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Understanding Money Damages for Trade Secrets Misappropriation under Federal and Illinois Law

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Understanding Money Damages for Trade Secrets Misappropriation under Federal and Illinois Law

Both federal law and the Illinois Trade Secrets Act (765 ILCS 1065/et seq.) allow a person to recover money damages caused by the misappropriation of trade secrets. 765 ILCS 1065/4; 18 U.S.C. § 1836. Generally, a “trade secret” is information kept confidential for economically advantageous reasons. See 765 ILCS 1065/4; 18 U.S.C. § 1839(3). Trade secrets often consist of technical or business information, such as, for example, designs, codes, prototypes, procedures, or plans. See 765 ILCS 1065/4; 18 U.S.C. § 1839(3). In some instances, a trade secret may include lists of customers and/or potential customers. 765 ILCS 1065/4.

The recovery for misappropriation of trade secrets is nearly identical under federal and state law. See generally 765 ILCS 1065/4; 18 U.S.C. 1836(b)(3)(B), (C), (D). The owner of a trade secret may obtain recovery for actual damages, as well as exemplary damages and attorney’s fees.

1. Actual Damages

Actual damages for trade secret violations include both (1) “actual loss” caused to the trade secret owner by the misappropriation, and (2) “unjust enrichment” received by the defendant or others because of the misappropriation.

“Actual loss” consists of a trade secret owner’s lost profits, i.e. “the profit it would have made on the product it would have sold but for the defendants’ misappropriation.” Mangren Research & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937, 945 (7th Cir. 1996).

“Unjust enrichment” refers to “the profits others made because of defendants’ misappropriation.” Mangren Research & Dev. Corp., 87 F.3d at 945. Unjust enrichment from a trade secret can be proven in the following three ways:

  • The defendant’s profits on sales attributable to use of the trade secret. See C & F Packing Co., Inc. v. IBP, Inc., 244 F.3d 1296, 1304 (Fed. Cir. 2000 (applying Illinois law)).
  • The amount of defendant’s increase in sales after misappropriation, provided plaintiff can show a causal connection between the increase in sales and the appropriation.” See Thomas & Betts Corp. v. Panduit Corp., No. 93 C 4017, 1997 WL 603880, at *17 (N.D. Ill. Sept. 23, 1997).
  • The plaintiff’s cost of development, on the rationale that the defendant received a benefit in that amount because it avoided expending resources to develop the product.” See Minn. Mining & Mfg. Co. v. Pribyl, 259 F.3d 587, 607 (7th Cir. 2001) (applying Wisconsin law).

In some instances, it may be too difficult to prove either actual damages or unjust enrichment. If neither actual loss nor unjust enrichment can be proven, damages measured as “reasonable royalty” may be awarded instead. 765 ILCS 1065/4(a); 18 U.S.C. 1836(b)(3)(B)(ii). A reasonable royalty is an amount that reflects what would have been likely agreed upon had the trade secret been licensed. See RKI, Inc. v. Grimes, 200 F. Supp. 2d 916, 926 (N. D. Ill. May 2, 2002). Calculating a reasonable royalty includes, for example, evidence of costs from developing the trade secret or valuation of the trade secret. Id.

2. Exemplary Damages and Attorney’s Fees

Exemplary damages are simply punitive damages meant to deter and punish the wrongdoer for willful and malicious trade secret appropriation. See SKF USA, Inc. v. Bjerkness, 2010 U.S. Dist. LEXIS 80776, *27 (N.D. Ill., Aug. 9, 2010) (discussing 765 ILCS 1065/4(b)). Under both Illinois and federal law, exemplary damages are limited to up to two times the amount awarded for actual damages. 765 ILCS 1065/4(b); 18 U.S.C. 1836(b)(3)(C). In order to obtain an award of exemplary damages, a plaintiff must demonstrate that the defendant’s trade secret appropriation was willful and malicious.

Like exemplary damages, a showing of willful and malicious trade secret appropriation may also entitle a plaintiff to reasonable attorney’s fees under both state and federal law. 765 ILCS 1065/5; 18 U.S.C. 1836(b)(3)(D); see also RKI, Inc. v. Grimes, 177 F. Supp. 2d 839, 880 (N.D. Ill. Dec. 21, 2001). According to the Northern District of Illinois, “ ‘willful and malicious appropriation’ includes both an intentional misappropriation and a misappropriation resulting from the conscious disregard of the rights of another.” Id. at 879.

Conclusion

Although this blog post has primarily discussed money damages, both federal and state law allow for injunctive relief to stop trade secret misappropriation. 765 ILCS 1065/3; 18 U.S.C. 1836(b)(3)(A). If you have been the victim of threatened or actual trade secret theft, then you should contact an attorney immediately about seeking an injunction.

Categories General Litigation Legal Updates Privacy and Data Security Litigation



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