Clarifying Discretion and Bad Faith Requirements for Trade Secrets Fee Awards under DTSA and OUTSA

Introduction

This commentary examines the Sixth Circuit’s decision in Shepard & Assocs., Inc. v. Lokring Technology, LLC (No. 24-3348, decided May 16, 2025). The dispute began when Shepard & Associates sued Lokring for breach of contract; Lokring counterclaimed under the federal Defend Trade Secrets Act (DTSA) and Ohio Uniform Trade Secrets Act (OUTSA), then impleaded Tube-Mac Industries, Inc. as a third-party defendant for alleged trade-secret misappropriation. After the district court granted summary judgment to Tube-Mac on those claims, Tube-Mac sought nearly $1 million in attorney’s fees under multiple theories, including the DTSA and OUTSA bad-faith provisions. The district court awarded only routine costs and denied fees; Tube-Mac appealed. The Sixth Circuit affirmed, clarifying the standard for awarding fees under federal and Ohio trade secrets statutes and emphasizing deference to the district court’s discretion.

Summary of the Judgment

The Court of Appeals for the Sixth Circuit:

Reviewed de novo Tube-Mac’s argument that the district court misapplied the bad-faith standard, concluding no such legal error had occurred.
Applied an abuse-of-discretion standard to the refusal to award fees under 18 U.S.C. § 1836(b)(3)(D) (DTSA) and Ohio Rev. Code § 1333.64(A) (OUTSA).
Held that trade secrets claims, though unsuccessful, were not “objectively baseless” or pursued for an improper purpose, and thus did not warrant fee awards.
Emphasized that a bad-faith award under the DTSA/OUTSA requires both a meritless claim and an improper motive (such as harassment or disruption of litigation).
Affirmed the district court’s denial of attorney’s fees under the trade secrets statutes, finding no abuse of discretion or clear error.

Analysis

Precedents Cited

In re Flint Water Cases, 63 F.4th 486 (6th Cir. 2023): fee‐award review; deference to district court’s factual findings.
Imwalle v. Reliance Medical Prods., Inc., 515 F.3d 531 (6th Cir. 2008): abuse of discretion in fee awards.
Magnesium Mach., LLC v. Terves, 2021 WL 5772533 (6th Cir. Dec. 6, 2021): objective/subjective bad-faith components under DTSA/OUTSA.
Degussa Admixtures Inc. v. Burnett, 277 F. App’x 530 (6th Cir. 2008): bad faith may be shown by maintaining claims post-filing.
BDT Prods., Inc. v. Lexmark Int’l, 602 F.3d 742 (6th Cir. 2010): improper motive requirement for sanctions.
United States v. Llanez-Garcia, 735 F.3d 483 (6th Cir. 2013): baseline definition of “bad faith” in inherent-power context.
Novus Grp., LLC v. Prudential Fin., Inc., 74 F.4th 424 (6th Cir. 2023): OUTSA duty-of-confidence analysis.
Aday v. Westfield Ins. Co., 2022 WL 203327 (6th Cir. 2022): e-mail footer may support “improper means” theory.
Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323 (2d Cir. 1999): summary judgment loss ≠ sanctionable bad faith.

Legal Reasoning

The Sixth Circuit’s opinion focused on three pillars of the trade secrets bad-faith inquiry:

Merits of the Claim: Although Tube-Mac prevailed, Lokring’s pleadings and discovery showed colorable arguments—an alleged duty of confidentiality via NDAs or third-party-beneficiary theory, possible “improper means” (e-mail footer), and a factual dispute over whether documents existed.
Knowledge of Meritlessness: The record did not conclusively establish that Lokring or its counsel knew from the outset that its claims were doomed. The district court’s finding that Lokring “pursued discovery” in good faith was not clearly erroneous.
Improper Purpose: Lokring’s motive—vindicating its trade-secret rights—did not equate to harassment or disruption. Tube-Mac’s list of alleged discovery abuses was better suited to § 1927 or inherent authority motions, which the district court properly considered and denied separately.

The court further emphasized:

Fee awards under 18 U.S.C. § 1836(b)(3)(D) and Ohio Rev. Code § 1333.64(A) are permissive (“may award”), not mandatory, and require a finding of bad faith by clear evidence.
District courts need not catalogue every stage of litigation to show they considered post-filing conduct; their holistic analysis of “pursuit” suffices.
De novo review does not apply to disputed factual findings about litigation conduct; those are reviewed for clear error, and an abuse-of-discretion standard applies to refusal of fees.

Impact

The Sixth Circuit’s decision provides guiding principles for attorneys and courts in trade secrets litigation:

Clarifies that denial of attorney’s fees under DTSA/OUTSA will stand absent clear evidence of both an objectively baseless claim and an improper motive.
Reinforces deference to district courts on fee motions, especially concerning factual assessments of counsel’s conduct and litigants’ motives.
Helps define the interplay between statutes (DTSA, OUTSA, Lanham Act) and equitable sources of fee-shifting authority (§ 1927, inherent power).
Signals to litigants that losing on the merits is not alone a basis for sanctions; a separate showing of bad faith is required.
Advises that discovery misconduct is better addressed under § 1927 or inherent authority rather than conflated with statutory bad faith standards in trade secrets claims.

Complex Concepts Simplified

Trade Secret (DTSA/OUTSA): Information (e.g., customer lists, pricing data) that provides economic value by not being generally known and is subject to reasonable secrecy measures.
Misappropriation: Either improper acquisition (theft, bribery, breach of confidentiality) or unauthorized use/disclosure when one owes a duty to keep information secret.
Bad Faith Standard: Requires (1) objectively baseless claims, (2) knowledge of baselessness, and (3) an improper purpose like harassment or delay.
Statute of Frauds: Under Ohio law, certain contracts (including NDAs exceeding one year) must be in writing and signed to be enforceable.
Attorney’s Fees “May Award”: Both DTSA and OUTSA state that courts “may,” not must, award fees for bad faith—highlighting judicial discretion.
Section 1927 vs. Inherent Authority vs. Statutory Fees:
- § 1927 targets “vexatious” multiplication of proceedings by counsel.
- Inherent authority covers broader “bad faith” misconduct in litigation.
- Statutory fees under DTSA/OUTSA require specific bad-faith findings related to trade secrets claims.

Conclusion

The Sixth Circuit’s decision in Shepard & Assocs. v. Lokring Technology affirms that district courts retain broad discretion in awarding fees under federal and Ohio trade secrets statutes. Mere failure to prove misappropriation does not justify fee shifting; courts must find both an objectively baseless claim and an improper motive before invoking DTSA/OUTSA bad faith provisions. This ruling underscores deference to trial courts’ factual assessments and refines the boundaries between statutory and equitable fee-shifting authorities in trade secrets litigation.