Under the California Uniform Trade Secrets Act (CUTSA), and many other states’ trade secret acts, a plaintiff must identify its alleged trade secrets as a prerequisite to conducting discovery. Cal. Civ. Code § 2019.210. The Ninth Circuit recently held that the Defend Trade Secrets Act (DTSA) also includes this requirement to identify alleged trade secrets with sufficient particularity. The Ninth Circuit was considering whether the U.S. District Court for the Central District of California had abused its discretion in granting summary judgment for a defendant on CUTSA and DTSA claims by finding that the plaintiff had not identified its trade secrets with sufficient particularity without any discovery. (Spoiler alert: It did.)
InteliClear, LLC (InteliClear) filed suit against ETC Global Holdings, Inc. (ETC) alleging that ETC had misappropriated its intellectual property in the logic and architecture of its securities tracking database (the “InteliClear System”) under the DTSA and CUTSA. (InteliClear’s claim for unfair competition was quickly dismissed as preempted by CUTSA). Prior to the litigation, ETC was assigned a license to the InteliClear System through its subsidiary. The license required ETC to indefinitely maintain the confidentiality of any information received by way of the license arrangement. ETC began building its own securities tracking system while still holding the license, and eventually terminated the license agreement with InteliClear and removed the InteliClear System from its servers. ETC deployed its own system shortly thereafter. ETC agreed to allow a third party to compare the two systems, and InteliClear filed suit after the third party found the two systems were strikingly similar.
The District Court denied a motion to dismiss the misappropriation claims, but granted ETC’s motion for summary judgment filed just one day after discovery began in the case, finding that InteliClear did not identify its trade secrets with sufficient particularity and generally did not identify which elements of the InteliClear System was a trade secret. InteliClear appealed the decision.
The Ninth Circuit held that summary judgment was improper, in part, because the district court had noted that InteliClear had identified “some of the features” of the InteliClear System that were trade secret, specifically its “uniquely-designed tables, columns, account number structures, and methods of populating table data.” The district court had found it dispositive that “[b]y only identifying ‘some’ of its trade secrets, Plaintiff leaves open the possibility that it might later argue that other unnamed elements of the InteliClear System are trade secrets as well.” Thus, even though InteliClear had identified at least one trade secret, because it had not identified all alleged trade secrets, the district court found the trade secret identification failed. The Ninth Circuit disagreed about the impact of this ambiguity, reasoning that “[a]t this stage, particularly where no discovery whatsoever had occurred, it is not fatal to InteliClear’s claim that its hedging language left open the possibility of expanding its identifications later. InteliClear’s burden [to defeat summary judgment] is only to identify at least one trade secret with sufficient particularity to create a triable issue.” The Ninth Circuit suggests that discovery can be used as an iterative process to lead to a refined and sufficiently particularized trade secret identification. While some plaintiffs make take this as a go-ahead to expand their trade secret identifications throughout discovery, the cases cited by the Ninth Circuit suggest the intent is actually the opposite. For example in TelSwitch, Inc. v. Billing Sols. Inc., as a prerequisite to finding that the plaintiff’s alleged trade secret had been identified with sufficient particularity under Cal. Civ. Code § 2019.210, the district court required the plaintiff to agree not to amend its disclosures further in the litigation. In Imax Corp. v. Cinema Techs., Inc., the Ninth Circuit affirmed summary judgment for a competitor because the plaintiff’s use of the “catchall” phrase ““including every dimension and tolerance that defines or reflects that design” did not “clearly refer to tangible trade secret material” and the defendant “could not be expected to prepare its rebuttal to Imax’s trade secrets claim without some concrete identification of exactly which ‘dimensions and tolerances’ Imax alleged” were misappropriated. In InteliClear, the Court noted the tension between a party’s desire to protect its legitimate intellectual property claims and that other courts had recognized that a plaintiff may have commercially valid reasons to want to avoid being overly specific in defining their intellectual property for competitors, but did not sanction a plaintiff using a broad trade secret identification to “fish” through a competitor’s information in discovery and reverse-engineer a misappropriation claim.
This decision will likely lead to more discovery battles as parties attempt to determine what is sufficient particularity to pursue discovery, to survive summary judgment, or to set the appropriate scope of discovery. We will keep watch to see how district courts apply this ruling.