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Companies frequently compete and try to hire away each other’s employees. While such competition is healthy, it can also result in lawsuits, as companies accuse each other of trying to recruit employees with knowledge of a company’s trade secrets. A recent case from Silicon Valley shows that companies have to be careful when alleging wrongful conduct or be ordered to pay attorneys fees.

Maxim Integrated Products hired a recruiter to find employees with engineering experience, including touchscreen technology. The recruiter contacted an employee at Cypress Semiconductor Corporation, Maxim’s competitor. The employee also contacted Maxim on his own, but eventually decided to remain employed with Cypress.

Cypress sued Maxim for trying to recruit its employees and thereby misappropriate Cypress’ trade secrets. Cypress also filed an ex parte application for a temporary restraining order to prohibit Maxim from soliciting Cypress employees who knew Cypress’ touchscreen technology and to return all of Cypress’ trade secrets. Cypress later filed a motion to seal certain documents to prevent them from becoming public record. The trial court denied the motion because the information was already publicly available and could not be claimed as a trade secret.

Maxim also demurred to Cypress’ lawsuit, stating that Cypress failed to allege any conduct that would constitute misappropriation. Cypress dismissed its complaint after Maxim filed a second demurrer. Maxim filed a motion for attorneys’ fees under Civil Code § 3426.4 alleging that Cypress litigated the lawsuit in bad faith. The trial court granted the motion and awarded Maxim $180,817.50 in attorneys’ fees plus costs.

The Court of Appeal, Sixth Appellate District, affirmed the trial court’s judgment. The Court held that a trial court may award “reasonable attorney’s fees and costs to the prevailing party” if a claim of misappropriation was made in bad faith based on three questions: (1) Is the defendant the prevailing party? (2) Was the claim made in bad faith? (3) What is a reasonable fee?

The Court found that Maxim was the prevailing party because Cypress lost at every stage of the lawsuit and ultimately dismissed it, rather than face an adverse decision. The Court also noted that Cypress did not gain any legitimate benefit from the lawsuit, and could not be a prevailing party under § 3426.4.

To show that Cypress pursued the lawsuit in bad faith, Maxim only needed to “point to the absence of evidence of misappropriation in the record.” The Court pointed out that Cypress’ complaint did not sufficiently allege misappropriation of trade secrets or provide any evidence to support its allegations. Cypress also litigated the case to maximize Maxim’s legal expenses by delaying discovery and filing documents on the last possible day. The attorneys’ fees award was therefore appropriate.

If you believe that you have experienced any wrongful conduct discussed above, contact the experienced employment law attorneys at Stephen Danz & Associates to discuss your claim and legal options. See our other award-winning blogs here.