In litigation, how much specific disclosure is required?
During the course of a United States litigation — whether under the new, federal Defend Trade Secrets Act (DTSA) or the older state-adopted Uniform Trade Secrets Act (UTSA) — it is required that a plaintiff provide a description of the trade secrets allegedly stolen. What constitutes an adequate identification of the stolen or misappropriated trade secrets depends on the nature of the trade secrets, the facts of the case, and the relevant jurisdiction.
At one extreme lies the early and robust disclosure approach of California state courts, which many courts are starting to adopt for the DTSA as well. At another extreme are those courts where disclosure is conducted iteratively through the discovery process.
California’s approach requires a detailed, element-by-element description of the trade secret that also highlights what is novel and what is generally known about each secret. This approach arises from a famous Court of Appeals case from 1968[1] which noted that while a plaintiff need not “spell out” the details of its trade secrets, it must, prior to the start of discovery, “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.”
Thus, a disclosure with scant factual content that amounts to a “little more than traditional business rules-of-thumb i.e. know your customer, explore your market, and plan your steps is likely to be fatally inadequate.”
However, in a 2005 case, the California Court of Appeals found that — where credible experts submitted declarations early in the litigation stating their understanding of the trade secret designation and could distinguish the alleged secrets (as disclosed thus far) to the defendant from information already known in the field — the designation should generally be considered adequate to permit regular discovery to commence. The Court cautioned: when the alleged trade secrets are only incremental variations on the state-of-the-art in a highly specialized technical field, much more distinguishing particularity will be required.
Matters of General Knowledge vs. Special Knowledge of Persons
In fact, there is a procedure in California under its version of the UTSA which has been adopted by a number of other state’s federal courts applying the DTSA. This procedure requires the plaintiff, at the outset of a litigation, to identify the specific characteristics of each trade secret in a way that sufficiently distinguishes it from “matters of general knowledge in the trade or of special knowledge of persons skilled in the trade.”[2]
These requirements can be daunting for a trade secret plaintiff. Although it would seem to be an easy task, often a plaintiff cannot precisely identify what trade secrets its former employees or business partners misappropriated without having discovery to at least determine what information the defendant has in possession. Moreover, although most companies have a general idea of their trade secrets, many have not identified the specific formulas, computer codes, or product dimensions that constitute protectable trade secrets.
Oftentimes, the situation is worse than that. The historical nature of trade secrets being what it is, many plaintiffs can’t really define any of their trade secrets with specificity — regardless of a theft. This inability has many sources, including
the need to know the nature of trade secrets,
the fact that there is no real incentive to identify trade secrets with specificity, and
the fact that it is often thought to be dangerous to spell out the precise nature of a company’s trade secrets in the absence of litigation.
Defining trade secrets with precision is typically seen as dangerous for two reasons:
Critical information could be unknowingly left out from a precise definition.
Recording a precise definition of a trade secret makes it easier to misappropriate because once reified into a concrete document, it can be stolen or inappropriately accessed.
Proper use of trade secret metadata can help both literally, including network and file information about the actual document recording the data; and figuratively, including information about the creators, the governing company policies and contractual protections. Metadata allows the company to establish procedures to audit and capture its secrets without having to propagate those secrets wider than absolutely necessary. Because trade secret metadata is simply data about the trade secret and not the trade secret in and of itself, sharing trade secret metadata or even making some trade secret metadata public is fairly safe as metadata alone does not give people access to the trade secret.
Trade secret metadata allows companies to comfortably tell the story of their trade secrets in an enlightening and engaging manner, without endangering their trade secrets. This story can be told to senior management, to investors, to counterparties in joint ventures, and ultimately in the initial stages of litigation.
Moreover, proper metadata reporting will allow a trade secret plaintiff to quickly and effectively illustrate the chain of custody for its secrets from inception through alleged breach, as well as provide a comprehensive explanation of the protections it put into place. This should allow a plaintiff to more easily seek expedited relief from the court and even potentially leverage the litigation to a quick settlement before having its trade secrets exposed too much to defendants or their lawyers.
[1] Diodes, Inc. v. Franzen, 67 Cal. Rptr. 19 (Cal. Ct. App. 1968)
[2] Imax Corp. v. Cinema Technologies, Inc., 152 F.3d 1161, 1164 (9th Cir. 1998).
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