How Do Courts Determine Attorney’s Fees in Trade Secrets Cases?

Misappropriation of trade secrets refers to sharing a company’s confidential business information, typically with a competitor. An employer may bring a lawsuit accusing an employer of misappropriating trade secrets. Typically, an employer will seek relief that orders the employee to stop sharing trade secrets. Additionally, an employer will seek attorney’s fees for the costs it incurred bringing the claim. An employee often must pay these fees. Recently, a California appeals court increased the attorney’s fees award to an employer from the trial court’s smaller award.

The Facts of the Case

According to the opinion, the employee was a director at the employer’s medical device company. At the time he was hired, the employee signed an agreement with the employer that prohibited him from disclosing any company secrets without written authorization. The employee later accepted a position with another medical device company. Before resigning from the first company, however, he copied trade secrets and documents from the company and transferred them to his new employer’s computer.

Shortly after he resigned, the former employer sued him for misappropriation of trade secrets and breach of the agreement. Following a trial, the jury found that the employee improperly disclosed the employer’s trade secrets. However, it also found the disclosure was not a substantial factor in causing damage to the former employer or unjustly benefitting the new employer. The trial court granted the employer’s request to order the employee to return all files and refrain from disclosing the employer’s secrets. The judge also awarded 25% of the employer’s request for attorney’s fees because the employer prevailed on only one of four claims against the employee. Both parties appealed the decision.

The Appellate Court’s Decision

On appeal, the employee argued that the employer could not be the “prevailing party,” which would entitle it to attorney’s fees, because it did not prevail on its claim that the employer damages its business. The appeals court, however, disagreed. After interpreting the relevant California law on misappropriation of trade secrets, the court found that causation and damages are not essential elements of a claim for misappropriation of trade secrets. Therefore, the employer could be the prevailing party even if the misappropriation did not harm their business. As a result, the employer was entitled to reasonable attorney’s fees, costs, and expenses it incurred to obtain relief. The court also upheld the court’s order to prevent the employee from disclosing trade secrets.

However, the appeals court reversed the trial court’s attorney’s fees award. While it agreed that the employer was entitled to attorney’s fees, it disagreed with the decision to only award 25 percent of the fees because the employer only prevailed on one of four claims. By reducing the attorney’s fees by 75 percent, the trial court abused its discretion by failing to analyze whether the other three claims rested on the same set of core facts that formed the basis for the trade secret misappropriation claim.

The appeals court further disagreed with the trial court’s denial of all attorney’s fees for discovery, which is the process of turning over your side’s evidence and reviewing the other side’s evidence. The trial court reasoned that discovery did nothing to support the relief awarded to the employer. However, the appeals court found that seeking relief at trial depended on conducting discovery to present sufficient evidence to the jury. Therefore, the court affirmed part of the trial judge’s ruling and reversed the attorney’s fees award.

If you are seeking to defend yourself against a trade secrets misappropriation claim, contact the Hardin Law Group for assistance.