GETTING AN $800,000 ASSIST FROM THE GOVERNMENT: Referring Trade Secret Theft For Criminal Prosecution Pays Off

3 minute read | May.31.2014

We rely on the federal government for a lot of things, but helping a corporation recover attorney’s fees is not something that immediately comes to mind.  With a recent federal court opinion in the Northern District of California that made executive search firm Korn/Ferry International $827,983.25 richer (although the order likely will be appealed), more corporations may think about getting an assist from federal prosecutors in trade secret actions, rather than taking on the burden themselves in civil litigation.

As Trade Secrets Watch has previously covered, in U.S. v. Nosal, former Korn/Ferry recruiter, David Nosal, was convicted in April 2013 for violating six counts of the Computer Fraud and Abuse Act.  Nosal had conspired with three co-workers to gain unauthorized access to the Korn/Ferry computer system to obtain trade secrets for a new competing venture.  The stolen trade secrets included Korn/Ferry’s “source lists” or targeted lists of candidates developed by Korn/Ferry to fill particular positions at certain clients.

In addition to sentencing Nosal to 366 days in federal prison, Judge Edward Chen also fined Nosal $60,000 and ordered Nosal to pay restitution to Korn/Ferry under the Mandatory Victims Restitution Act (MVRA).  The MVRA requires a defendant to make restitution to a victim, including restitution for expenses incurred during the investigation, the prosecution of the offense, or attendance at the hearings related to the offense.

On May 20, Judge Chen ordered Nosal to reimburse Korn/Ferry for (i) costs related to Korn/Ferry’s investigation of Nosal’s theft; (ii) the value of the time lost by Korn/Ferry’s employees in investigating the matter and testifying at hearings, when they could have instead spent the time on business pursuits; and (iii) Korn/Ferry’s attorney’s fees to the tune of nearly $600,000.  While Korn/Ferry asked for almost $1 million in fees, Judge Chen discounted certain billing entries for duplicative work, work not covered under the MVRA such as attorney time on press coverage, and vague billing records.  However, Judge Chen did not heed Nosal’s argument that Korn/Ferry’s firm of choice was too expensive.

Nosal and the large restitution award to Korn/Ferry is one example of how referral of trade secret theft to the government for criminal prosecution in lieu of a civil suit may pay (literally) for the victim.  While there are a host of pros and cons as to when criminal prosecution is the route to take, the benefit of criminal prosecution here is clear—Korn/Ferry was able to obtain significant attorney’s fees without having to show willful and malicious misconduct by Nosal, as Korn/Ferry would have had to do in a civil action under California law.  While in some civil cases, plaintiffs may have no trouble in making this showing, it is yet another burden that plaintiffs have to shoulder.

While plaintiffs seeking justice for the theft of their trade secrets will need to carefully evaluate the facts and legal issues in deciding whether to opt for the civil or criminal route, the prospect of obtaining attorney’s fees without meeting an additional evidentiary hurdle will be a significant factor in evaluating a plaintiff’s options.