By: Richard C. Darwin, Esq.
Let’s assume the worst has happened: a key employee just walked out the door to join a competitor, and your investigation reveals that he or she removed valuable, confidential information from the company. To protect your company or client from harm and to maintain the integrity of its trade secrets, the decision has been made to file a lawsuit. As you (or your outside counsel) contemplate the claims and allegations to include in the complaint, here are some tips on how to avoid mistakes in crafting and pleading a trade secret misappropriation action.
1. Describe the trade secret. So long as you can do it without publically disclosing the trade secret itself, identify the trade secret with specificity. Do not rely on generalities. Multiple courts in California have granted motions to dismiss trade secret claims where the complaint failed to provide facts and information sufficient to explain why the stolen information was unique, valuable and confidential. The recent case of Synopsis, Inc. v. ATopTech, Inc. (N.D. Cal., October 24, 2013, Judge Conti), is a good example of what can happen if your trade secret claim is premised on conclusory allegations. Describing the trade secret(s) with particularity will also help you avoid delays to the discovery process based on the trade secret disclosure requirements in C.C.P. Section 2019.210.
2. Explain efforts to maintain the confidentiality. Use as much detail as possible to describe the steps taken to keep the information at issue secret, e.g., the use of nondisclosure agreements, password-protected computers and networks, and “confidential stamps” on sensitive documents and files. Again, using generalities subjects you to the unnecessary risk of demurrer or a motion to dismiss.
3. Avoid the preemption trap. The California Uniform Trade Secret Act preempts any common law cause of action premised upon the same nucleus of facts giving rise to the trade secret claim (it does not preempt statutory or contractual remedies). Currently the courts are all over the place in terms of the proper scope and application of CUTSA preemption. For example, compare Silvaco Data Systems, Inc. v. Intel Corp., 184 Cal.App.4th 210 (2010) and Anheuser-Busch Companies LLC v. Clark, 2013 WL 3788426 (E.D. Cal. 2013) which both take a broad view of CUTSA preemption, with Angelica Textile Services Corp. v. Park, 220 Cal.App.4th 495, 505-508 (2013), in which the court utilized a much narrower interpretation. Nonetheless, why take the risk of your case getting hung up at the pleading stage? That is exactly what happened in the Synopsis case referenced above, in which the plaintiff found itself in a pleading quagmire when its trade secret claim was dismissed based on a lack of specificity, and the court found its cause of action for “common law misappropriation” was preempted under CUTSA. Make yourself familiar with the details of the preemption doctrine before you draft the complaint. A thoughtful and carefully pled pleading can avoid the preemption trap altogether.
4. Consider exemplary damages under Civil Code § 3426.3(c). If you are aware of facts indicating that the former employee(s) acted maliciously and with an intent to cause harm to your company, including “willful and malicious” allegations under § 3426.3(c) will give you the opportunity to pursue double damages and to recover your attorneys’ fees. In an interesting case recently issued out of the Eastern District of California, the court awarded exemplary damages against a defendant under § 3426.3(c) even where the operative “bad” conduct actually had little to do with the act of misappropriation itself. See, Patriot Rail Corp. v. Sierra Railroad Co., (E.D. Cal. October 23, 2014, Judge Nunley).
As a general rule, when you have a good case on the facts, let the narrative speak for itself, and don’t let your case get caught in the quicksand of pleadings motions.
