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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Does A Trade Secret Plaintiff Have To Disclose Its Trade Secrets Prior To The Commencement Of Discovery In California Federal Court?

Posted in Trade Secrets

By Joshua Salinas

As a follow-up to yesterday’s blog entry about a new California trade secret designation decision, another important issue that trade secret litigators face is whether the pre-discovery trade secret identification requirements of California Code of Civil Procedure section 2019.210 apply in California federal court.  There is a split in authorities but recent cases suggest that California federal courts will require at a minimum an identification of trade secrets by the plaintiff as part of a trade secret plaintiff’s Rule 26 disclosure or during the infancy of discovery.

In Jardin v. DATAllegro, No. 10-CV-2552-IEG (WVG), 2011 WL 3299395 (S.D. Cal. July 29, 1011), the Honorable Magistrate Judge William Gallo “wholeheartedly” agreed that section 2019.210 did not apply in federal district court.  Yet despite refusing to directly apply the statute, Judge Gallo’s pre-discovery trade secret identification order mirrored the procedures and policies provided in section 2019.2010.  Jardin epitomizes the growing trend in which federal district courts will require parties to identify trade secrets with particularity before commencing discovery, without explicitly applying section 2019.210.

Section 2019.210 requires a plaintiff to identify allegedly misappropriated trade secrets before commencing discovery.  The requisite pre-discovery identification helps serve four purposes: (1) promotes well-investigated claims, (2) avoid abuses of the discovery process, (3) frames the appropriate scope of discovery, and (4) enables the formation of complete and well-reasoned defenses.  Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp. 2d 980, 985 (S.D. Cal. 1999).

Jardin involved a dispute over the inventorship of U.S. Patent Number 7,818,349 (“Ultra-shared-nothing parallel database”).  Plaintiff Jardin had previously filed a related suit two years earlier against Defendant DATAllegro regarding the infringement of a different patent. Consequently, discovery in the prior case allegedly provided Jardin with access to DATAllegro’s confidential information.  Additionally, a protective order entered in the previous case limited the use of the produced protected information.  DATAllegro brought this issue to Judge Gallo, concerned that Jardin would improperly use confidential information from the prior case.

Judge Gallo found DATAllegro’s confidentiality concerns legitimate. Despite his explicit rejection of section 2019.210, Judge Gallo ordered that no discovery would take place until Jardin identified the allegedly misappropriated information.  In fact, Judge Gallo’s orders and underlying policy considerations mirrored section 2019.210.

Jardin objected to Judge Gallo’s order.

The Honorable Chief Judge Irma Gonzales upheld Judge Gallo’s order, finding nothing erroneous in his refusal to apply section 2019.210. Judge Gonzales noted that the Ninth Circuit has not decided whether section 2019.210 applies in federal court and California district courts continue to reach conflicting conclusions.  However, she stated that Federal Rule of Civil Procedure 26 provides district courts with broad discretion to control discovery. Thus, Judge Gallo could properly fashion his order after section 2019.210 without necessarily applying section 2019.210.

This case is significant because it illustrates the court’s movement toward applying the procedures and policies behind section 2019.210 while retaining their “inherent discretion to manage discovery.”

The Southern District court in Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp. 2d 980 (1999) was one of the first federal courts to directly apply section 2019.  That court recognized that the statute codified the holding in Diodes, Inc v. Franzen, 260 Cal. App. 2d 244 (1968), that pre-discovery trade secret identification is necessary to provide reasonable notice of the issues at trial and reasonable guidance in ascertaining the scope of appropriate discovery.  The Northern District in Neothermia Corp. v. Rubicor Medical, Inc., 345 F. Supp. 2d 1042 (N.D. Cal. Nov. 14, 2004) followed Computer Economics and directly applied section 2019.210.

The Eastern District in Funcat Leisure Craft, Inc. v. Johnson Outdoors, Inc., No. S-06-0533 GEB (GGH), 2007 WL 273949 (E.D. Cal. Jan. 29, 2007) was the first federal court to reject the direct application of section 2019.210.  That court found the statute to be a procedural rule that conflicted with the Federal Rules.

Since Funcat many district courts have continued to apply section 2019.210 either directly or indirectly. The Northern District applied the statute directly in M.A. Mobile LTD. v. Indian Inst. of Tech. Kharagpur, No. C08-02658 RMW (HRL), 2010 WL 3490209 (N.D. Cal. Sept. 3, 2010). The Southern District in Hilderman v. Enea Teksci, Inc., No. 05cv1049 BTM (AJB), 2010 WL 143440 (S.D. Cal. Jan. 8, 2010), rejected the direct application of section 2019.210, yet held that plaintiffs would be barred from presenting trade secret claims for failing to provide defendants with “fair notice.” Moreover, the court in Applied Materials, Inc. v. Advanced Micro-Fabrication Equipment (Shanghai) Co., Ltd., No. C 07-5248 JW PVT, 2008 WL 183520 (N.D. Cal. Jan. 18, 2008), declined to rule on section 2019.210 applicability, but required the plaintiffs to disclose the allegedly misappropriated trade secrets.

Jardin signifies this recent departure from Funcat’s complete elimination of section 2019.210 from federal court.  Indeed, federal courts should not ignore the purposes behind the statute as articulated in Computer Economics.  It is interesting to note that Jardin is from the same Southern District of California as Computer Economics. While Jardin refused to directly apply section 2019.210, it indirectly applied the statute with the same reasoning set forth in Computer Economics.

The Ninth Circuit has yet to resolve the dispute. However, in nSight, Inc. v. PeopleSoft, Inc., 296 F. App’x 555, 560 (9th Cir. 2008) (unpublished), it upheld the dismissal of a trade secret misappropriation claim because the plaintiff failed to identify any trade secret with “reasonable particularly” per section 2019.210.  While unpublished, and thus nonbinding, nSight may foreshadow the Ninth Circuit’s views regarding section 2019.210 applicability.

Moreover, the Eastern District in N. Am. Lubricants v. Terry, 2011 U.S. Dist. LEXIS 133672 (E.D. Cal., Nov 18, 2011) recently applied the rationale from Computer Economics regarding trade secret identification.  N. Am Lubricants involved a motion to compel for the plaintiff’s failure to identify trade secrets with sufficient particularity in response to an Interrogatory requesting said information.  The court noted that although the dispute did not involve section 2019.210, the court found the rationale in Computer Economics persuasive regarding the need for reasonably specific identification of claimed trade secrets in response to interrogatories at the outset of litigation.  It is notable that the decision was from the same magistrate who decided the Funcat case.

Trade secret defendants who find themselves in California federal court should request from plaintiffs the identification of any allegedly misappropriated trade secrets.  While some federal courts may not directly apply section 2019.210, the growing trend is for those courts to fashion orders to ensure that the policies of both Rule 26 and section 2019.210 are achieved and that there is a trade secret identification disclosure either before the commencement of discovery or at the infancy of the discovery process.  Thus, federal courts are more willing to either directly or indirectly use section 2019.210 because it is a helpful guideline to give defendants proper notice of the claims, enable complete defenses, guide proper discovery, and eliminate disadvantageous surprises at trial.