Identifying Trade Secrets
“About the author: Scott Lesowitz is a cum laude graduated of Harvard Law School and a former Assistant U.S. Attorney. His practice is located in Beverly Hills, California.His e-mail address is scott@syversonlaw.com.”
Unsurprisingly, in order to successfully sue for trade secret misappropriation, the plaintiff (victim) must be able to identify specific information that constitutes the alleged trade secret. If a plaintiff cannot clearly identify what the alleged trade secret is, a judge or jury is most likely going to find that there was no protectable trade secret. That means that there cannot have been misappropriation (a term that includes improper theft or acquisition of a trade secret, disclosure of a trade secret, or use of a trade secret). Also, a court cannot evaluate a trade secret claim if it does not know what information is alleged to be a trade secret. A defendant (alleged wrongdoer) cannot prepare a defense if it does not know what trade secret it is accused of acquiring, disclosing, or using.
However, there is a practical problem. If the plaintiff states exactly what the trade secret is in a publicly filed lawsuit, then the information is no longer a secret. The law, especially in California, provides safeguards against this by allowing for a delay of disclosure of the information to the defendant and by allowing for protective orders in which the defendant cannot disclose the purported trade secret or use it for any purpose outside of the lawsuit.
What the Trade Secret Is
Under both California’s version of the Uniform Trade Secrets Act (Cal. Civ. § 3426.1) and the federal trade secrets statute (18 U.S.C.A. § 1839, the “Defend Trade Secrets Act”), a trade secret misappropriation claim has two basic elements: (1) that a trade secret exists, and (2) that trade secret has been misappropriated. This article focuses on the first element.
A trade secret exists when information (1) is not generally known to the public through reasonably maintained secrecy, and (2) has “independent economic value” due to its secrecy.
In establishing a claim for trade secret misappropriation in a lawsuit, a plaintiff must identify the existence of the trade secret with reasonable particularity. In California, this particularity requirement is established by statute in Code of Civil Procedure § 2019.210. Although the federal Defend Trade Secrets Act does not contain a similar explicit provision regarding identification, “Courts have held the DTSA and the CUTSA share the same pleading requirements for the identification of trade secrets.” Alta Devices, Inc. v. LG Elecs., Inc., 2018 WL 5045429, at *8 (N.D. Cal. Oct. 17, 2018) (to be published) (collecting cases).
What Is Identified
Identifying the trade secret with sufficient particularity requires “describ[ing] 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 ... skilled in the trade” as well as “to permit the defendant to ascertain at least the boundaries within which the secret lies.” Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164–65 (9th Cir. 1998) (internal citations omitted), Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 Cal. App. 4th 26, 44 (2014) (internal citations omitted).
Particular identification requires a “reasonable, i.e., fair, proper, just and rational” showing. Advanced Modular Sputtering, Inc. v. Superior Court, 132 Cal. App. 4th 826, 835–36 (2005). Reasonableness depends on the complexity of the trade secret: the more complex and specialized it is, the more detail required for particularity. The goal of the reasonable showing, framing the level of detail required, is to “allow the trial court to control the scope of subsequent discovery, protect all parties' proprietary information, and allow them a fair opportunity to prepare and present their best case or defense at a trial on the merits.” Id.
When Identification Occurs
California Code of Civil Procedure § 2019.210 provides that the trade secret must be identified with “reasonable particularity” before beginning discovery “relating to the trade secret.” Some courts have interpreted this section as a heightened pleading standard. Other courts disagree, interpreting the statute literally to require identification any time prior to discovery.
The federal statute does not contain a statutory rule that identification must occur prior to discovery. However, based on several unpublished district court opinions in the Ninth Circuit, identification with reasonable particularity prior to discovery is likely a requirement in federal courts in this circuit. Note that some federal courts in other jurisdictions have applied a balancing of policy considerations to the facts if the case to determine whether the plaintiff must describe the trade secrets prior to discovery. See e.g. DeRubeis v. Witten Technologies, Inc., 244 F.R.D. 676 (N.D. Ga. 2007).
Purpose of Identification
The goals of requiring identification with reasonable particularity are:
(1) To discourage meritless suits,
(2) To prevent the plaintiffs from using discovery to uncover defendants’ trade secrets,
(3) To permit the court to determine the proper scope of discovery, and
(4) To permit defendants to craft a defense without waiting until the eve of trial.
Advanced Modular Sputtering, Inc. v. Superior Court, 132 Cal. App. 4th 826, 833–34 (2005).