Trade Secrets/Inevitable Disclosure Case: $1.6 Million in Attorney Fees

The Pacific Coast Business Times sedately headlines an interesting trade secrets case with Court clears way for infrared venture.

What happened?

Bill Parrish and Tim Fitzgibbons have been in a legal wrangle with Oregon-based Flir Systems for three years. The two sold their former company, Indigo Systems, a Goleta-based maker of infrared vision systems components, to Flir in 2004 for $185 million.

In 2005, Parrish and Fitzgibbons decided to start a company that would compete with Flir. They offered Flir a stake in the new venture, but Flir turned them down. In 2006, Parrish and Fitzgibbons left Flir and started talks with Raytheon about technology for the new company.

Flir sued in Santa Barbara County Superior Court to stop them, alleging there was no way the pair could carry out their business plan without stealing trade secrets that belonged to Flir. Raytheon pulled out of the business talks after Flir filed suit.

So Flir loses out on a piece of action in exchange for a lawsuit. Parrish and Fitzgibbons loose out on the Raytheon deal. Flir has now to pay $1.6 million for losing on its theory of inevitable disclosure.

Why?

In Yegan’s (the trial judge) decision, he wrote that Flir erred in arguing from a doctrine called inevitable disclosure. The idea is that an employee knows a company’s trade secrets so intimately that he or she would inevitably put them to use if working for a competitor.

In some East Coast states, companies can use that doctrine as an argument to stop former employees from forming or working for a competitor. But Yegan pointed out in his ruling that California courts have rejected inevitable disclosure for nearly six decades in favor of letting employees compete against their former companies and even go after the same customers.