This is the fourth and final installment in a series on damages available for intellectual property (“IP”) claims, focusing on trade secret damages. Understanding damages is essential for two reasons: it highlights the potential rewards of building a robust IP portfolio, and it offers a benchmark for assessing risk when facing an IP claim. Our previous articles discussed trademark, patent, and copyright damages.

Trade Secret Misappropriation

Trade secrets consist of formulas, practices, processes, designs, instruments, patterns, or compilations of information that confer a business advantage over competitors who do not know or use them.

Misappropriation of trade secrets involves unauthorized acquisition, disclosure, or use of a trade secret, protected under the Uniform Trade Secrets Act (“UTSA”), as adopted by various states, and/or the federal Defend Trade Secrets Act of 2016 (“DTSA”).^[1] The UTSA provides a framework for civil claims while the DTSA grants trade secret owners the ability to seek redress in federal court, along with a clear definition of misappropriation and measures for safeguarding trade secrets, including measures against international espionage.

All states except New York and North Carolina have adopted the UTSA. North Carolina has its own distinct yet similar statutory framework for the UTSA, while New York applies common-law principles to trade secret matters. The DTSA is a federal law that applies nationwide.

Trade Secret Damages

Under the UTSA and the DTSA, trade secret owners can seek damages for actual loss, unjust enrichment, reasonable royalties, or exemplary damages up to double any other remedy when willful and malicious misappropriation exists.

Monetary relief under both the UTSA and the DTSA may be appropriate whether or not injunctive relief is granted.

Monetary damages are only appropriate for the period in which misappropriation overlaps with the period in which information is entitled to protection as a trade secret, plus the additional period, if any, in which a misappropriator retains an advantage over good-faith competitors because of misappropriation.

Actual Loss and Unjust Enrichment

Both the UTSA and the DTSA state that a successful plaintiff is entitled to damages for actual loss and unjust enrichment.

Actual Loss

Actual loss can include lost profits or other measurable harm directly attributable to the defendant’s actions.

A plaintiff bears the burden of proving actual damages with sufficient evidence. A lack of evidence or speculative claims may preclude recovery under these measures. There must be a clear depiction of the financial damage resulting from the misuse or theft of the trade secret.

Unjust Enrichment

A plaintiff may recover for unjust enrichment caused by misappropriation, provided that such enrichment is not already accounted for in the calculation of actual loss. Unjust enrichment may be calculated based on the defendant’s profits, increased productivity, market share gained from the use of the trade secret, or the development costs saved.

The plaintiff must show evidence that the defendant profited at the plaintiff’s (trade secret holder’s) expense. A lack of evidence or speculative claims may preclude recovery under these measures. Courts are hesitant to award damages for unjust enrichment unless the plaintiff can demonstrate that the defendant acquired some calculable profit or benefit from the misappropriation.

Double Counting

A successful plaintiff may recover both actual loss and unjust enrichment damages, but there can be no double counting. This means that, to recover both, the defendant’s unjust enrichment must be distinct from or in excess of the plaintiff’s actual loss.

Reasonable Royalties

If neither actual loss nor unjust enrichment can be proven, the UTSA allows courts to award a reasonable royalty for the period during which the use of the trade secret could have been prohibited.

A reasonable royalty is an approximation of a royalty under a voluntary licensing agreement. Courts typically assess what the parties would have reasonably agreed to in a hypothetical negotiation at the time the misappropriation began. Courts often begin with real-world comparables as a starting point for determining a reasonable royalty. These comparables may include licensing agreements or other transactions involving similar trade secrets. Then the court will adjust the royalty amount using a calculation based on facts specific to the case, often proven by an expert witness. The calculation may consider market value of the trade secret; cost savings or value to the defendant; duration and scope of use; and overall willingness to license the trade secret based on factors like risks of disclosure, competitive advantage, and relationship between the parties.

In order to justify this alternative measure of damages, there must be competent evidence of the amount of a reasonable royalty. This remedy is discretionary and is typically applied when other forms of damages are unprovable. The court may not order payment of a reasonable royalty for longer than the period of time the use of the trade secret could have been prohibited.

Exemplary Damages

If the misappropriation is found to be willful and malicious, the UTSA and the DTSA permit courts to award exemplary damages in an amount not exceeding twice the award for actual loss or unjust enrichment. Courts have interpreted “willful and malicious” to include conduct that is intentional and motivated by ill will or improper motives.

While the courts are granted discretion, judges often look to the following factors to determine the degree to which they will enhance damages: degree of intent, defendant’s state of mind, extent of harm, duration of misuse, efforts to conceal misuse, prior conduct of similar misappropriations, and deterrence.

Attorney Fees

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney fees to the prevailing party.

Summation

Trade secret misappropriation presents complex legal challenges, but both the UTSA and the DTSA provide a comprehensive framework for addressing these disputes and awarding damages. Whether through actual loss, unjust enrichment, reasonable royalties, or exemplary damages, courts aim to ensure fair compensation for the harm suffered and to deter future misconduct.

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This concludes our overview of damages for trade secret misappropriation and our series on damages for IP infringement.

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©2025. Published in Business Law Today by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

1. Defend Trade Secrets Act, Pub. L. No. 114-153 (2016). ↑