A California appellate court affirmed a trial court’s ruling that a defendant in a case involving allegations of trade secret theft was entitled to recover attorney’s fees from the plaintiff.

Background

Plaintiff Cypress Semiconductor Corporation and Maxim Integrated Products, Inc. are competitors in the field of touchscreen technology. Cypress filed a lawsuit against Maxim in 2011 and alleged that Maxim had misappropriated its trade secrets, or was in the process of doing so, by seeking to hire away Cypress employees who specialized in touchscreen technology.

Maxim contended that it was entitled to try to hire away Cypress employees and that there was no evidence that it had acquired, or was trying to acquire, any Cypress trade secrets.

The Lawsuit

At the commencement of the case, Cypress sought a temporary restraining order (TRO) prohibiting Maxim from soliciting Cypress touchscreen employees and requiring Maxim to return all Cypress trade secrets and confidential and proprietary information.

Maxim demanded that Cypress identify the trade secrets that Cypress claimed were misappropriated.

Cypress responded that the identities of its touchscreen employees were among its trade secrets.

Maxim then asked the trial court to dismiss the the complaint, in part because the identities of Cypress’s employees were publicly available. In fact, Maxim said it had obtained that information from public sources.

After Cypress failed to obtain injunctive relief against Maxim or to obtain an order placing under seal evidence derived from public sources, Cypress voluntarily dismissed the action.

The trial court awarded Maxim attorney’s fees and Cypress contended that this was in error.

Bad Faith

Under California Civil Code section 3426.4, a court may award reasonable attorney’s fees and costs to a prevailing party in a case involving a claim for misappropriation of trade secrets if such a claim is made in bad faith.

The Court of Appeals agreed that the award of fees to Maxim was proper, finding that:

Cypress filed a complaint that was … meritless on its face, based upon theories of liability that were not merely specious, but nonsensical. The apparent purpose of the lawsuit was to cow Maxim and perhaps other competitors, into refraining from conduct in which—as we discuss below—they had every right to engage. Cypress proceeded to lose at every subsidiary stage, as well it should have. It ultimately abandoned the action rather than face a determination on the merits that would certainly have been adverse. Contrary to its arguments, it gained no legitimate benefit from the action, practical or otherwise. At most it succeeded in notifying the labor marketplace that it would resort to spurious litigation to prevent “poaching” of its employees. Since this objective is contrary to California law and policy, its achievement cannot be considered the kind of success that will sustain prevailing party status, or prevent an opponent from acquiring that status, under section 3426.4.

The case is Cypress Semiconductor Corporation v. Maxim Integrated Products, Inc. 

Takeaway

Courts have little patience for companies that try to “bully” their competitors by making unfounded allegations of trade secret theft.

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