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Peter Toren | Experienced Intellectual Property Lawyer

The Sedona Conference’s Commentary on the Proper Identification of Asserted Trade Secrets in Misappropriation Cases.

Two of the more important issues in trade secret cases involve when the plaintiff is required to identify its alleged trade secrets, and the degree of specificity with which they must be identified. However, the DTSA does not address either of these issues and most state courts have not agreed on uniform standards. The degree of specificity of the trade secret may be critical in establishing, for example, that the information was obtained from a public source. The Sedona Conference proposes a common set of local rules for identification in trade secret cases in its Commentary on the Proper Identification of Asserted Trade Secrets in Misappropriation Cases, which was recently published for public comment.

Courts have recognized that at the pleading stage this requirement requires a balancing between putting the defendant on notice and requiring the plaintiff to go into such detail that would risk compelling public disclosure of the trade secret. “Thus, in this context, courts only dismiss a claim for lack of specificity on the pleadings in the most extreme cases.” In general, this means that “’[a] plaintiff need not spell out the details of the trade secret,” but must “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 persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.’”

In contrast, greater detail of the trade secret is required at later stages of the proceeding or if a party is seeking injunction relief. For example, a number of district courts have denied a motion for a preliminary injunction where plaintiffs failed to identify with specificity any of the trade secrets allegedly at issue despite having detailed the extensive efforts undertaken to protect their confidential information.

The Sedona Commentary sets out four guiding principles. First, the Commentary asserts that the identification of an asserted trade secret during a lawsuit is not an adjudication of the merits and is not a substitute for discovery. It asserts that this is “a procedural notice issue—a drafting step to provide clarity so that merits issues can be separately and later be determined in a facilitated manner.” According to the Commentary “the acceptance by a court or party of a trade secret identification as adequate is not a ruling or an admission as to whether the information at issue is, in fact, a trade secret,” nor “does it address the question whether misappropriation has occurred.” The Commentary stresses that the “[i]dentification is an important step in trade secret litigation, but it is not an endpoint or a substitute for discovery.”

Second, the party claiming misappropriation of a trade secret should identify in writing the asserted trade secret at an early stage of the case. The Commentary further stresses that the “plaintiff should not be allowed to refuse to provide any written identification or be allowed to identify only documents and state that its asserted trade secret may be found in those documents.” Consistent with the above understanding that courts have determined that greater detail is required in the context of preliminary injunction proceedings, the Commentary provides that with certain exceptions, where a plaintiff seeks early injunctive relief, “the plaintiff would be required to serve on the defendant an identification of its asserted trade secret …” Thus, according to the Commentary, “[i]f there is no request for preliminary relief, the asserted trade secret should be identified with reasonable particularity by the outset of merits discovery. Courts may implement this principle with attention to the needs of the particular case and applicable statutes, and case law rules.”

Three, the party claiming the existence of a trade secret must identify the asserted trade secret at a level of particularity that is reasonable under the circumstances. The Commentary notes that “[g] iven the wide variety of information and technology that can be at issue in trade secret cases, there is no single format by which a plaintiff can properly identify its asserted trade secret. However, a proper identification must reach a level of particularity that is reasonable under the circumstances, including taking into account the alleged urgency of the need for relief and the nature of the relief sought.” This also means that “[t] he description of an asserted trade secret in a publicly filed pleading, or other publicly filed document, may be general if necessary to avoid destroying the status of information asserted to be a trade secret.”

The Commentary also recognizes that where a protective order exists the disclosure of the trade secret “should be made with sufficient particularity to allow the defendant to meaningfully compare an asserted trade secret to information that is generally known or readily ascertainable and to permit the parties and the court to understand what information is claimed to be a trade secret.” The Commentary notes that a defendant should not be able to use the standard of identifying a trade secret as a “tool to delay litigation by demanding particularity beyond that reasonably necessary for the defendant to develop its defenses and for the court to evaluate the claims and defenses.”

The Commentary also provides additional guidelines concerning the identification of the trade secret including that the plaintiff should not be permitted to identify a trade secret exclusively by reference to another document, that the plaintiff should verify its identification of an asserted trade secret under oath or affirmation,  and that where the plaintiff has alleged that defendant has taken files or other materials, the court may allow motion practice and/or discovery relating to the return or inspection of such files or materials prior to requiring identification of an asserted trade secret contained within such files or materials.”

Fourth, the identification of an asserted trade secret may be amended as the case proceeds. The Commentary notes that there are a number of factors in whether this should be allowed, and before doing so, the moving party shall first confer with the opposing party. “[i]f the parties are unable to reach an agreement, the party proposing the amendment may then file a motion for leave to amend, with the motion subject to the court’s discretion based on all the circumstances,” including all the factors that the Commentary also describes.

Companies with trade secrets and practitioners should review the Commentary. It is available for download here.

The Commentary requests that all comments be submitted by August 1, 2020, to comments@sedonaconference.org.

 

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