More Guidance On Pre-Discovery Trade Secret Disclosures

A central issue in all trade secret litigation is the adequacy of plaintiff’s pre-discovery disclosure of the alleged trade secrets. The Fourth District Court of Appeal has contributed to the growing body of case law interpreting the adequacy of the initial trade secret disclosure required by California Code of Civil Procedure section 2019.210. (Perlan Therapeutics v. Superior Court of San Diego County (November 4, 2009), 178 Cal.App.4th 1333.) Section 2019.210 provides that a plaintiff suing for misappropriation of trade secrets must identify the alleged trade secrets with “reasonable particularity” before commencing discovery. The Perlan decision joins two other recent decisions evaluating the particularity required in the plaintiff’s trade secret disclosure. (See Brescia v. Angelin (2009) 172 Cal.App.4th 133 and Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal.App.4th 826.) The Perlan court analyzes the Brescia and Advanced Modular decisions in addressing critical procedural and substantive questions.

Perlan sued its former employees, alleging they misappropriated trade secrets related to protein-based therapeutics for viral infections. The trade secret statement at issue was actually plaintiff’s second attempt to comply with section 2019.210. The plaintiff’s section 2019.210 statement began with boilerplate objections similar in nature to written objections, which in no way attempted to comply with the requirements of section 2019.210. The remainder of the statement repeated the narrative information alleged in the complaint with some limited additional technical information. However, the court found that additional technical information was very general in nature and was also publicly available. Although plaintiff’s statement contained highly-technical language, the court noted that the technical language “does not provide specific identifications of the peptides or reagents used in the process.” (Id. at 1338.) In addition to the general descriptions, plaintiff apparently referenced 50 additional documents related to the alleged inventions and included a catchall clause that the trade secrets included “all related research, development, advances, improvements, and processes related thereto.”

The defendants attacked the amended trade secret statement, stating that it “remains a non-committal collection of loosely worded conclusory allegations.” Defendants demanded a clear explanation of the particular substances and processes at issue, arguing that plaintiff’s descriptions were not reasonably particular and were not sufficient as to distinguish that information the description from matters generally known in the scientific field.

The purpose of section 2019.210 has been outlined by the court in Advanced Modular. Those four purposes include: (1) promoting well-investigated claims and discouraging the filing of meritless trade secret complaints; (2) preventing plaintiffs from abusing the discovery process to learn about defendants’ trade secrets; (3) framing the issues in order to place reasonable limitations on discovery from defendants; (4) allowing defendants to formulate well-reasoned defenses and not have to wait until the eve of trial. (Id. at 1343, citing Advanced Modular, supra, 132 Cal.App.4th at 833-34.)

The Perlan court analyzed what has been described as the “’ubiquitous’ problems of litigating the appropriate scope and timing of trade secret identification.” (Id. at 1344.) Plaintiffs rarely provide detailed descriptions of the alleged trade secrets without court order. They do so for numerous reasons, some more legitimate than others. Plaintiffs do not want to be tied down early on in the litigation in the hope of amending or refining their contentions as the litigation and discovery progress. Plaintiffs also have the legitimate concern that, in the event defendants did not completely misappropriate their trade secrets, a detailed description in the section 2019.210 statement will give defendants the valuable element they did not steal. Plaintiffs are also justifiably concerned that the detailed disclosure might somehow be leaked to the public, thereby depriving plaintiffs of the economic value of the trade secret.

The trial court in Perlan held that plaintiff’s amended statement failed to describe the alleged trade secret with reasonable particularity and failed to demonstrate that the information disclosed was not generally known to the public. The appellate court affirmed the ruling and relied on the prior decisions in Advanced Modular and Brescia in doing so. The Perlan decision is useful in that it summarizes both the procedural issues related to the appellate review as well as the substantive issues relating to the adequacy of the disclosure.

The Perlan court held that the adequacy of a section 2019.210 statement is a discovery issue and discovery rulings are reviewed for an abuse of discretion, citing Scripps Health v. Superior Court (2003) 109 Cal.App.4th 529, 533. However, the court in Advanced Modular and in Brescia reviewed the legal questions de novo, and the plaintiff in Perlan argued that the Court should do the same. The Perlan court noted that Advanced Modular and Brescia correctly applied the de novo standard of review, but only because the trial courts in those cases applied an improper legal meaning of “reasonably particular.” In Advanced Modular, the trial court erroneously weighed the conflicting testimony from a competing expert and, in Brescia, the trial court conducted a mini-trial seeking an explanation how the trade secrets which Brescia had described with precision differed from publicly-available information. Those trial courts applied an incorrect interpretation of “reasonable particularity,” which those appellate courts correctly reviewed de novo. However, the Perlan court found that the trial court had applied the correct legal standards and, therefore, it was obligated to review the decision under the abuse of discretion standard.

The Perlan court noted that neither Brescia nor Advanced Modular provides an easy answer to the substantive question of whether the plaintiff’s statement was sufficiently detailed. Advanced Modular held that the section 2019.210 disclosure does not require “every minute detail” of the trade secret or the “greatest degree of particularity possible.” (Advanced Modular, supra, 132 Cal.App.4th at 835-36.) Section 2019.210 also does not require a mini-trial on the merits of the misappropriation claim before discovery can begin. However, the Advanced Modular court also held that, where “the alleged trade secrets consist of incremental variations on, or advances in the state of the art in a highly specialized technical field, the more exacting level of particularity may be required to distinguish the alleged trade secrets from matters generally known to people skilled in the field.” (Id. at 836.) The Advanced Modular court went on to hold that the trial court applied the wrong legal standard in weighing the conflicting testimony of experts as to whether the section 2019.210 disclosure, although reasonably particular, actually disclosed information not generally known to the public. In that context, the court held that the trial court committed reversible error in improperly weighing the conflicting testimony of the parties’ respective experts.

In Brescia, the plaintiff claimed a trade secret in its pudding formula and manufacturing process and disclosed the precise recipe and process in its section 2019.210 disclosure. Despite this exacting disclosure, the trial court found that Brescia’s disclosure was silent on the question of whether the recipe was known to persons knowledgeable in the field. The appellate court disagreed, holding that section 2019.210 does not create a mechanism by which a defendant can litigate the ultimate merits of the case – for example, whether the precise formula at issue was actually a trade secret. The precise recipe identified by Brescia was certainly sufficient to allow a defendant to formulate a defense and to investigate whether the recipe was within the public domain and was, therefore, not a trade secret.

After reviewing this precedence, the Perlan court found that plaintiff’s trade secret designation did not comply with the standards of section 2019.210 in that the statement was not “succinct” because it contained numerous pages of surplusage, including objections, qualifications, allegations, and references to hundreds of pages of documents. The Perlan court held that the exactitude used by plaintiff in Brescia in reciting its exact pudding recipe was not legally required by section 2019.210, but certainly more specificity was required of the plaintiff. The court found that a highly-specialized technical field like this one does require a more exacting level of particularity to describe the trade secret and to identify what is known to persons knowledgeable in the field, citing Advanced Modular.

The lessons to glean from Perlan is that the section 2019.210 statement must describe the alleged trade secret concisely and with clarity, but need not include “every minute detail.” If more than one trade secret is alleged, the individual trade secrets must be segregated and not blended together. The section 2019.210 statement should further describe how the trade secrets differ from publicly-available knowledge. Lastly, the disclosure must not contain unnecessary surplusage and should avoid documents that require the court and the defendant to guess which specific reference might constitute the alleged trade secrets. As the court stated, “Perlan [is not] entitled to hide its trade secrets in ‘plain sight’ by including surplusage and voluminous attachments in its trade secret statement.” (Perlan, supra, at 21.)

The Perlan decision includes a final discussion that should impact a litigant’s decision on whether to seek writ relief related to the adequacy of the section 2019.210 disclosure. The plaintiff in Perlan argued that it would suffer undue prejudice if forced to disclose the additional information about a trade secret before commencing discovery. The appellate court was not sympathetic, finding that once discovery commences, plaintiff will be required to provide responses to interrogatory and document demands that will require disclosure of the alleged trade secrets in exacting detail. The tactical advantages concerning when the detailed information was provided is generally not sufficient to warrant extraordinary appellate relief. That reasoning would apply equally to a defendant contemplating extraordinary relief. A defendant can always obtain detailed information later by way of interrogatories, requests for admission, and document demands, and the tactical advantage of having the plaintiff disclose the alleged trade secret with more detail at the outset generally should not warrant extraordinary relief.