The Secret to Success with Trade Secrets – 5 Factors That Litigation Funders Should Consider When Evaluating Trade Secrets Cases

The following article is a contribution from Ben Quarmby and Jonathan E. Barbee, Partner and Counsel at MoloLamken LLP, respectively. 

Litigation funders have trade secrets on their minds.  Since the introduction of the Defend Trade Secrets Act (DTSA) in 2016, trade secrets litigation has been on the rise.  Over a thousand trade secrets cases were filed in federal court in both 2021 and 2022.  By all accounts, that trend is set to continue.  Big verdicts have followed, with some trade secrets verdicts now rivaling the biggest patent verdicts.  In the information age, a company’s most valuable intellectual property may not be its patents after all, but the wealth of non-patented, proprietary information surrounding its ideas—its trade secrets.

Trade secrets cases can be more attractive to litigation funders than patent cases.  The funding of patent deals is regularly scuttled by patent expirations, validity concerns (especially Section 101 patent eligibility concerns), the threat of inter partes reviews (IPRs) at the United States Patent and Trademark Office, and the perceived focus of the Federal Circuit on reversing the largest patent verdicts that come before it.  Trade secrets side-step many of these issues.  They do not expire.  They are less likely to be sunk by an obscure prior art reference.  They are not subject to IPR proceedings.  And they are generally not subject to scrutiny by the Federal Circuit.  They also offer many of the same benefits to plaintiffs as patent cases: they too can be rooted in invention stories that will resonate with juries and lead to exemplary damages.

They offer their own challenges, of course.  Unlike patent cases, there is no “innocent” misappropriation with trade secrets.  A defendant must often come into contact with the plaintiff’s trade secrets for a claim to arise.  Successful trade secret claims usually require a chain of events that put the trade secrets in the hands of the defendant.  Patent plaintiffs do not face those hurdles.

Finding promising trade secrets cases requires identifying the types of companies that will regularly find themselves in situations that lead to trade secret misappropriation: joint ventures, startups seeking investment by larger industry players, acquisition targets, and companies operating in industries with high employee turnover and mobility.  And once those cases are found, performing due diligence on them requires a very specific type of focus.

The following steps are critical:

  • Identify the Trade Secrets. Ensure at the outset that there are clean, concrete, and well-defined trade secrets to assert.  In some jurisdictions, plaintiffs must identify their trade secrets before proceeding with discovery—failure to do so with sufficient precision can stop the litigation dead in its tracks.  If plaintiffs can clearly identify the form of the trade secrets (e.g., scientific data, customer lists, product recipes, hard copy documents, etc.), the chain of custody for those trade secrets, and any changes made to the trade secrets over time, their case is far more likely to withstand the test of litigation.
  • Verify the Plaintiff’s Protective Measures. Defendants will generally argue that a plaintiff has not taken adequate steps to protect its trade secrets.  You need a clean and clear story to tell about the steps a plaintiff has taken to protect its intellectual property.  Tangible evidence of such steps—company policies, firewalls, passwords—is invaluable.  And there should be a narrow or controlled universe of third parties—if any—with whom the information has been shared.  Each additional third party with access to the information can increase the uncertainty surrounding the trade secrets and affect the value of the case.
  • Estimate the Value of Trade Secrets. Calculating damages in trade secrets cases can be trickier than in patent cases.  It is harder to find comparable licenses or valuations for similar types of trade secrets since trade secrets are just that—secret.  There are also fewer established damages methodologies in trade secrets cases.  While this allows for more flexibility and creativity in crafting a damages theory, it can also make trade secret damages susceptible to challenges.  The Georgia-Pacific factors used so often in patent cases can help determine reasonable royalty rates in trade secrets cases, but courts have yet to adopt those factors as the definitive standard for trade secrets.  In conducting due diligence, hire a damages expert to estimate the value of trade secrets before filing a case.
  • Assess the Value of Injunctive Relief. Trade secrets cases are often better candidates for injunctive relief than patent cases.  Determine the strength of a case’s injunctive relief prospects early on.  The likelihood of injunctive relief has to be factored into the economic value of a trade secrets case, since it will directly impact the likelihood of early settlement.
  • Determine the Narrative. Storytelling matters in every IP case.  But it perhaps matters in trade secrets cases even more so.  It is imperative to have reliable witnesses who can illustrate the plaintiff’s narrative in a compelling and clean way.  Test the potential witnesses before considering funding.  Let them tell their story—and challenge that story—under conditions that will most closely approximate those at trial.  Attractive cases should tell a persuasive story about how the trade secrets reflect plaintiffs’ know-how, experience, and competitive edge, and also expose the motives for defendants to steal those trade secrets.

These considerations are a starting point.  Due diligence should be tailored to the particular facts and nuances of each potential trade secrets case.  Careful consideration of these factors will help ensure that funders make the wisest investments, while avoiding common pitfalls in trade secrets litigation.

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CAT Hearing for £200m Mastercard Settlement Highlights Divide Between Funder and Class Representative

By Harry Moran and 4 others |

Whilst the successes of collective proceedings supported by litigation funders are regularly highlighted by the legal funding industry, an ongoing dispute at the Competition Appeal Tribunal (CAT) between a class representative and funder over a proposed settlement shows that it is not always a relationship in which both parties see eye to eye.

An article in The Law Society Gazette provides a summary of the ongoing hearing at the CAT, as the tribunal hears arguments as to whether the £200 million settlement in the Mastercard hearing should be approved or not. The hearing, which is scheduled to last until the end of the week, saw counsel for the claimant, defendant and funder each offer their arguments on whether the judges should proceed with the collective settlement approval order (CSAO).

Mark Brealey KC, counsel for class representative Walter Merricks CBE, stated that it was the position of both Merricks and Mastercard that the value of the settlement was “in a range that was fair and reasonable.” Responding to the intervention of Innsworth Capital, the litigation funder opposing the settlement, Brealey argued that “the funder should be respectful of the way that Mr Merricks has conducted the proceedings”.

Charles Bear KC, representing Innsworth as the intervener, highlighted the cost of the funder’s support for the case and argued that approval would mean that “the class does not get a fair return on this settlement on any view of distribution.” Bear went further and emphatically stated that Innsworth’s view is that “it is completely clear the settlement prescribes zero value to the case, not little value, but nothing.”

Sonia Tolaney KC, counsel for Mastercard, suggested that it was the views of the class representative and defendant that should hold the most weight, arguing that “There is no doubt that in this case the parties themselves are best placed to assess the merits [of the settlement].” Tolaney also targeted Innsworth’s questioning of whether the £200 million settlement was the best possible outcome for the class representative, declaring that in Mastercard’s view, “that is the wrong question.”

BNP Paribas’ Securities Services Business Adopts Broadridge’s Global Class Action Solution to Maximize its Clients’ Global Asset Recovery Opportunities

By Harry Moran and 4 others |

BNP Paribas’ Securities Services business, a leading global custodian with USD 13.7 trillion under custody, has partnered with global Fintech leader, Broadridge Financial Solutions, Inc. (NYSE:BR) to expand its global custody services, appointing Broadridge as service provider for its global securities class action services.

“As the Securities Services business of BNP Paribas, we are committed to delivering innovative and differentiating products and services to our clients. Broadridge brings advanced technology, market-leading information security and deep industry expertise that align with our goals, enhancing our clients’ experience and supporting their business,” said Christian Houillon, Head of Custody Product for Securities Services at BNP Paribas. “We will be able to harness Broadridge’s proprietary technology to identify, file and recover investment losses, alongside their extensive industry expertise.”

Broadridge provides a comprehensive, proprietary technology solution for global class action services that will help clients identify and act on asset recovery opportunities. This includes a seamless process for identifying, filing, and recovering investment losses, backed by Broadridge's industry expertise.

“As the volume of securities class actions continues to rise, it’s crucial for the clients of BNP Paribas’ Securities Services business and other global financial institutions to leverage all available asset recovery opportunities,” said Steve Cirami, Vice President, Head of Corporate Actions & Class Actions at Broadridge. “Broadridge’s solutions will enable the clients of BNP Paribas’ Securities Services business to obtain all required information to support their decisions on claim recoveries, facilitate investor participation in settlements and support key business functions, delivering a seamless and impactful client experience.”

Investors have more recovery opportunities than ever before as the class action landscape continues to expand globally with more than 35 jurisdictions around the world adopting collective redress mechanisms for shareholders. In 2024 alone, there were more than 125 recovery opportunities and $5.2 billion in settlements. The ability to monitor all opportunities globally requires leading edge technology and expertise, particularly in jurisdictions where considerations of litigation can be complex to navigate.

Broadridge’s dedicated global class action services team comprises deeply knowledgeable and experienced securities litigators, claims administrators, claims auditors and data specialists, equipped to provide clients with unmatched end-to-end services, portfolio monitoring and claims filing and registering processes in global jurisdictions. Learn more about the team here.

About Securities Services at BNP Paribas (securities.cib.bnpparibas)

BNP Paribas’ Securities Services business is a leading global custodian providing multi-asset post-trade and asset servicing solutions to buy-side and sell-side market participants, corporates and issuers. With a global reach covering 90+ markets, its custody network is one of the most extensive in the industry, enabling clients to maximise their investment opportunities worldwide. As a pillar of BNP Paribas’ diversified banking model, Securities Services provides asset servicing solutions that are closely integrated with the first-class services of the Group’s other business lines, in particular those of Global Banking and Global Markets.

As of 31 December 2024, Securities Services had USD 13.7 trillion in assets under custody and USD 2.8 trillion in assets under administration.

About Broadridge

Broadridge Financial Solutions (NYSE: BR) is a global technology leader with the trusted expertise and transformative technology to help clients and the financial services industry operate, innovate, and grow. We power investing, governance, and communications for our clients – driving operational resiliency, elevating business performance, and transforming investor experiences. 

Our technology and operations platforms process and generate over 7 billion communications per year and underpin the daily trading of more than $10 trillion of securities globally. A certified Great Place to Work®, Broadridge is part of the S&P 500® Index, employing over 14,000 associates in 21 countries.

For more information about us, please visit www.broadridge.com.

Community Spotlights

Community Spotlight: Craig Geraghty, Legal Director, O’Connors Legal Services

By John Freund and 4 others |

Craig is a highly experienced corporate lawyer and Head of Corporate at O'Connors. His expertise covers a broad range of high-value transactions, including mergers and acquisitions, private equity deals, business reorganisations and restructurings, joint ventures, corporate governance, and regulatory matters. He also has significant experience of advising law firms on litigation funding arrangements.

Craig joined O'Connors from global law firm Bedell Cristin where he handled significant offshore transactional work in their Jersey office. Craig’s offshore experience is a valuable asset, particularly for O'Connors investment fund and insurance practices, while his expertise in litigation funding is a key asset for the firm's legal sector clients.

Company Name and Description: O’Connors Legal Services Limited (which trades as O’Connors). O'Connors is a nationally recognised firm of business lawyers and advisers. Although business sector agnostic, the firm has particular expertise in supporting legal businesses, including law firms, barristers' chambers and claims management companies. Its unique blend of corporate, commercial, insurance, and regulatory legal expertise and unparalleled sector knowledge delivers strategic support and innovative solutions to help legal businesses navigate the legal landscape, manage risk and capitalise on market opportunities.

Website: https://www.oconnors.law

Founded: 2003

Headquarters: Liverpool - additional office in London

Area of Focus: Corporate, Commercial, Commercial Insurance, Litigation Funding, Financial Services and Legal Services Regulation

Member Quote: “We are known as the law firm for law firms and our deep understanding of the legal regulatory landscape means we are perfectly placed to assist law firms in accessing the resources they need to pursue justice through litigation funding.”