California Case Highlights Need to Look Before You Leap . . . and File Suit

Late last month, the California Court of Appeal upheld a $180,000 award of sanctions against an employer for bringing a baseless trade secret misappropriation suit. While this case arose in California and involved California law, it involves concepts that have been recognized by Massachusetts judges and shows the possible consequences of the common impulse to file a lawsuit quickly and ask questions later.

In the California case, Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc., Cypress sued its competitor, Maxim, for hiring two of its former employees. Cypress argued that this hiring constituted trade secret misappropriation, for two reasons. First, Cypress argued that the identities of its employees were a trade secret and that Maxim had misappropriated this information via an unlawfully obtained employee list. Second, Cypress argued that its former employees were privy to trade secrets related to its technology, and that Maxim hired the former employees to gain illegal access to this information. Maxim countered that there was no evidence that it had acquired, or intended to acquire, any trade secret. Maxim was able to establish that most of the asserted “trade secrets” were information that was easily publicly accessible. Maxim also argued that the suit was brought in bad faith, pointing to threatening letters from Cypress and examples of unnecessary delay by Cypress in an attempt to draw out the suit. The court agreed with Maxim, and found both that there was no evidence of any wrongdoing by Maxim and that the lawsuit was brought in bad faith. Accordingly, Maxim was awarded $180,817.50 in attorney’s fees and costs.

Cypress is reminiscent of a 2009 Massachusetts case, Brooks Automation, Inc. v. Blue Shift Technologies, Inc., 20 Mass. L. Rep. 541 (2006). In that case, Brooks sued its former employee, Peter van der Meulen, for breaching his noncompete by starting a competitive business. Van der Meulen counterclaimed, arguing that he had not breached his noncompete and that Brooks was only filing suit to prevent his company from securing a major client. After a trial, a jury found that van der Meulen had not breached his noncompete and that by filing a baseless suit, Brooks had unlawfully interfered with van der Meulen’s business. The jury awarded van der Meulen $200,000. After the jury’s verdict, the judge found that Brooks Automation had violated the Massachusetts unfair business practices law, Chapter 93A, by acting with reckless disregard as to whether there was any reasonable factual support for its lawsuit, and tripled the damages to $600,000.

When an employee with a noncompete leaves for a competitive business, the instinct can be to act quickly and file suit based on necessarily limited information. However, both of these cases show that acting before collecting evidence and getting as much of the relevant information as possible can have very serious consequences.

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