This is not the decision I was hoping for. It’s close, but it’s not quite there.
Here’s the problem with this case: the facts are so overwhelmingly good for Parrish that it’s wishful thinking to assume this will happen to you. FLIR filed their case based on “inevitable disclosure” of trade secrets. That isn’t the law in California, even though it is the majority rule. FLIR engaged in all kinds of rough litigation tactics, but, though that’s mentioned, something tells me that’s hardly a sufficient element of what happened here. What is significant is that the Court of Appeal repeats that the CEO of FLIR testified that he did not “think it would be good, healthy for them [respondents] to go and directly compete with us.” Lewis stated that FLIR “couldn’t tolerate a direct competitive threat by [respondents] because it would fly in the face of everything that we spent 200 million dollars to buy.” (Slip. Op. at 5 and 16.) Derivative shareholder lawsuit on your mind, Mr. Lewis? Oy.
Better, there was no evidence of any threatened misappropriation. The best FLIR could muster was that Parrish had downloaded some information while working for them and had made some comments about patent filings after he departed. In the IP world, that has to ring absurd, because the whole point of patents is that you get the ability to prevent others from using your patent in exchange for disclosing what you did. Trade secrets, on the other hand, are things you keep secret, but it someone figures it out fairly, you can’t stop them from using it.
In the end, the award in favor of Parrish for $1,641,216,78 in attorneys’ fees and costs was affirmed, with an order for the trial court to have a hearing on costs and fees on appeal. Coupled with the fact that Parrish now appears to have a slam dunk collaterally estopped case for malicious prosecution based on this opinion—and FLIR’s actions, according to the Court, caused Raytheon to stop doing business with Parrish—and the fact that they have their own attorneys to pay, this is not a good day for FLIR. Or is it?
If FLIR is a $200 million dollar company as their CEO claimed (more or less, roughly, in that area, etc.), then they can probably take this hit, and, regardless of what else happens, they were successful in keeping Parrish and his partner from starting a competing business. (Slip. Op. at 3.) Now they just have a better idea of whether that was worth it or not.
The factual strength of Parrish’s case, combined with the fact that, at the end of the day, FLIR succeeded in what they wanted to do, is another reason why I’m not entirely satisfied with this case. FLIR takes the hit here, in theory, but what they do is more or less standard practice. Most defendants can’t afford to hire Wilson, Sonsini to defend them, and, if they can, they don’t have hundreds of thousands to spend on fees. In a run-of-the-mill case, the issue is not actually some scientifically advanced high tech thing like infrared scopes, but the highly dubious “customer list,” which are not, of course, in and of itself a trade secret. Ironically, this law is often used as a substitute for California’s unique objection to noncompete agreements. It is ironic because those were abolished to foster competition, but the result has been even scarier litigation under the UTSA which has much more powerful remedies than your average noncompete agreement gives rise to.
It’s simply an anticompetitive trick, and, apparently, even when the Court of Appeal throws the book at you and you have terrible facts, you can still get the outcome you want: no competition.
Finally, I would add that of course I support an employer’s right to protect its trade secrets. But just as employers make the case that frivolous litigation under the FEHA and wage/hour laws hardens the hearts and minds of the courts to the actual real and worthy cases, I think the same is true here. FLIR doesn’t make filing a bona fide trade secrets claim legally harder that it was last week, but it shows you the depths of the abyss you stand on if things go bad, which probably does chill its use for legitimate claims more than anticompetitive ones. How can I say that? The latter group know what they want to do and just need a price tag. The former face a cracked egg problem of their own, and this may go into their worst case cost calculus regardless. In other words, instead of pricing what you have to pay to achieve the goal of putting your competitor out of business, your are pricing what it takes to protect your secrets. Should a legitimate claimant worry about this case? Arguably no, but I guess it at least functions as a bookend.
Having said that, I’m hopeful that the Court of Appeal will deliver an even stronger blow in a case with very different facts, but arising under the same law and for the same anticompetitive reasons coming up in July.
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