Effective Use of Section 2019.210 Trade Secret Statements in Discovery
John A. Schena, Esq.
Schwartz Semerdjian Ballard & Cauley LLP
As a prerequisite for commencing discovery in a trade secret dispute, the plaintiff must provide a disclosure statement identifying the trade secret(s) at issue with “reasonable particularity.” Cal. Civ. Code §2019.210. The trade secret disclosure statement functions as a hybrid pleading and discovery document in that it identifies the metes and bounds of the issues at stake, operates to limit the scope of later discovery from the onset, and binds the plaintiff similar to an admission. Advanced Molecular Sputtering, Inc. v. Sup. Ct. (2005) 132 Cal.App.4th 826, 834. While many other jurisdictions have rules proscribing the disclosure of alleged trade secrets, California appears to be the only state that prohibits the commencement of plaintiff’s discovery until the disclosure of what is at issue is satisfactory. Computer Economics, Inc. v. Garner Group, Inc., 50 F.Supp.2d 980, 984 (S.D. Cal.1999) (applying California law). On this point, practitioners should recognize the powerful defense tool the legislature has provided.
The purpose of pre-discovery disclosure is to (1) dissuade the filing of meritless claims – those who cry wolf without knowing the actual trade secret; (2) prevent the cunning plaintiff from using discovery as open season on its competitor’s trade secrets; (3) accordingly assist the court and parties in framing the appropriate scope of discovery in what is likely to be a competitively sensitive area; and (4) enable the defendant to develop its defenses at the outset. Computer Economics, Inc.,supra, 50 F.Supp.2d at 985. The prerequisite is not for gatekeeping purposes per se as courts have been clear that the statute does not create a new procedural device to litigate the ultimate merits of the case at the outset. Brescia v. Angelin (2009) 172 Cal.App.4th 133. Accordingly, demurrer is not the appropriate response to the plaintiff’s failure to disclose an actual trade secret (i.e., something that derives economic value from not being known to the general public). In lay terms, Section 2019.210 is an anti-“hide the ball” provision for use as litigation progresses.
To meet the four identified purposes, California courts have held that the plaintiff must disclose the trade secrets at issue in a non-evasive manner, without including unnecessary surplusage, or broad catch-all language, so as to either “hide the ball” or as a tactic to preserve an unrestricted right to later amend its alleged trade secrets. See Perlan Therapeutics, Inc. v. Sup. Ct. (2009) 178 Cal.App.4th 1333. With that in mind, “reasonably particularity” is in the eye of the beholder and often requires a “more exacting level of particularity” for highly specialized fields. Id. Unsurprisingly, defendants often find the disclosure statements to be lacking and move the court for either a protective order prohibiting discovery until satisfied that the plaintiff has met the burden or alternatively move for an order compelling a more detailed description of the alleged trade secrets at issue. There is also potential value in allowing a plaintiff to proceed on a deficient trade secret disclosure statement, however, this article leaves that to the imagination. Note, like a pleading but unlike discovery responses, there is no unilateral right to later amend the trade secret statement; leave of court is required and short of good cause may very well be denied on the fundamental belief that plaintiff should be in the best position to identify its own trade secrets with particularity.
While neither purely a pleading nor discovery document, the trade secret statement provides the best of both worlds for experienced defense counsel as it limits the otherwise expansive breadth of discovery, provides for the opportunity to deftly impeach party witnesses, and binds the plaintiff at the outset to a set of allegations that may prove during discovery to be futile.
1. Define the Boundaries of Discovery
While the scope of discovery generally permits a fishing expedition, the trade secret disclosure statement actually allows defense counsel to reasonably draw a more narrowed box than otherwise permitted. Courts are more inclined to limit discovery where the topics sought to be elicited are confidential by their very nature, such as a competitor’s trade secrets. Likewise, courts will be less sympathetic to the plaintiff that seeks discovery regarding information that is outside the four corners of the trade secret statement on the reasonable argument that the purpose behind the discovery requests goes beyond merits of the lawsuit as defined by plaintiff’s own words. In short, defense counsel is provided a clear path towards a protective order, if not a step ladder to help leap over the hurdle. This is no short measure, given the potential pitfalls of allowing the plaintiff to peruse a competitor’s internal information and tailor the case around information that is found rather than what it believes to be at issue from the onset.
The early disclosure of the alleged trade secrets with reasonably particularity also allows the defendant to craft discovery tailored directly to what is at issue rather than rely upon nuggets hopefully disclosed in response to contention interrogatories. Targeted interrogatories and requests for production should be directed requiring the plaintiff to substantiate its implication that what is at issue meets the enumerated definition of a trade secret pursuant to the Civil Code, as well as the remaining elements required to establish actionable misappropriation. Just as contention interrogatories are often drafted line by line throughout the operative complaint, so too, should discovery be propounded in the same fashion with respect to each item disclosed in the trade secret statement.
2. Contrast the Trade Secret Statement with Discovery Responses and Testimony
Having the parameters of the plaintiff’s allegations defined with particularity in a trade secret statement also provides defense counsel with a rare opportunity to impeach in a manner that is not usually possible with pure pleadings which are often considered non-binding “attorney-speak.” Inconsistencies within discovery responses and deposition answers may operate to undermine both the merits of the case and the credibility of each witness. For example, there is significant value to the CEO that testifies X was misappropriated while the trade secret statement claims Y to be at issue. Or better yet, the CEO who unwittingly testifies that Y has little to no value because she understands the trade secret at issue to be different than that which is disclosed in the statement. The trade secret statement affords a more nuanced approach to beating the opposition over the head with a qualified response to a request for admission.
3. Bind Plaintiff at Motion for Summary Judgment and Trial
When all is said and done, plaintiff will be responsible for applying the California Uniform Trade Secrets Act to prove up the alleged theft of whatever material or information is disclosed in the trade secret statement. The Uniform Trade Secret Act defines a trade secret as something that “derives independent economic value from not being generally known to the public” and “[i]s the subject of efforts that are reasonably under the circumstances to maintain its secrecy.” Cal. Civ. Code §3426.1(d). If plaintiff cannot establish that what is contained in the trade secret disclosure statement is in fact a trade secret, the case will not succeed on the merits. The failure to disclose an actual trade secret is proper ground for summary judgment. See Imax Corp. v. Cinema Technologies, Inc., 152 F.3d 1161, 1164. (9th Cir.1998) (applying California law). Summary judgment cannot be avoided by disclosing additional information omitted in the trade secret statement. See Pixon, Inc. v. Placeware, Inc., 421 F.Supp.2d 1233 (N.D. Cal. 2005) (applying California law). The limit to the four corners of the document, coupled with no guarantee of right to amend to incorporate new trade secrets or elements therein, makes the trade secret statement one of the most powerful binding mechanism available to the litigator. The significance goes beyond defending the misappropriation allegations given the broad preemption application of California Uniform Trade Secrets Act to tort causes of action. See, e.g., K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958 [holding that CUTSA preempts claims for breach of confidence, unfair competition, and interference with contract when based upon “the same nucleus of facts” as a misappropriation of trade secret even if the trade secret fails].
In conclusion, no which adversarial side you may represent significant time should be spent with the trade secret statement and understanding the effects of incorporating the included language.