Stolen Trade Secrets: What Kind of Damages Can You Recover?
Trade secrets — they are one of your business’s most valuable assets, and you’ll go to great lengths to protect them. Unfortunately, even with protective measures, there is still a possibility of theft and misappropriation. In 2013, Texas passed a law to strengthen trade secret protections and give Texas businesses a clear path to stop their hard-earned business secrets from being used against them and to recover damages.
If someone is using your trade secret – whether it be a client or vendor list, a formula you’ve invested years in developing, or even a unique business model – you have legal remedies.
The Texas Uniform Trade Secrets Act (TUTSA) clearly defines a trade secret, provides a streamlined channel for businesses to obtain relief, and includes provisions to recover damages.
TUTSA defines a trade secret as information with economic value because it is not generally known and which a company has made reasonable efforts to keep secret. Examples include formulas, patterns, financial data, business plans, client lists, contract terms, and more.
Businesses should proactively safeguard themselves from trade secret violations by utilizing legal tools such as confidentiality/nondisclosure agreements, non-solicitation agreements, non-compete agreements, and work-for-hire agreements.
If you find yourself the victim of misappropriation, you can fight back. The first step is to stop the use of confidential information with an injunctive relief by a judge. This will legally order your competitor, former employee, or whoever stole your trade secrets to stop what they are doing. This can include preventing a former employee from going to work for a competitor, halting a competing business venture or ordering an individual to not disclose alleged trade secrets.
Per statute, “actual or threatened misappropriation” can be enjoined, as long as the order does not prohibit a person from using the general knowledge, skills and experience acquired during the course of his or her career.
There are multiples remedies available for violation of TUTSA in addition to injunctive relief discussed above.
You can get actual damages, which means “this is what I lost,” generally calculated by comparing your profits prior to the misappropriation to profits following the misappropriation.
While actual damages seek to reimburse you for your lost income, unjust enrichment seeks to recover the defendant’s unjustly gained revenue.
“For example,” says Managing Shareholder Trey Hendershot, “let’s say you developed a unique formula and methodology for doing something. You spent ten years on the project and invested a million dollars developing it. If a former employee took that trade secret and competed against you, that person didn’t have to spend the same time and money you dedicated. That would be an unjust enrichment for the former employee, and that amount would be a recoverable damage.”
A Reasonable Royalty
Alternatively, you can seek a reasonable royalty amount as if you had entered a licensing agreement with the defendant. “If you had chosen to license your trade secret to the mis-appropriator, what would be a fair market fee for that agreement?” asks Hendershot. “That amount can be recoverable as damages as well,” he adds.
Suppose it's proven that the trade secret violation was done willfully and maliciously with clear and convincing evidence. In that case, you can also recover exemplary damages up to two times the amount of actual damages.
Lastly, courts have the discretion to award the prevailing party its reasonable attorneys’ fees where willful and malicious misappropriation is shown. These fees may be awarded for misappropriation claims made in bad faith.
Preservation of Secrecy
Additionally, because TUTSA requires courts to take reasonable steps to preserve the secrecy of alleged trade secrets in misappropriation claims, courts can include limitations on who can have access to the alleged trade secret during litigation, such as only the attorneys and experts, and order those parties not to disclose the information. Thereby further protecting your trade secret from exposure.
When it comes to your business and trade secret disputes, there’s no one better to contact than the team at Hendershot Cowart P.C.. With more than 100 years of collective experience in business litigation and trade secret law, our attorneys have the knowledge you need to protect your proprietary information.
If you have concerns about the misappropriation of trade secrets or your intellectual property, do not hesitate to call us at (713) 909-7323 to schedule a consultation.