Proofpoint, Inc. v. Vade Secure, Incorporated

— 1 — — 2 — 3 IN THE UNITED STATES DISTRICT COURT 4 FOR THE NORTHERN DISTRICT OF CALIFORNIA — 5 — 6 PROOFPOINT, INC., et al., Case No. 19-cv-04238-MMC 7 Plaintiffs, ORDER DENYING PLAINTIFFS' 8 v. MOTION FOR ATTORNEYS' FEES 9 VADE SECURE, INCORPORATED, et al., — 10 — Defendants. — 11 — 12 Before the Court is plaintiffs Proofpoint, Inc. and Cloudmark LLC's Motion for 13 Attorneys' Fees, filed February 10, 2023. Defendants Vade Secure, Inc. and Vade 14 Secure SASU (collectively, "Vade") have filed opposition, to which plaintiffs have replied. 15 Having read and considered the parties' respective written submissions, the Court rules 16 as follows.1 17 In the above-titled action, plaintiffs asserted that Vade and Olivier Lemarié 18 ("Lemarié"), who Vade formerly employed as its Chief Technology Officer, 19 misappropriated twenty of plaintiffs’ trade secrets in violation of the Defend Trade Secrets 20 Act (“DTSA”). Beginning July 26, 2021, a jury trial was conducted. On August 20, 2021, 21 the jury rendered its verdict as follows: (1) plaintiffs’ asserted Trade Secrets 1-7 and 9-20 22 qualified as trade secrets, but asserted Trade Secret 8 did not, (2) Vade willfully and 23 maliciously misappropriated Trade Secrets 1-7 and 9-16,2 but did not misappropriate — 24 — 1 By order filed March 13, 2023, the Court deferred ruling on the instant motion — 25 — until after resolution of plaintiffs' motion for judgment as a matter of law, which motion was denied by order filed April 18, 2023. — 26 — 2 The jury also found Lemarié misappropriated Trade Secrets 1-7 and 9-15, but — 27 — that he did not do so willfully and maliciously. Plaintiffs do not seek an award of 1 Trade Secrets 17-20, (3) plaintiffs did not suffer an actual loss as a result of the 2 misappropriation, and (4) Vade, by reason of the misappropriation, was unjustly enriched 3 in the amount of $13,495,659. 4 By the instant motion, plaintiffs seek, pursuant to DTSA, an award of attorneys' 5 fees as against Vade. Under DTSA, "a court may . . . [,] if . . . the trade secret was 6 willfully and maliciously misappropriated, award reasonable attorneys' fees to the 7 prevailing party." See 18 U.S.C. § 1836 (b)(3)(D). Here, as noted, the jury found Vade 8 willfully and maliciously misappropriated plaintiffs' trade secrets, and, consequently, the 9 Court has discretion to award reasonable attorneys' fees to plaintiffs. 10 The instant motion is the second motion whereby plaintiffs seek, under DTSA, a 11 remedy that a district court has discretion to award upon a finding of willful and malicious 12 misappropriation. Specifically, on September 10, 2021, plaintiffs sought an award of 13 exemplary damages under a subsection providing "a court may . . .[,] if the trade secret is 14 willfully and maliciously misappropriated, award exemplary damages." See 18 U.S.C. 15 § 1836(b)(3)(C). By order filed November 18, 2021, the Court considered and weighed 16 six factors relevant to a determination of whether a plaintiff, upon a finding of willful and 17 malicious misappropriation, is entitled to an award of exemplary damages, and, having 18 found those factors did not support such an award in the above-titled action, denied the 19 motion for exemplary damages. 20 As Vade points out, in the cases cited by plaintiffs in which a court awarded 21 attorney's fees to a plaintiff who prevailed on its trade secret claims, the court also 22 awarded the plaintiff exemplary damages. See, e.g., Mattel, Inc. v. MGA Entertainment, 23 Inc., 801 F. Supp. 2d 950, 956 (C.D. Cal. 2011) (finding plaintiff entitled to exemplary 24 damages where "all of the factors . . . appear[ed] to have been satisfied"; further finding 25 plaintiff entitled to fees). Vade argues the converse is appropriate here, namely, that 26 where exemplary damages are not awarded, attorney's fees likewise should not be 27 awarded. 1 require a finding of willful and malicious misappropriation, the purpose of an award of 2 exemplary damages is "to punish the tortfeasor whose wrongful action was intentional or 3 malicious, and to deter him and others from similar extreme conduct," see City of 4 Newport v. Fact Concerts, Inc., 453 U.S. 247, 266-67 (1981), while the purpose of an 5 award of attorney's fees is "to compensate the prevailing party for its monetary outlays in 6 the prosecution or defense of the suit," see Central Soya, Inc. v. Geo. A. Hormel & Co., — 7 — 723 F.2d 1573, 1578 (Fed. Cir. 1983). Given those different purposes, the factors 8 considered in determining whether an award of exemplary damages is appropriate do not 9 directly apply to the determination as to whether an award of attorney's fees is 10 appropriate, and, consequently, the Court's denial of plaintiffs' motion for exemplary fees 11 is not, standing alone, a basis for denying plaintiffs' motion for attorney's fees. 12 As noted, however, as with exemplary damages, a plaintiff may seek an award of 13 attorney's fees only where the trier of fact has determined the misappropriation was willful 14 and malicious, in which case a court has discretion, but is not required, to award fees. In 15 that regard, Vade argues plaintiffs have not identified evidence of Vade's having engaged 16 in willful and malicious misappropriation sufficient to warrant an award of fees. 17 At the close of plaintiffs' case, Vade moved for judgment as a matter of law, in 18 which motion it argued plaintiffs lacked evidence to establish Vade engaged in willful and 19 malicious misappropriation. As the Court did not grant Vade's motion, the question was 20 "submitted . . . to the jury subject to the court's later deciding the legal questions raised 21 by the motion." See Fed. Civ. P. 50(b). After entry of judgment, however, Vade did not 22 file a "renewed motion for judgment as a matter of law," see id, and, consequently, the 23 Court lacks authority to set aside the finding that Vade engaged in willful and malicious 24 misappropriation, see Johnson v. New York, N.H. & N.R. Co., 344 U.S. 48, 50 (1952) 25 (holding, in absence of timely motion for judgment notwithstanding verdict, district court 26 lacks authority to enter such judgment). 27 Nevertheless, even if the Court is not in a position to consider whether evidence of 1 evidence is, at best, of such minimal character as to present one of the unusual situations 2 where it is appropriate to deny an award of fees. 3 At trial, plaintiffs' showing as to willful and malicious misappropriation centered on 4 Lemarié. In particular, as to plaintiffs' spear phishing trade secrets, which plaintiffs 5 argued and the jury appears to have found were included in a Vade program called 6 identitymatch (see Transcript of Trial Proceedings ("Tr.") 2769:1-5), plaintiffs argued 7 Lemarié "work[ed] alone" on identitymatch (see id. 2762:24-2763:3), "secretly" and 8 without "any collaboration" (see id. at 2770:19-23), thus acknowledging the lack of 9 evidence that any other Vade employee was involved in developing identitymatch, much 10 less that another Vade employee engaged in willful and malicious misappropriation in 11 connection with identitymatch. 12 Thereafter, having failed to convince the jury that Lemarié engaged in willful and 13 malicious misappropriation, plaintiffs, in support of their motion for exemplary damages, 14 endeavored to identify acts on the part of other Vade officers, employees, or agents that 15 rose to that level of misconduct. In its order denying plaintiffs' motion for exemplary 16 damages, the Court addressed those acts and found that none, whether considered 17 separately or together, were sufficient to support an award of exemplary damages. 18 Having again reviewed those acts, almost all of which are asserted by plaintiffs in 19 connection with the instant motion, the Court finds, as discussed below, they constitute, 20 at best, minimal evidence of willful and malicious misappropriation. 21 More specifically, with regard to Vade's infringement of Trade Secrets 1-7 and 922 15, which pertain to spear phishing, although plaintiffs have cited an email Lemarié sent 23 to several Vade employees discussing spear phishing (see PX2146), the email did not, 24 contrary to what plaintiffs have claimed, state or suggest to its receipients that Lemarié 25 had used or would use plaintiffs' trade secrets to develop a spear phishing product for 26 Vade. Rather, as the Court noted at a prior hearing, it referred to no more than the 27 general subject of spear phishing. (See Transcript of Proceedings by Zoom Webinar, 1 Vade documents using strong language in discussing competition with Cloudmark (see 2 PX100.3, PX 1863.0016), those documents appear to pre-date the time at which Lemarié 3 acknowledged to anyone at Vade that he had used Cloudmark code to develop 4 identitymatch and, in any event, internal Cloudmark documents use similar strong 5 language (see, e.g., Tr. 1044:1-1045:25), thus suggesting strong competitive language is 6 common in the industry. 7 With regard to Vade's misappropriation of Trade Secret 16, which consists of 8 Cloudmark licensing reports as to its "MTA" product, plaintiffs rely, as they did in seeking 9 exemplary damages, on evidence that former Cloudmark employee Xavier Delannoy 10 retained the reports when he left Cloudmark's employ and, subsequently, while employed 11 by Vade, forwarded them to Georges Lotigier, Vade's Chief Executive Officer ("Lotigier"), 12 who, in turn, forwarded them to Andre Gendre, Vade's Chief Product and Services 13 Officer, via an email in which Lotigier used a winking emoticon. (See PX2254.0002.) 14 The reports, however, included no trade secrets as to any Cloudmark product, and, 15 although plaintiffs contend the reports demonstrated the potential profitability of an MTA 16 product, the jury found Vade did not infringe Trade Secrets 17-20, which contain 17 Cloudmark's secrets pertaining to the design and implementation of an MTA. 18 Additionally, plaintiffs repeat their argument that Vade engaged in vexatious 19 conduct during the course of discovery. Other than citing unsuccessful arguments made 20 by Vade over the lengthy course of discovery, plaintiffs rely on a finding by the magistrate 21 judge overseeing discovery that plaintiffs were entitled to recover monetary sanctions due 22 to Vade's delay in producing source code. Plaintiffs, however, were financially 23 compensated for that delay, which did not prejudice plaintiffs' ability to present their case 24 to the jury. Although plaintiffs also argue that the magistrate judge found "Vade" 25 engaged in spoliation of evidence during the course of discovery (see Pls.' Mot. at 10:226 3), the magistrate judge did not find any Vade employee other than Lemarié engaged in 27 spoliation. Rather, the magistrate judge's finding was based solely on conduct by 1 the jury, who, in light of the finding that he did not engage in willful and malicious 2 misappropriation, did not find plaintiffs' evidence persuasive. 3 The Court next considers three arguments now made by plaintiffs but not 4 previously raised in connection with their motion for exemplary damages, and, for the 5 reasons set forth below, finds they do not support an award of attorneys' fees, whether 6 considered separately or in connection with plaintiffs' other arguments. 7 First, plaintiffs assert that, if they are not awarded fees, "there may well be a 8 chilling effect of future enforcement actions by other trade secret owners, who would be 9 forced to weigh the costs of complex litigation against enforcing their rights and protecting 10 U.S. innovation." (See Pls.' Mot. [Doc. No. 865] at 2:1-4.) The Supreme Court, however, 11 has rejected a similar argument where, as here, such contention was "unsupported by 12 any empirical evidence." See Buckhannon Board and Care Home, Inc. v. West Virginia 13 Dep't of Health and Human Resources, 532 U.S. 598, 608 (2001) (rejecting, as 14 unsupported, argument that, for purposes of Americans With Disabilities Act, failure to 15 adopt "catalyst theory" of attorneys' fees would "deter plaintiffs with meritorious but 16 expensive cases from bringing suit"). 17 Next, plaintiffs, citing a United States Senate report recommending the enactment 18 of DTSA, see S. Rep. No. 114-220 (2016), assert that "the[ ] goals and purposes of the 19 DTSA would be undermined if a prevailing plaintiff is faced with the prospect of 20 expensive, uncoverable legal fees to enforce its rights." (See Pls.' Mot. at 7:18-19.) 21 Congress, however, chose to make an award of attorneys' fees under DTSA both 22 contingent and discretionary, as opposed to mandatory to the prevailing party, which it 23 has done in other statutes. See, e.g., 15 U.S.C. § 1692k(a)(3) (providing, where plaintiff 24 prevails on claim under Fair Debt Collections Practices Act, defendant "is liable" for "the 25 costs of the action, together with a reasonable attorney's fee as determined by the 26 court"); 18 U.S.C. § 1964 (c) (providing plaintiff who prevails on RICO claim "shall recover 27 threefold the damages he sustains and the cost of the suit, including a reasonable 1 Lastly, plaintiffs argue that "[t]he need for recovery of fees" is "even more 2 || articulated here where no exemplary damages or injunctive measures have been 3 || imposed" against Vade, which "could easily revert back to using the misappropriated 4 || technology, forcing [p]laintiffs to incur yet more legal fees to bring a new suit." (See □□□□□ 5 || Mot. at 7:23-8:3.) Plaintiffs, however, have not shown an award of attorneys' fees is 6 || necessary to deter Vade from using plaintiffs' trade secrets in the future. As the Court 7 || found in denying plaintiffs' motion for exemplary damages, "the amount awarded, close to 8 || thirteen and a half million dollars, is a substantial sum, a sum that may well affect the Q || manner in which Vade has chosen to allocate resources." (See Order [Doc. 820] at 6:510 || 7.) 11 Additionally, Vade replaced identitymatch with a program designed by Zenika, an g 12 || unrelated company, and plaintiffs have suggested no reason why Vade would "revert s 13 || back" to selling products it has discontinued. Moreover, although the Court denied 14 || plaintiffs’ motion for a permanent injunction, there being a lack of evidence of "continuing 2 15 || use" of plaintiffs' trade secrets by Vade (see Order [Doc. No. 860] at 3:23-24), the Court a 16 || issued a Final Disposition Order, by which it established a protocol for disposition of the g 17 || source code files that had been left in Vade's possession by Lemarié (See Order 18 || [Doc.No. 862]), and plaintiffs have not suggested Vade, in the more than seven months 19 || since its issuance, has in any manner failed to comply therewith. 20 Accordingly, for all the reasons set forth above, plaintiffs’ motion for an award of 21 attorneys’ fees is hereby DENIED. 22 IT IS SO ORDERED. — 23 — 24 || Dated: September 5, 2023 fare □□□□ INE M. CHESNEY 25 United States District Judge — 26 — — 27 — — 28 —