Someone misappropriated your trade secrets and you can prove it. But how were you damaged? This is an important question you must ask before commencing a lawsuit because the answer could influence a significant portion of your litigation strategy. Below we provide insights into some of the categories of damages you may be entitled to recover along with some of the impediments to recovering those damages. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.
Lost profits are a common form of trade secret misappropriation damages. Under Florida Statutes 688.001(4), Florida’s trade secrets act permits recovery of damages “for the actual loss caused by misappropriation.” These damages are calculated by determining the revenue the trade secret owner lost due to the defendant’s conduct less the costs the trade secret owner saved due to the defendant’s conduct. An example could be a manufacturing plant that loses several customers and millions in revenue because a former employee stole the plant’s trade secret and started a competing business. The plant could recover its lost customer revenues minus the costs it saved by manufacturing less products due to the lost customers. However, determining which costs are deductible from revenue can be tricky and vary case by case. A court may refuse to deduct fixed costs from the lost profit analysis because the plant would have incurred those fixed costs regardless of whether it retained all customers. For example, in Fin. Info. Techs., LLC v. iControl Sys., USA, LLC, 21 F.4th 1267 (11th Cir. 2021), the United States Court of Appeals for the Eleventh Circuit agreed with the federal trial court’s decision that “the jury was not required to deduct Fintech’s fixed costs from its revenues to arrive at a proper ‘actual loss’ measure.” See also N. Gregory Mankiw, Principles of Microeconomics 266–68 (6th ed. 2011) (defining fixed costs as those that do not directly vary based on output volume). By contrast, courts may deduct marginal costs from the lost profit analysis because the plant saved money by producing less products. See N. Gregory Mankiw, Principles of Microeconomics 266–68 (6th ed. 2011) (defining marginal costs as the measure of change in cost associated with a change in output). In the iControl Sys., USA, LLC decision, the Eleventh Circuit assessed the plaintiff’s proof at trial vaguely articulated its marginal costs as “minimal” without specifying what were the actual marginal costs or that they were zero. The Eleventh Circuit explained in pertinent part that, “[m]issing from the trial record is any evidence that Fintech’s marginal costs were actually zero. Had Fintech clearly presented that evidence, it might have been entitled to an award that didn’t account for those costs.”
Disgorgement is a lesser-known remedy in trade secret litigation. Disgorgement in essence requires a defendant to give-up certain profits to the plaintiff as an equitable remedy for ill-gotten gains. In Sensormatic Elecs. Corp. v. TAG Co. US, LLC, 632 F. Supp. 2d 1147 (S.D. Fla. 2008), the federal district court held that “[d]isgorgement of a defendant’s profits is an appropriate remedy where the disgorgement is limited to the amount of time it would have taken the defendant to independently develop its product without the benefit of the plaintiff’s trade secrets—in other words, the ‘head start’ period.” The remedy is intended to prevent the defendant’s unjust enrichment and is measured by a defendant’s improper acquisition of money rather than the plaintiff’s losses. S.E.C. v. Monterosso, 756 F.3d 1326, 1337 (11th Cir. 2014).
Exemplary damages can be awarded if the defendant’s conduct is sufficiently willful and malicious. Perdue Farms Inc. v. Hook, 777 So.2d 1047, 1053 (Fla. 2d DCA 2001) (determining that exemplary damages are permissible when “the defendant acts willfully, or with such gross negligence as to indicate a wanton disregard of the rights of others”). The trier of fact can award extra damages above what the plaintiff established at trial. However, exemplary damages can be capped. In Florida, these damages cannot exceed twice the amount awarded by the trier of fact. See, e.g., Fla. Stat. 688.004. (“If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made”).
A plaintiff should consider each category of damages to determine how likely recovery for each category is, the potential value of each category of damage, and the potential cost of proving each category of damage. The plaintiff should consider these issues before the suit is filed and during all phases of the lawsuit to evaluate the case’s strength and determine whether the lawsuit is financially worthwhile.
Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.