At the heart of any trade secrets litigation is the question of what was misappropriated. In this respect, trade secrets are unique. Other forms of intellectual property (IP)—patents, trademarks, copyrights—are defined through the registration process, so litigants typically know what they are fighting over, even if everything else is in dispute.
But trade secrets are, by their nature, secret. There is no trade secrets registry. Indeed, the definition of “trade secret” itself can vary by jurisdiction. Almost all states have now adopted a version of the Uniform Trade Secrets Act (UTSA), which defines “trade secret” in section 1(4). The federal Defend Trade Secrets Act, effective May 11, 2016, defines “trade secret” similarly in 18 U.S.C. § 1839(3). And because a trade secret derives its value from its secrecy, the very act of disclosure destroys its existence.
This ambiguity creates a problem that courts, and litigants, are increasingly grappling with early in litigation. Some jurisdictions—notably, California—have codified requirements that plaintiffs identify the trade secrets at issue with “reasonable particularity” before discovery commences. See Cal. Civ. Proc. Code § 2019.210. Other jurisdictions have common-law requirements that are functionally the same as the California rule. In other jurisdictions, courts may be more tolerant of a late, or evolving, disclosure statement from the plaintiffs.
The trend line appears to be a movement toward early, and detailed, disclosure of trade secrets. This requirement forces a plaintiff to map out its case from the beginning, gives the defendant fair notice of the claims alleged against it, and “ensures that [the plaintiff] will not mold its cause of action around the discovery it receives [from the defendant].” DeRubeis v. Witten Techs., Inc., 224 F.R.D. 676, 681 (N.D. Ga. 2007). However, case law remains all over the map, leading a recent court to conclude that “[t]he divergent rulings from various federal courts on the issue of whether to require prediscovery identification of trade secrets reinforces the idea that rulings on discovery limitations are a case-by-case decision where courts must use their broad discretion based heavily on the distinct circumstances of any particular action.” A&P Tech., Inc. v. Lariviere, No. 1:17-cv-00534, 2017 WL 6606961, at *8 (S.D. Ohio Dec. 27, 2017).
This article discusses several approaches to this problem, beginning with the codified California approach before turning to the case law.
The California Approach
California has long been at the forefront of requiring early identification of trade secrets—although the details of what, exactly, is required to be disclosed has varied over time. The origin of the California approach is the opinion in Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 67 Cal. Rptr. 19 (2d Dist. 1968). In Diodes, the plaintiff alleged that two former employees had formed a competitor and misappropriated the plaintiff’s “secret processes.” In affirming the trial court’s dismissal of the plaintiff’s complaint, the California Court of Appeal held:
Before a defendant is compelled to respond to a complaint based upon claimed misappropriation or misuse of a trade secret and to embark on discovery which may be both prolonged and expensive, the complainant should describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.
Diodes, 260 Cal. App. 2d at 253.
This approach was formally codified in the California Code of Civil Procedure in 1985 in conjunction with the enactment of the California Uniform Trade Secrets Act (CUTSA). California Code of Civil Procedure § 2019.210 provides in relevant part:
In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act . . . , before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any [protective or confidentiality] orders.
Cal. Civ. Proc. Code § 2019.210.
Section 2019.210 requires the plaintiff to provide a trade secret disclosure statement “before commencing discovery.” Thus, under California law, the sequence is relatively clear that a plaintiff must identify the trade secrets at issue after its pleadings but before initiating discovery.
Although section 2019.210 is part of the California Code of Civil Procedure, federal courts have found that the rule is substantive (not procedural) in nature and thus applicable in federal court under the Erie doctrine. See, e.g., Comput. Econ., Inc. v. Gartner Grp., 50 F. Supp. 2d 980, 986–93 (S.D. Cal. 1999).
The devil, of course, is in the details. A much-litigated issue is what level of detail is required under section 2019.210. For example, in Perlan Therapeutics, Inc. v. Superior Court, 178 Cal. App. 4th 1333 (2009), at issue was the adequacy of the plaintiff’s Amended Trade Secret Disclosure Statement, which was presented on appeal after the trial court denied the plaintiff’s application for a writ of mandate requiring acceptance of the amended statement. Id. at 1338–39. The California Court of Appeal explained that section 2019.210 does not require the “greatest degree of particularity possible” or a “miniature trial on the merits of a misappropriation claim before discovery can commence.” Perlan, 178 Cal. App. 4th at 1346. Rather, the Perlan court held that the plaintiff was required to show how its trade secret differs from publicly available knowledge but was not required to convince the court (as a finder of fact) that the information was in fact secret. Id. at 1351–52.
Other jurisdictions have codified the requirement of an early trade secret disclosure. Massachusetts—the most recent jurisdiction to adopt the UTSA—added a provision to its version of the act requiring early disclosure. Section 42D(b) of the Massachusetts Trade Secrets Act requires that the plaintiff must, before discovery begins, “identify the trade secret with sufficient particularity under the circumstances of the case to allow the court to determine the appropriate parameters of discovery and to enable reasonably other parties to prepare their defense.” Mass. Gen. Laws ch. 93, § 42D(b).
Wisconsin provides a unique approach, codifying the requirement that a plaintiff must identify its alleged trade secrets before obtaining an injunction. The Wisconsin enactment of the UTSA requires that an application for an injunction contain “a description of each alleged trade secret in sufficient detail to inform the party to be enjoined or restrained of the nature of the complaint against that party or, if the court so orders, includes written disclosure of the trade secret.” Wis. Stat. Ann. § 134.90(3)(a).
“Reasonable Particularity” under Common Law
Outside California, there appears to be a movement in the case law toward a more proactive approach of requiring early and detailed identification of the alleged trade secrets at issue in the litigation—although when that disclosure must take place and what precisely must be disclosed continue to be hot areas of dispute.
In Big Vision Private Ltd. v. E.I. DuPont de Nemours & Co., No. 1:11-cv-08511 (S.D.N.Y. Mar. 3, 2014), the U.S. District Court for the Southern District of New York allowed limited discovery before requiring the plaintiff to identify its trade secrets—and then took a stringent view of the level of specificity required. The court held that a plaintiff must identify its alleged trade secrets with “reasonable particularity” at the time of disclosure and throughout the litigation. The court granted summary judgment in favor the defendant, DuPont, holding that the plaintiff’s claim for misappropriation of trade secrets failed because it did not identity the precise formulas that it claimed to be its trade secret. The court in Big Vision cited other cases in federal courts throughout the country in which defendants were able to obtain summary judgment because the trade secret plaintiff failed to identify its alleged trade secret with sufficient particularity. See SL Montevideo Tech., Inc. v. Eaton Aerospace, LLC, 491 F.3d 350, 354 (8th Cir. 2007); Dow Chem. Can. Inc. v. HRD Corp., 909 F. Supp. 2d 340, 347 (D. Del. 2012); L-3 Commc’ns Corp. v. Jaxon Eng’g & Maint., Inc., 2011 WL 10858409 (D. Colo. Oct. 12, 2011).
Other courts have taken an even more restrictive view, following the California approach that a plaintiff must disclose the trade secrets at issue with “reasonable particularity” before discovery commences. For example, in DeRubeis v. Witten Technologies, Inc., 244 F.R.D. 676 (N.D. Ga. 2007), Witten Technologies filed a motion to compel, seeking customer lists and trade secrets developed by two former employees. The court issued a protective order, requiring that Witten Technologies identify its trade secrets with “reasonable particularity” before the other parties were required to respond to the discovery requests. Id. at 680.There are other courts that have taken a similar approach. See Switch Commc’ns Grp. v. Ballard, 2012 WL 2342929 (D. Nev. June 19, 2012); Powerweb Energy, Inc. v. Hubbell Lighting, Inc., 2012 WL 3113162 (D. Conn. July 31, 2012).
Delaware is illustrative of this course. Under long-standing Delaware case law, a plaintiff must identify the alleged trade secrets at issue before beginning discovery. In a 1986 case, the Delaware Chancery Court held:
Where, as here, a plaintiff in a trade secret case seeks to discovery the trade secrets and confidential proprietary information of its adversary, the plaintiff will normally be required first to identify with reasonable particularity the matter which it claims constitutes a trade secret, before it will be allowed (given a proper showing of need) to compel discovery of its adversary’s trade secrets.
Engelhard Corp. v. Savin Corp., 505 A.2d 30, 33 (Del. Ch. 1986).
Similarly, in Automed Technologies, Inc. v. Eller, 160 F. Supp. 2d 915 (N.D. Ill. 2001), the U.S. District Court for the Northern District of Illinois prohibited discovery until the plaintiff provided a “particularized trade secret statement.” Id. at 926.
On the Other End of the Spectrum
Despite this trend, there remains case law for plaintiffs to cite in an effort to fend off early and detailed trade secret identification.
In Luvata Electrofin, Inc. v. Metal Processing International, L.P., 2012 WL 3961226 (W.D. Ky. Sept. 10, 2012), the plaintiff alleged in its complaint facts outlining an electrocoating process that it contended constituted a trade secret, without disclosing the trade secret itself. The court found this was sufficient, holding that a plaintiff need only identify “general categories of its trade secrets” rather than “state with particularity every trade secret that was allegedly misappropriated.” Id. at *8.
Likewise, in Aspen Marketing Services Inc. v. Russell, 2009 WL 4674061 (N.D. Ill. Dec. 3, 2009), the court held that the identification in the pleadings of “general areas of information” alleged to be trade secrets, such as “unique, confidential business practices, models and data[,] customer lists . . . , [and] pricing and marketing strategies,” was adequate to state a claim under the Illinois Trade Secrets Act and thus commence discovery. Id. at *7–8. Similarly, the court in Kelly Services v. Eidnes, 530 F. Supp. 2d 940 (E.D. Mich. 2008), held that the plaintiff sufficiently identified its trade secrets as “training methods and needs; recruiting and resourcing details and information.” Id. at 948.
Other courts have allowed discovery to proceed without a trade secret disclosure statement or have applied a standard much lower than the “reasonable particularity” rule. See, e.g., Glob. Advanced Metals USA, Inc. v. Kemet Blue Powder Corp., 2012 WL 3884939 (D. Nev. Sept. 6, 2012); Data Gen. Corp. v. Grumman Sys. Support Corp., 825 F. Supp. 340, 357–58 (D. Mass. 1993); Microwave Research Corp. v. Sanders Assocs., Inc., 110 F.R.D. 669, 673 (D. Mass. 1986).
Notwithstanding these different approaches, care should be taken to analyze the posture at which these questions were posed. Case law addressing the sufficiency of a pleading, for example, may not be applicable during discovery or at summary judgment.
In recent years, there appears to be a push by some practitioners, as well as in-house counsel, for a formalized (and uniform) early disclosure approach. At this time, there is not a uniform trade secret disclosure statement or form order—although efforts are being made in the American Bar Association and other groups to begin that process.
In the meantime, case law remains inconsistent on what level of trade secret disclosure is required and when it is required. Although there seems to be a trend toward earlier and more detailed disclosure, the cases are not uniform and continue to provide plenty of ammunition for both sides.
David M. Caves is with Bradley Riley Jacobs PC in Chicago, Illinois.
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