Thursday, August 4, 2016

Bad-Faith in Trade Secrets Litigation and the "Access and Opportunity" Argument

Admittedly, one of my go-to topics is bad faith in the context of trade secrets litigation - if for no other reason than I've seen it time and again in my experience representing defendants.

Most of the rich, intelligently discussed bad faith cases come from California courts, which hear a disproportionate number of trade-secrets suits to begin with. And that state's strong rejection of the inevitable disclosure doctrine gives it ample opportunity to chastise plaintiffs for pursuing defendants (usually ex-employees) on a spurious "access and opportunity" theory of wrongdoing.

That theory is becoming more and more prevalent. The reasoning is utterly fallacious, of course. It goes something like this:

Employee X had certain responsibilities, all of which encompassed some trade-secret knowledge, and now she works at Employer Y in a similar position. Therefore, X must be using the trade secret for Y's benefit.

Though some litigants (let me digress into a Trumpian "believe me, I litigate against them and see this all the time, folks") dress up the theory a bit more with meaningless ancillary facts, those facts are not elemental - meaning that if proven they still can't close the deal.

The "access and opportunity" doctrine is one that hasn't necessarily received uniform treatment by courts (more on this in my next post, a very informative Fourth Circuit opinion). Some give it more credence than it clearly is due. But increasingly, courts seem apt to reject it as overly simplistic and little more than a backdoor attempt to impose a non-compete agreement where the parties never bargained for one.

I really enjoyed reading RBC Bearings v. Caliber Aero, 2016 U.S. Dist. LEXIS 100521 (C.D. Cal. Aug. 1, 2016), from the Central District of California, where the plaintiff got whacked for $130,000 in fees for pursuing a trade-secrets claim in bad faith. The case is a good read because it systematically walks through how courts assess bad faith. (Another digression: The $130,000 in defense fees is right in the wheelhouse of what I have seen in garden-variety employee trade secrets cases that go to judgment and that do not involve highly technical concepts. For technical trade secrets, the fees normally are quite a bit higher.)

Courts first look to see whether the case was objectively specious, meaning that it was notable or stood out for its weakness. As in many cases, the plaintiff in RBC Bearings couldn't prove an act of misappropriation. The "access and opportunity" theory was patently deficient because that conclusory leap is not enough to establish that an insider misappropriated anything at all. To compound the problem, RBC Bearings' identified trade secrets (a list of customers) were publicly displayed (on the plaintiff's website). Problem.

In California, courts then look to subjective purpose, in addition to the weakness of the claim. This is still troubling, to me, because requiring a defendant to prove an improper purpose is exceedingly tough. But to its credit, the RBC Bearings court did go through a rigorous analysis focusing on a few different factors that suggested an improper motive: satellite litigation that suggested an intent to run up legal fees for the defendant, evidentiary shortcomings (which is usually duplicative of the objective speciousness requirement), and improper settlement demands.

The last factor is a very interesting one, because plaintiffs often are careless with demanding money in trade-secrets claims even when that demand is not provable in court. Not all settlement communications, remember, are privileged. They are to the extent one tries to use that communication to prove liability, but they aren't to ascertain whether bad faith exists. Plaintiffs who use litigation as a weapon often fall into this trap because they want to show how tough they are. Counsel who reflexively parrot what his or her client says about demanding an exorbitant amount to compromise a claim walk right into a trap, particularly at the time of fee-shifting. The RBC Bearings court specifically discusses counsel's ethical obligation to make a good-faith settlement demand and not one that is divorced from an evidentiary analysis. This is something I've never seen discussed before in such stark, yet pragmatic, terms.

Also of interest was the court's assessment of plaintiff's counsel. Aside from the unprofessionalism of demanding a settlement payment that would not be provable and pursuing a crappy case, the court was clearly bothered by counsel's inability or unwillingness to cite precedent accurately. I am experiencing this same problem in a protracted case where counsel repeatedly misstates the record, trial evidence, or case law - to the extent that it's obvious he thinks no one will call him on it. Credibility is all a lawyer has. And in RBC Bearings, the court made clear that a lack of credibility informs a bad-faith finding.

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