Ms. Irwin, a senior advisor and testifying expert at Cornerstone Research, discusses the financial complexities of trade secret disputes.
Drawing on her extensive background in economics and finance, valuation, and forensic accounting, Ms. Irwin explains the different frameworks used to quantify harm and the methods experts employ to present defensible, objective findings to judges and juries.
This article adapts materials from a guest lecture that Ms. Irwin delivered at the University of California, Berkeley, School of Law. During her visit, she was interviewed by David Almeling, a professor at Berkeley Law, partner at O’Melveny & Myers, and one of the nation’s leading trade secret attorneys. Together, her lecture remarks and their conversation explore how experts calculate damages and present them clearly in court.
1. During your guest lecture at Berkeley Law, you noted that you view trade secrets disputes through a financial lens rather than a legal one. How does your background in economics and finance shape your approach to these matters, and what forms can these damages take?
My professional background is rooted in economics, accounting, and finance; an M.B.A.; and early-career experience working as an assistant controller before moving into litigation support at PricewaterhouseCoopers (PwC). To be clear, I am not a lawyer. I am a certified public accountant (CPA) and hold credentials in business valuation and financial forensics. This training allows me to focus completely on the economic and financial reality of a case.
While legal frameworks such as the Defend Trade Secrets Act (DTSA) guide my work, I also carefully examine competitive factors, market realities, and industry dynamics to build my damages models. Over the years, I have been exposed to the issues that matter most to judges, including the need for extreme specificity when identifying a trade secret and the absolute necessity of giving proper consideration to apportionment issues. Ultimately, my job as an expert is to explain the numbers to the court and/or the jury.
Under the DTSA, trade secret damages generally fall into three main categories:
- Actual loss to the plaintiff: This measures direct financial harm, such as lost profits or incremental costs resulting from the alleged theft.
- Unjust enrichment of the defendant: This looks at the unfair financial benefit or profits the defendant gained from the alleged misconduct, which we can estimate using several economic theories.
- Reasonable royalty: If actual losses or unjust enrichment cannot be proved with reasonable certainty or are found inadmissible, we estimate a reasonable royalty by modeling a hypothetical licensing agreement between the parties.
The type of damages I calculate depends on the unique facts of the case and the kinds of information available to me. If I do calculate more than one type of damages remedy, I clearly communicate which forms might overlap so the court and/or jury can avoid duplicate awards.
2. When are you and Cornerstone typically brought into the litigation process, and what are your first steps to determine how much economic harm was allegedly done?
Ideally, we are brought in early, as discovery between the parties is beginning or ongoing. This timing allows us to actively assist counsel in targeting and obtaining the right financial and business data, both from our client and the opposing party.
Every case is different, so my initial investigative steps focus on understanding the alleged misconduct and how it may have economically affected the plaintiff or benefited the defendant. For example, when my client is the plaintiff, I work with them to determine exactly how the alleged misappropriation or use of confidential information poses a competitive threat and how they are being harmed.
For instance, I evaluate how the alleged conduct might decrease the plaintiff’s volume of sales and translate into lost profits. To verify these claims, I analyze commercial data over time to determine whether sales are declining in a pattern that matches the specific theory of harm. I also assess how the trade secret generates value—incremental economic value—and examine how quickly the defendant reached the market and if there were any avoided costs. This time frame can help to establish the value of an alleged unfair “head start” period.
Connecting financial damages to the actual trade secrets is critical because it is unusual to have only one trade secret in a case. …Where possible and if necessary, I also create a flexible model to allow the exclusion of one or more of the trade secrets.
In addition, parties commonly “license” their intellectual property (IP), including patents and trade secrets, to related parties to facilitate overseas manufacturing. Because these licenses typically require fair value or arm’s length terms, they can be used to help identify the IP’s independent value.
Another important step is mapping each trade secret directly to the specific services or products involved, if possible. Connecting financial damages to the actual trade secrets is critical because it is unusual to have only one trade secret in a case. If a client claims eight trade secrets, for example, I perform my initial calculations assuming all eight will survive legal challenges. Where possible and if necessary, I also create a flexible model to allow the exclusion of one or more of the trade secrets.
Throughout this process, I work with the client’s employees, industry specialists, and technical experts to build a reliable methodology that maps the harm directly to the alleged misconduct, working closely with attorneys to verify the facts.
3. Plaintiffs often want to claim both their own lost profits and the defendant’s gained sales. How do you define and model so-called “double counting” to prevent duplicate financial recovery, and how do you decide which methodology to apply?
Double counting happens when you try to claim damages twice for the exact same commercial units or transactions, resulting in an artificial double recovery. The technical way to evaluate this under accounting principles is to construct and compare distinct “but-for” worlds—hypothetical scenarios that model the market without the alleged wrongdoing—rather than blindly adding losses together.
To illustrate, assume that a plaintiff manufactures widgets and sells them to ten customers. The defendant allegedly steals the trade secrets, builds competing widgets, and sells them to four of the plaintiff’s customers, as well as five of their own existing accounts. In this case, the plaintiff’s lost profits are strictly limited to those four shared customers who, in the but-for world, would have bought widgets from the plaintiff. While the defendant’s unjust enrichment could include profits from any customer, adding the plaintiff’s lost profits to the defendant’s profits on those same four shared customers is double counting. In a proper but-for model, an expert must assume those specific units were sold by either the plaintiff or the defendant, but not both. There could be special circumstances if the parties operate in different geographical markets, which could affect labor rates, cost of materials, and/or access to other resources.
In deciding which methodology to pursue, the expert does not choose the better number for the client. Instead, I strive to present a methodology based on the facts, the reliability of the data, and our ability to calculate damages with reasonable certainty.
We see similar overlap in strict two-player markets. If a customer reverse-engineers a client’s technology and passes it to a subsidiary to compete, you cannot simply add the client’s lost sales to the subsidiary’s sales; that creates an impermissible double recovery for the exact same customer demand. We are always very careful about this when substitute products are involved.
However, if the defendant uses the secret to sell to a different third party—one the plaintiff would not have reached—the transactions fall outside the plaintiff’s lost profits model. Because there is no commercial overlap, those independent sales can be added to the total damages. We can also combine measures of loss when modeling price erosion, where a plaintiff maintains sales volume but lowers prices to compete. Comparing the but-for world against actual market conditions isolates the incremental damage. The danger arises when an expert constructs a model assuming the defendant would never have entered the market at all, which can lead to a miscalculation.
In deciding which methodology to pursue, the expert does not choose the better number for the client. Instead, I strive to present a methodology based on the facts, the reliability of the data, and our ability to calculate damages with reasonable certainty. Often, I will present more than one model, explain the economic strengths and weaknesses of each, and let the judge or jury decide.
4. What happens when a case is especially complex, involving dozens or even more than one hundred individual trade secrets, or when the secrets are so interdependent that a product cannot function without all of them?
In these circumstances, the expert must address two distinct types of apportionment:
- Individual trade secrets: We separate damages for each trade secret where possible. If a jury finds a specific secret was not misappropriated, the court can adjust the award without rejecting the entire damages analysis.
- Non-stolen demand drivers: We isolate the portion of the defendant’s profits generated by the trade secrets versus other factors that drive customer demand, such as industry reputation, established relationships, or manufacturing efficiencies.
To manage large numbers of trade secrets and potential combinations thereof, we design our damages models to be flexible and modular. For example, in an International Chamber of Commerce (ICC) arbitration case involving 54 trade secrets, my methodology required me to treat each secret separately, modeling each secret’s independent value and related damages. If a secret is subsequently dropped or dismissed, that specific component can be removed from the total claim without having to revise the entire analysis.
In a federal court case involving a 52-month head-start period, I used a similar approach, building 52 separate models—one for each month—to tie the financial recovery to that legally established advantage. Thus, the jury had the basis to adjust the head-start period based on their findings. I have also applied this comprehensive structure to cases involving as many as 101 trade secrets.
A different challenge arises when trade secrets are interdependent. For instance, if a web search algorithm company alleges the theft of ten trade secrets and pulling just one out breaks the entire service, they cannot be valued independently. Software and certain types of technology are good examples of this dynamic. In these scenarios, the client usually retains a technical expert to explain the importance of each secret and how they function together. As the financial and damages expert, I rely on those technical findings to build a defensible damages model.
5. Effectively communicating financial data requires a careful balance, especially given the nuances of trade secret law. How do your presentation strategies shift when you are speaking to a jury versus a judge, and how do you maintain strict objectivity if client emotions run high?
My underlying economic analysis and models do not change, but my presentation approach shifts depending on the audience.
In a jury trial, the goal is clarity. I keep explanations simple, avoid jargon, and focus on the big picture so the jury understands what the numbers mean. I make it clear that my calculations take liability as a given for the sake of the analysis, since determining actual fault is the jury’s job. I explain damages as the difference between the actual world and a but-for world that excludes the impact of the alleged misconduct. Walking the jury through assumptions and data limitations, while offering a range of damages scenarios, helps keep them engaged.
To buttress my professional standards, Cornerstone’s case teams minimize potential bias by evaluating the dispute from the opposing perspective to stress-test our models and keep our numbers conservative. This objective approach is vital when navigating discovery hurdles and potentially intense client emotions.
In a bench trial, the presentation can be more technical. In courts like the Delaware Court of Chancery, judges are familiar with commercial cases and economic issues, allowing us to go deeper into details and assumptions. Judges will dig into methods and question experts directly. Cross-examination can also be tougher and more confrontational because the questioning attorney does not have to worry about juror perception.
As a CPA, I am required to maintain my objectivity and independence throughout any engagement. At trial, I am almost always asked, “So you are being paid for your testimony today, correct?” My response is, “No, my employer, Cornerstone Research, is being paid,” and I explain that my compensation has nothing to do with the outcome of the case.
To buttress my professional standards, Cornerstone’s case teams minimize potential bias by evaluating the dispute from the opposing perspective to stress-test our models and keep our numbers conservative. This objective approach is vital when navigating discovery hurdles and potentially intense client emotions. For instance, some cases involve small business owners whose life’s work is on the line, making the process deeply personal. As experts, we must remain unswayed by these pressures. We rely on the attorneys to manage client communications, which allows us to address sensitive data limitations directly with counsel.
Experts also navigate the friction between legal strategy and financial reality when a plaintiff seeks both an injunction—a court order to stop a specific behavior—and monetary damages. If an injunction protects an asset like a customer list, we assume the defendant complies with the court’s order to stop selling to those clients. We then remove the value of that protected information from our monetary damages calculation to focus strictly on the remaining trade secrets. Strategic tension can arise because a plaintiff’s attorney often argues the harm is completely unquantifiable to secure the injunction, only to introduce a specific damages figure later during discovery. From the defense side, it is straightforward to use this contradiction to challenge their consistency.
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