BFV Perspectives, Noncompete & Trade Secrets, | Feb 06, 2018

Attorneys’ Fees under the GTSA for Claims Made in Bad Faith

It is common for litigants to have questions about their eligibility to be awarded attorneys’ fees from the opposing party.  The general rule is that each party in litigation bears its own attorneys’ fees except where specific contractual or statutory authority provides for fee shifting.  In trade secret litigation, eligibility for attorneys’ fees is governed by the Georgia Trade Secrets Act (“GTSA”). The GTSA provides a statutory exception to the general rule, allowing the court to award the prevailing party its attorneys’ fees under certain circumstances.

Georgia is one of many states that has adopted the Uniform Trade Secrets Act (“UTSA”).  Codified as O.C.G.A. section 10-1-760, et seq., the Georgia Trade Secrets Act (“GTSA”) provides a statutory cause of action for a misappropriation of trade secrets.

The GTSA specifically includes an attorneys’ fees provision that provides: “If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorneys’ fees to the prevailing party.”  O.C.G.A. § 10-1-764.  The GTSA thus permits, but does not require, an award of attorneys’ fees to the prevailing party under certain circumstances.  Whether to grant such fees is fully within the discretion of the court.

One circumstance in which fees may be awarded is where a GTSA claim is made in “bad faith”.  Once a party successfully prevails against a misappropriation of trade secrets claim under the GTSA, the party may seek fees if the claim was brought in “bad faith”.

Unfortunately, the GTSA does not define “bad faith” and Georgia case law applying O.C.G.A. section 10-1-764 is lacking.  However, cases from other jurisdictions that have adopted versions of the UTSA with similar fee-shifting provisions provide insight into what constitutes a claim made in “bad faith”.

Such authority sets forth a two-pronged approach to determine (1) if the claim was “objectively specious” and (2) if the plaintiff showed “subjective misconduct” in bringing the claim.  Rent Info. Tech. v. Home Depot U.S.A., Inc., 268 Fed. App’x 555, 558 (9th Cir. 2008) (construing O.C.G.A. § 10-1-764).

Objective speciousness is found where there is a complete lack of evidence supporting the misappropriation claim.  Id.  For example, a court found objective speciousness where the plaintiff failed to produce a witness who could testify with particularity about the trade secrets supposedly misappropriated.  Hill v. Best Med. Int’l, Inc., No. CA 07-1709, 2011 WL 6749036, at *8 (W.D. Pa. Dec. 22, 2011).

Subject misconduct exists where the plaintiff knows or is reckless in not knowing the claim for misappropriation has no merit.  Rent Info. Tech, 268 Fed. App’x at 558.  Subject misconduct can be found where a plaintiff knowingly persists in an invalid misappropriation claim.  Contract Materials Processing, Inc. v. Kataleuna GmbH Catalysts, 222 F. Supp. 2d 733, 744-745 (D. Md. 2002).  “Bad faith may be inferred where the specific shortcomings of the case are identified by opposing counsel, and the decision is made to go forward despite the inability to respond to the arguments raised.”  Gemini Aluminum Corp. v. Cal.Custom Shapes, Inc., 95 Cal. App. 4th 1249, 1264 (2002).

Whether bringing a misappropriation claim under the GTSA or defending against one, a party would do well to keep the attorneys’ fees provision in mind.  A potential plaintiff should understand and be able to identify the trade secrets misappropriated and carefully consider the parties against whom the claim is brought.  A defendant should prepare its case with an eye towards potentially seeking fees where warranted.

BFV Perspectives, Noncompete & Trade Secrets, | Feb 06, 2018
Daniel H. Park
Daniel H. Park

Work hard at work worth doing. This is what drives Daniel Park in every aspect of his life. At Berman Fink Van Horn, Daniel demonstrates this in everything he does.