Welcome everyone to another edition of my Global Tech Law Newsletter where we pride ourselves on explaining the practical side of the law to (tech) companies. Today is no exception and we’re going to focus on something that many executives overlook in worrying about legal liability.
Today’s topic is about damages. A lawsuit is like an equation, one half of the equation is the claim. Did someone actually do something wrong? The other half of the equation is whether the thing they did wrong actually caused damages to the other party. So for example, if there was a breach of contract, but the breach did not actually cause any damages, well you don’t really have a claim worth bringing, do you?
This is a point that is often lost on clients initially. Surprisingly, many clients tend to focus on the merits of the law itself without appreciating the impact (or lack thereof) for damages.
This is not to say that clients should intentionally engage in bad behavior, that they should intentionally breach a contract. It is to say that if the behavior underlying a contract is in a gray area, for example, whether a former employee violated a non-compete and whether that non-compete would even be enforceable, then you simply have to ask well how much business is the other party actually losing because you are competing against it. It might be very hard for the other side to prove actual damages, much less the claim itself.
Imagine a situation where a former executive was told by their attorney to be wary of the consequences of exactly that, a noncompete breach. After their attorney ran through all the ways the other side could argue the claim, the client was left rattled and wondering what they should do next. When the executive asked what the likely damages were if it could be proven there was a breach (it was not going to be easy to prove apparently), the attorney responded with a rough estimate of $200,000. To the executive who had previously successfully exited other ventures, there would simply be a sigh of relief. $200,000 was simply not worth losing sleep over.
And that goes precisely to my point, you almost have to analyze a claim in reverse many times, and think about what are the potential damages first before getting into the claim itself.
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