Alerts and Updates

California Court of Appeal Ruling Provides Further Guidance for Dealing with Trade Secret Claims Brought in Bad Faith

May 1, 2015

The decision in this case provides further guidance for evaluating trade secret claims and whether they were brought in bad faith and identifies pitfalls to avoid when contemplating enforcement.

On April 28, 2015, the California Court of Appeal issued its decision in Cypress Semiconductor Corporation v. Maxim Integrated Products, Inc., et al., affirming the trial court's finding that plaintiff Cypress Semiconductor Corporation brought its trade secret claim in bad faith and awarding $180,000 in attorneys' fees to defendant Maxim Integrated Products, Inc. The court admonished Cypress for bringing "incoherent," "nonsensical" claims that were asserted for an improper purpose. The decision in this case provides further guidance for evaluating trade secret claims and whether they were brought in bad faith and identifies pitfalls to avoid when contemplating enforcement.

The case concerned allegations that a third-party recruiter, hired by Maxim, contacted at least nine Cypress employees (among candidates from other companies) with touchscreen experience about open positions at Maxim. One longtime Cypress employee accepted an offer of employment with Maxim, but ultimately stayed with Cypress, despite Maxim's assurances that the new employee would not work in Maxim's touchscreen business. Cypress subsequently filed suit, maintaining that Maxim had "illegally" targeted Cypress employees to obtain Cypress' touchscreen technology trade secrets. Cypress also contended that a listing of its employees with touchscreen experience was itself a trade secret, despite a showing that the information was publicly available on LinkedIn and at the U.S. Patent and Trademark Office (USPTO). After bringing unsuccessful motions for a restraining order and to seal documents, and facing a demurrer to its amended complaint, Cypress dismissed its suit without prejudice. A motion for fees followed, which was granted.

On appeal, the California Court of Appeal affirmed that Maxim was the prevailing party, finding that Cypress had dismissed its case to avoid an adverse determination on the merits of its claims. The court then applied the judicial test for bad faith, requiring a showing of: (1) objective speciousness of the claim and (2) subjective bad faith in bringing or maintaining the action, i.e., for an improper purpose. In doing so, the court looked at, among other things, what evidence the plaintiff had prior to filing suit. The court held that the "finding of bad faith is amply supported by evidence that defendants did no more, and Cypress accused them of no more, than attempting to recruit the employees of a competitor, which Maxim was entitled to do under the laws of this state." The court also found that Cypress' claims were grounded in the generic concern that Cypress employees, if hired by Maxim, would disclose Cypress' trade secrets. Because it is well-settled that California does not recognize the inevitable disclosure doctrine, these concerns could not support a claim for actual or threatened trade secret misappropriation. In its finding of bad faith, the court considered Cypress' "evasive" and "equivocal" pleadings and its litigation misconduct that included objections to providing evidence to support its claims and its belated trade secret disclosure. The court also noted that Cypress had waited months, until the last possible day, to (minimally) amend its complaint, requiring Maxim to refile a demurrer.

For Further Information

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