This May was the fourth anniversary of the Defend Trade Secrets Act (DTSA), signed into law by President Obama on May 11, 2016. The DTSA does not preempt state laws and plaintiffs can still bring cases under their state’s trade secrets law, but the DTSA has played a big role in the increased number of trade secret cases in recent years. According to Lex Machina’s Trade Secret Litigation report, which covered federal district court data from 2010 to 2019, the DTSA caused a 30% increase in trade secret case filings between 2015 and 2017 and those numbers have remained steady.
A key issue litigated in trade secret misappropriation cases, including under the DTSA, is the level of specificity plaintiffs must use to identify the alleged trade secret(s). On one hand, requiring Plaintiffs to identify the trade secret(s) early and with specificity will prevent fishing expeditions, frame the scope of discovery, and enable defendants to meaningfully prepare their defenses. On the other hand, Plaintiffs cannot always identify the full scope of information and/or documents that have been misappropriated at the outset of the case and, in some cases, defendants may delay discovery by repeatedly challenging the sufficiency of a trade secret disclosure.
To address this issue and balance these concerns, the Sedona Conference—a nonprofit organization with working groups dedicated to several complex litigation issues, including trade secret law—proposed a common set of rules for identification in trade secret cases, titled the Commentary on the Proper Identification of Asserted Trade Secrets in Misappropriation Cases. It proposes four guiding principles for when courts should require plaintiffs to identify their alleged trade secrets, and with what level of specificity. The principles include:
(1) the identification of an asserted trade secret during a lawsuit is not a decision on the merits and may not serve as a substitute for discovery;
(2) the party asserting misappropriation of a trade secret should identify the alleged trade secret in writing at an early stage of the litigation;
(3) 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; and
(4) a party may amend the identification of an alleged trade secret as the litigation progresses.
The proposal further elaborates on these four principles by providing a number of correlated “Guidelines” with detailed commentary and a library of case law.
The proposal also provides a proposed set of model rules that Courts may adopt to govern trade secret misappropriation cases. The rules indicate that the identification must occur “by the outset of merits discovery,” which, much like the governing California statute, may provide defendants a basis to resist discovery until plaintiffs have adequately identified the trade secrets at issue. The rules also provide guidance on whether and when a party should be permitted to amend its identification of trade secrets.
These rules are currently available for public comment and will be discussed at a public conference that is being rescheduled from June 25, 2020 due to the pandemic. At first glance, guidance that irons out a key ambiguity in trade secret litigation appears to be a step in the right direction to dispel uncertainty and inconsistency in outcomes. Stay tuned for further updates on this blog as we monitor finalization of these rules and their impact, if any, on trade secret cases.