Krafft v. Downey

For purposes of the two-prong test for a bad faith attorney's fee award under a trade secrets claim, objective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim.

Opinion (Donohue): Lawrence M. and Jane A. Downey ("the Downeys") appealed from the judgment entered against them following a jury verdict in favor of Jack and Linda Krafft ("the Kraffts"). Linda Kraftt had learned from a class how to transfer photographs onto stones, and was selling them under the name of "Framing on Stone." In 2004, the Downeys, who were the Kraffts' neighbors and friends, expressed interest in creating and selling flagstone art. The parties entered into an agreement which required that the Downeys not share the process for making the flagstones. In 2007, The Downeys stopped paying commissions to the Kraffts and began selling flagstone art, made using the same process, under the name "Rock of Ages." In 2008, at the request of the Kraffts, the trial court held an injunction hearing but entered an order denying the requested relief. The Kraffts then filed an amended complaint alleging conversion of trade secrets by the Downeys. In 2010, the Downeys filed a motion for attorney's fees related to expenses incurred in defending the Trade Secret Claims. That motion was denied. The appellate court reviewed the two-prong test for a bad faith attorney's fee award under a trade secrets claim, stating that subjective misconduct exists where a plaintiff knows or is reckless in not knowing that its claim for trade secret misappropriation has no merit. The trial court declined to adopt the two-prong test employed by federal courts in determining a bad faith attorney's fee award in trade secret matters. Additionally, the flagstone art process used was from an expired patent, so it was not a trade secret under 12 Pa.C.S. § 5302 as a matter of law. The appellate court found that the Kraffts had irrefutable evidence that the process was not a trade secret. Accordingly, the court REVERSED the decision of the trial court and REMANDED for further proceedings.