Bad Faith Claims are Expensive | DCR Workforce Blog

Bad Faith Claims are Expensive

Certain information which exists in the domain of common knowledge cannot be patented by anyone, for obvious reasons. It helps to know clearly as to what does qualify as a Trade Secret and what does not, if we are to claim them as such, without being suspected of any bad faith or misconstruction.

We list some of the knowledge which does not qualify as a trade secret below:

When we say common knowledge, we mean knowledge which is common to the industry in question and not the public at large. If the information is already a part of the competitors’ repository of knowledge, it cannot be patented or claimed as a trade secret.

General skills, abilities and knowledge necessary to perform on a job can be acquired and transferred by an employee to a new employer without affecting the old employer’s rights.

If a business comes up with the special knowledge of ways to combine ingredients which are generally available to everyone, that combination can be claimed as a trade secret (as in making Coke or any other recipe which is a result of using common herbs, spices and other ingredients).

If a product is obtained by legitimate means and more information or analysis of it results in obtaining a different product from it through a process of reverse engineering, it can be protected as a trade secret.

While independent inventions always merit protection, it will be lost if more entities independently arrive at the same information, without accessing the source of original information.

While it is important to protect one’s trade secrets and necessary to bring such issues to a legal conclusion, it is also necessary to make sure that the claim is genuine one and will stand up to verification. This is necessary because claims which fail to prevail in court may result in an award of reasonable fees and costs to the defendant, under Civil Code Sec.3426.4 Examples of such awards abound and let us look at some of them: Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) resulted in the claimant paying fees and costs as the defendant managed to prove the speciousness of the claim and the bad faith in bringing and maintaining the same.

K C Multimedia brought a misappropriation suit against Bank of America Technology & Operations, little imagining that they would be paying out £1,114,930 towards the attorney fees of the defendant.

Augeas Corp. had to pay out £194,990.25 to Brown (2009) and $100,000 to Krupski (2009) when it sued them both for trade secret misappropriation, breach of loyalty, interference and associated tort claims, but had no evidence to support its claim. Moreover, Augeas had to file a detailed report on its services with a public body, which preempted any claims of trade secrets.

Some defendants as in Rusnak Auto group v. McTaggart have managed to save themselves from trade secrets claims but were unable to bring the claim under Sec. 3426.4 against the plaintiff, when the bad faith was not proved. In Holland v. Wachovia Securities LLC (2009), the plaintiff’s claim of wrongful termination due to age discrimination was met with the counter claim of computer fraud and misappropriation of trade secrets. The plaintiffs were ordered to pay $72,403 in compensatory damages and $372,094 in defense attorney fees.

While some plaintiffs have succeeded in their appeals for a reversal of such punitive charges, the writing on the wall is quite clear with regard to the instances when it was refused, that any obvious lack of standing on a plaintiff part results in negative results. In O’Reilly v. Musk, the court found that the plaintiff did not own the trade secret and the adverse fee award of $126,550 stuck, in spite of many appeals for reversal. In Flir Systems Inc. v. Parrish, (2009) plaintiffs were awarded $1,352,000 in fees and $289,216.78 in costs; when the defendants could prove speciousness, bad faith and aim to preempt competition.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.