Companies around the globe, both large and small, keep secrets, most of which are closely guarded because if these trade secrets became public knowledge it could mean ruin for the company. Examples of company trade secrets include the following: manufacturing processes; software and related documentation; designs; strategic plans; customer lists; vendor and supplier information; and pricing and cost information.
Trade secrets maintained by companies can result in some of the largest losses for a company if they fall into the wrong hands. For instance, imagine what would happen if the formula for Coca-Cola became public knowledge or if the source code for Windows Vista was disseminated. If either of these events occurred, Coca-Cola and Microsoft could lose their competitive advantage within their industries and stand to lose billions in revenues. Both of these companies have in fact almost lost control of their trade secret information. In 2006, a disgruntled executive assistant at Coca-Cola attempted to sell trade secrets to Pepsi Co, and in 2004 the source code of Microsoft’s Windows 2000 operating system was leaked on the internet. Both of these attempts were eventually thwarted by the companies and/or law enforcement personnel and the trade secrets were recovered, however, not all companies are this fortunate.
In 1997 Lexar Media lost trade secret information concerning the flash memory devices it was developing to Toshiba through a member of Lexar’s Board of Directors. Toshiba used this information to further their flash memory devices which were being developed in cooperation with SanDisk. The leak of the information was not discovered until 1999, after the damage had been done. At this point, Lexar’s only option was to control the damage and attempt to recover their losses from Toshiba. The problem for Lexar was calculating a loss on something that had no physical value attached to it. Enter the valuation expert.
Trade secret damage calculations, like other damage calculations, must follow court approved damage theories meaning that the economic damage expert must follow the appropriate theory from the jurisdiction of the case. Unlike patent and trademark law, trade secret law is not mandated at the Federal level, but rather is developed at the state level. In an attempt to bring some form of uniformity to the different state laws, the Federal government issued the Uniform Trade Secrets Act (UTSA) in 1985. To date, most states have adopted the Act in some form, while those that have not rely on common law. While the trade secret law followed in each jurisdiction may differ, the damage theories allowed in each jurisdiction remain similar. In the coming briefs, the role and importance of the economic damage expert as well as the methods for calculating damages in trade secret cases will be discussed.
