7 Insights for Litigators on Trade Secret Damages
By Serena Morones, CPA, ASA, ABV, CFE
Having worked on multiple misappropriation of trade secret cases in recent years, our forensic accountants have had a front-row seat to what strengthens, or weakens, a trade secret damages opinion.
When done well, a damages analysis clearly links the misappropriation to measurable economic harm. But when the analysis overreaches, ignores competing factors, or lacks grounding, it risks losing credibility in court.
Given that the pace of these cases seems to be increasing, perhaps due to higher employee turnover, post-pandemic restructuring, or the ripple effects of the “Great Resignation,” we wanted to share our insights and some of the most important lessons we’ve learned that can help attorneys with case strategy.
1. Understand the Remedies
Plaintiffs in trade secret cases typically pursue one or more of three remedies[1]:
- Lost profits – income the plaintiff would have earned but for the misappropriation
- Unjust enrichment – benefit the defendant gained from using the trade secret
- Reasonable royalty – a stand-in for what the defendant would have paid to license the trade secret
- Double damages – if the trade secret is willfully and maliciously misappropriated.
These remedies are generally mutually exclusive, except for double damages. Selecting the right method depends on available evidence and the nature of the alleged harm.
2. Evaluate All Reasons for Sales Decline
It’s critical to ask: Was the trade secret really the reason sales dropped?
In one case involving a staffing agency, the plaintiff alleged trade secret theft after a key salesperson left for a competitor. Sales dropped immediately, and the company blamed the theft. But our analysis revealed the staffing industry was experiencing a broader downturn at the same time.
A credible damages model must separate out market forces and other business changes to avoid overstating the harm.
3. Unbundle Impacts from Multiple Trade Secrets
Many cases involve several alleged trade secret thefts such as customer lists, pricing models, sales playbooks, and more. A simple plaintiff damage approach is to offer a single lump-sum damages number. Plaintiffs sometimes present a single lump-sum damages figure, but this approach becomes problematic if only some claims are upheld at trial.
Where possible, the expert should allocate damages across specific trade secrets.
For example:
- If a confidential customer list was used to solicit specific accounts, lost sales can be linked to those customers through comparison of plaintiff and defendant sales data, and evidence of specific solicitation.
- If pricing models were stolen and forced the plaintiff to lower prices to stay competitive with the defendant, the expert can calculate the price differential attributable to use of the pricing models.
Unbundling helps the court or jury adopt part of the opinion, even if some claims are rejected.
4. Consider the Impact of Fair Competition
One of the most common errors we see with plaintiff damage claims is a failure to model what would have happened if the defendant had simply played fair.
In a case involving a youth soccer club, the director left and quickly formed a competing team using misappropriated contact info and messaging tools. We didn’t assume all player departures were caused by the theft. Instead, we modeled a fair competition scenario—what if she had recruited during the off-season without using confidential information? We calculated damages as the difference between that fair scenario and what actually happened.
In another case, a competitor entered a new market and hired a sales rep from a company operating in the market. The sales rep took trade secrets to assist in his new position. Even without misappropriation, the new competitor’s market entry would have likely caused some sales loss. The damages model needed to isolate only the harm from the trade secret use, not the harm from legal competition.
5. Consider the Reasonable Life of a Trade Secret
Not all trade secrets provide long-term advantage. Many can be recreated with time and effort.
If a departing employee took a customer list, the damage expert should consider how long it would take to rebuild it from public sources. Also, confidentiality is a requirement for a trade secret. If the customer list can be replicated with a few hours of online research, it may not quality.
Similarly, if a budgeting tool was copied, how long would it take to develop a similar one in-house?
Projecting long-term losses for a short-lived trade secret can stretch credibility—unless the misappropriation gave the defendant a significant timing or competitive advantage beyond merely shortcutting the ramp-up period.
6. Apply Reasonable Royalty When Feasible
While rarely used in trade secret cases, a reasonable royalty approach can be helpful, especially to isolate the value of a single trade secret.
When I testified in a matter involving a nonprofit development director who took both a donor list and a fundraising model, I provided a single damages figure for both. The jury found liability only for the donor list and used separate testimony about a reasonable royalty to arrive at its own damage conclusion.
Reasonable royalty is difficult to apply because trade secrets are rarely licensed. But in this case, plaintiff attorneys located industry participants who testified about what they would pay to rent or buy a donor list.
7. Don’t Overreach
Perhaps most importantly, don’t overreach.
Some plaintiffs seek massive damage awards that far exceed the plausible impact of misappropriation. These cases seem to reflect anger over a key employee’s betrayal more than sound economic analysis. While the emotions are real, expert opinions must remain grounded.
A credible damages expert brings independence, evidence and reliable analysis, not a client’s outrage. That’s what courts, juries, and attorneys respect.
Bottom Line:
At Morones Analytics, we endeavor to support trade secret damage opinions with sound theory, thorough analysis and sufficient evidence. We don’t stretch our opinions to meet the client’s emotional expectations, and that’s what makes our work respected in court.
[1] Citation: 18 U.S.C. § 1836(b)(3)
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Serena Morones, CPA, ASA, ABV, CFE is an independent damages and business valuation expert. Top commercial and IP litigators turn to her again and again to resolve high-stakes disputes through expert testimony or settlement.
503-906-1579 | [email protected]
