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Trade secrets, what trade secrets?

It’s an old story. Competing companies, especially ones in a niche market, enter into some sort of deal. Maybe it’s a joint marketing deal or a joint venture, or maybe one is considering buying the other. Sometime later an employee of one leaves and gets hired at the other. That’s when all the conflict starts. The company that lost the employee also claims that the employee ransacked the business he left to benefit his new employee. Client lists, product specifications, financial information. In short, the employee is alleged to have stolen trade secrets.

In Connecticut, there is the CUTSA, Connecticut uniform trade secrets act, General Statutes § 35-50 et seq., which protects businesses from exactly that situation and allows the injured business to sue the other one. But, you better make sure that you are suing under CUTSA for a real trade secret violation and not an imagined one because CUTSA has a stiff attorney fee penalty for a lawsuit brought in “bad faith.” This is what happened in the recent case of BTS, USA, INC. v. EXECUTIVE PERSPECTIVES, LLC, _____ Conn.App. _______ (June 28, 2016).

In the BTS case, the plaintiff sued after one of its employees went to a competitor sometime after a failed merger negotiation. The trial court held, and the appellate court affirmed, that shortly after the case was filed it became apparent that the plaintiff had no facts to support its CUTSA claims. Undaunted, plaintiff pursued its claims all the way through trial, although it claimed it was narrowing them considerably and never conceded that it had no evidence to support its claims. After a complete defense verdict, the defense was awarded over $170,000 in attorneys fees because the court held that the CUTSA claims were pursued in bad faith.

The interesting thing in this case was the court’s lack of legal authority on what constitutes “bad faith” in the prosecution of the matter. Instead it relied entirely on the trial court’s determination and review of the facts in the underlying case. The trial court was in the best position to review all the facts and make the determination that, although plaintiff had reason to bring the action in the first place, shortly after discovery commenced it should’ve known that there was no trade secret claim that could reasonably be prosecuted.

I take two pointers from this case: first, make sure that when you are defending a trade secret claim you create a good record with the trial court as to the facts supporting the plaintiffs alleged bad faith in pursuing its case, and second, if you are going to prosecute a trade secret case you had better develop good facts to support your claim or dismiss the claim promptly. Failure to do so can cost you severely.

If you need help with a trade secret claim or an employment lawsuit please give us a call.