California Court Awards Attorneys' Fees and Costs in Bad Faith Trade Secret Lawsuit

by Wilson Sonsini Goodrich & Rosati

In July 2012, a California appellate court affirmed a trial court's award of attorneys' fees to a trade secret defendant, finding that the plaintiff that had raised the claim of trade secret misappropriation in the case did so in "bad faith." Most state enactments of the Uniform Trade Secrets Act (UTSA) allow an award of defense fees when a trade secret claim has been initiated or maintained in bad faith, and courts in several states have issued such awards in recent years. As a result, the potential for a trade secret defendant to recover fees and costs from a trade secret plaintiff is an important consideration in trade secret litigation.

In SASCO v. Rosendin Electric, Inc., the plaintiff sued three former employees and their new employer, alleging that the defendants misappropriated trade secrets relating to a software system for construction projects. The plaintiff argued that the defendants used the proprietary system to underbid the plaintiff and that the plaintiff lost a lucrative contract as a result. The defendants submitted declarations stating that they had not taken software from the plaintiff and that the plaintiff used an off-the-shelf software product. They also submitted a declaration from a third-party company explaining that the plaintiff lost the project bid because the plaintiff was the highest bidder. By contrast, the plaintiff's CEO testified, among other things, that he had no evidence that the former employees took anything. He further stated his belief that the defendants had to prove that they had not taken documents when they left the company. In response to a question about whether the plaintiff had actual evidence of trade secret misappropriation, the court noted, the company's CEO stated that "they either took it or they're stupid."

When the defendants moved for summary judgment, the plaintiff voluntarily dismissed the lawsuit. The defendants then moved for a finding of bad faith and an award of fees and costs under California Civil Code Section 3426.4. Relying in part on a 2009 decision (FLIR Systems, Inc. v. Parrish) in which Wilson Sonsini Goodrich & Rosati won a $1.6 million fee award for two prevailing trade secret defendants, the appellate court affirmed the trial court's finding that the plaintiff had acted in bad faith because the lawsuit was objectively and subjectively unreasonable. The court held that trade secret defendants need not show that a case is frivolous in order to establish "bad faith."

SASCO makes clear that to establish "bad faith" under California's trade secret statute, subjective bad faith must exist on the part of the plaintiff (i.e., the plaintiff must have filed the lawsuit for an improper purpose such as harassment, delay, or to thwart competition). In addition, to prove bad faith, a defendant must demonstrate "objective speciousness," which is present "where the action superficially appears to have merit but there is a complete lack of evidence to support the claim." Because subjective bad faith was not an issue presented on appeal, the court's analysis focused primarily on whether objective bad faith existed. The court held that it did, finding "no evidence in the record supporting the claim that defendant misappropriated SASCO's trade secrets."

The potential availability of attorneys' fees for trade secret defendants in UTSA jurisdictions means that both sides must plan their litigation positions carefully. For a potential trade secret plaintiff, it is important to make sure that there is a colorable claim of trade secret misappropriation and to distinguish the legitimate goal of intellectual property protection from merely stopping former employees from engaging in competition against their former employer—a goal that trade secret law does not encompass. The SASCO court underscored that speculation that the individuals must have taken trade secrets based on their decision to join a competitor does not constitute evidence of misappropriation, nor does the mere fact that their former employer may lose (or has lost) business as a result of the employees' change in employment. The court also noted the absence of (but did not require) any pre-litigation investigation or forensics work prior to the filing of the complaint.

For a trade secret defendant, if an early case investigation shows that the case lacks merit, it is important to put the plaintiff on notice of the defendant's intention to seek attorneys' fees early in the case and to point out the absence of supporting evidence continually as the case proceeds.

Wilson Sonsini Goodrich & Rosati is following developments around the country with respect to fees awards in trade secret cases actively, and the firm is available to assist companies, employees, newly formed businesses, and investors with every aspect of trade secret litigation and counseling. For more information, please contact Fred Alvarez, Rico Rosales, Marina Tsatalis, Laura Merritt, Charles Tait Graves, or another member of the firm's employment and trade secrets litigation practice.

Written by:

Wilson Sonsini Goodrich & Rosati

Wilson Sonsini Goodrich & Rosati on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.