Reasonable Royalties Permitted When Actual Loss Not Provable

In the Intellectual Property 2010 – 2011 Winter Bulletin, Fenwick & West contributed an interesting analysis of a recent California Court of Appeal for the Sixth District  case  (Ajaxo, Inc. v. E*Trade Financial Corporation, 187 Cal. App. 4th 1295 (2010)) wherein the court permitted a determination of “reasonable royalties” when a plaintiff cannot prove actual loss and a defendant made no profits from a misappropriation of trade secrets.

This protection adds to the value of a firm’s trade secrets.  Misappropriation of those trade secrets does NOT have to result in a profit for the offending party.  The court found that the California Uniform Trade Secrets Act intended that reasonable royalties be permitted in cases like these, and that, from a pure public policy standpoint, awarding reasonable royalties in situations where actual loss was not provable is a good way to “maintain commercial ethics standards.”