The engineers of one of the largest South Coast technology deals of the decade are one step closer to starting a new company after a state appeals court ruled in their favor in a years-long legal fight with their former employer and upheld a $1.6 million award for attorney’s fees.

Bill Parrish and Tim Fitzgibbons have been in a legal wrangle with Oregon-based Flir Systems for three years. The two sold their former company, Indigo Systems, a Goleta-based maker of infrared vision systems components, to Flir in 2004 for $185 million.

In 2005, Parrish and Fitzgibbons decided to start a company that would compete with Flir. They offered Flir a stake in the new venture, but Flir turned them down. In 2006, Parrish and Fitzgibbons left Flir and started talks with Raytheon about technology for the new company.

Flir sued in Santa Barbara County Superior Court to stop them, alleging there was no way the pair could carry out their business plan without stealing trade secrets that belonged to Flir. Raytheon pulled out of the business talks after Flir filed suit.

Last June, Superior Court Judge James Brown issued a stern decision siding with Parrish and Fitzgibbons. He wrote that Flir had brought the lawsuit without any evidence that trade secrets were at risk and mainly for the purpose of tangling up Parrish and Fitzgibbons’ attempt to form a competitor. Brown awarded them $1.6  million in attorney’s fees.

Flir appealed. In a June 15 decision, 2nd District Appeals Court Justice Kenneth Yegan upheld Brown’s ruling and affirmed the $1.6 million award in a firmly worded decision of his own.

“The evidence here supports the finding that [Flir] filed a specious action as a preemptive strike and for an anticompetitive purpose,” Yegan wrote.

In an interview, Fitzgibbons said he and Parrish were “extremely pleased” with the court’s decision.

“This is everything we have hoped for,” Fitzgibbons said.

Fitzgibbons didn’t want elaborate on his and Parrish’s future plans because Flir could still appeal Yegan’s decision to the California Supreme Court. But he confirmed that the two have no intention of retiring from the infrared industry.

“We’re working on a concept and a product together,” Fitzgibbons said. “It will be introduced at an appropriate time. We’re both pursuing a number of other things in our lives. It’s been a long downtime from our careers in the infrared industry, but our next product, our next industry approach, isn’t too far away.”

Tony Trunzo, Flir’s senior vice president of business development, couldn’t say whether his company would appeal its case to the California Supreme Court.

“We are disappointed by the court’s ruling and will determine what the appropriate next steps are after we have fully reviewed their decision,” Trunzo told the Business Times via e-mail. “We believed there was strong merit to our lawsuit at the time we filed it, and we continue to believe so.”

Independent attorneys who reviewed the case said Flir has little hope with further appeals.

“[Flir is] not going to get anywhere going to the Supreme Court,” said Steven Sereboff, an intellectual property attorney with Westlake Village’s SoCal IP Law Group who reviewed Yegan’s decision. “The appeals court is going to defer to the trial judge on a lot of issues, and the Supreme Court is going to be even more deferential. They don’t want to mess with the facts.”

In Yegan’s decision, he wrote that Flir erred in arguing from a doctrine called inevitable disclosure. The idea is that an employee knows a company’s trade secrets so intimately that he or she would inevitably put them to use if working for a competitor.

In some East Coast states, companies can use that doctrine as an argument to stop former employees from forming or working for a competitor. But Yegan pointed out in his ruling that California courts have rejected inevitable disclosure for nearly six decades in favor of letting employees compete against their former companies and even go after the same customers.

Sereboff explained: “In the West, we tend to favor the movement of employees from place to place, whereas in the East, they tend to favor the company.”

In his decision, Yegan wrote that Flir kept up its lawsuit even after it became clear there was no evidence that trade secrets were stolen or were about to be stolen.

“[Flir Chief Executive Earl] Lewis’s testimony is remarkable and clearly shows that the action was brought for an anticompetitive purpose,” Yegan wrote “Lewis did not ‘think it would be good, healthy for [Parrish and Fitzgibbons] to go and directly compete with us.’ Lewis stated that Flir ‘couldn’t tolerate a direct competitive threat by [Parrish and Fitzgibbons] because it flies in the face of everything that we spent $200 million to buy.’ ”

“From reading the appeals decision, it just looks like [Flir] didn’t know when to quit,” said Sereboff, the Westlake Village attorney.

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