Both the federal Defend Trade Secrets Act of 2016 (“DTSA”) and Pennsylvania Uniform Trade Secrets Act (“PUTSA”) provide that a defendant may recover its attorneys' fees if it demonstrates that a claim for misappropriation of trade secrets is brought in “bad faith.” See 18 U.S.C. § 1836(b)(3)(D); 12 Pa. Cons. Stat. § 5305(1). But who decides “bad faith” – a judge or a jury?
In Elmagin Capital, LLC v. Chen, et al., Case No. 22-2739 (June 5, 2024), the United States Court of Appeals for the Third Circuit, albeit in a non-precedential opinion, held that statutory fee-shifting is an equitable remedy, not a legal one, and that it is therefore for the judge to determine “bad faith” as a predicate to a fee award.
Plaintiff Elmagin Capital, LLC brought claims against its former employee and co-founder, Chao Chen, for misappropriating its trade secrets – namely, trading strategies in the wholesale electricity trading market – to start a competing business. Following a May 2022 trial, the jury found that Elmagin's trading strategies were trade secrets, but that Chen did not use them to develop the trading strategies used by Entegrid. The jury therefore decided in Chen's favor. In conjunction with his defense, Chen accused Elmagin of bringing the lawsuit in bad faith and sought attorneys' fees under the DTSA and PUTSA. The trial court put the question of bad faith to the jury, which found that Elmagin acted in bad faith. However, the court considered the jury's determination as “advisory” and declined to award Chen fees because it determined that Elmagin had at least “some evidence” in support of its claims.
On appeal, the Third Circuit affirmed the trial court's refusal to accept the jury's bad faith verdict and its ensuing denial of fees. In doing so, the Third Circuit held that Chen lacked a right to a jury in determining whether attorneys' fees should be awarded because statutory fee awards have been regarded as equitable remedies going back at least to the English courts of the 1700s, even if substantive trade secrets statutes were not enacted until many centuries later. The Third Circuit also held that even if it is for a jury to determine bad faith under the statutes, there was sufficient evidence for the trial judge to hold as a matter of law under Fed. R. Civ. P. 50(a)(1) that Chen failed to carry his burden of proving bad faith.
Although it is non-precedential, the Elmagin decision contains a thorough legal and historical analysis that supports the conclusion that statutory fee-shifting claims under the DTSA and PUTSA are equitable and do not carry with them the right to a jury.
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