Damages Issues In Trade Secrets Cases (Part III)

We are blogging on “Non-competes, Trade Secrets, Fiduciary Duties, and the Inevitable Disclosure Doctrine.” Mark Oberti has prepared a detailed paper on all of these issues, which can be found here.

In Calce v. Dorado Exploration, Inc., 309 S.W.3d 719 (Tex. App.–Dallas 2010, no pet.), the court held that the evidence was not legally sufficient to support jury’s award of $400,000 in reasonable royalty damages to exploration company on its claim for misappropriation of trade secrets. As the court noted, an appropriate measure of damages in a misappropriation of trade secrets case is a “reasonable royalty.” Id. at 738 (citing Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 536 (5th Cir. 1974)). “This does not mean a simple percentage of actual profits; instead, the trier of fact . . . must determine ‘the actual value of what has been appropriated.’” Metallurgical Indus. Inc. v. Fourtek, Inc., 790 F.2d 1195, 1208 (5th Cir. 1986) (quoting Vitro Corp. v. Hall Chem. Co., 292 F.2d 678, 683 (6th Cir. 1961) and citing Univ. Computing Co., 504 F.2d at 537). While every case involving misappropriation of trade secrets requires a “flexible and imaginative approach” to the problem of damages, certain standards have emerged from the cases. Univ. Computing Co., 504 F.2d at 538-39. As stated by the Fifth Circuit,

If the defendant enjoyed actual profits, a type of restitutionary remedy can be afforded the plaintiff-either recovering the full total of defendant’s profits or some apportioned amount designed to correspond to the actual contribution the plaintiff’s trade secret made to the defendant’s commercial success. Because the primary concern in most cases is to measure the value to the defendant of what he actually obtained from the plaintiff, the proper measure is to calculate what the parties would have agreed to as a fair price for licensing the defendant to put the trade secret to the use the defendant intended at the time the misappropriation took place.

Id. at 539.

In calculating what a fair licensing price would have been had the parties agreed, the trier of fact should consider such factors as the resulting and foreseeable changes in the parties’ competitive posture; prices past purchasers or licensees may have paid; the total value of the secret to the plaintiff, including the plaintiff’s development costs and the importance of the secret to the plaintiff’s business; the nature and extent of the use the defendant intended for the secret; and whatever other unique factors in the particular case might have been affected by the parties’ agreement, such as the ready availability of alternative processes. Id. (citing Metallurgical Indus. Inc., 790 F.2d at 1208 (citing Univ. Computing Co., 504 F.2d at 540)). “Estimation of damages, however, should not be based on sheer speculation.” Id. If too few facts exist to permit the trier of fact to calculate proper damages, then a reasonable remedy in law is unavailable. Id. In that instance, a permanent injunction is a proper remedy for the breach of a confidential relationship. Id. (citing Zoecon Indus. v. Am. Stockman Tag Co., 713 F.2d 1174, 1180 (5th Cir. 1983) (citing Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763, 778 (1958)). In Calce, the court concluded there was no evidence to support the jury’s $400,000.00 damages award. Id. at 740-41.

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