California trade secrets cases involve an unusual procedural device meant to discourage meritless trade secrets claims. California Code of Civil Procedure Section 2019.210 requires a plaintiff to identify its trade secrets as a condition of asking the defendant for information relating to the trade secrets claim. Two important California decisions fleshed out the level of specificity a plaintiff must use in order to identify its trade secrets with enough detail to satisfy Section 2019.210.
The statute says, “In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act (Title 5 (commencing with Section 3426) of Part 1 of Division 4 of the Civil Code), before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code.” Cal. Code of Civil Procedure § 2019.210 (emphasis added).
The statute is based on the holding in Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244 (1968). Moreover, the principal case on trade secret identification is Advanced Modular Sputtering, Inc. v. Superior Court, 132 Cal. App. 4th 826 (2005). The cases mentioned here build on the foundation of the statute, which codified Diodes, and Advanced Modular.
In March 2009, the Court of Appeal for the Second Appellate District decided Brescia v. Angelin, 172 Cal. App. 4th 133 (2009), which concerned a formula and manufacturing process for a high protein pudding. A former employee of Brescia’s distributor left and started a company that Brescia claimed stole the formula and competed against Brescia. After three tries at identifying its trade secrets, the trial court dismissed Brescia's claims based on Brescia’s failure to identify its trade secrets adequately under Section 2019.210. The trial court said Brescia did not describe in its identification document why its formula is unique and not known to others. Id. at 142.
The Court of Appeal reversed, holding that Brescia’s identification was sufficient. The trial court had set the bar too high. According to the Court, “[t]he nature of the identification required in any particular case need only be reasonable under the circumstances.” Id. at 152. “The identification is to be liberally construed, and reasonable doubts concerning its sufficiency are to be resolved in favor of allowing discovery to commence.” If the identification is particular enough, there is no requirement to “specify how the secret or its elements are distinguishable from matters known to skilled persons in the field.” Id. at 149.
In November 2009, however, the Court of Appeal for the Fourth Appellate District rendered a decision that raises the bar for a plaintiff’s identification of trade secrets. Perlan Therapeutics, Inc. v. Superior Court, 178 Cal. App. 4th 1333 (2009). Perlan said that although trial courts cannot require too much specificity in identification documents, trial courts still have discretion to reject trade secrets identifications that are not particular enough.
The case involved technology for a nasal spray for the prevention and treatment of the common cold. The founder of plaintiff Perlan and his wife, who were key employees, left the plaintiff and started a new company to compete against it. Although the plaintiff went bankrupt and went out of business, the corporate shell remained. The plaintiff pursued the suit against the founder, his wife, and their new company. The plaintiff alleged twelve causes of action based on the misappropriation of trade secrets.
The Court cites various factors as to why the trial court did not abuse its discretion in finding the plaintiff’s identification of trade secrets inadequate. The key factor in my mind was the Court’s finding that the plaintiff “had the ability (but not the inclination) to provide clearer, more specific information about at least one of its trade secrets.” Id. at 1345. The court cited the plaintiff’s strategic reasons for not revealing more information in a more succinct fashion. In other words, the Court apparently felt that the plaintiff was playing games.
The Court took pains to say that the plaintiff need not write “every minute detail” of the trade secret in its identification. Id. at 1346. Nonetheless, the examples of Perlan’s conduct the Court cites makes it apparent that the plaintiff fell far below the bar. These examples provide useful instruction of what not to do when trying to identify trade secrets as a plaintiff:
- Starting off with “surplusage” such as a preliminary statement and general objections, as if the document were a discovery response.
- Repeating a lot of text from the complaint.
- Identifying as trade secrets vague catch-all terms like “additional related research, development, advancements, improvements, and related processes.”
- Trying to “hide its trade secrets in ‘plain sight’ by including surplusage and voluminous attachments in its” statement; the attachments were hundreds of pages of technical documents.
- Failing to segregate alleged trade secrets from each other (by, for example, listing them in numbered statements).
- Failing to distinguish the trade secrets from matters already known to persons skilled in the field, given the highly specialized technical field involved.
The Court’s advice here is that plaintiffs concerned about defendants boxing them in via overly specific identification documents should not hesitate to be sufficiently specific when identifying trade secrets. If a plaintiff finds in pretrial proceedings that additional trade secrets were misappropriated, the trial court has the authority to permit an amendment of the statement under a good cause standard. Therefore, the plaintiff will not be helpless in the face of newly-discovered evidence of additional misappropriated trade secrets. Seeking an amendment, according to the Court, is better than being intentionally vague in the trade secrets statement in order to leave options open.
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