Remedies for Trade Secret Misappropriation: Damages, Injunctions, Attorneys’ Fees
“About the author: Scott Lesowitz is a cum laude graduated of Harvard Law School and a former Assistant U.S. Attorney. His practice is located in Beverly Hills, California.His e-mail address is scott@syversonlaw.com ”
This article provides an overview of the remedies a victim of trade secret misappropriation may receive in the course of a trade secret lawsuit. The term “Misappropriation” includes acquisition, use, or disclosure of a trade secret.
Victims of trade secrets may be entitled to a monetary judgment. They may also be entitled to both immediate and permanent court orders barring conduct or requiring that acts be performed (temporary restraining orders, preliminary injunctions, and permanent injunctions). In certain egregious cases, the prevailing party may be awarded its reasonable attorneys’ fees and litigation costs.
Temporary Restraining Orders and Injunctions
A plaintiff (victim) who will be irreparably harmed by an imminent or continuing act of misappropriation (including the use or disclosure of a trade secret), might be able to quickly receive an order in which the Court bars acts of misappropriation or provides for other non-monetary relief to prevent misappropriation from occurring or continuing. This can be done through an application for a temporary restraining order or a preliminary injunction. See ReadyLink Healthcare v. Cotton, 126 Cal.App.4th 1006 (2005) (restricting ability of ex-employee to solicit customers or employees of former employer where the defendant had misappropriated customer information); PMC, Inc. v. Kadisha, 78 Cal.App.4th 1368 (2000) (preliminary injunction barring use of trade secrets); Masonite Corp. v. County of Mendocino Air Quality Management Dist., 42 Cal.App.4th 436 (1996) (prohibiting disclosure of information). A trade secret plaintiff (victim) who wins a lawsuit may also receive a permanent injunction.
To receive a preliminary order or even a permanent injunction, the plaintiff is not required to have suffered money damages nor is it required that the defendant (wrongdoer) have profited from the misappropriation. The threat of misappropriation may be sufficient. Central Valley General Hospital v. Smith, 162 Cal.App.4th 501, 524 (2008). However, California rejects the inevitable disclosure doctrine in which an injunction against a former employee may be granted solely on the basis that the nature of the new employment suggests that trade secrets would be used. Id. at 524-525; Whyte v. Schlage Lock Co., 101 Cal.App.4th 1443 (2002).
If the defendant violates a temporary restraining order or an injunction, the defendant will be in contempt of court. The consequences for contempt of court may be severe. It is also relatively quick to enforce a violation of a temporary restraining order or injunction in comparison to the length of a trial.
A plaintiff who wins a lawsuit may receive a permanent injunction. Enforcing a permanent injunction merely requires initiating contempt proceedings. It does not require the filing of a new lawsuit. Also, a permanent injunction may result in the court ordering the defendant to perform an affirmative act.
A plaintiff who wins a lawsuit may receive both monetary recovery and a permanent injunction.
Monetary Recovery
A plaintiff (victim) that wins trade secret lawsuit may receive monetary recovery (in addition to a permanent injunction). The available monetary damages (recovery) are the actual damages that the plaintiff suffered from the misappropriation as well as the profits earned by the defendant (wrongdoer). California Civil Code § 3426.3. The collection of profits (disgorgement) from the defendant is important as it may be difficult to prove the amount of loss of the plaintiff but relatively easy to prove what the defendant’s profits were. This is especially so since the plaintiff is only required to prove what the defendant’s revenues were, something that the defendant will likely have to disclose in the discovery (information gathering) process. The defendant has the burden of proving that the defendant’s actual profit was lower than the revenues received. Meister v. Mensinger, 230 Cal.App.4th 381, 399 (2014).
If a prevailing plaintiff can prove neither actual damages nor defendant’s profits, the plaintiff may be entitled to recover the reasonable royalty that would have been earned in exchange for permission (a license) for use of the trade secret. See Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc., 226 Cal.App.4th 26, 66-68 (2014) (emphasizing the equitable nature of determining a reasonable royalty rate and basing amount of the reasonable royalty largely on the costs of developing the trade secrets where there was no present market for the trade secrets). A plaintiff may generally not receive both a reasonable royalty and actual damages or the defendant’s profits. Robert L. Cloud & Associates v. Mikesell, 69 Cal.App.4th 1141 (1999).
A successful plaintiff may also receive punitive damages in cases where the misappropriation is willful and malicious.
The prevailing party in a trade secret misappropriation case might be able to recover its reasonable attorneys’ fees and expert witness cost. The general rule in litigation is that a party that wins a lawsuit is not entitled to receive its attorneys’ fees or expert witness costs from the other party.
However, in trade secret misappropriation cases, a plaintiff (victim) may be awarded its reasonable attorneys’ fees and expert witness costs if “willful and malicious misappropriation exists.” California Civil Code, § 3426.4. A defendant (alleged victim) may be awarded its reasonable attorneys’ fees and expert witness costs if “a claim of misappropriation is made in bad faith.” Id. See Gemini Aluminum Corp. v. California Custom Shapes, Inc., 95 Cal.App.4th 1249 (2002) (awarding attorneys’ fees and costs to a defendant); FLIR Systems, Inc. v. Parrish, 174 Cal.App.4th 1270 (2009) (same); Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc., 236 Cal.App.4th 243 (2015) (same); Mattel, Inc. v. MGA Entertainment, Inc., 801 F.Supp.2d 950 (C.D. Cal. 2011) (awarding reasonable attorneys’ fees and costs to party that prevailed on the trade secret claim it brought). If a plaintiff files a lawsuit in good faith, but then it became clear during the course of litigation that the claim was groundless, the defendant may be entitled to attorneys’ fees and expert costs. FLIR Systems, Inc., 174 Cal.App.4th at 1283.