New York Court of Appeals Limits Trade Secrets Damages Under NY Law to Actual Losses

Can a plaintiff recover trade secrets damages from a defendant for the costs the defendant avoided by misappropriating plaintiff’s trade secrets?

Apparently not, according to the New York Court of Appeals. In E.J. Brooks Co. v. Cambridge Security Seals, 2018 WL 2048724 (N.Y. May 3, 2018), the New York Court of Appeals announced that a plaintiff seeking compensatory damages for unfair competition may only recover what the plaintiff would have earned if not for the defendant’s wrongs—not the amount that defendant saved, received, or earned through its wrongful actions. Id. at *4. The Court also held that plaintiff’s asserting unjust enrichment claims are not permitted to recover compensatory damages from defendants for their avoided costs.

The majority’s decision invoked a vehement dissent in which Judge Rowan Wilson, joined by Judges Rivera and Fahey, expressed concerns about the majority’s “unnecessarily narrow interpretation of damages,” its conflation of damages at law and in equity, and its incoherence with existing New York Unfair Competition Law.

E.J. Brooks significantly limits the scope of compensatory damages recoverable by plaintiffs in trade secret and unfair competition actions in New York. Rather than permitting plaintiffs to recover for competitive advantages conferred on defendants found guilty of engaging in unfair competition, the Court capped plaintiff’s damages at the amount of actual loses incurred. As noted by the dissent, this has the potential to incentivize economic espionage and discourage innovation, making the decision highly questionable as a matter of policy.

For a more detailed analysis of the case, see Muhammad U. Faridi and A. Robert Quirk’s New York Law Journal Article, “Unfair Competition, Trade Secrets Damages Limited to Plaintiff’s Losses Under NY Law,” published June 25, 2018.

To read the full E.J. Brooks opinion visit the New York Court of Appeals’ website here.

To learn about how Castaybert PLLC can assist with trade secret matters, please click here.