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July 13, 2020

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Defendant Did Not Prevail Under Texas Statute Where Case Was Decided Under California Law

The US Court of Appeals for the Federal Circuit affirmed a district court’s denial of attorneys’ fees under the Texas Theft Liability Act (TTLA), explaining that the movant was not a prevailing party under the TTLA and thus was not eligible for fees under the act, because the trade secret claims were decided under California law, not Texas law. Raytheon Company v. Indigo Systems Corp., Case No. 16-2696 (Fed. Cir. July 12, 2018) (Chen, J).

Raytheon sued Indigo Systems and its parent FLIR Systems (collectively, Indigo) in federal district court in Texas alleging trade secret misappropriation of its infrared camera technology under both Texas and California law. After a prior appeal to the Federal Circuit and remand, Raytheon amended its complaint and asserted all of its trade secret claims under California law only. In the prior appeal, the Federal Circuit vacated the district court’s order denying Indigo attorneys’ fees, citing the 2009 Supreme Court of the United States decision in Ashcroft v. Iqbal, and its 2007 decision in Bell Atlantic Corp. v. Twombly. On remand, the jury ruled in Indigo’s favor on all trade secret claims, finding no misappropriation. Raytheon moved for judgment as a matter of law with regards to two of its trade secret claims and requested a new trial, while Indigo filed a renewed motion for attorneys’ fees under the TTLA. After all motions were denied, both parties appealed.

On appeal, the Federal Circuit found substantial evidence in the record to support the jury verdict that Indigo did not misappropriate Raytheon’s trade secret recipes for producing infrared lenses. Despite affirming the ruling in favor of Indigo, the Court nonetheless affirmed the district court and denied Indigo’s request for attorneys’ fees under the TTLA. 

Under the TTLA, the prevailing party is mandatorily entitled to court costs and reasonable and necessary attorneys’ fees when the statutory requirements are met. In order to recover fees under the TTLA, the claimant must establish that (1) it actually prevailed on the merits of a TTLA claim, (2) the other party dismissed the TTLA claim with prejudice, or (3) the other party dismissed the TTLA claim without prejudice to avoid an adverse ruling on the merits.

The Federal Circuit first determined that Indigo was not a prevailing party under the TTLA because the trade secret claims were decided under California law. The Court further explained that even though Raytheon dismissed the TTLA claims without prejudice by amending its complaint, it did not do so to avoid an adverse ruling. Further, all parties understood that Raytheon was going to pursue its trade secret laws under either California or Texas law, and Raytheon made its decision to pursue its claims under California law after additional discovery. The Federal Circuit found no error in the district court’s conclusion that it was uncertain whether Raytheon’s withdrawal of the Texas-law claims was to avoid a bad outcome on the merits, or was for other choice of law reasons. Accordingly, the Court affirmed the denial of attorneys’ fees.  

© 2020 McDermott Will & EmeryNational Law Review, Volume VIII, Number 241


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