StorageCraft v. Kirby: A Reasonable Royalty Even When the Thief Never Profited

StorageCraft Technology Corp. v. Kirby, No. 12-4182 (10th Cir. Mar. 11, 2014), is a compact but influential decision on the reasonable-royalty measure of trade-secret damages — and a useful corrective to the intuition that a plaintiff must show the defendant made money from a secret to recover for its theft. Writing for the panel, then-Judge Neil Gorsuch affirmed a Utah jury’s award of $2.92 million in reasonable-royalty damages against a former director who took the company’s source code and handed it to a rival, even though there was no proof the defendant ever sold a product or earned a dollar from the misappropriation. The decision crystallizes a principle that recurs throughout damages practice: a reasonable royalty compensates for the use or disclosure of a secret, not only for a defendant’s downstream profits.

At a glance

• Case: StorageCraft Technology Corp. v. Kirby, No. 12-4182 (U.S. Court of Appeals for the Tenth Circuit), on appeal from the District of Utah
• Decision date: March 11, 2014 (opinion by then-Judge Gorsuch)
• Award: $2.92 million in reasonable-royalty compensatory damages, plus exemplary damages of roughly $1.46 million on a finding of willful and malicious misappropriation — about $4.38 million in total
• Holding: Under Utah’s Uniform Trade Secrets Act, reasonable-royalty damages are available for the use or disclosure of a trade secret and do not require proof that the defendant commercially exploited it or earned profits
• Outcome: Affirmed

The theft and the verdict

James Kirby was a founder and director of StorageCraft, a data-backup software company. When he left on hostile terms, he took the company’s source code — the core of its competitive value — and provided it to a rival developer based in Japan. StorageCraft sued under the Utah Uniform Trade Secrets Act (UUTSA), the state’s enactment of the model law that anchors most U.S. trade-secret damages doctrine.

The damages problem was that StorageCraft could not readily prove a conventional loss. There was no evidence the rival had launched a competing product, no lost sales to trace, and no defendant profits to disgorge. What StorageCraft could prove was that its secret had been disclosed to a competitor — that the confidentiality on which the source code’s value depended had been breached. Its expert testified that a reasonable royalty for an unrestricted license to the source code would have been at least $4.5 million. The jury, evidently discounting the expert’s figure, awarded $2.92 million as a reasonable royalty, then added roughly $1.46 million in exemplary damages after finding by clear and convincing evidence that the misappropriation was willful and malicious.

The holding: a royalty for disclosure, not just for profit

Kirby’s central argument on appeal was that reasonable-royalty damages should be reserved for cases where the defendant actually used the secret commercially — that mere disclosure, without exploitation and profit, could not support a royalty. The Tenth Circuit rejected the premise. The UUTSA, tracking the uniform act, permits damages measured by “the imposition of liability for a reasonable royalty” where neither the plaintiff’s actual loss nor the defendant’s unjust enrichment is readily provable. Nothing in that text limits the royalty measure to commercial use; the statute speaks of misappropriation by use or disclosure, and disclosure alone inflicts a compensable injury.

The reasoning is intuitive once stated. A trade secret derives its value from secrecy. The moment a defendant discloses it to a competitor, the owner has lost something real — the exclusivity that made the information valuable — regardless of whether the recipient has yet turned it into revenue. A reasonable royalty answers the hypothetical the law often uses to value that loss: what would a willing licensor and willing licensee have agreed to pay for the right the defendant wrongfully took? That figure exists whether or not the defendant later monetized the right.

The court also treated the reasonable royalty as a flexible, fact-bound measure rather than a mechanical computation. The jury was entitled to consider the expert’s licensing testimony, to weigh it against the rest of the record, and to land below the expert’s number. That deference matters: it means a royalty award survives appeal so long as it is grounded in the evidence, even where the precise arithmetic is the jury’s own.

Exemplary damages and the willfulness finding

Because the jury found the misappropriation willful and malicious, the court layered exemplary damages on top of the royalty — about $1.46 million, roughly half the compensatory figure. Under the uniform act as Utah adopted it, exemplary damages are capped at twice the compensatory award, so the enhancement here sat comfortably within the statutory ceiling. The structure is a clean illustration of how the model statute’s damages provisions stack: a compensatory measure (here, reasonable royalty) sets the base, and a willfulness finding unlocks a multiplier bounded by the 2x cap that the federal Defend Trade Secrets Act later echoed.

Open questions

The decision leaves room for argument about how a reasonable royalty should be calibrated when there is no commercial use to benchmark against. If the defendant never sold anything, what licensing comparables are appropriate, and how should a court discipline an expert’s “unrestricted license” figure? StorageCraft tolerates considerable jury discretion, but it does not supply a methodology — leaving later litigants to fight over whether a royalty untethered to any realized market is too speculative or, conversely, whether discounting it (as this jury did) is enough to keep it grounded. The case also invites the question of how the disclosure-based royalty interacts with an injunction: if the secret has been broadcast to a competitor, what residual value does a royalty compensate, and does that value change once the information’s secrecy is already compromised?

Implications

• Disclosure is enough. A reasonable royalty can be recovered for disclosing a trade secret to a competitor; a plaintiff need not prove the defendant used it commercially or earned profits.
• Plead the royalty when loss is hard to prove. Where actual loss and unjust enrichment are elusive, the reasonable royalty is the statutory fallback designed for exactly that gap.
• Build the licensing record. Royalty awards turn on credible licensing testimony; an expert’s “unrestricted license” valuation can anchor the number even if the jury discounts it.
• Willfulness still pays. A willful-and-malicious finding adds exemplary damages up to twice the compensatory base — a structure mirrored in the federal DTSA.

Frequently asked questions

Can you recover trade-secret damages if the defendant never sold anything? Yes. StorageCraft v. Kirby confirms that a reasonable royalty is available for the use or disclosure of a secret. Disclosing it to a competitor is itself a compensable injury, regardless of whether the defendant earned profits.

How is a reasonable royalty calculated? It approximates what a willing licensor and licensee would have negotiated for the right the defendant wrongfully took. Expert licensing testimony typically anchors the figure, but the jury may weigh that evidence and award less, as it did here.

What is the relationship between the royalty and the exemplary damages? The reasonable royalty was the compensatory base ($2.92 million). Because the jury found the conduct willful and malicious, the court added exemplary damages (about $1.46 million), within the uniform act’s cap of twice the compensatory award.

Authorities and sources

• StorageCraft Technology Corp. v. Kirby, No. 12-4182 (10th Cir. Mar. 11, 2014): opinion (Justia); opinion (FindLaw).
• Analysis: Seyfarth Shaw, “$4.38 Million Verdict in Utah Federal Court for Malicious Trade Secret Misappropriation”; University of Virginia Law Library, “StorageCraft Technology Corp. v. Kirby” (Gorsuch Project).