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July 2013

Trade Secret Claims Gone Bad: U.S. District Court Awards $12.4 Million In Fees

The Southern District of California awarded $12.4 million in fees on Feb. 1, to be paid by Gabriel Technologies Inc. for bringing objectively baseless claims of trade secret misappropriation against San Diego-based Qualcomm Inc. The decision in Gabriel Technologies Inc., et al. v. Qualcomm Inc., et al. evidences a growing trend to apply the statutory penalties of California’s Uniform Trade Secrets Act against infirm claims. Only last year, the decision of SASCO v. Rosendin Elec., Inc., 207 Cal.App.4th 837, 834 (Cal.Ct.App.2012) similarly upheld a $484,000 award of reasonable attorneys’ fees, where the evidentiary support for the claimed misappropriation was lacking, and based only on suspicion that former employees must have taken trade secrets when hired away by a competitor.

Gabriel Technologies’ complaint alleged 11 causes of action against Qualcomm, seeking $1 billion in damages. The essence of the claim was Gabriel Technologies’ assertion that it possessed ownership rights to numerous Qualcomm patents relating to GPS technologies. However, the claims of trade secret misappropriation received the most attention in the fee award.

In finding Gabriel Technologies’ misappropriation claims objectively baseless, Judge Anthony J. Battaglia of the U.S. District Court for the Southern District of California concluded that Gabriel Technologies unreasonably pursued its trade secret claims for several reasons: First, he cited Gabriel Technologies’ failure to adequately identify the allegedly misappropriated trade secrets during litigation, resulting in expensive discovery disputes. Second, Gabriel Technologies failed to heed several judicial warnings as to the feeble evidentiary support of its claims. Despite the warnings, Gabriel Technologies elected to go forward with its claims without remedying the deficiencies. Thereafter, summary judgment was entered in Qualcomm’s favor. In finding objective bad faith, Judge Battaglia noted that Gabriel Technologies received more than sufficient notice regarding the flaws in its claims of trade secret misappropriation.  

This decision highlights the need to closely scrutinize claims of trade secret misappropriation under California’s Uniform Trade Secrets Act not only prior to filing an action, but continuously during litigation, to properly assess risks of statutory attorneys’ fees.

Approximately $3 million of the fees awarded to Qualcomm were attributed to computer-assisted, algorithm-driven document review. In seeking recovery of these fees, Qualcomm explained that during litigation, 12 million records — mostly in the form of electronically stored information (ESI) — were provided to a vendor that employed a proprietary technology to sort these records into responsive and nonresponsive documents. After the algorithm determined whether documents were responsive or unresponsive to discovery requests, attorneys reviewed the responsive documents for confidentiality, privilege, and relevance issues. The court found this decision to be efficient and less time-consuming under the circumstances. Thus, Judge Battaglia awarded the requested amount of $2,829,349.10 as reasonable.

Within days of the Feb. 1 fee award, plaintiff Gabriel Technologies filed a notice of bankruptcy.

Gabriel Technologies Inc., et al. v. Qualcomm Inc., et al., Case No. 08-CV-1992 AJB (MDD), is now on appeal before the Ninth Circuit (USCA Case No. 13-1211).

Intellectual Property

Intellectual Property