Recent Case Demonstrates Importance of Contesting Damages Claims in Trade Secrets Litigation
This month we will be talking about a key takeaway from Feder Law Firm’s recent involvement in a multi-million dollar trade secrets case. Trade secrets litigation is increasingly common in Colorado as our state’s bourgeoning technology economy creates litigation risks for both employees and management over the custody and use of proprietary business information.
Under the Colorado Uniform Trade Secrets Act (“CUTSA”), a trade secret is essentially any scientific, technical, business, or financial information which provides value and a competitive advantage to a business as a result of being maintained as a secret from the business’s competitors. The subject matter of a trade secret must remain secret and cannot be publicly known, and trade secret protection is lost if the secret is disclosed to the public. Misappropriation of a trade secret occurs when a trade secret is acquired or disclosed with actual or constructive knowledge that the acquisition or disclosure was by improper means, such as theft or breach of a duty to maintain secrecy.
CUTSA provides that a complainant is entitled to recover damages for misappropriation of trade secrets. Damages may include both the actual loss caused by misappropriation and unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret. C.R.S. § 7-74-104(1).
Feder Law Firm argued in briefing to the court that there is a critical distinction between a keeper of trade secrets -- one who is authorized to possess the trade secrets in the first place -- and an improper user of trade secrets -- one who uses the trade secrets to compete with their owner. Because there had been no unauthorized disclosure or use of the allegedly misappropriated trade secrets by Client, CUTSA expressly precluded reasonable royalty as a measure of damages. Plaintiff was therefore left with unjust enrichment as the sole theory of damages.
The court suggested that even if Plaintiff were to ultimately prevail on its claim that Client was a keeper who misappropriated trade secrets, Plaintiff failed to prove it had been damaged. Feder Law Firm was able to achieve a successful outcome for Client by emphasizing that Plaintiff had not suffered any damages because Client never improperly used the information. Plaintiff was therefore left in a position where, even if it had been able to prove misappropriation of trade secrets, it would have been a victory in name only as the damages award would have been zero.
In litigation, staying two steps ahead of the opposing party often requires attacking the other side’s arguments from multiple angles simultaneously. As this recent case demonstrates, it is critical in trade secrets litigation -- and can be dispositive of the case -- to attack not only the opposing party’s claim of misappropriation, but also its theory of damages.
More on Trade Secrets Litigation
Trade Secrets: 10 Keys to Successful Litigation – The Colorado Lawyer (Jan. 2016)
Here are some upcoming events that might interest you. If you have any to add, please let us know by replying to this email and we will include them in future newsletters.
2017-5-5 (Friday) 49th Annual Rocky Mountain Securities Conference
Co-sponsored by the U.S. Securities and Exchange Commission and the Business Law Section of the Colorado Bar Association. Topics include:
Not Your Father's SEC!
New Administration, New Year, New SEC!
Dodd-Frank Retooling or Repeal?
Overhauling of Whistleblower Programs?
Easing of Post Crisis Rules and More on the Horizon?
Attend the 49th Annual Rocky Mountain Securities Conference on May 5, 2017, Marriott City Center, Denver, and get the latest on developments at the SEC, and what may be next.