Litigation Misconduct Supports Finding of Bad Faith In Trade Secrets Action (Precision Automation v. Krevanko)

For a defendant who prevails in a trade secrets action, obtaining attorneys' fees is never going to be easy. In most states that have adopted some version of the Uniform Trade Secrets Act, the standard will be "bad faith" prosecution of a trade secrets claim. Courts have taken different approaches to applying the bad faith test.

A commonly applied standard is the objective-subjective analysis, requiring the court to de

termine whether the plaintiff's trade secrets claim was "objectively specious" and whether pursuit of the claim involved "subjective misconduct." In a recent case out of the District of Oregon, a court found that the defendant met this standard and awarded him prevailing party fees from his ex-employer.

The objectively specious part of the analysis focused on two key factors. First, the employer was unable to produce a confidentiality agreement binding the employee. The plaintiff relied on the fact another employee signed a confidentiality agreement and that it would most likely find one relating to David Krevanko, the main defendant. As the court noted, this bizarre contention was specious "at best." Second, the claimed trade secrets - to the extent they were even identified at all - were dealer and customer identities, as well as product specifications. These are the kinds of broad trade secret assertions that often land plaintiffs in hot water.

The court found that dealer identities were not secret, since they were posted on plaintiff's website. Never an advisable way to protect a trade secret...

The court further noted the plaintiff had no discernible method for identifying confidential business data, nor did it have any real security measures in place to prevent access to trade secrets by other employees. Finally, the product specifications were not trade secrets, since lists were sent out to dealers who were under no obligation to keep them secret.

The more interesting part of the opinion focused on subjective misconduct. During the deposition of Krevanko, the plaintiff's counsel misled him into thinking that a confidentiality agreement which was presented as an exhibit was generated in the ordinary course of business. The exhibit contained Krevanko's name and bore a footer that suggested it had been created in the normal course.

In fact, the exhibit was prepared for litigation purposes and had been created after the plaintiff fired Krevanko. The court was less than thrilled the attorney questioning Krevanko had used the deposition exhibit to suggest Krevanko had been presented with, or even signed, a confidentiality agreement during his employment with the plaintiff.

--

Court: United States District Court for the District of Oregon
Opinion Date: 4/28/09
Cite: Precision Automation, Inc. v. Technical Services, Inc., 2009 U.S. Dist. LEXIS 36506 (D. Ore. Apr. 28, 2009)
Favors: Employee
Law: Oregon