Litigators know it is generally not easy to recover attorneys’ fees in defense of a trade secret misappropriation action. The Federal Defend Trade Secrets Act (“DTSA”) permits a court to “award reasonable attorneys’ fees” to the defendant when a claim of misappropriation is “made in bad faith,” which “may be established by circumstantial evidence.”[1] But what exactly does bad faith mean and what is the threshold?
TransPerfect Global Inc. v. Lionbridge Technologies Inc. et al. is one of the most recent cases to explore this standard for awarding attorneys’ fees to successful trade secret defendants. There, TransPerfect filed suit against Lionsbridge and other co-defendants in 2019 after the defendants submitted a bid during a court-supervised Auction of TransPerfect. Id. at *2. TransPerfect claimed that the defendants improperly gained access to TransPerfect’s proprietary pricing methodologies during the Auction and used this information to poach TransPerfect clients. Id. at *3. According to the Complaint, the defendants were never legitimate bidders in the Auction and participated solely to gain access to TransPerfect’s trade secrets. Id. TransPerfect asserted state law claims and a claim for misappropriation of trade secrets under the DTSA. Id.
The court ultimately entered summary judgment in favor of the defendants on the DTSA claim. Id. at *4. In doing so, the court found: 1) “there was no evidence that [defendants] acquired any TransPerfect trade secrets through improper means”; 2) “TransPerfect failed to offer evidence that the Defendants used its trade secrets for any purpose other than what was permitted”; 3) TransPerfect “failed to offer evidence that [defendants] made a disclosure of its trade secrets to unauthorized individuals”; and 4) “TransPerfect also failed to offer evidence that it was damaged by any alleged misappropriation of its trade secrets.” Id. at **3-4.
After prevailing on summary judgment, Defendants moved for recovery of fees and costs under the DTSA. In addition to citing the DTSA standard, the court also noted it has “the inherent power to award attorneys’ fees for bad faith.”[2] The court generally explained that in order to meet the “bad faith” standard it must be shown that the claim “was without a colorable basis” and was “motivated by improper purposes such as harassment or delay.”[3]
Defendants argued that TransPerfect “pursued this case without any factual support for the
allegations made in its complaint” and wanted to damage its competitor, one of the defendants. Id. at *6. TransPerfect, on the other hand, argued that it did not commence suit until its counsel “had spen[t] months” trying to understand the confidential materials provided to the defendants, after its “sales staff ‘felt’ that Lionsbridge was competing unfairly, and after its counsel had interviewed a ‘whistleblower’ for an hour.” Id. at **6-7.
In response, the Court noted: “While feelings may provide a reason to investigate a claim, they do not provide a good faith basis for filing an action.” Id. at *7. The court also stated that after filing suit, “TransPerfect appeared to be conducting a search for a viable claim and the search continued “even after it became clear that it could not prove that it had suffered any damages from an alleged misappropriation of its trade secrets.” Id. at *7.
Despite these strong findings, the court denied the defendants’ motion for attorneys’ fees. The court found that while the defendants “have made a strong showing, they have failed to meet the standard described above.” Id. at *8.
TransPerfect is an important decision for trade secret litigants on both the plaintiff and defense side. TransPerfect cautions plaintiff’s lawyers to fully investigate the viability of its trade secret claims before and after filing suit. It also provides an example to defense counsel that even where a trade secret claim is filed and pursued without any evidentiary support, that does not automatically equate to the “bad faith” necessary to recover attorneys’ fees under the DTSA.
[1] 18 U.S.C. § 1836(b)(3)(D).
[2] Kerin v. U.S. Postal Serv., 218 F.3d 185, 190 (2d Cir. 2000).
[3] Int'l Techs. Mktg., Inc. v. Verint Sys., Ltd., 991 F.3d 361, 368 (2d Cir. 2021) (citation omitted).