Article By Heath Coffman
Damages for misappropriation of trade secrets are generally understood as (1) lost profits, (2) defendant’s profits, or (3) a reasonable royalty. These are damages traditionally sought against a competitor. But that does not mean that a departing employee who takes trade secrets to a competitor is immune from a damage award.
The Texarkana Court of Appeals’ opinion in Orbison v. Ma-Tex Rope Co., Inc., 553 S.W.3d 17 (Tex. App.—Texarkana 2018, pet. denied) provides a good example of how a departing employee can be assessed damages for providing trade secrets to a competitor. In Orbison, the employee Orbison left his position at Ma-Tex for the same position at competitor API. While at API, Orbison began soliciting work from Ma-Tex’s customers in violation of his non-competition, non-disclosure, and non-solicitation agreements. After a bench trial, the trial court entered a judgment against Orbison and API for lost profits, lost good will, fee forfeiture, profit disgorgement, and attorneys’ fees. The court also entered a permanent injunction.
The Texarkana Court of Appeals reversed the trial court’s judgment for Ma-Tex’s lost profits and lost good will, finding that Ma-Tex offered insufficient evidence of both amounts. The court, however, upheld the trial court’s damage award of fee forfeiture—calculated as Orbison’s salary for time spent at Ma-Tex when he was assisting API with work—and profit disgorgement—calculated as Orbison’s API salary before the temporary injunction was entered. The court stated that a forfeiture of Orbison’s Ma-Tex salary was appropriate to compensate Ma-Tex for the time that Orbison was actively competing with Ma-Tex using Ma-Tex’s confidential information to solicit its customers. It did not matter that the salary was not technically a “fee.” Furthermore, the disgorgement of Orbison’s API salary was appropriate because there was no “distinction between disgorging a fee paid to, or the profit made by, an agent who usurps his principal’s business opportunity and disgorging an amount equal to the salary paid to a former employee by his new employer when the former employee uses confidential information and trade secrets to solicit the customers of his former employer.” And although the court analyzed these damages under breach of fiduciary duty, the court did note that such damages were also the damages for Ma-Tex’s unjust enrichment damages for misappropriation of trade secrets claim. Therefore, any employee contemplating taking trade secrets to a competitor should think twice because that employee may have to forfeit his salary for the duration of time that he or she was improperly using the trade secrets.