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Attorney fees may be available in DTSA and CUTSA trade secret misappropriation cases

Courts have discretion to award attorneys' fees for misappropriation claims under the Defend Trade Secrets Act ("DTSA") and the California Uniform Trade Secrets Act ("CUTSA") if the claim was pursued or defended in bad faith. See Cal. Civ. Code § 3426.4; 18 U.S.C. § 1836(b)(3)(D).

18 U.S.C. § 1836(b)(3)(D) provides in relevant part:

if a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, award reasonable attorney's fees to the prevailing party.

Civil Code Section 3426.4. provides:

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney's fees and costs to the prevailing party. Recoverable costs hereunder shall include a reasonable sum to cover [*4]  the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the prevailing party.

While neither statute defines "bad faith," courts have developed a two-prong standard to determine whether a plaintiff brought a trade secret misappropriation claim in bad faith. Specifically, a Defendant must show that the claim was objectively specious and brought or maintained in subjective bad faith. FLIR Sys., Inc. v. Parrish, 174 Cal. App. 4th 1270, 1275, 95 Cal. Rptr. 3d 307 (2009).

Federal Rule of Civil Procedure 54(d)(1) states:

"[u]nless a federal statute, these rules, or a court order provides otherwise, costs—other than attorney's fees—should be allowed to the prevailing party." See Fed. R. Civ. P. 54(d)(1). A "party in whose favor judgment is rendered is generally the prevailing party for purposes of awarding costs under Rule 54(d)." Williams v. Gaye, 895 F.3d 1106, 1133 (9th Cir. 2018) (citations omitted).

See Call Delivery Sys., LLC v. Morgan (C.D.Cal. Sep. 11, 2024, No. 2:20-cv-04637-CBM-PDx) 2024 U.S.Dist.LEXIS 206558, at *3-4.

More case law from Massachusetts Federal Court

Here is another case from federal court on the East Coast addressing a mere "mistake" about the trade secret claim may not be enough to prompt a court to awaared attorney fees to the successful defendant.  The court noted:

"Callan has moved for attorneys' fees and costs on the basis that CDMC has pursued the litigation and misappropriation of trade secrets claim in bad faith. See D. 133 at 24. The DTSA and MUTSA permit attorneys' fees and costs where a misappropriation claim was brought in bad faith. 18 U.S.C. § 1836(b)(3)(D); Mass. Gen. L. c. 93, § 42C.

“The bad-faith inquiry is a twoprong test, which requires finding that

(1) [plaintiff's] claim was objectively specious;

and

(2) [plaintiff] exhibited subjective misconduct in bringing or maintaining the claim.”

See Anywhere Com., Inc. v. Ingenico Inc., No. 19-cv-11457-IT, 2023 WL 6961882, at *3 (D. Mass. Oct. 20, 2023) (internal quotation marks and citation omitted). 

“Objective speciousness exists where there is a complete lack of evidence as to every element of a misappropriation of trade secrets claim.” Id. (internal quotation marks omitted).

“Subjective misconduct exists where a plaintiff knows or is reckless in not knowing that its claim for trade secret misappropriation has no merit.” Id. (citation omitted).

The allowance of summary judgment to Callan on all counts does not resolve whether there has been a showing of objective speciousness and bad faith by CDMC in asserting and pursuing these claims. See Johnson Matthey Process Techs., Inc. v. G.W. Aru LLC, 603 F. Supp. 3d 1374, 1379–80 (S.D. Ga. 2022) (reasoning that “the failure to properly state a claim, by itself, will not warrant an inference of bad faith justifying an award of attorney's fees” under the DTSA). 

Although the assertions of trade secret appropriation by Callan now has centered on fourteen emails, there was a plausible basis for CDMC to allege that its former employee, Belesimo, who downloaded many of its filings, allegedly containing trade secrets, for disclosure and use by his new employer in the same field, Callan. That plausibly gave rise to the trade secret claims and related claims against Callan, even as a developed record has not borne out these claims. Degussa Admixtures, Inc. v. Burnett, 277 F. App'x 530, 534 (6th Cir. 2008) (affirming award of attorneys' fees where plaintiff “acknowledged that it had no direct evidence that [defendant] had used, or was threatening to use, its alleged trade secrets” and its other theory of liability was not recognized under state law).

“Although [CDMC] was mistaken about the merits of its claims against [Callan], the Court does not find [CDMC] brought or maintained its claims in bad faith.” Johnson Matthey Process Techs., Inc., 603 F. Supp. 3d at 1383.

Accordingly, the Court concludes that attorneys' fees and costs to Callan are not warranted.