In California, although the prevailing rule is that each party in litigation must cover their own fees and costs, a litigant can be awarded reasonable attorney’s fees and costs if expressly permitted in a contract. Proprietary information agreements often include an award of attorney’s fees and costs if a company prevails in seeking injunctive relief for misappropriation of its trade secrets by a current or former employee. However, there is an ambiguity in whether a plaintiff actually prevails on a claim for trade secret misappropriation, entitling it to injunctive relief and therefore attorney’s fees, even without a showing of damages. In Applied Medical Distribution Corp. v. Jarrells, 100 Cal. App. 5th 556 (2024), the California Court of Appeals ended this uncertainty and affirmed that monetary damages are not an element of a claim for trade secret misappropriation, and a plaintiff may be entitled to attorney’s fees even where the jury found the plaintiff was not damaged by the misappropriation.
Background
In January 2011, Applied Medical Distribution Corporation’s (“Applied”), a medical device manufacturer, hired Stephen Jarrells (“Jarrells”). At the start of his employment, Jarrells entered into a proprietary information agreement requiring him to keep Applied’s proprietary and trade secret information confidential and prohibited him from using or disclosing Applied’s confidential information without explicit authorization from Applied’s Board of Directors. Furthermore, it required that upon leaving the company, all documents, materials, and property developed during his employment or otherwise belonging to Applied had to be returned. Finally, by executing the agreement, Jarrells agreed that if any breach of the agreement resulted in the grant of equitable relief, he was obligated to reimburse the company for the reasonable attorney’s fees, costs and expenses incurred in obtaining such relief.
In December 2018, Jarrells accepted a new position as vice president of sales at Bruin Biometrics, LLC (“Bruin”), another medical device manufacturer. Before his departure in January 2019, Jarrells created a folder titled “Good Stuff” on his laptop. The “Good Stuff” folder included confidential business plans, research and development documents, sales strategies, training information, and customer pricing details. Jarrells then transferred this information onto a thumb drive and uploaded it to a computer issued to him by Bruin. Jarrells subsequently erased the relevant data from his Applied-issued laptop and network drives before returning the equipment. Shortly after Jarrells left, Applied discovered an unusual uptick in data downloads and transfers, prompting Applied to engage an external forensics expert, which uncovered Jarrells’ unauthorized activities.
A month after Jarrells’ resignation, Applied filed a suit against Jarrells for misappropriation of trade secrets, breach of a contract, and breach of fiduciary duty, and sought injunctive relief to prevent the use of Applied’s trade secret information. Applied also sued Bruin for misappropriation and intentional interference with Jarrells’ contract. During trial, the jury found Jarrells and Bruin did indeed misappropriate trade secrets belonging to Applied. However, it also concluded that this misappropriation did not result in financial damage to Applied nor did it unjustly enrich the defendants.
Despite the jury’s findings of no damages, the trial court granted Applied’s request for a permanent injunction to prevent any further misappropriation of its trade secrets and awarded a portion of the attorney’s fees, costs, and expenses under the terms of the proprietary information agreement signed by Jarrells.
Damages Are Not an Element of Trade Secret Misappropriation
On appeal, the defendants argued that as a result of the jury finding Applied was not damaged by any misappropriation, Applied failed to prove an essential element of a claim for trade secret misappropriation–damages. With this reasoning, defendants argued Applied could not have prevailed on its misappropriation claim and injunctive relief was improper. If injunctive relief was improper, the defendants argued the derivative award of attorney’s fees and costs was necessarily improper as well.
Addressing the defendants’ argument head on, the appellate court explained that despite the defendants’ contention, the California Uniform Trade Secrets Act (“CUTSA”) contains no element requiring a showing of damages. The only two elements for a claim of misappropriation of trade secrets under CUTSA are the (1) existence of a trade secret, and (2) improper acquisition, use, or disclosure of that trade secret. Damages are included in CUSTA as a remedy, not a requirement. If damages cannot be proven, CUTSA allows a court to award reasonable royalties for the misappropriation as well as injunctive relief.
In affirming Applied’s victory, the appellate court directly challenged the language in a prior California appellate case, Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658 (2003), which explained that under CUTSA, a plaintiff must demonstrate the defendant’s actions damaged the plaintiff. Challenging Sargent Fletcher, Inc., the appellate court held this inclusion of damages as an element of a CUSTA claim was only dicta and was unsupported by case law and the statutory language of CUSTA itself. Therefore, because the jury found Jarrells misappropriated Applied’s trade secrets, Applied had prevailed on its claim for trade secret misappropriation and the trial court was within its power to enjoin the defendants.
Turning to the issue of attorney’s fees, the appellate court held Applied’s entitlement to its costs and fees was grounded in the proprietary information agreement between Applied and Jarrells. This agreement explicitly stipulated to the award of reasonable attorney fees for injunction-related proceedings. Because Applied had prevailed on its claim for trade secret misappropriation, regardless of damages, and the trial court was within its right to issue a permanent injunction, Applied was entitled to its reasonable costs and fees incurred in seeking the injunctive relief.
Conclusion
A showing of damages is not an element of a claim for misappropriation of trade secrets; it is instead part of the calculation of a possible remedy. The appellate court’s holding in Applied Medical highlights the legal system’s recognition of the real costs companies incur in protecting their intellectual property, even when direct financial harm is not established. Companies should ensure their proprietary information agreements account for situations where damages may not be proven and include language for the reasonable attorney’s fees, costs, and expenses incurred in obtaining injunctive relief, even in the absence of direct damages.