N.D. Ohio Discusses Damages in Trade-Secrets Lawsuits

The Northern District of Ohio recently discussed the various types of damages that can be obtained in Trade Secret Act (TSA) cases. It concluded that a plaintiff can recover for the money it spent acquiring the trade secret, but cannot recover for lost investment due to the ongoing trade-secret litigation.

In Mar Oil Co. v. Korpan, 2013 WL 5406078 (N.D. Oh. Sept 4, 2013) (link below), the plaintiff, MAR Oil Co., and defendant Korpan entered into an agreement under which Korpan would assist in MAR’s exploration for oil and gas reserves. During the agreement’s term, MAR Oil invested millions of dollars in exploration, including producing seismic readings. These readings are apparently very valuable, as they help in locating oil and gas reserves. Korpan had access to this information.

After the agreement expired, Korpan began working with the other defendants to locate oil and gas reserves in the same area, including on property where MAR Oil previously had a lease. MAR Oil sued, alleging that Korpan and the other defendants used its trade secrets, including the seismic readings.

MAR had three damages theories: (1) lost profits, (2) its acquisition costs for the readings, and (3) lost investment. There was no dispute that lost profits can be a measure of trade-secret-misappropriation damages. But the defendants argued that MAR could not recover for acquisition costs and lost investments.

The court started by discussing the damages available in misappropriation cases (citations and quotations omitted):

Ohio law [and the Uniform Trade Secrets Act] treats actual loss and unjust enrichment caused by misappropriation as two distinct theories of recovery. Each requires plaintiff to prove with reasonable certainty that it suffered a loss because of the defendant’s misappropriation. . . . [D]amages in trade secrets cases are difficult to calculate because the offending company has mixed the profits and savings from increased quality and quantity of products, as well as savings from reduced research costs, with its own natural profits.

The court then ruled that MAR can recover the money it spent acquiring the seismic data, since “if [the defendant] used MAR’s seismic data improperly, what MAR spent and [the defendant] thereby saved would appear to be a proper yardstick for a damage award.” Essentially, the defendant was unjustly enriched by the amount it would have cost to acquire the data.

As for lost investment, MAR argued that a potential investor withdrew an investment due to the ongoing litigation. The court would not allow MAR to seek damages for this lost investment, since “there must be a demonstrable link between misappropriation of the trade secret and MAR’s loss.”

As the court noted, calculating damages in misappropriation cases can be tricky. Plaintiffs need to start thinking about their damage models—and working with a damages expert—early in the case.

MAR Oil Co. v. Korpan — Order

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