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Attorneys

Attorney Fee Awards in Trade Secret Cases and “Local Community” Rates

May 15 2014

By James Kachmar

As readers of this blog may know, a party prevailing in a trade secret misappropriation case may be entitled to reasonable attorney’s fees if that party can show either that the claim was brought by the plaintiff in bad faith or that the defendant was guilty of willful and malicious misappropriation. The award of attorney’s fees in such cases can sometimes be significant, even exceeding the amount of damages awarded for the actual misappropriation.

In a recent decision, Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc., 2014 Cal.App. LEXIS 409, a California appellate court addressed the issue as to what local community rates would apply in awarding attorney’s fees to the prevailing party.  Altavion, was the inventor of technology that would allow for the self-authentication of digital and paper documents.  It later entered into negotiations with the defendant, a subsidiary of a parent company that, among other thing, manufactures scanners and printers.  After the negotiations failed, plaintiff learned that the defendant had patented technology that seemed to be based on the technology that plaintiff had developed and discussed with defendant during their negotiations.  Plaintiff brought a claim for, among other things, trade secret misappropriation.  Plaintiff won and was awarded $1 million in damages and $3.2 million in attorney’s fees.  The case was venued in San Mateo County, but the plaintiff’s attorneys were  from Sacramento.  In making its attorney’s fee award, the trial court awarded plaintiff its “reasonable attorney’s fees” based on hourly rates that were reasonable in the local San Mateo community – not Sacramento.  On appeal, the defendant argued that the Court should have used the “reasonable hourly rates for the Sacramento attorneys where plaintiff’s attorneys were based,” which would be somewhat lower.

The appellate court rejected this argument.  It found that “the reasonable hourly rate is that prevailing in the community for similar work” and that for purposes of this analysis, “the relevant `community’ is that where the Court is located.”  Because an award of attorney’s fees is “committed to the discretion of the trial court”, the appellate court held that the trial court did not err in awarding attorney’s fees based on the local community rate (i.e., San Mateo) as opposed to the lower Sacramento rate.

The Altavion decision is a reminder that the cost of litigating a trade secret claim can be quite high, especially when the risk of an award of attorney’s fees is factored in.  It also raises the implication that a party who hires attorneys from a big city to litigate these claims in a smaller jurisdiction may find its attorney’s fee award capped by that community’s lower local rates.