Trade Secrets and Intellectual Property

When a key employee or company executive leaves one employer and begins working for another employer, that’s generally OK. However, if that employee took the names and important customer information with them to their new employer, and the new employer used that information illegally, a trade secrets lawsuit often follows. From an economic damages perspective, the loss is typically measured as lost profit to the plaintiff, or disgorgement of ill-gotten profits from the defendant. Plaintiff can pursue one remedy, but not both. At Cogence Group, we have been experts in many trade secrets cases, working with counsel to both plaintiffs and defendants. Being CPAs specializing in lost profits analyses, we understand how to construct a credible lost profits opinion. We understand what questions to ask regarding how the affected business was expected to perform financially but-for the alleged wrongful acts.

In a recent case where we worked with defendant’s attorneys, we rebutted the expert report of plaintiff’s expert. That expert opined that the employee who left one specialty manufacturer to go to a competing start-up manufacturer caused lost profits and unjust enrichment. However, the opposing expert based their opinions on incorrect assumptions and/or the unreliable application of economic damages theory, methodologies, and analysis. One of the clearest misuses of economic damages theory was the computation of unjust enrichment as measured by gross profit instead of net income. This expert failed to follow one of the generally accepted principles of measuring lost profits; that is “an expert should not make the unrealistic assumption in a lost profits case that the owner would have made all of its sales and all of the infringer’s sales and made all of these sales at higher prices.” (1)

(1) Weil, R.L., Lentz, D.G., & Hoffman, D.P. (2012). Litigation Services Handbook: The Role of the Financial Expert, Fifth Edition. Hoboken, NJ: John Wiley & Sons, Inc. Page 18.13.

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