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Flir Systems, Inc. v. Parrish

June 15, 2009

FLIR SYSTEMS, INC., ET AL., PLAINTIFFS AND APPELLANTS,
v.
WILLIAM PARRISH ET AL., DEFENDANTS AND RESPONDENTS.



(Super. Ct. No. B8154145) (Santa Barbara County). James W. Brown, Judge.

The opinion of the court was delivered by: Yegan, P.J.

CERTIFIED FOR PUBLICATION

Appellants FLIR Systems, Inc. (FLIR) and Indigo Systems Corporation (Indigo) appeal from a judgment and post-judgment order awarding respondents William Parrish and Timothy Fitzgibbons $1,641,216.78 attorney fees and costs in a trade secret action. (Civ. Code, § 3426 et seq.)*fn1 The trial court found that the action was filed and maintained in bad faith within the meaning of section 3426.4 of the California Uniform Trade Secrets Act. We affirm.

Facts

Indigo manufactures and sells microbolometers. A microbolometer is a device used in connection with infrared cameras, night vision, and thermal imaging. A significant portion of Indigo's technology was created by respondent William Parrish. FLIR manufactures and sells infrared cameras, night vision, and thermal imaging systems that use microbolometers. In 2004, FLIR purchased Indigo for approximately $185 million, acquiring Indigo's patents, technology, and intellectual property. Parish and Fitzgibbons were shareholders and officers of Indigo before the company was sold. After the sale, they continued working at Indigo.

In 2005, respondents decided to start a new company to mass produce bolometers and gave notice that they would quit Indigo on or about January 6, 2006. The new company was based on a business plan (Thermicon) developed by Fitzgibbons in 1998 and 1999 when he was self-employed.

Before leaving Indigo, respondents discussed allowing appellants to participate in Thermicon. Respondents proposed outsourcing bolometer production to a third party. The production startup time would be quick, assuming respondents could acquire technology licenses and intellectual property from a third party. Respondents offered FLIR a non-controlling interest in Thermicon. FLIR rejected the offer and wished respondents success in the new endeavor.

In early 2006, respondents entered into negotiations with Raytheon Company to acquire licensing, technology, and manufacturing facilities for Thermicon. Respondents assured appellants they would not misappropriate Indigo's trade secrets and that the new company would use an intellectual property filter similar to the one used at Indigo to prevent the misuse of trade secrets.

Fearful that the new business would undermine FLIR's market, appellants sued for injunctive relief and damages on June 15, 2006. The action was premised on the theory that respondents could not mass produce low-cost microbolometers based on the Thermicon time line without misappropriating trade secrets.

Upon learning of the lawsuit, Raytheon Company terminated business discussions with respondents. On August 15, 2006, respondents advised appellants that they were not going forward with the new business.

The Permanent Injunction Trial

Appellants dismissed the damage causes of action and proceeded to trial for a permanent injunction to enjoin respondents from: (1) making use of appellants' trade secrets in the design, manufacture, and high-volume production of uncooled Vanadium Oxide microbolometers; (2) selling uncooled Vanadium Oxide microbolometers in commercial markets less than 12 months after respondents entered into a license with Raytheon Company or any other third party to purchase intellectual property; or (3) using, disclosing or misappropriating the contents of an Indigo commodity code database that Parrish attempted to download while an employee at Indigo.

After eight days of testimony, the trial court found no misappropriation or threatened misappropriation of trade secrets. It was uncontroverted that respondents received no funding for Thermicon, did not start a new business, had no employees or customers, did not lease a facility or develop technology, and did not design, produce, sell, or offer to sell infrared products.

In a 25-page well-reasoned statement of decision, the trial court found that the action was brought in bad faith based on a theory of "inevitable disclosure," a doctrine not recognized by California courts because it contravenes a strong public policy of employee mobility that permits ex-employees to start new entrepreneurial endeavors. (See Continental Car-Na-Var v. Moseley (1944) 24 Cal.2d 104, 110; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462.) Appellants were ordered to pay $1,352,000 attorney fees and $289,216.78 costs. (§ 3426.4.)

Section 3426.4 Fees: Trial Rules, and Appellate Rules

Section 3426.4 of the California Uniform Trade Secrets Act provides: "If a claim of misappropriation is made in bad faith,... the [trial] court may award reasonable attorney's fees and costs to the prevailing party." Although the Legislature has not defined "bad faith," our courts have developed a two-prong standard: (1) objective speciousness of the claim, and (2) subjective bad faith in bringing or maintaining the action, i.e., for an improper purpose. (Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th 1249, 1262 (Gemini).) Section 3426.4 authorizes the trial court to award attorney fees as a deterrent to specious trade secret claims. (Id., at p. 1261.) Because the award is a sanction, a trial court has broad discretion in awarding fees. (Id., at p. 1262.)

On appeal from such an order, the appellant has an "uphill battle" and must overcome both the "sufficiency of evidence" rule and the "abuse of discretion" rule. We need not repeat these well-settled rules. (See Estate of Gilkison (1998) 65 Cal.App.4th 1443, 1448-1450.) As we shall explain, appellant does not appear to appreciate the trial court's fact-finding power and its discretionary power to award attorney fees and costs to curtail a bad faith claim of trade secret misappropriation. We do not retry cases on appeal and we do not substitute our discretion for that of the trial court.

Objectively Specious

Appellant argues that the first prong, i.e. objective speciousness, was not satisfied. Objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim. (Gemini, supra, 95 Cal.App.4th at p. 1261; CRST Van Expedited, Inc. v. Werner Enterprises (9th Cir. 2007) 479 F.3d 1099, 1112.)

The trial court found that the action was objectively specious because appellants suffered no economic harm and there was no misappropriation or threatened misappropriation of trade secrets. It also found that respondents did not misappropriate the idea of outsourcing bolometer production to a third party and that the Thermicon business plan, which included a business forecast chart, did not misappropriate confidential information from appellants.

Objective speciousness was established by evidence that appellants had an anticompetitive motive in filing the lawsuit. When asked why the action was filed, FLIR CEO Earl Lewis testified that "we can't tolerate a direct competitive threat by Bill [Parrish] and Tim [Fitzgibbons]." Lewis had no evidence of ...


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