Trade Secret Owner Penalized For ‘Specious’ Misappropriation Lawsuit–BTS v. Exclusive Perspectives

As you know, I’ve expressed many concerns about the new ex parte seizure provisions in the Defend Trade Secrets Act (DTSA). To support the ex parte seizure provision, DTSA proponents sometimes argued that legitimate trade secret owners and their lawyers would never lie to a judge, and judges can adequately screen out any illegitimate overclaims on their own. This argument is mockable on its face. Of course some trade secret owners will deliberately overstate their case to a judge. More importantly, even when trade secret owners try their hardest to tell the truth (as best they know it), discovery and adversarial filings may reveal that the trade secret owner didn’t realize it was overclaiming. For reasons I explain in my article, trade secrets are particularly susceptible to this plaintiff blindness about their case’s merits. In either the overclaim or blindness situations, any initial ex parte seizure will in fact be wrongful, but a non-adversarial process makes it difficult to avoid the train wreck; and worse, the “wrongful seizure” action won’t help the victims in the blindness cases because the trade secret owner told what turned out to be “truthful falsehoods” to the court.

Today’s case is a terrific illustration of how a trade secret case can start out strong and end up being bogus. Had there been a DTSA ex parte seizure in this case, we now know it would have been a miscarriage of justice.

The litigants compete in the “business simulations” industry, whatever that is. The case is a typical scenario of employees (Marshall Bergmann and Richard Kelly, a contractor) departing to a competitor and allegedly taking trade secrets along with them.

Rather than get into all of the details, let me jump to the trial court’s bottom line: “it is manifest that the plaintiff’s evidence is so lacking that the determination that the plaintiff has failed in its burden of proof is completely unremarkable.” (Cue a “yawn” emoji). The trial court also has unflattering words for the plaintiff’s key witness:

The court observed Mr. Akerman’s unwillingness to let go of beliefs or suspicions which were concededly based upon false premises. He offered testimony on ‘facts’ only to have those same ‘facts’ to be revealed as his personal opinion, for which no corroborating evidence was offered. He was unreasonably intransigent when confronted with contrary evidence. His testimony was often refuted by other witnesses as well as the documentary evidence submitted. He was evasive and defensive. At times, his testimony was simply inexplicable.

(Sounds very Trump-ian. And sorry if I’m being redundant, but all of Akerman’s opinionish faux-facts would have gone unchallenged in the ex parte seizure proceedings and could very well have led to an improper seizure).

Section 4 of the Uniform Trade Secret Act provides for an attorneys’ fee shift if “a claim of misappropriation is made in bad faith.” The trial court held that “the plaintiff’s CUTSA claim, although ‘colorable at the outset, portions of it became objectively specious shortly into the discovery process,’ and thus that the plaintiff’s insistence in maintaining certain of those claims was motivated by improper purposes,” so it awarded $170k+ of attorneys’ fees to the defense. The appeals court summarily affirmed.

I haven’t systematically researched cases concluding that plaintiffs asserted their trade secrets in bad faith, but this is the second such case I’ve seen since December. The other is Madison Oslin, Inc. v. Interstate Resources, Inc., 2015 WL 7732638 (D. Md. Dec. 1, 2015), where the court held that “the trade secret claim was filed without substantial justification because it is ‘groundless in fact'” and awarded attorneys’ fees, which the defense says are millions of dollars.

I plan to compile the UTSA cases awarding attorneys’ fees for bad faith trade secret assertion. If anyone is interested in working with me on that research project, let me know. I think each of those cases highlights the risks of the DTSA ex parte seizure provision. Each time, the plaintiff proved it was willing to bring bad faith litigation–exactly what I fear will cause ex parte seizures. And in each case, the plaintiff wasn’t deterred by the statutorily-specified financial penalties for its bad faith. Admittedly, the DTSA purports to provide stronger damages awards for a wrongful seizure, though it remains to be seen how courts will apply those damages or if those damages awards will have more deterrence than the UTSA’s fee shift.

Case citation: BTS, USA, Inc. v. Executive Perspectives, LLC, 2016 WL 3405402 (Conn. App. Ct. June 28, 2016)

More reading on the DTSA: a lengthy deconstruction of the ex parte seizure provision, an essay questioning why we needed a federal trade secret law at all, a letter to Congress from over 40 law professors opposing the law, and my post calling the DTSA “the biggest IP development in years.”