People seem to be confusing several ideas as to the awards of attorney's fees and costs.
First, in this case, it is not in the nature of a "counterclaim" or lawsuit for wrongful prosecution. The fees and costs that this case deals with are in the nature of statutory allowance of fees and costs. Forget about the idea of suing for damages as a result of IB's suit. While there may be some legal theory that could support such a suit, it is pretty remote and XF has not indicated at any point that this is part of what they are seeking (they could have done a counterclaim in this suit and that they did not indicates that it is probably unlikely to be an issue in any event. I am not saying that it is not possible, but it seems unlikely and probably should/would have been made as part of this suit if they were so inclined). What we are dealing with is the filings by XF in this case where they have asked (in the prayer for relief, Docket # 52) that they be awarded, "their reasonable attorneys’ fees pursuant to California Civil Code § 3426.4 and 17 U.S.C. § 505.
So, first you have to look to the statutes. Here is what they state (I will address each one separately, with comment/citations thereafter):
Title 5. Uniform Trade Secrets Act "§ 3426.4. Attorney fees and costs
If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney's fees and costs to the prevailing party. Recoverable costs hereunder shall include a reasonable sum to cover the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the prevailing party." Cal Civ Code § 3426.4
What does this mean? Under California law, you are looking for bad faith or willful or malicious misappropriation. But, you also need to prevail to be awarded attorneys fees and costs.
"Such an award, of course, requires that plaintiffs be properly determined to be the "prevailing parties," but we have no trouble concluding that plaintiffs were the prevailing parties at trial and thus legally entitled to recover their costs. While the monetary awards were a near offset, plaintiffs did receive a net monetary recovery, albeit slight. More significantly, they received a substantial nonmonetary victory. Code of Civil Procedure section 1032, subdivision (a)(4), defines prevailing party as follows: " 'Prevailing party' includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief, and a defendant as against those plaintiffs who do not recover any relief against that defendant. When any party recovers other than monetary relief and in situations other than as specified, the 'prevailing party' shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed may apportion costs between the parties on the same or adverse sides pursuant to rules adopted under Section 1034." (Italics added.)
Vacco Industries, Inc. v. Van Den Berg, 5 Cal. App. 4th 34, 55 (Cal. App. 2d Dist. 1992) (emphasis added).
What is bad faith? Here is a California case discussing this issue:
"Gemini alleged that CCS misappropriated the identity of Taskmaster and die drawings needed for the extrusion of aluminum parts for the workbench. Customer lists and related information may constitute protectable trade secrets. (See, e.g., Morlife, Inc. v. Perry (1997) 56 Cal. App. 4th 1514, 1521 [66 Cal. Rptr. 2d 731]; ABBA Rubber Co v. Seaquist (1991) 235 Cal. App. 3d 1, 19 [286 Cal. Rptr. 518].) However, Gemini filed its complaint for misappropriation and related counts in December 1996, long after the identity of Taskmaster and die drawings for the workbench parts arguably held any economic value, actual or potential, to Gemini, CCS or any other competitor. By September 1995 Taskmaster was $ 326,219.21 in arrears to Gemini, and by the summer of 1996 it was $ 18,896.76 in arrears to CCS. Further, in September 1996 Taskmaster filed a bankruptcy proceeding. Gemini's case was objectively specious, if not frivolous, from its inception.
The timing of Gemini's action also raises an inference of subjective bad faith. CA(8)(8) "Good faith, or its absence, involves a factual inquiry into the plaintiff's subjective state of mind [citations]: Did he or she believe the action was valid? What was his or her intent or purpose in pursuing it? A subjective state of mind will rarely be susceptible of direct proof; usually the trial court will be required to infer it from circumstantial evidence." ( Knight v. City of Capitola (1992) 4 Cal. App. 4th 918, 932 [6 Cal. Rptr. 2d 874].) " 'Bad faith' means simply that the action or tactic is being pursued for an improper motive. Thus, if the court determines that a party had acted with the intention of causing unnecessary delay, or for the sole purpose of harassing the opposing side, the improper motive has been found, and the court's inquiry need go no further." (Summers v. City of Cathedral City (1990) 225 Cal. App. 3d 1047, 1072 [275 Cal. Rptr. 594].)"
Gemini Aluminum Corp. v. Cal. Custom Shapes, 95 Cal. App. 4th 1249, 1263 (Cal. App. 4th Dist. 2002)
(Looks to me that the Trade Secrets issues in this case are similar. If, as IB claims, the Trade Secrets "misappropriation" was known when IB asked Kier and Mike to return items kept years before and they did not file until years later only when XF was released, it seems to raise the inference of the value in these alleged trade secrets being nil after years had gone by and that would seem to indicate bad faith- not even getting into that the IB witness could not specify what was allegedly taken and not returned.)
(I have hit my character limit for my full post, so I will continue with a follow up post).
