In December 2017, Swarmify, Inc. filed a lawsuit against CloudFlare, Inc. in the U.S. District Court for the Northern District of California. The tech companies both have video streaming products. According to the Swarmify complaint, CloudFlare stole Swarmify’s trade secrets revealed during negotiations between the two companies. Specifically, Swarmify alleged that CloudFlare used its trade secrets to create a faster, more efficient video streaming service. After seven months of litigation, on June 21, 2018, and on the eve of the close of discovery in the case, Swarmify filed a motion to dismiss its claims. While Swarmify had initially sought dismissal without prejudice, when the Court informed Swarmify that it would not permit dismissal without prejudice, Swarmify agreed to a dismissal with prejudice. Swarmify’s request that its claims be dismissed was made after the trial court had ruled against it on its request for a preliminary injunction, the decision of which was entered on March 2, 2018.
After the dismissal with prejudice on Swarmify’s complaint was entered, on July 24, 2018, CloudFlare filed a motion for attorneys fees under the California Uniform Trade Secrets Act and Defend Against Trade Secrets Act, arguing that Swarmify had made its trade secret misappropriation claim in bad faith. Specifically, CloudFlare alleged that “Swarmify’s trade-secret claims were objectively specious and pursued in bad faith,” in particular after the Court had denied Swarmify’s motion for preliminary injunction. CloudFlare further alleged that Swarmify was using discovery costs in an improper attempt to obtain leverage for a settlement. CloudFlare asserted that Swarmify “made no realistic attempt to participate discovery or support its own claims” and “ignor[ed] the evidence” presented by CloudFlare, which proved that CloudFlare’s video streaming technology was both independently developed months before any negotiations between the parties had begun, and that the trade secrets at issue were also within the public domain from numerous sources. Further, CloudFlare pointed out that Swarmify’s request for dismissal came only after CloudFlare refused to capitulate to Swarmify’s settlement demands, which, according to CloudFlare, was further indication that Swarmify’s claims were independently baseless. In its motion for fees, CloudFlare claims to have incurred approximately $380,000 in attorney’s fees, but only requested $200,000 (the amount spent after the Court’s ruling on Swarmify’s preliminary injunction).
The federal district court is scheduled to hear CloudFlare’s motion for attorneys’ fees on September 13, 2018. While there is precedent for awarding attorney’s fees for pursuing misappropriation claims in bad faith under CUTSA, if the Court rules in favor of CloudFlare, it could be the first time an award of attorney’s fees is granted under DTSA.
Check back next month to find out how the Court rules.