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Bad Faith Trade Secret Claims Brought for Anticompetitive Reasons Justify $1.6M Sanction

Case: FLIR Systems v. Parrish, Cal. App. 2nd Dist. No. B209964 (6/15/09)

The One Sentence Summary: Bad faith sanctions of $1,641,216.78 in attorney fees and costs for bringing and maintaining a bad faith trade secret action were affirmed under California's Uniform Trade Secret Act, Civ. Code, § 3426 et seq.

What They Were Fighting About: Plaintiff had asserted trade secret claims against former executives who left to start a competing company. After trial on the claim for permanent injunction, the court denied plaintiff's claims and awarded sanctions against plaintiff for pursuing a trade secret claim in bad faith.

California Court of Appeal Holdings:

• Sanctions for bad faith trade secret claim were supported by trial court's factual findings that there was no threat of misappropriation.
• The inevitable disclosure theory is not recognized in California, and cannot justify plaintiff's claims.
• A hard drive download by one of the defendants which was not used to misappropriate trade secrets did not prevent trial court's factual finding of subjective bad faith supporting sanctions.
• Objections to patent applications did not establish threat of misappropriation.
• Plaintiff's proposal of an injunction that did not identify the trade secrets or distinguish from non-trade secrets was properly considered in bad faith finding.
• Bad faith settlement demands and request for non-compete justified sanctions.
• Rulings on summary judgment and non-suit motions and tentative statement of decision did not preclude bad faith finding.
• The bad faith finding was supported by the plaintiff's CEO's testimony that there was an anticompetitive motive for the trade secret claim.

Full post as published by IP Law Observer on August 21, 2009 (boomark / email).