Calculation of compensation for damages
The Act on the Protection of Trade Secrets (SFS 1990:409) covers two types of damages – one related solely to the economic loss incurred by the unlawful action and the other related to circumstances other than those of a purely financial character.
Calculating compensation for damages can be complicated. The Labour Court recently ruled on this matter and made three individuals and their company liable to pay damages of several million Swedish kroner. It is the first case of its type and magnitude to be tried by a court of the highest instance. The Supreme Court has also decided that the dispute in question is a labour dispute, not a civil claims case.
On November 13 2014 the Western Sweden Court of Appeal (Case T 3375-13) ruled on a case regarding three women who had taken two databases from their previous employer and started a competing company (for further details please see "Former employees liable for damages relating to trade secret infringement"). Both companies conducted market research. The Court of Appeal stated that the three former employees had committed copyright infringement. The databases were considered trade secrets and the actions of the former employees were a breach of the duty of employee loyalty.
The judgment was appealed to the Supreme Court by all three former employees, one of which later withdrew her appeal. The Supreme Court rendered a decision on December 4 2015, stating that the dispute in question was a labour dispute and as such should have been appealed to the Labour Court, thus revoking the Western Sweden Court of Appeal judgment.
The Labour Court rendered its judgment on March 1 2017 (Judgment 12/17 in Case B 128/15). The two remaining former employees were obliged to pay Skr4 million to the plaintiff (their former employer), jointly and severally with each other, their new company and the third employee who had withdrawn her appeal. One judge wanted to award the plaintiff a substantially higher amount of Skr9.5 million.
Calculation of compensation for damages
The starting point for calculation of pecuniary damages may be the missing profit of the injured party or, if this is difficult to estimate, the profit of the damaging party or cost saving which the damaging party made through the trade secret infringement. However, the purpose of the liability provisions is both restorative and preventive. In the legislative history of the Act on the Protection of Trade Secrets, it is stated that compensation for damages must be high enough to ensure that the trade secret infringement does not appear more advantageous when compared to obtaining the information legally. In this case, the plaintiff claimed damages for both trade secret infringement and copyright infringement.
When calculating the pecuniary damages as a result of the claim regarding trade secret infringement, the Labour Court stated that damages calculations based on loss of profit by the injured party contained too many uncertainties to serve as basis for calculation. Instead, the damages should be calculated as the cost incurred by the injured party to obtain the trade secrets in question (ie, the databases) to the extent that the infringing parties were able to save the corresponding sum by committing the infringements. The plaintiff could substantiate the cost for obtaining the databases (approximately Skr10 million) and the Labour Court consequently addressed the question of what amount the former employees were able to save by committing the infringements. The Labour Court found that it was impossible to come to a precise conclusion in this regard and instead, with reference to Chapter 35, Section 5 of the Code of Judicial Procedure, estimated the amount to be a sum that could be deemed reasonable – in this case, Skr3 million. According to the said provision, in cases where a loss has occurred and full evidence may not be given, or given only with great difficulty, the court may estimate the loss to a reasonable amount. The provision does not mean that the person who demands damages is relieved of the obligation to present the investigation that could reasonably be done. However, if the individual demanding damages presents his or her findings to the extent that this is possible, the court must estimate the extent of damage in general. The Labour Court further stated that whatever damages the plaintiff may be entitled to because of copyright infringement, it is adequately compensated by the damages for the trade secret infringement.
Apart from compensation for pecuniary damages, the law also provides for the possibility to claim general damages. In cases of trade secret infringement, this is supposed to compensate for the infringed party's interests – not strictly financial interests – of not having its trade secrets used or exposed. The Labour Court ruled that the plaintiff was entitled to Skr1 million in general damages, totalling Skr4 million to be paid to the plaintiff by the former employees and their company, in addition to compensation for litigation costs.
The outcome is likely to raise new questions regarding how to calculate damages in such cases. Even if the amounts claimed are fully substantiated, an employer will always take the risk that the Labour Court will assess the reasonableness of the amount.
For further information on this topic please contact Jörgen Larsson or Jerker Hällqvist at Wistrand Advokatbyrå by telephone (+46 31 771 21 00) or email ([email protected] or [email protected]). The Wistrand website can be accessed at www.wistrand.se.