1. Shonda Brown, et al. v. Ruallam Enterprises, Inc.

2. In 2001 the Arkansas Court Appeals considered a damage award for misappropriation of a trade secret. Brown and Ruallam were engaged in the telemarketing business and sold products used in the floral industry. Many of Brown’s employees were former employees of Ruallam. The employees brought Ruallam’s confidential customer information to Brown upon their departure from Ruallam. Case Overview

3. The Arguments Brown’s Arguments: Ruallam had not been damaged by the misappropriation of the trade secrets. Ruallam’s Arguments: Ruallam’s expert determined Ruallam’s lost profits as the difference between Ruallam’s gross profits in 1998 and 1999. He concluded that Ruallam lost $313,564 in profits.

4. Court The court rejected both parties’ determinations and arrived at its own assessment of the damages. It subtracted Brown’s freight cost from Brown’s gross sales, multiplied by a 10% profit margin, to determine damages of $24,219.55. It then doubled and rounded that amount to $50,000. Both parties appealed.

5. Appeal On appeal, Brown argued that the lower court erred by finding that Ruallam had been damaged, while Ruallam argued that the lower court erred by not finding damages as its expert determined. The appellate court concluded that the lower court erred when it calculated the damages. It found that the measure used by the lower court was a hybrid measure based on both Brown’s profits and Ruallam’s losses. Thus it remanded for a calculation of the damages under the proper measure.

6. Appellate court It stated, “We hold that the proper method of calculation is on basis of the net profit, whether lost by the injured party or gained by the wrongdoer…” In remanding, it noted that Ruallam was entitled to whichever is greater-its losses or Brown’s gain. It also noted that rounding and doubling were inappropriate because neither was authorized by statute.

7. The court proceedings can be found here: http://opinions.aoc.arkansas.gov/WebLink8/0/doc/131847/Elect ronic.aspx

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