Every trade secret plaintiff in California state court knows they will have to wage battle over whether they have identified their alleged trade secrets with reasonable particularity before discovery “relating to the trade secret” may commence. [1] What if a plaintiff could evade this albatross by filing (when procedurally appropriate) in federal court?
The recent holding in Skye Orthobiologics, LLC, et al. v. CTM Biomedical, LLC, et al. (“Skye Orthobiologics”), No. 20-cv-03444-DMG-PVCX, 2021 WL 6102432 (C.D. Cal. Aug. 27, 2021), suggests there may be that possibility.
While the Ninth Circuit has yet to squarely decide whether Section 2019.210 applies to federal actions asserting a claim under the California Uniform Trade Secrets Act (“CUTSA”), district court decisions have generally come out one of three ways:
(1) those holding that the discovery restriction does not conflict with the Federal Rules of Civil Procedure and is fully applicable, an approach “routinely” taken by courts in the Northern District of California (e.g., Openwave Messaging, Inc. v. Open-Xchange, Inc., No. 16-cv-00253-WHO, 2018 WL 2117424, at *4 (N.D. Cal. May 8, 2018) (collecting cases));
(2) those holding that the restriction conflicts with Rule 26 of the Federal Rules and is not applicable (e.g.,Hilderman v. Enea TekSci, Inc., No. 5-cv-01049-BTM-AJB, 2010 WL 143440, at *2-3 (S.D. Cal. Jan. 8, 2010)); and
3) those holding that a federal court may use the Federal Rules to fashion appropriate protections in a particular case, which may be similar to the California restrictions in order to advance the same objectives served by the California statute (e.g., Jardin v. DATAllegro, Inc., No. 10-cv-2552-IEG-WVG, 2011 WL 3299395, at *3-5 (S.D. Cal. July 29, 2011)).
Conversion Logic, Inc. v. Measured, Inc., No. 19-cv-05546-ODW-FFMX, 2020 WL 2046391, at *2 (C.D. Cal. Jan. 16, 2020). These cases, however, did not examine the scenario of how the court should approach discovery sequencing when the plaintiff brings its trade secret claim under the Defense of Trade Secret Act (“DTSA”), a federal statute, but does not bring a CUTSA claim.
This scenario was recently considered in Skye Orthobiologics. In Skye Orthobiologics, plaintiff asserted a DTSA claim only – and no CUTSA claim. See Skye Orthobiologics, 2021 WL 6102432 at *8. Unlike CUTSA, DTSA does not require a plaintiff to identify its trade secrets before any other party must respond to discovery. Id. at *6-7. Therefore, the Sky Orthobiologics court reasoned that the “‘absence of . . . a discovery [sequencing] procedure in DTSA . . . support[s] the inference that a plaintiff . . . is entitled to discovery in accordance with the general discovery rules set forth in Federal Rule of Civil Procedure 26.’” Id. at *7. While recognizing the broad discretion afforded to district courts to craft discovery orders that “set the timing and sequence of discovery,” the court found no “case-specific considerations” that would a more detailed disclosure of plaintiff’s alleged trade secrets than was set forth in the complaint. Id. at *8. Hence, the court ruled that each side could “proceed with discovery simultaneously, and expeditiously.” Id.
Based on our own very informal survey of filings in California District Courts over the last six months, we found approximately twice as many plaintiffs asserted DTSA and CUTSA claims as opposed to DTSA claims only. It will be interesting to see whether, and how widely, district courts adopt this reasoning when faced with the less common scenario of a plaintiff asserting a DTSA claim with no accompanying CUTSA claim. Until then, decisions in other jurisdictions** suggest a growing trend of courts from around the country to require a trade secret plaintiff to identify its trade secrets with “reasonable particularity” before it may commence discovery relating to those trade secrets.
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Please contact Alto Litigation partners Bahram Seyedin-Noor (bahram@altolit.com) or Bryan Ketroser (bryan@altolit.com) if you require counseling on a trade secret litigation matter.
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**See Vesta Corp. v. Amdocs Management Ltd., 147 F. Supp. 3d 1147, 1152 (D. Or. 2015) (citing Engelhard Corp. v. Savin Corp., 505 A.2d 30, 33 (Del. Ch. 1986), Xerox Corp. v. International Business Machines Corp., 64 F.R.D. 367, 371–72 (S.D.N.Y. 1974); DeRubeis v. Witten Technologies, Inc., 244 F.R.D. 676, 680–81 (N.D. Ga. 2007); Automed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 926 (N.D. Ill. 2001); Dura Global Technologies, Inc. v. Magna Donnelly, Corp., No. 7-cv-10945, 2007 WL 4303294, at *2 (E.D. Mich. 2007); Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 148 F. Supp. 2d 1322 (S.D. Fla. 2001); and Ikon Office Solutions v. Konica Minolta Business Solutions, No. 8-cv-0539-RLV-DCK, 2009 WL 4429156, at *4–5 (W.D.N.C. Nov. 25, 2009) and noting “[t]his list is not exhaustive.”).