Tuesday, October 16, 2007, 10/16/2007 07:42:00 AM

Bad Faith in Trade Secrets Claims (PACER Req'd)

The Uniform Trade Secrets Act, adopted (sometimes with changes) by most states, provides that trade secrets defendants can recover their attorneys' fees when claims of misappropriation are made in bad faith.

The statute, however, doesn't define bad faith and courts have struggled to come up with a legal definition and then apply that definition to the facts in given cases.

Streamline Packaging, Inc. v. Vinton Packaging Group, Inc., a case from the United States District Court for the Western District of Michigan decided on October 2, 2007, presented the court with just those questions.

The court found in a motion for summary judgment that plaintiffs had no standing to assert trade secrets claims with respect to trade secrets belonging to another company (of which plaintiffs claimed to be an agent). The question then switched to whether defendants were entitled to attorneys' fees.

The court first ruled that "bad faith" exists when the court finds (1) objective speciousness of the plaintiff's claim and (2) plaintiff's subjective misconduct in bringing or maintaining a claim for misappropriation of trade secrets.

Plaintiffs' lack of standing, in the view of the court, establish both prongs required for bad faith:

"Plaintiffs' lack of objective evidence [of misappropriation] combined with their inability to identify any legal theory under which an agent in this situation might raise a claim indicates 'recklessness in not knowing that the claim for trade secret misappropriation has no merit.'"

[Disclosure: our firm represented the defendants in this case.]

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