This body of precedent stands in stark con-trast to the patchwork of decisions by various courts applying the law of different states in analyzing claims for trade secret tion.' In part
ANALYSIS OF LOST PROFITS DAMAGES
Under the Uniform Trade Secrets Act and related trade secret law, plaintiffs may recover damages based on their lost profits, the defendant’s unjust enrichment, or a reasonable royalty for the use of their trade secrets Plaintiffs may recover both lost profits and unjust enrichment, but only to the extent that these awards are not duplicative; alternatively, they may receive a reasonable royalty for the defendant’s use of the trade secrets.
The first measure, based on the plaintiffs lost profits, is a com- mon means of assessing damages in both patent and trade secret cases.
16 See UNIF TRADE SECRETS ACT § 3(a) (1985) (plaintiffs may recover "both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss") For a listing of those states that have adopted the Uniform Trade Secrets Act and those that instead look to the common law of trade secrets under the Restatement, see ABA MODEL JURY INSTRUCTIONS § 8.01, at 363-65 (3d ed 1996).
17 Telex Corp., 510 F.2d at 930 (observing that "a plaintiff may recover either, but not both [unjust enrichment and lost profits damages], because to allow both would permit double recovery"); Sperry Rand Corp v ATO, Inc., 447 F.2d 1387 (4th Cir 1971) (same); Jet Spray Cooler, Inc v Crampton, 385 N.E.2d 1349, 1356 (Mass 1979) ("Of course, a plaintiff is not entitled to both the profits made by the defendant and his own lost profits."); Rosenhouse, supra note 2, § 2[a] ("a particular measure of damages [is] inappropriate where application would have resulted in double recovery").
Many courts and commentators consider reasonable royalty damages to be particularly appropriate when other measures of damages, such as lost profits or unjust enrichment, are difficult to compute This approach is illustrated in Pioneer Hi-Bred International, Inc v Holden Foundation Seeds, Inc., where a reasonable royalty is used as a practical remedy when precise measurement of traditional damages is challenging.
F.3d 1226, 1243 (8th Cir 1994) (a reasonable royalty "is most appropriate when the other theo- ries would result in no recovery or when the parties actually had or contemplated a royalty"); Jet
Under the misappropriation doctrine, the “reasonable royalty” damages measure is only appropriate when the defendant has made no actual profits and the plaintiff cannot prove a specific loss; it functions as an alternative to traditional damages under the Uniform Trade Secrets Act and is typically used where it is difficult to quantify either the plaintiff’s actual loss or the defendant’s actual gain from the misappropriation From a policy standpoint, the least attractive method of measuring damages is the reasonable royalty standard The Federal Circuit has directed courts to first determine actual damages—lost profits—before resorting to a royalty award.
While this approach was taken under the Restatement, it has not been adopted under the Uni- form Trade Secrets Act:
Compared with the UTSA, the Restatement uses an either-or framework for measuring damages, selecting either the plaintiff's lost profits or the defendant's gains as the basis for recovery Royalty damages are treated as an alternative to both measures and are available only if neither the plaintiff's lost profits nor the defendant's gains can be shown By contrast, the UTSA allows the plaintiff to elect royalty damages regardless of whether other damages evidence exists.
ABA MODEL JURY INSTRUCTIONS § 8.06[4], at 399 (3d ed 1996).
Case law analyzing parallels between trade secret and patent law damages for lost profits is fairly sparse However, a well-developed body of patent damages jurisprudence provides a framework for assessing trade secret damages claims Key rules drawn from patent cases include how the availability of acceptable alternatives can limit recovery, the necessity to prove lost profits with a reasonable degree of certainty rather than on speculation, and the elements that must be proven to establish a lost profits claim.
Lost profits in patent infringement are governed by the same core principle that applies to damages generally: a plaintiff must prove but-for causation In this context, the plaintiff must show that but-for the infringing activity, the infringer would have realized those sales To establish both but-for causation and entitlement to lost profits, the plaintiff must reconstruct the market and present, hypothetically, the likely outcomes if infringement had not occurred This market reconstruction requires a careful analysis of market conditions, competition, and plausible counterfactuals to isolate the effect of the infringement.
Under patent-law damages, a patent owner seeking lost profits must prove causation in fact, showing that but-for the infringement the owner would have earned additional profits; courts require a reasonable probability that, absent the infringement, the patentee would have captured the infringer’s sales This framework is established in Shockley v Arcan, Electro Scientific Indus v Gen Scanning, and Grain Processing Corp v American Maize-Prods., and is reaffirmed in Oiness v Walgreens Co and Minn Mining & Mfg Co v Johnson & Johnson Orthopaedics, Inc.
To recover lost profits, as opposed to royalties, a patent owner must prove a causal relation between the infringement and its loss of profits, showing but-for causation—that is, the patent owner would have made the infringer's sales but for the infringement The patent owner must also present proper evidence of the lost-profits calculation, and courts require both causation and reliable computation evidence (as reflected in King Instrument, BIC Leisure Prods., and SmithKline Diagnostics) to establish losses This framework is reinforced by Pall Corp v Micron Separations, Inc., Rite-Hite Corp v Kelley Co., and Kearns v Chrysler Corp (affirming summary judgment on lost profits) In addition, SCHLICHER, supra note 6, § 9.04[1][a], at 9-23, and Pincus, supra note 6, at 102, explain that a patent owner may recover the profits it would have made on lost sales by showing a reasonable probability that it would have increased sales but for the infringement.
In patent damages analysis under the Panduit framework, the but-for analysis is the most difficult element for the patent holder to prove, and recent lower-court decisions emphasize that to recover lost profits, the patent owner must show that but-for the infringement, it would have captured the infringer’s sales, linking the infringement directly to the plaintiff’s potential gains.
20 Crystal Semiconductor Corp v Tritech Microelectronics, 246 F.3d 1336, 1355 (Fed.Cir 2001) (citing Grain Processing, 185 F.3d at 1350).
Sound economic proof of the market's nature underpins damages analyses in patent cases Under this framework, courts allow patentees to present market-reconstruction theories that demonstrate all the ways they would have been better off in the but-for world, enabling them to recover lost profits in a wide variety of forms.
Courts assessing patent infringement claims frequently apply the Panduit factors to determine whether a plaintiff may recover lost profits damages Under the Sixth Circuit's Panduit framework, a plaintiff must show four elements: (1) demand for the infringed product, (2) the absence of acceptable non-infringing substitutes, (3) the plaintiff's manufacturing and marketing capability to exploit the demand, and (4) the relationship between the patented invention and the market for the product.
Under patent damages analysis, the Federal Circuit has described the Panduit test as an acceptable, though not exclusive, method for establishing but-for causation In determining recovery, courts consider key factors such as (3) the defendant’s ability to exploit demand for the infringing product and (4) the amount of profit the infringer would have earned absent the alleged infringement, together guiding the valuation of lost profits and the appropriate damages award.
Under Panduit and its progeny, a plaintiff seeking lost profits must show the absence of non-infringing substitutes For substitutes to be considered acceptable alternatives, they must be sufficiently similar to the patented product and may not carry a disproportionately higher price or possess characteristics that are significantly different from the patented product.
22 Id (observing that "courts have given patentees significant latitude to prove and re- cover lost profits for a wide variety of foreseeable economic effects of the infringement").
Reliable Economic Analysis and Reconstruction of the
ANALYSIS OF ROYALTY DAMAGES
Courts have most fully applied patent-law damages principles to trade-secret damages claims in the area of royalty damages Under both patent and trade-secret regimes, a “reasonable royalty” seeks to measure the hypothetical value of what the defendant wrongfully obtained, determined through a supposititious meeting between the parties to establish what they would have agreed as a fair licensing price at the time of misappropriation The leading case guiding this approach in trade-secret misappropriation is the Fifth Circuit’s University Computing Co., which, in evaluating the royalty award, applied the Georgia-Pacific factors—originally developed for patent infringement claims—and adapted them to the trade-secret context.
When the trade secret owner already earns a royalty for the use of the secret, a reasonable royalty provides a particularly useful measure of damages; under those circumstances, the same royalty rate should be applied to the defendant who misappropriates the trade secret This principle, cited in JAGER, supra note 4, at 7-92 and tracing back to Kamin v Kuhnau (1962), aligns the damages with the owner’s licensing value.
86 Vt Microsystems, Inc v Autodesk, Inc., 88 F.3d 142, 151 (2d Cir 1996) (citing Ga.- Pac Corp v U.S Plywood-Champion Papers Inc., 446 F.2d 295, 296-97 (2d Cir 1971)); see also Pincus, supra note 6, at 121-22 (discussing "'hypothetical license' approach" to computing royalty for patent infringement).
87 As one commentator has noted, "[tihe most widely accepted list of facts pertinent to the determination of a reasonable royalty is the list compiled by the United States District Court for the Southern District of New York in Georgia Pacific v United States Plywood Corp."
SCHLICHER, supra note 6, § 9.04[3], at 9-34 (listing the Georgia-Pacific factors).
Seattle University Law Review the trade secret claims before it The court summarized the relevant factors as follows:
To determine a fair licensing price that would have been agreed upon, the trier of fact should weigh factors such as the resulting and foreseeable changes in the parties’ competitive posture; the prices paid by past purchasers or licensees; the total value of the secret to the plaintiff, including development costs and the secret’s importance to the plaintiff’s business; the nature and extent of the use the defendant planned for the secret; and other unique case-specific factors, such as the ready availability of alternative processes, that might have affected the parties’ agreement.
Although the court relied on Georgia-Pacific as the source of the relevant factors, it did not list every factor identified in that decision Georgia-Pacific itself identifies additional considerations, such as the portion of the realizable profit attributable to the invention versus non-patented features or improvements added by the infringer There is no indication that University Computing treated these factors as inapplicable to trade secret claims, nor is there a principled reason to exclude them from the analysis Rather, the court's failure to cite all fifteen Georgia-Pacific factors appears to reflect the lengthy, duplicative nature of the list rather than any conclusion about the factors’ applicability.
In a trade secret case, the fact-finder may weigh non-secret elements of a process or machine—those components that do not utilize the alleged trade secrets—as a factor in determining a reasonable royalty, a Georgia-Pacific factor not expressly enumerated in University Computing, and exclude any value attributable to those elements Consequently, some of the enumerated Georgia-Pacific factors remain relevant for valuing the overall infringement while separating the value attributable to the trade secret from the value of the non-secret components.
88 Univ Computing v Lykes-Youngstown Corp., 504 F.2d 518, 539 (5th Cir 1974) (cit- ing Hughes Tool Co v G.W Murphy Indus., Inc., 491 F.2d 923, 931 (5th Cir 1973)) Com- mentators frequently cite the University Computing factors in discussing the proper determination of reasonable royalties See, e.g., Johnson, Assessing Damages, supra note 4, at 72.
89 Ga.-Pac Corp v U.S Plywood Corp., 318 F Supp 1116, 1120 (S.D.N.Y 1970), modified, 446 F.2d 295 (2d Cir 1971) The Georgia-Pacific court, observing that "[a] compre- hensive list of evidentiary factors relevant, in general, to the determination of the amount of a reasonable royalty for a patent license may be drawn from a conspectus of the leading cases," proceeded to identify fifteen of the "more pertinent" factors to be considered Id However, the court also noted that "there is no formula by which these factors can be rated precisely in the or- der of their relative importance or by which their economic significance can be automatically transduced into their pecuniary equivalent." Id at 1120-21.
Pacific factors apply to trade secret claims, but some elements require modification For example, the Georgia-Pacific factor addressing “the duration of the patent and the term of the license” can be applied to the license term, but the patent duration itself cannot govern trade secrets Instead, assess the longevity of the intellectual property by considering how easily others could reverse engineer the alleged secrets and when those secrets were made public, such as through patent publication In practice, the general durational concept from the Georgia-Pacific framework can be adapted to suit trade secret analyses.
Courts that have adopted the University Computing framework for calculating reasonable royalty damages have begun to incorporate additional Georgia-Pacific factors, expanding the analysis beyond the original methodology For example, the Second Circuit in Vermont Microsystems, Inc v Autodesk, Inc followed the University Computing approach but added an extra factor from the more comprehensive Georgia-Pacific list, signaling a trend toward a broader, factor-based evaluation of royalty damages.
Where the trade secret accounts for only a portion of the profits from the defendant’s sales—such as when it concerns a single component that could be marketed without the secret—awarding the plaintiff the defendant’s entire profits may be unjust A reasonable measure of the profits attributable to the trade secret is the royalty that the plaintiff and defendant would have agreed for the use of the secret; this royalty represents an approximate share of the defendant’s profits tied to the trade secret.
91 Vt Microsystems, 138 F.3d at 450 The Vermont Microsystems court also recited the factors identified by the court in University Computing:
To approximate the parties' agreement, had they bargained in good faith at the time of the misappropriation, the trier of fact should consider such factors as the resulting and foreseeable changes in the parties' competitive posture; the prices past purchasers or licen- sees 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 finally whatever other unique factors in the particular case which might have affected the parties' agreement such as the ready availability of alternative proc- esses.
Id at 151-52 (quoting Univ Computing, 504 F.2d at 539).
Seattle University Law Review (Vol 25:821
Accordingly, the applicability of the University Computing and other factors derived from Georgia-Pacific in determining reasonable royal- ties for alleged trade secret misappropriation cases is widely recog- nized 92
Moreover, these factors can often have a significant effect on the plaintiffs ability to recover damages For example, as in the case of lost profits and unjust enrichment damages, the existence of accept- able alternatives must be considered in evaluating royalty damages The "ready availability of alternative processes" is one of the factors specifically identified in University Computing and reiterated in cases such as Vermont Microsystems 93 If acceptable alternatives are readily available in the marketplace, then the value of the intellectual property will be diminished or even reduced to zero 94 Accordingly, application of the factors identified in University Computing in light of patent law precedents often can have a significant effect on a plaintiffs damages case.
DISAGGREGATION AND APPORTIONMENT OF
Beyond the specific rules that govern the three damages measures discussed earlier, there are broader, foundational principles that apply to any damages analysis and that are common to both patent and trade secret claims These core concepts ensure that compensation is tied to actual economic harm, rests on reliable evidence, and remains consistent across different forms of intellectual property.
92 Courts often cite the University Computing factors in evaluating trade secret royalty claims See, e.g., Am Sales Corp v Adventure Travel, Inc., 862 F Supp 1476, 1479 (E.D Va.
University Computing (1994) is especially helpful in determining damages, outlining when to apply certain factors and clarifying what a 'reasonable royalty' should look like The decision likens these issues to patent-damage calculations, where precedent is more developed Litton Systems (1993 WL 317266, at *2) restates the University Computing factors and notes that courts have considerable leeway in calculating damages for trade secrets theft.
The Restatement (Third) of Unfair Competition identifies the University Computing factors as the standard criteria courts routinely use to determine the amount of a reasonable royalty, as noted in its 1995 reporters’ note The ABA model jury instructions reiterate these factors, applying the University Computing framework, though they do not enumerate all of the factors identified in that case.
93 See University Computing, 504 F.2d at 539; Vt Microsystems, 138 F.3d at 450.
94 See Hughes Tool Co v G.W Murphy Indus., Inc., 491 F.2d 923, 930-31 (5th Cir.
1974) ("The existence of a non-infringing alternative reduces the value of the patent and thus the damages from infringement.") As one commentator as observed:
An additional consideration in determining a reasonable royalty for patent infringement is the availability of noninfringing substitutes The underlying logic is that a licensee would be less inclined to accept a high royalty if viable alternatives exist that match the cost and performance of the patented technology If the patent holder cannot present evidence that allows the court to derive a reasonable royalty, the court has the discretion to award no damages.
Pincus, supra note 6, at 126. there must be some causal nexus between a plaintiffs injury and the claimed damages.
This principle has been reaffirmed across contexts, notably in antitrust cases, where courts hold that plaintiffs may recover damages only for the defendant’s unlawful acts and that losses arising from lawful conduct cannot be recovered To sustain an award, the plaintiff must show in a reasonable manner a causal link between the injury and the defendant’s illegal practices, i.e., a genuine nexus between the claimed damages and the injury incurred When the damages claimed do not track that nexus, or when the plaintiff improperly attributes all losses to illegal acts despite other significant factors, the evidence does not permit a jury to make a reasonable and principled estimate of the amount of damages.
95 See generally Maxwell M Blecher & James Robert Noblin, The Confluence of Muddied Waters: Antitrust Consequential Damages and the Interplay of Proximate Cause, Antitrust Injury, Standing and Disaggregation, 13 ST JOHN'S J LEGAL COMMENT 145 (1998); Charles N Char- nas, Segregation of Antitrust Damages: An Excessive Burden on Private Plaintiffs, 72 CAL L REV.
Under the disaggregation rule in private antitrust litigation, damages cannot be proved in the aggregate when the plaintiff challenges multiple discrete acts or practices as unlawful This principle is discussed by James R McCall in The Disaggregation of Damages Requirement in Private Monopolization Actions (62 Notre Dame L Rev 643, 1987) and by M Sean Royall in Disaggregation of Antitrust Damages (65 Antitrust L.J 311, 1997) Depending on the circumstances of the case and the point in the proceedings at which the issue is raised, the unjustified failure to disaggregate damages can have consequences ranging from a new trial to dismissal of the plaintiff's claims as a matter of law.
96 MCI Communications Corp v AT&T Co., 708 F.2d 1081, 1161 (7thCir 1983).
97 Tronzo v Biomet, Inc., 156 F.3d 1154, 1161 (Fed Cir 1998); see also Associated Gen.
Contractors of Cal., Inc v Cal State Council of Carpenters, 459 U.S 519 (1983).
Under tort law, a plaintiff must prove both damages and the causal connection between the wrong and the injury with certainty Damages cannot be recovered for uncertain, conjectural, or speculative losses, and even an injury that is clearly provable will not lead to recovery unless the causal link to the conduct causing the harm is sufficiently established.
Id at 533 n.26; Fleet Nat'l Bank v Anchor Media Television, Inc., 45 F.3d 546, 560 (1st Cir.
A 1995 decision concluded that there is an “absence of proof of damages” where there is a failure to show the existence of a causal nexus between the damages sought and the breach or tort, underscoring the court’s demand for a demonstrable link between harm and the alleged breach In Doe v United States, the Seventh Circuit held that “damages awards may not be based on mere intuition or speculation alone,” and it affirmed that the trial court did not abuse its discretion in finding the causal relationship insufficiently established The same doctrinal concern with proving causation and recoverable damages is reflected in Van Dyk Research Corp v Xerox Corp., which examines the necessity of a demonstrable causal connection to support damages claims.
Key authorities in antitrust damages require a plaintiff to prove a causal link between the alleged loss and the unlawful conduct in order to recover As the District of New Jersey held in 478 F Supp 1268, 1326 (1979), aff'd, 631 F.2d 251 (3d Cir 1980), and as reaffirmed in Argus Inc v Eastman Kodak Co., 612 F Supp 904, 918 (S.D.N.Y 1985) (aff'd, 801 F.2d 38 (2d Cir 1986)), a plaintiff must connect the alleged antitrust injury to the violative conduct, not to other factors.
98 Va Panel Corp v MAC Panel Co., 133 F.3d 860, 873 (Fed Cir 1997); see also Farley
These Ninth Circuit rulings underscore that damages evidence must be clearly attributable to unlawful competition; in Transp Co v Santa Fe Trail Transp Co., 786 F.2d 1342, 1351 (9th Cir 1985), the court held the damages opinion inadmissible because the plaintiff failed to present any evidence permitting the jury to parse out which damages were attributable to the unlawful competition In City of Vernon v S Cal Edison Co., 955 F.2d 1361, 1373 (9th Cir 1992), the court concluded that there was no proper basis for the damages claim.
Seattle University Law Review [Vol 25:821 defendant cannot be held liable, then a damage case that ignores these factors must fail." 99
In MCI Communications Corp v AT&T Co., the Seventh Circuit reversed the jury verdict because the plaintiffs’ purported damages included sums attributable to unlawful-competition claims that had been dismissed The court observed that the damages study was based on twenty-two alleged unlawful acts, but seven counts had been dismissed by trial, leaving a damages theory that would recover for claims no longer viable The court concluded that because the verdict awarded damages for both lawful and unlawful conduct, the damage award must be set aside It emphasized that damages reflect only losses directly attributable to unlawful competition, and it upheld summary judgment against the plaintiff for failure to prove damages where the study failed to disaggregate damages.
1483, 1504 (8th Cir 1992) (ruling that plaintiff failed to establish damages on the grounds that
In its proof of damages for torts—and similarly for antitrust damages—the plaintiff failed to separate the impact of other probable causes of its business decline from the effects of the defendant's alleged tortious conduct This failure to distinguish causal factors was highlighted by the Second Circuit in Litton Systems, Inc v AT&T Co., 700 F.2d 785, 825 (2d Cir.).
1983 established that damage studies are inadequate when only part of the conduct alleged to be wrongful is considered and the damage analysis cannot be disaggregated into separate harms In First Savings Bank, F.S.B v U.S Bancorp, 117 F Supp 2d 1078, 1084 (D Kan 2000), the court excluded an expert report and testimony, illustrating how courts scrutinize damage evidence that cannot be tied to specific wrongful acts.
An expert's assessment was described as inherently unreliable and purely speculative, because he improperly attributed all losses to the defendants' alleged illegal acts while ignoring other factors that could be significant to his analysis This misattribution undermines the credibility of the conclusions and underscores the need for a more nuanced evaluation of causation and alternative contributing factors.
99 In re IBP Peripheral EDP Devices Antitrust Litig., 481 F Supp 965, 1013 (N.D Cal.
1979), affd, 698 F.2d 1377 (9th Cir 1983) Commentators have summarized the rationale be- hind this rule as follows:
OTHER COMMON LIMITATIONS BASED ON THE
Beyond the rules on apportionment, damages may also be limited by the nature of the relationship between the parties This is particularly true when the defendant and the plaintiff are not direct competitors For example, if the defendant is the plaintiff’s customer, awarding lost profits may be inappropriate because the defendant may have a veto on any alleged profits.
Lost profits claims are evaluated independently of the alleged misappropriation, because in a but-for world, the defendant’s misappropriation might mean the plaintiff would never have purchased the product at issue These potential limitations on lost profits have been discussed only rarely in case law, but the analyses in the cases that do address them generally make sense For example, in Stickle v Heublein, Inc., the Federal Circuit rejected a lost-profits claim against a company that purchased and used—rather than manufactured—a product that allegedly infringed the plaintiff’s patent, noting that the possibility of proving lost profits based on such a theory was highly speculative.
Similarly, in Trans-World Manufacturing v Al Nyman & Sons, Inc., the court rejected a claim for lost profits arising from patent infringement because the defendant was the plaintiff’s customer and could refuse to purchase the product The case involved displays that were alleged to infringe the plaintiff’s patent rights In denying the lost-profits claim, the court observed that the plaintiff’s damages were not recoverable under these circumstances given the defendant’s status as a buyer who could opt out.
The value of an invention is not simply the difference between the market demand for the sold product and its production cost If a substitute invention existed that could enable the patent owner or an infringer to capture 99 percent of those profits, only about 1 percent of the profits would be attributable to the original invention To gauge the derived demand for the invention, it is essential to assess the availability of substitute inventions, which requires examining the nature and value of the product the infringer could have produced had infringement not occurred.
161 Stickle v Heublein, Inc., 716 F.2d 1550, 1560 (Fed Cir 1983).
162 Trans-World Mfg v Al Nyman & Sons, Inc., 633 F Supp 1047, 1054-55 (D Del. 1986).
[Vol 25:821 the defendant "used, rather than sold, the displays." 164 ' The court rea- soned that, given "the unique bargaining position" enjoyed by a cus- tomer that can refuse to buy the plaintiff's product as "compared to the average infringer," there is not "a reasonable probability that (the plaintiff] would have made the sales but for [the defendant's] infring- ing activity." 165 ' Accordingly, to award lost profits "would involve the court in improper speculation." 16 6 '
Finally, in GNB Battery Techs., Inc v Exide Corp., the court re- jected lost profits damages for alleged patent infringement, where the plaintiff's customer "had become dissatisfied with the quality of GNB's batteries."167 ' Here, again, while the defendant in GNB was not the actual customer of the plaintiff, the court concluded that the plaintiff could not recover lost profits damages where there was evi- dence that the plaintiff's customers would not have made the pur- chases absent the alleged infringement.
Analysis of damages in trade secret misappropriation claims is relatively rare, but a few courts have recognized a related principle For example, in Trans-Rim Enterprises (USA), Ltd v Adolph Coors Co., the Tenth Circuit reviewed an unpublished district court ruling that rejected a lost-profits claim tied to the defendant's alleged trade secret misappropriation and its refusal to enter into a proposed joint venture with the plaintiff The plaintiff argued that misappropriation and the defendant's decision not to participate entitled him to recover all profits allegedly lost as a result of that failure to form the joint venture The district court, however, rejected this measure of damages as too speculative because the defendant was not contractually obligated to participate in the joint venture.
167 GNB Battery Techs., Inc v Exide Corp., 886 F Supp 420, 437-38 (D Del 1995), affd, 78 F.3d 605 (Fed Cir 1996).
168 However, some commentators have observed that lost profits damages for alleged trade secret misappropriation are generally most appropriate where the parties are competitors.
See, e.g., Johnson, Assessing Damages, supra note 4, at 72 ("A party also may recover damages for its lost sales and profits resulting from the misappropriation of its trade secrets This measure of damages is generally applied where the defendant is a direct competitor of the plaintiff and uses the misappropriated trade secrets to sell a competing product.").
169 Trans-Rim Enters (USA), Ltd v Adolph Coors Co., 1995 WL 231381, at *1-*3
In Trans-Rim, decided by the Tenth Circuit on April 7, 1995, the court devoted substantial discussion to the district court's damages ruling; however, it did not reach the merits of that ruling and instead decided the case on alternative grounds.
In this analysis, the court could not prove but-for causation—that the project would have reached fruition absent the defendant's wrongdoing Echoing Transworld, where profits in the but-for world would only materialize after the defendant acted, the plaintiffs' recovery for damages premised on the assumption that such action would have occurred was deemed too speculative to sustain.
Similarly, in Web Communications Group, Inc v Gateway 2000, Inc., the court held that unjust enrichment based on a defendant's profits should be barred when the defendant is not the plaintiff's competitor but rather a customer In Gateway, the plaintiff—an advertising firm—alleged that Gateway misappropriated its trade secrets through collusion with the plaintiff's competitor by purchasing advertising brochures from that competitor, brochures manufactured according to the plaintiff's claimed trade-secret format The court ruled that while the competing advertising firm may have been unjustly enriched by profits from selling the brochures to Gateway, Gateway's profits on its computer sales were not the correct measure of damages, because Gateway was not a competitor and had not wrested a competitive advantage from the plaintiff in a manner normally associated with a trade secrets case involving unjust enrichment Consequently, the court held that Gateway's savings would represent the unjust enrichment, if any, that occurred in this case.
Other courts have likewise held that using lost profits as damages may be inappropriate when the plaintiff and the defendant are not direct competitors For instance, in Pioneer Hi-Bred, the Eighth Circuit remarked that selecting lost profits as the proper damages measure raises significant difficulties because the defendant does not directly compete with the plaintiff.
172 Web Communications Group, Inc v Gateway 2000, Inc., 1994 WL 171448, at *2 (N.D I11 May 3, 1994).
176 Id.; see also Web Communications Group, Inc v Gateway 2000, Inc., 1995 WL
On January 17, 1995, the Northern District of Illinois granted a motion in limine to bar evidence of Gateway's sales and profits, reasoning that the competitor's profits and Gateway's savings stemming from the alleged misappropriation of trade secrets would amount to unjust enrichment that may have occurred in this case.
177 Pioneer Hi-Bred Int'l v Holden Found Seeds, Inc., 35 F.3d 1226, 1244 (8th Cir.
1994) Proving that an alleged trade secret confers a competitive advantage is also an element necessary to establish liability for trade secret misappropriation "A trade secret must be valu-
Vol 2S:821 argues even more strongly that lost profits are not an appropriate remedy in trade-secret cases where the plaintiff still retains use of the secret, unless the alleged secret has actually been destroyed in some fashion, such as through public disclosure.
In trade secret cases, courts have sometimes attempted to quantify the plaintiff's loss, but while this approach is conceptually reasonable, it often has little practical effect because the defendant’s use of the secret generally improves the defendant's competitive position rather than causing a clear loss to the plaintiff Consequently, damages are typically tied to the value of the secret to the plaintiff only when the defendant has destroyed that value, most plainly by publication that leaves no secret remaining Where the plaintiff retains use of the secret and there has been no effective disclosure through publication, awarding the total value of the secret as damages is inappropriate.
LIMITATIONS ON THE DURATION OF THE DAMAGES
Although both patent and trade secret claims face damages limitations, a key divergence lies in the duration of the damages period Under trade secret law, the damages period is measured by the time the information would have remained unavailable to the defendant absent the misappropriation Unlike patents, which confer a monopoly and the right to exclude others from using the intellectual property, trade secret protection lasts only as long as the information remains secret.
One corollary of this principle is that a plaintiff may not recover damages once its alleged secrets have been publicly disclosed 8 '
Trade-secret ownership does not grant a monopoly over public information or prevent others from replicating a product based on that information; public knowledge can be used to create similar items as long as they are not derived from the protected trade secret (American Can Co v Mansukhani, 742 F.2d 314, 329 (7th Cir 1984)) The owner's rights are proprietary and protected against unfair misappropriation, but they do not bar competition or the independent development of competing products (Droeger v Welsh Sporting Goods Corp., 541 F.2d 790, 792 (9th Cir 1976)).
Under the trade-secret doctrine, owning a trade secret does not grant a monopoly over the idea itself; others may use the same idea, as long as they obtain their knowledge through their own independent efforts This principle is reflected in Greenberg v Craydon Plastics Co., 378 F Supp 806.
183 Pioneer Hi-Bred Int'l v Holden Found Seeds, Inc., 35 F.3d 1226, 1235 (8th Cir.
Trade secret law does not protect information that is in the public domain or readily ascertainable, and matters of public knowledge or general industry know-how cannot be appropriated as secrets For example, Computer Care v Service Systems Enters held no trade secret where the plaintiff failed to show its alleged secrets were not within the car service industry's general knowledge Similar principles appear in Litton Sys., Inc v Sundstrand Corp., Clark v Bunker, and Nickelson v GM Corp., which insist that broad public knowledge or general industry knowledge cannot be confidential information The RESTATEMENT (THIRD) OF UNFAIR COMPETITION §39 cmt f and §45 cmt c further explain that information readily obtainable from public sources loses protectability, and that the value of a trade secret destroyed by public disclosure is often speculative Moreover, because a trade secret loses its protection once it enters the public domain, damages for lost profits are generally cut off from the point of disclosure and can no longer be recovered as the secret.
The duration of the accounting period may be limited by two factors: 1) the public disclosure of the trade secret, and 2) the application of the so-called "head start" rule,
When an alleged trade secret is already public knowledge, its value is essentially zero Specifically, information disclosed in a patent enters the public domain and is not eligible for trade secret protection.
Trade secret damages are limited to the “head start period,” recognizing that parties may freely obtain alleged trade secret information through reverse engineering of products already on the marketplace If information can be readily duplicated without substantial time, effort, or expense, it does not qualify for trade secret protection and the plaintiff cannot recover damages Accordingly, the accounting period is limited to the time it would have taken the defendant to reproduce the plaintiff’s product in a legal manner.
184 Injection Research Specialists, Inc v Polaris Indus., L.P., 1998 WL 536585, at *8
Legal doctrine holds that once a patent is published, the subject matter loses trade secret protection because patent disclosure constitutes full public disclosure of the invention The grant of a patent automatically discloses the patented process, thereby ending any further secrecy rights in that information Consequently, information disclosed in a patent is not eligible for trade secret protection after patent issuance, and the existence of a patent essentially terminates trade secret status for related material Some opinions distinguish between general trade secrets and information disclosed in patent applications, noting that patent disclosures are not protectable as unique trade secrets This principle is reflected in numerous decisions, including Rototron Corp v Lake Shore Burial Vault Co., Scharmer v Carrollton Mfg Co., Nilssen v Motorola, Inorganic Coatings, Inc v Falberg, and Stutz Motor Car of Am., Inc v Reebok International.
Disclosing a trade secret in a patent puts the secret in the public domain, destroying its secrecy and extinguishing the trade secret After disclosure, the patentee’s protection rests only under patent law, not as a trade secret This rule is rooted in the supremacy of federal law governing intellectual property.
As discussed in 909 F Supp at 1359 and echoed by Prandl (supra note 1, at 453), there is a judicial split on whether damages for misappropriation of a trade secret terminate on the patent issuance date that embodies the secret; some courts have adhered to this view, but not all, indicating that no uniform rule applies across jurisdictions.
185 See also Bonito Boats, Inc v Thunder Craft Boats, Inc., 489 U.S 141, 154 (1989)
Trade secret law provides far weaker protection than patent law, leaving the public free to learn and exploit trade secrets through reverse engineering or independent creation, especially when the information exists in the public domain In Kewanee Oil Co v Bicron Corp., the Supreme Court explained that trade secret protection does not shield discoveries made by fair and honest means—such as independent invention, accidental disclosure, or reverse engineering, where one starts with a known product and deduces the process behind its development or manufacture This view underscores the limited scope of trade secret protection relative to patents and explains why independent invention and reverse engineering remain lawful routes to access such information.
F Supp 2d 992, 1000 (S.D Ind 1998) ("[T]he process known as 'reverse engineering,' in which a skilled person studies a product and figures out how to produce it, is permissible and even en- couraged under trade secret law.").
Under C&F Packing Co v IBP, Inc., information that can be readily duplicated without substantial time, effort, or expense is not a trade secret The decisive question is whether access to the information would require significant resources; if copying is cheap and quick, secrecy is undermined In Computer Care, the court highlighted that the key factor in determining whether information is a trade secret is the cost and effort needed to obtain or reproduce it Thus, information that can be duplicated easily and cheaply generally does not qualify as a secret.
Seattle University Law Review [Vol 25:821
When the time needed to duplicate the alleged trade secrets is not de minimis, the head start period governs The head start period is the period required for a party to independently develop the alleged trade secrets Because damages are recoverable only during the time the information remains secret, many courts hold that a plaintiff cannot recover damages beyond the head start period.
The reasoning behind these requirements is discussed in the Re- statement (Third) of Unfair Competition:
Monetary remedies, whether measured by the loss to the plain- tiff or the gain to the defendant, are appropriate only for the pe- riod of time that the information would have remained unavail- able to the defendant in the absence of the appropriation This period may be measured by the time it would have taken the de- fendant to obtain the information by proper means such as re- verse engineering or independent development Similarly, the issuance of a patent or other public disclosure of the information by the plaintiff or a third person terminates the secrecy neces- sary to the protection of the trade secret.188 trade secret is "the ease with which information can be developed through other proper means"); id (plaintiff failed to demonstrate that the alleged trade secrets were not subject to being "'read- ily duplicated without involving considerable time, effort or expense'); Nilssen, 963 F Supp at
To prove a trade secret, the plaintiff must show that the information was sufficiently secret—not readily duplicable without substantial time, effort, or expense Only after establishing this level of secrecy does the court consider the misappropriation analysis to address unauthorized use or disclosure.
187 See, e.g., Univ Computing v Lykes-Youngstown Corp., 504 F.2d 518, 535 (5th Cir.