California Court Summarizes Policy Behind Early Trade Secret Identification (North Am. Lubricants. v. Terry)

One of the big fights in trade secrets concerns proper identification of that which the plaintiff claims has been improperly taken, used, or disclosed.

Unlike the subject-matter of other intellectual property claims or contract claims, the trade secrets subject to protection are often unknown - even to the alleged misappropriator. For this reason, courts have noted that trade secrets cases are qualitatively different and impose on the plaintiff some obligations not seen in other areas of the law.

Many states have a common-law pre-discovery disclosure rule, and California has one by statute. Even those states which do not have hard-and-fast rules seem to suggest that a sequencing of early discovery is appropriate to allow a defendant to understand the claim in greater detail.

The policy justifications for early trade secrets identification were summarized succinctly in a discovery order in North American Lubricants Co. v. Terry. Identification serves four primary purposes:

(1) It promotes "well-investigated" claims and dissuades the filing of meritless trade secrets complaints;

(2) It prevents plaintiffs from using the discovery process as a means to obtain the defendant's trade secrets;

(3) It assists the court in framing the appropriate scope of discovery and in determining whether plaintiff's discovery requests fall within that scope; and

(4) It enables defendants to form complete and well-reasoned defenses, ensuring that they need not wait until the eve of trial to effectively defend against charges of trade secrets misappropriation.

In the North American Lubricants case, the court gave some examples of improperly identified trade secrets. They were: the plaintiff's "business model," its "business plan," and "marketing materials."

Defendants in trade secrets cases should take one of two approaches to identification. First, it could move for some sort of sequencing of early discovery to require that the plaintiff paint a clearer picture of its claimed trade secrets. Second, it should serve an early interrogatory on the plaintiff that at least requires the plaintiff to respond first and embark on the task of identification.

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Court: United States District Court for the Eastern District of California

Opinion Date: 11/18/11

Cite: North American Lubricants Co. v. Terry, 2011 U.S. Dist. LEXIS 133672 (E.D. Cal. Nov. 18, 2011)

Favors: Employee

Law: Arizona