched, as long as those amounts aren’t included in the lost-profits model. This provision is particularly helpful where the plaintiff has difficulty quantifying its loss.
To lay the foundation for unjust-enrichment damages, a plaintiff’s discovery plan should include seeking documents and information that show how the defendant benefited by using the plaintiff’s trade secrets. This discovery will necessarily involve financial information. While defendants may object to providing financial information absent a judgment, courts should permit it, given the statute’s plain language.
Seeking financial information early in a trade-secrets case can also create leverage for a settlement, as most companies have no interest in sharing financial information with a competitor. These concerns can be mitigated somewhat with a protective order, as I discussed in a prior post. When representing a defendant, consider moving to bifurcate the trial into liability and damages phases, with the financial discovery delayed until after a finding of liability.
But unjust-enrichment damages can be hard to prove, particularly where it is difficult to link the misappropriation to the defendant’s profits. To overcome these issues, or to identify when unjust enrichment is not worth pursuing, the plaintiff should consider hiring a consulting damages expert early in the case. This expert can help formulate discovery requests and analyze the information produced, as well as help prepare for depositions on this issue.
At trial, expert testimony will likely be needed to show how the defendant’s profits flowed from the misappropriation and to quantify these damages.
In sum, a trade-secrets plaintiff should focus on damages early in the case. As part of this process, consider whether the damages model should include unjust enrichment.