April 4, 2023
A common element in trade secret litigation is that plaintiffs must own and be able to reasonably identify their trade secrets. However, different courts require plaintiffs to define their trade secrets with different levels of specificity at different stages of litigation. Regardless of the court, though, trade secret plaintiffs are well advised to proactively identify their trade secrets as part of a pre-litigation assessment and later in their pleadings—without, of course, disclosing the actual secret. If they fail to identify their trade secrets in their pleadings, defendants may raise the deficiency early to stall discovery or even dismiss the litigation.
In trade secret cases in federal court, defendants routinely move to dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6) for “failure to state a claim on which relief can be granted.” Increasingly, defendants are asserting that a plaintiff has failed to properly identify its trade secrets in its complaint. Several federal courts encountered this issue in March 2023, relying on the unique facts of different cases and allegations to reach different results.
In 2022, Iqvia brought a Defend Trade Secrets Act (DTSA) claim against Erica Breskin and her employer, Slipstream, in the Eastern District of Pennsylvania. Breskin allegedly downloaded thousands of documents to external storage devices before leaving Iqvia’s employ for Slipstream. Breskin also allegedly accessed documents on Iqvia’s document management platform, Smartsheet, after her employment with Iqvia ended.
Slipstream moved to dismiss Iqvia’s complaint under 12(b)(6), and the court dismissed the complaint without prejudice. According to the court, even though Iqvia described the different types of proprietary information on Breskin’s hard drives, Iqvia failed to distinguish between trade secret information and information Iqvia argued was simply confidential. In addition, Iqvia alleged that Breskin accessed nine documents through Smartsheet: “three items which included client-specific information that IQVIA used on client projects and six items that were developed by Iqvia and used across its SDA [Solutions Delivery and Assurance] business on various projects.” However, the court called these descriptions “threadbare” and found that, based on Iqvia’s descriptions, it could not “assess if a trade secret exists” to maintain the lawsuit.
In 2021, Beluca and Christian Lagerling sued Einride for breach of contract, and Einride counterclaimed based on Beluca’s alleged misappropriation of trade secrets under the DTSA and California Uniform Trade Secrets Act (CUTSA).
Einride commissioned McKinsey & Company for a consulting report detailing Einride’s value proposition in its marketplace. Lagerling, the sole member of Beluca, was a member of Einride’s board of directors and received the McKinsey report. Soon after, he allegedly sent the McKinsey report to a direct competitor.
After Einride filed its counterclaim, Beluca moved to dismiss Einride’s counterclaim for its alleged failure to identify any purported trade secret with particularity. The court denied Beluca’s motion. The court reasoned that, even though Einride described broad categories of information in one paragraph of its counterclaim, it later, in two separate paragraphs, “plausibly identif[ied] information beyond that of general knowledge.” Important to the court’s holding, those paragraphs specified that the information at issue was specifically found within the McKinsey report—and was therefore sufficiently particularized to put Beluca on notice. According to that court, broad categories of information can “become sufficiently particularized for purposes of stating a claim where the complaint alleges that these categories of information are contained within specific documents.”
In March 2023, a court forced a plaintiff to properly identify its trade secrets after the pleading stage, but early in the discovery process.
In 2022, Carlisle brought a DTSA claim against Foresight, which allegedly hired four Carlisle employees to create a process using Carlisle’s proprietary “Selective Plating Process.” Almost six months after Carlisle filed suit, Foresight moved to compel Carlisle to “specifically identify each trade secret allegedly misappropriated” related to the “Selective Plating Process.” In response, Carlisle provided an amended trade secret designation.
Carlisle claimed its trade secret was the “entirety of its selective plating processes . . . including without limitation devices, assemblies, and software,” which included “three types of selective plating machines.” Carlisle also elaborated that “[t]he entirety of each selective plating machine and process is a trade secret, including the functionality, components, arrangement of components, and associated software, all of which are individually and collectively trade secrets.”
Carlisle also listed examples of individual components of its three machines, which it considered to be trade secrets on their own and when considered collectively. The trade secret designation then briefly described the functions of many of these components and listed various “parameters” of the machines that were considered its trade secrets. And lastly, in addition to Carlisle’s list of components, functions, and parameters, the amended trade secret designation included 72 photos and videos of its machines. These photos and videos were intended to supplement Carlisle’s list of components, parameters, and functions by further identifying specific machines and showing them performing their functions.
Despite these detailed efforts, the court held that Carlisle’s trade secret designation was inadequate. Indeed, the court stated that Carlisle’s amended trade secret identification claimed “the entirety of each selective plating machine and process” to be a trade secret. Although the amended trade secret designation explained the functions of many of the machines’ components, the court stated that it did not “identify any specific steps in the Selective Plating Process or otherwise explain how such steps were unique to Plaintiff's particular machines.” Thus, the court held that Carlisle “must provide some basis for [its] contention that [its] methods and processes are unique and thus legally protectable.”
The court also held that, as to the machines’ individual components and their collective arrangement, Carlisle did not yet “specifically describe what particular combination of components renders each of its designs novel or unique, how the components are combined, and how they operate in unique combination.” The court claimed that the amended trade secret designation merely listed the components and provided a few words for some components describing their functionality. However, the amended trade secret designation did not explain what made those components—or their arrangement—unique as compared to what is already publicly available or generally known.
In the end, the court ordered Carlisle to amend its trade secret identification and to define its trade secrets with reasonable particularity. And until Carlisle followed the court’s order, the court stayed two depositions that Carlisle requested and absolved Foresight of its discovery obligations.
Based on these three March 2023 cases, companies should proactively audit their trade secrets—and understand their contours and details—before litigation is even a thought. This allows companies to better understand how their trade secrets are separate from their confidential information, how their trade secrets are distinct from information available in the public domain, and what harm they could suffer from another entity or person’s misappropriation of those trade secrets. It’s better to be safe than sorry.