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Esha Bandyopadhyay, a principal in Fish & Richardson’s Silicon Valley office, Kain Day an associate

In Part 1 of this series, we addressed how different conceptions of the purpose of trade secret remedies divided the New York Court of Appeals in E.J. Brooks Co. v. Cambridge Sec. Seals. To the majority, trade secret remedies should be aimed at compensating a plaintiff for its losses. Thus, a defendant’s avoided costs cannot serve as a measure of damage unless they serve as a proxy for the plaintiff’s actual development costs. To the dissent, trade secret remedies should be aimed at valuing the trade secret, which includes compensation for costs avoided by a defendant through misappropriation. Here, we consider another area in which differing perspectives on the fundamental goal of trade secret damages may lead to differing damages methodologies: reasonable royalty damages.

In intellectual property law, courts often use a reasonable royalty—affixing damages at a royalty rate the defendant would have paid for a license—to approximate plaintiffs’ but-for position. More specifically, in patent law, reasonable royalty calculations involve two key assumptions: that the asserted patent is (1) valid and (2) infringed. The law of trade secrets often follows patent law. But should trade secret law require similar assumptions for reasonable royalty damages?

Inherent Value and Patent Reasonable Royalties

By statute, a plaintiff who proves that a defendant has infringed its valid patent is entitled to damages adequate to compensate for that infringement—at a minimum, a reasonable royalty. Because there is no statutory definition of reasonable royalty, however, courts have developed a litany of tests to evaluate the reasonableness of a royalty.

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