Studying Damages In Trade Secrets Misappropriation

Trade secrets,as a special category of intellectual property rights,have the characteristics of not being generally known,weak exclusivity,an unfixed protection term,and with the infringement methods of trade secrets closely relating to the amount of damages to them,all of which determine the uniqueness of the issue of damages.The multi-dimensional protection theory of trade secrets provides different approaches to the damages problem:from the perspective of the property rights theory,the value of the trade secrets’ damages itself becomes relevant when calculating the sum of the damages,therefore providing more sufficient reasons for the infringement profits to be included in the coverage of damages;based on the theory of competition law,the profits of the competitor should be covered,hence,punitive damages may be introduced with the consideration of maintaining the order of market competition;with reference to the theory of contract law,compensation for breach of contract becomes an important factor for calculating damages and contributes to the hypothetical negotiation method for determining reasonable license fees.In the era of the Civil Code,it is necessary to rethink the traditional function of the damages system and to improve it in the overall rights theory system under the principle of tort liability.It is believed that the infringement of the value of the trade secret is the underlying logic of the damages system.The value of trade secrets connotes real and potential value,and the measurement standard is the competitive advantage.The evaluating theories include labor value theory,element value theory,and utility value theory,corresponding to market evaluation method,cost evaluation method and income evaluation method.Damages of trade secrets infringement is not only an economic issue,but also a legal problem.The amount of value reduction mainly depends on the scope of infringement and the causal relationship of infringement liability.The calculation is based on theories such as difference theory,organization theory,and quota theory,with the corresponding legislative provisions of actual losses,infringement profits,reasonable license fees,and statutory damages.Categorization is the key to crack the application dilemma of actual loss compensation.The actual loss is manifested in the loss of profits and the reduction in the value of the trade secret itself.The former includes loss of sales profits and loss of license fees,and the latter is manifested in the loss of value of the trade secret due to improper disclosure.These two kinds of losses are mutually exclusive and cannot be applied together.Although the loss of sales profits is complicated,the profit rate is the simple calculation method in judicial practice and the key point of the proof is the causal relationship between tort and loss of sales profits.Since the loss of license fee is mainly the loss of the right holder’s existing or potential license fee,it can be referred to the license fee rate which is already used by the right holder or it can be calculated by applying the"Georgia-Pacific Standard" through analogy.But the right holder has to prove his loss and provide the license fee rate for reference.Furthermore,it is too ideal to legislate to use commercial value to compensate for the loss of trade secrets value,but it is relatively reasonable to compensate for R&D expenses.The costs by the right holder to remedy the disclosure should be included in the tort damages rather than the actual loss.The legal presumption is fundamental to solve the problem of infringement profit damages theory and applicable practice.Regarding to the theoretical differences between the calculation standard theory and the damages judgment theory,the former is adopted and believed that infringement profits are the calculation standard of presumed damages.In judicial practice,the profit from infringement is mainly the profits of the infringer based on the business profits.The specific contribution of trade secrets to the business profit can be determined by the technology apportionment method or the deduction of tort cost method.Generally,the plaintiff should first prove the business income of the infringer as a profit from the infringement,and then the defendant bears the unfavorable consequences if he cannot prove the opposite.In addition,the R&D expenses or license fees saved by the infringer which are often ignored can also be a part of the infringement profits and should be included using the "comparative standard"test method.And it is worth noting the difference between the cost saved by the infringer and the R&D cost of the right holder,hence confusion and overlapping application should be avoided in practice.Application of the norms is kernel to restrict the discretion of statutory and punitive damages.As to statutory damages,firstly,both the theory of special remedies and the theory of statutory damages calculation are statutory damages methods,the latter of which is adopted in China;secondly,compensating the damages occurred is the main function of statutory damages and thus the principle of passive application must be observed;thirdly,it is necessary to understand the rationality of the generalization of application of statutory damage in judicial practice and to correct it while designing the overall damages regime;and finally,the amount of damages should be mainly focused on the infringement circumstances and the value reduction of trade secrets.As far as punitive damages are concerned in the field of trade secrets,it is more necessary to maintain the order of market competition and sustain the austerity of the criminal law.But it should be remember that,first,it is necessary to clarify applicable conditions such as "operators","malicious",and "serious infringements";second,the calculation sequence should be actual losses and then the infringement profits;third,the severity of the infringement,the degree of malice,the infringer’s capability to compensate and to assume other legal liabilities,etc.should be considered when determining the multiple of the punishment amount;last,punitive damages should be applied prudently with stricter application procedure and higher standards of proof.There are two ways to perfect the damages system of trade secrets in china:one is to cover reasonable licensing fees,and the other is to adjust the compensation sequence.Reasonable licensing fees can be either the actual loss of the right holder according to the difference theory or the infringement profits from the point of organization theory,but the difficulty is how to determine the license fee rate of the trade secret.Although it is reasonable not to stipulate this method for trade secrets in China,it can be introduced into existing damages methods in judicial practice.However,the application order of damages methods for trade secrets is not stipulated in china,which may deprive the parties of the right to freely choose the damages methods.Thus,the parties should be allowed to choose freely the appropriate method in accordance with the provisions of the Civil Code.In sum,this thesis aims to explore new impact areas of the trade secrets protection theory on damages,to expand new perspectives of damages to trade secret’s value,to put forward new theoretical assertion that it is relatively reasonable to compensate the actual losses by R&D costs,and to try to rebuild a more crafted damages system for trade secret infringements.