Pre-Discovery Trade Secret Identification Under The DTSA
A previous post on this blog (Nov. 20, 2018) analyzed state laws that require a plaintiff suing for trade secret misappropriation to identify its alleged trade secret(s) with particularity, before discovery begins. As discussed in that post, two states – California and Massachusetts – have enacted such a requirement by statute while many other states have created a similar requirement under common law. Those requirements govern trade secret claims under the laws of those states. This post expands upon that discussion and addresses whether there is a comparable requirement for misappropriation claims under the federal Defend Trade Secrets Act (DTSA).
The DTSA does not address the issue of pre-discovery trade secret identification. But federal courts have analyzed the issue under the general principles of discovery in Fed.R.Civ.P. 26 and have identified competing policy considerations that inform the decision in a particular case.
Federal courts have identified at least four policies that support requiring a plaintiff to specify its trade secrets before discovery commences: (1) if discovery of the defendant's trade secrets were automatically permitted, lawsuits might regularly be filed as "fishing expeditions" to discover the trade secrets of a competitor; (2) until the plaintiff has identified the secrets at issue with some specificity, there is no way to know whether the information sought through discovery is relevant or, instead, constitutes needless exposure of the defendant's trade secret or confidential information; (3) it is difficult, if not impossible, to mount a defense until the defendant has some indication of the trade secrets allegedly misappropriated – only then can the defendant respond, for example, that it does not possess the secrets, or that the alleged secrets are in fact not secret; and (4) requiring the plaintiff to state its claimed trade secrets prior to engaging in discovery ensures that it will not mold its cause of action around the discovery it receives.1
On the other hand, courts have identified several policies that support allowing the trade secret plaintiff to take discovery before identifying its claimed trade secrets: (1) a plaintiff has a broad right to discovery under the Federal Rules of Civil Procedure; (2) the plaintiff, particularly if it has many trade secrets, may have no way of knowing which ones have been misappropriated until it receives discovery on how the defendant is operating; and (3) if the plaintiff is forced to identify the trade secrets at issue without knowing in detail what the defendant is doing, it is placed in somewhat of a "Catch–22": if it describes its secrets too generally, it may encompass material that the defendant will be able to show cannot be trade secrets; if instead it is too specific, it may miss what the defendant is doing.2
While the decision whether to require pre-discovery trade secret identification is case-specific, several federal courts have recently found a "growing consensus" in favor of requiring such identification.3
Ultimately – whether before or after discovery -- the plaintiff must identify the alleged trade secret with enough specificity to put a defendant on notice of what is actually alleged to have been stolen, or else face summary judgment.4 The question of how detailed the identification of the trade secret must be is highly case-specific, as it is in state courts.
A number of court decisions "have found that a party must do more than 'describe the trade secret by generic category' and instead should 'identify the specific characteristics of each trade secret, such as a particular drawing, process, procedure or cost/pricing data.'"5
In highly technical fields, where the alleged trade secrets consist of incremental variations or improvements, a higher level of particularity may be required. For example, where a trade secrets claim involved a sophisticated and highly complex projector system, reasonable specificity could only be achieved by identifying the precise numerical dimensions and tolerances as trade secrets; it was not enough to use the catchall phrase "including every dimension and tolerance that defines or reflects that design."6
Nor can the identification of the trade secret be buried in a welter of extraneous information. Thus, a 43-page description of the methods and processes underlying and the inter-relationships among various features of plaintiff's software package was not specific enough because it did not separate the trade secrets from the other information – it "[left] mysterious exactly which pieces of information are the trade secrets."7
Furthermore, a plaintiff cannot assume that it will be given an opportunity to cure any deficiencies in its initial identification of the trade secret. A later attempt to amend the identification may be contested and may even generate a motion for sanctions.8
Accordingly, a federal court may require a plaintiff to make an early identification of the alleged trade secret. This identification should be carefully drafted together with the complaint, even if it is not included in the complaint, and be sufficient – both in detail and in breadth -- to support the misappropriation claim as the case proceeds, in the event that later amendments are not permitted. Finally, it goes (nearly) without saying that any description of a trade secret's substance should only be filed under seal.
3 See JJ Plank Company, LLC v. Bowman, 2018 WL 3545319, at *2 (W.D. La. 2018); A&P Tech., Inc. v. Lariviere, 2017 WL 6606961, at *7 (S.D. Ohio 2017); StoneEagle Servs., Inc. v. Valentine, 2013 WL 9554563, at *2 (N.D. Tex. 2013).
4 See Givaudan Fragrances Corp. v. Krivda, 639 F. App'x 840, 845 (3d Cir. 2016); IDX Systems Corp. v. Epic Systems Corp., 285 F.3d 581, 583-84 (7th Cir. 2002).
5 Stoneeagle Services, Inc. v. Gillman, 2013 WL 12124328, at *3 (N.D. Tex. 2013).
6 Imax Corp. v. Cinema Technologies, Inc., 152 F.3d 1161, 1167 (9th Cir. 1998).
7 IDX Systems Corp. v. Epic Systems Corp., 285 F.3d at 584.
8 See Fast Food Gourmet, Inc. v. Little Lady Foods, Inc., 2007 WL 3052944 (N.D. Ill. 2007).