When a patent is infringed, courts can award reasonable royalties – the price the infringer would have paid in a hypothetical negotiation for a license. The framework is imperfect but workable because patents come with built-in valuation anchors: a fixed term, public disclosure, and often a market of comparable licenses.

Trade secrets have none of these. And yet courts increasingly apply the same reasonable-royalty framework to trade secret misappropriation. In Valuing Uncertain Trade Secrets: Epistemic Boundaries of the Reasonable Royalties Remedy, I argue that this borrowing creates a fundamental paradox.

The valuation paradox

A trade secret’s value depends on its secrecy. The moment it is disclosed – even in the controlled setting of a hypothetical negotiation – the information that makes it valuable is compromised. How do you negotiate a price for something whose worth depends on the buyer not knowing what it is?

Patents solve this problem by design. The patent specification publicly discloses the invention. A potential licensee can read the patent, evaluate the technology, and negotiate from an informed position. The reasonable-royalty framework was built for this transparency.

Trade secrets are the opposite. Their value is a function of opacity. A hypothetical negotiation requires both parties to have enough information to agree on a price, but providing that information to the prospective licensee partially destroys the asset being licensed.

Market-anchored vs. uncertain-value secrets

My key contribution is distinguishing two types of trade secrets. Market-anchored secrets have external reference points: comparable licenses, industry benchmarks, prior transactions. For these, the reasonable-royalty framework works tolerably. A customer list with quantifiable revenue impact, for example, can be valued by reference to what similar lists have sold for.

Uncertain-value secrets lack these anchors. A novel algorithm, an unpublished research finding, a proprietary manufacturing process with no market comparables – these resist the hypothetical-negotiation framework because there is no basis for either party to propose a price. The valuation becomes speculative.

Courts borrow the hypothetical-negotiation framework from patent law but trade secrets lack patent’s fixed duration, public disclosure, and market anchors.

The calibration principle

I propose a calibration principle: before authorizing a reasonable-royalty award, courts should require the plaintiff to demonstrate meaningful price-discovery evidence. If the secret is market-anchored – if there are comparable transactions, industry royalty rates, or prior licensing history – then reasonable royalties are appropriate. If the secret is uncertain-value, with no external benchmarks, then alternative remedies (disgorgement of profits, injunctive relief) may be more appropriate than a royalty that cannot be grounded in evidence.

I use Sorrento Therapeutics v. Mack (Del. Ch. 2025) as a proof of concept, showing how the calibration principle would have improved the analysis in a real case.

Read the full article: Valuing Uncertain Trade Secrets: Epistemic Boundaries of the Reasonable Royalties Remedy (forthcoming 2025).