The following guest post comes from Berkeley Law Professor Peter S. Menell* who took on the pro bono task of assembling and managing a fabulous team of leading lawyers to create the Trade Secret Case Management Judicial Guide. The guide will quickly become leading the go-to source as Federal Judges manage their growing trade secrecy caseloads. The following is an introduction and request for comments. – D.C.
Guest post by Prof. Peter S. Menell*
As the knowledge economy expanded and concerns about trade secret misappropriation mounted in the digital age, federal policymakers undertook efforts to reinforce trade secret protection a decade ago. These efforts came to fruition with passage of the Defend Trade Secrets Act of 2016 (DTSA). This landmark legislation, modeled on the Uniform Trade Secrets Act, elevated and expanded trade secret law’s role in the federal intellectual property system. DTSA fully opened the federal courts to trade secret litigation as well as added several new features, including an ex parte seizure remedy and whistleblower immunity.
DTSA added to the large and growing federal caseloads. It also exposes more federal judges, relatively few of whom studied or litigated trade secret cases prior to their judicial appointments, to the distinctive challenges of trade secret litigation.
Origins and Design of the Trade Secret Case Management Judicial Guide
In 2019, as part of my work educating federal judges about intellectual property law and case management in conjunction with the Federal Judicial Center, I set out to assemble a team of leading practitioners, scholars, and judges experienced with trade secret litigation to develop a case management treatise to guide judges, litigators, in-house counsel, policymakers, scholars, and students in navigating this new and expanding terrain of federal intellectual property law.
David Almeling and Victoria Cundiff are two of the most experienced trade secret litigators in the nation. They have been instrumental in the Sedona Conference Working Group on Trade Secrets. Jim Pooley has long been the unofficial dean of the trade secret world—author of a leading trade secret treatise, experienced trade secret litigator and advisor, and former WIPO Deputy Director General. Peter Toren is an experienced criminal trade secret litigator who served for many years in the as a federal prosecutor with the Computer Crime and Intellectual Property Section of the Criminal Division of the United States Department of Justice where he served as Acting Deputy Chief. Professor Elizabeth Rowe litigated trade secrets cases before entering academia, where she has published numerous trade secret articles and co-authored the first trade secret law casebook. Professor Rebecca Wexler is a rising star in scholarship at the intersection of data, technology, and secrecy in the criminal legal system, with a particular focus on evidence law, trade secret law, and data privacy.
I brought experience as a contributor to DTSA (my research and reform proposal was the basis for DTSA’s whistleblower immunity provision), lead author of a widely adopted intellectual property casebook, lead author of the Patent Case Management Judicial Guide (PCMJG), and organizer of over 60 IP education programs for federal judges since 1998.
Using the PCMJG as a template—with chapters organized in the stages of litigation and guided by an early case management checklist—we have worked through countless drafts over the past three years in developing the Trade Secret Case Management Judicial Guide. We have now completed the draft and received comments from a Judicial Advisory Board. We have submitted the draft to the Federal Judicial Center for publication within its resource library for federal judges. We hope to complete that process this spring and welcome comments from practitioners and other members of the public in the interim. The public can access the guide at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4360102
Distinctive Features of Trade Secret Litigation
Trade secret litigation has both similarities with and significant differences from other types of civil and criminal litigation. It also parallels and differs from other types of intellectual property—patent, copyright, and trademark—litigation. Three such differences stand out: (1) the tensions surrounding protecting trade secrets over the course of litigation in public tribunals; (2) the high emotional level in many trade secret litigations; and (3) the potentially complex interplay between civil and criminal trade secret actions.
1. The Challenge of Identifying Trade Secret and Then Protecting Them throughout the Litigation
Perhaps the key difference relates to the subject matter: secrets. The secret nature of the information at issue poses significant challenges for case management because of public nature of federal litigation and freedom of expression. Patent cases also involve aspects of secrecy—such as unpublished patent applications that might bear on validity and business strategy related to damages—but trade secret litigation goes to the very heart of the cause of action: that the information that was allegedly misappropriated was not known or readily ascertainable.
Unlike a patent, which affords an exclusive right about the public, trade secrets are relative rights. While the trade secret owner will necessarily need to disclose the secret to some third parties, such as employees or commercial partners, to exploit it, once a trade secret is disclosed by the trade secret owner without restriction or is broadly revealed by third parties without authorization, it cannot be a secret. Those who learn of the secret through publicly accessible websites or publications are free to use that knowledge. The bell cannot be unrung. Moreover, those who independently develop information claimed by another as a trade secret are free to use and disclose it—so long as their development was in fact independent.
Trade secret disputes also present an early “identification” problem that differs from disputes arising over other forms of intellectual property. In patent, copyright, and trademark cases, the intangible resource has already been identified and registered with a regulatory body (or, in the case of unregistered trademarks, made public through use), and therefore can be publicly specified in the pleadings. The protected information claimed to be at issue in a trade secret case cannot be disclosed in public filings, however, without destroying the very subject matter of the plaintiff’s legal claim. Yet defendants need to know what the secrets are that they have allegedly misappropriated and the court needs to know what the case is all about to be able manage and decide it.
This produces three interrelated quandaries at the outset of trade secret case:
- Do the pleadings adequately set forth a cause of action under the familiar Twombly and Iqbal standards?
- When, how, with what level of specificity, and subject to what protective order provisions will the trade secret owner be required to reveal its trade secrets to the defendant?
- What is the boundary between protectable trade secrets and general knowledge and skill?
The first of these questions requires the plaintiff to provide more than vague, conclusory statements that restate the elements of a trade secret to survive a motion to dismiss. The second quandary often requires the court to assist the parties in customizing the discovery process to ensure that the trade secrets stay protected during the course of litigation while facilitating the exchange of sensitive information, often to competing business enterprise defendants. This typically entails fashioning an appropriate protective order that takes into consideration the trustworthiness of the various players in the litigation drama: counsel, litigants, employees, experts, and possibly others. Plaintiffs will understandably be concerned that the very effort to enforce their trade secrets could result in the loss of what may be their most valuable business assets. At the same time, defendants will want to know what they are accused of misappropriating. And the public (including journalists) will be interested in what may be high profile disputes affecting important industries. Consequently, courts will often be called upon to tailor and enforce protective orders and oversee the trade secret identification process.
The third question is primarily a question on the ultimate merits, although it may inform management of the first two. Its resolution will require the court and the ultimate factfinder to delve into the thorny question of where general knowledge and skill end and protectable trade secrets begin. This assessment inevitably involves an appreciation of the technologies or information at issue, which may be beyond the general knowledge of the court. The court and factfinder may need the assistance of experts to sort out these issues to determine liability and frame out the contours of any ultimate relief.
Compounding these challenges, trade secret owners often seek immediate equitable relief to prevent the defendant and third parties from using or disclosing a trade secret before trial. Yet, for the reasons noted above, the contours of the alleged trade secrets and any improper encroachment upon them will often be difficult to assess with precision before there has been sufficient discovery to reveal what information is at risk and to fully test claims of misappropriation. And defendants will fear that early equitable relief on an incomplete record will interfere with their business operations.
Moreover, the secrecy imperative runs through the entire litigation process, not simply the pleading stage. The court must take care to ensure that hearings and filings with the court during the pretrial and trial stages do not disclose trade secrets to the general public. In enacting the EEA, of which the DTSA is now a part, Congress recognized that victims of trade secret thefts could face a dilemma between reporting the matter to law enforcement and concerns that the trade secret will be disclosed during discovery or during a criminal trial. To alleviate this concern, the Act authorizes the court “to enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets.” 18 U.S.C. § 1835(a). At the same time, the court must balance the public’s interest in knowing about civil and criminal proceedings against the trade secret owner’s right to limit access to the trade secrets themselves.
2. High Emotional Quotient
Complicating all of these issues is the fact that many trade secret cases are hotly contested battles that have the emotional intensity of child custody cases. Many trade secret cases pit a business enterprise against business partners, former employees, and contractors who have left the business to form or work for a competing enterprise. In some cases, the former associates are actual family members. But even if not related by blood or marriage, the ties between the plaintiffs and defendants can run deep. Co-founders of companies often have deep and continuing personal, financial, and social bonds. And the alleged misappropriation represents not just a competitive injury but a betrayal of sacred trust. The trade secrets are the product of countless hours devoted to a shared enterprise. They are the intellectual offspring of a joint relationship. The departure of a business associate or former employee can be like the dissolution of a marriage. And where the former colleague competes with the prior business, it can feel like an extreme form of disloyalty.
Trade secret protection can become intertwined with noncompetition agreements and other contractual restraints on the activities of former business associates and employees. The enforceability of such restraints on trade varies according to state law. Even where permitted, such restraints are typically required to be narrowly tailored to protect only legitimate interests, including trade secrets. Absent enforceable noncompetition agreements, employees are generally free to take their general knowledge and skill with them, even to competing enterprises. But therein lies one of the difficulties alluded to above: distinguishing protectable trade secrets from general knowledge and skill.
A second challenging tension may arise if an employee or contractor believes that an employer is engaged in unlawful activity. The employee might plan or be reporting sensitive information to the government as part of a False Claims Act case or other whistleblower action. In such cases, there is a risk that the plaintiff may use a trade secret claim to attempt to silence the whistleblower and gain backdoor discovery of what the government might be investigating. To guard against this overreach, the DTSA immunizes whistleblowers from liability under federal and state trade secret law for disclosure, in confidence, of trade secrets to government officials and attorneys solely for the purpose of reporting or investigating a suspected violation of law.
Another sensitive and difficult pattern relates to economic espionage cases in which the claim is made that an organization, potentially backed by a foreign government, has embarked upon a scheme, sometimes years in duration, to acquire trade secrets to assist development of a competing business or industry. These concerns can lead to both civil and criminal cases and have become more common and salient with growing concerns about international, sometimes state-backed espionage. These cases can be especially difficult to investigate and prosecute as a result of the discovery and jurisdiction impediments posed by international borders and the challenges posed by encrypted digital files. Some may pose concerns relating to sovereign immunity as well as diplomatic issues.
As a result of these patterns, judges in such cases may have to deal with especially high levels of distrust and willingness to escalate the litigation for business, personal, and criminal liability reasons.
3. The Interplay of Civil and Criminal Proceedings
Criminal trade secret investigations or suits are often known or anticipated to be underway during the pendency of a civil proceeding involving trade secrets. Both the government and the defendant in a civil case may have reasons for seeking a stay of the civil proceedings pending resolution of the criminal case. The government may seek a stay of the civil proceeding or of discovery in the civil proceeding to prevent interference with its investigation. The defendant may seek a stay to avoid having to invoke the Fifth Amendment during an active criminal investigation. On the other hand, the plaintiff in a civil case may want to pursue its claim expeditiously. Although most “garden variety” trade secret disputes do not include a criminal component, these are just some of the tensions that courts and litigants need to navigate when dealing with potentially parallel civil and criminal proceedings.
Using the Guide
Trade Secret Primer: Chapter 2 provides a comprehensive overview of trade secret law, tracing its legal sources, history, requirements, whistleblower immunity, defenses, and remedies. It then contrasts trade secrets with other forms of intellectual property, surveys common coincident claims and international aspects.
Early Case Management. Building upon Chapter 2’s survey of trade secret law, Chapter 3 frames the critically important early case management phase and sketches a flexible plan for the initial case management conference. Trade secret litigation typically unfolds quickly, often with the trade secret owner seeking preliminary equitable relief. The court must be ready to assist the parties in crafting a protective order, trade secret identification process, and a discovery plan. Chapter 3 offers a detailed checklist for guiding early case management and a suggested case management order that will anticipate common litigation challenges and facilitate the exchange of information, scheduling of trial stages, and promotion of efficient resolution of the case through litigation or settlement.
Trade Secret Identification. Chapter 4 guides the court through the nuanced process of identifying the trade secrets: the nature of the identification process (a procedural rule, not a merits determination), the timing of identification, the format for trade secret identification, the particularity of identification, access to the identification, and amending the identification. This issue is unique to trade secret law and thus this chapter focuses on a process that may be new to those adjudicating or litigating a trade secret case for the first time.
Preliminary Relief. Chapter 5 discusses the legal standards for evaluating requests for pre-trial equitable relief and expedited discovery in furtherance of such requests, provides examples of evidence that has been found to weigh in favor of or against pre-trial equitable relief, and offers guidance in framing orders granting equitable relief and in managing the entire process, including conducting post-hearing case management conferences following resolution of requests for preliminary equitable relief. It includes templates, tables illustrating relevant evidence, and illustrative orders.
Discovery. Chapter 6 presents the distinctive challenges of discovery in trade secret cases. It examines common discovery mechanisms, protective orders, dealing with the particular types of records often arise in trade secret cases (such as forensic images of devices, source code, employee records, and personal vs. work accounts and devices), management of disputes (including requests to seal documents), discovery from international sources, and common discovery motions. It also discusses the challenging question of how to balance the presumption of open access to the courts and court record with the need for owners of trade secrets to protect the secrets from public disclosure to avoid their destruction.
Summary Judgment. Chapter 7 addresses the summary judgment phase of trade secret litigation. Recognizing that many of the core issues in trade secret litigation are fact intensive, it addresses burdens of proof, the amenability of particular substantive issues to summary adjudication, expert declarations, and useful ways of managing and streamlining the summary judgment process and conducting summary judgment hearings.
Experts. Chapter 8 explores the role of experts in trade secret litigation. It first examines the principal areas in which experts are used and then discusses the court’s gatekeeper role in preventing unreliable expert testimony from being considered by the jury.
Pre-Trial Case Management and Trial. Chapter 9 assists courts in managing the lead up to trial, covering the pretrial conference. Chapter 10 then maps out the distinctive issues that frequently arise in trade secret cases, including late pretrial motions, jury pre-instruction, burdens of proof and persuasion, managing confidentiality in the courtroom, motions for judgment as a matter of law, jury instructions and verdict form, injunctions after trial, and exemplary damages and attorney’s fees.
Criminal Trade Secret Case Management. Chapter 11 presents the substantive law and case management issues associated with criminal trade secret prosecutions. It includes detailed discussion of the elements of proof, identifying the trade secrets, venue, defenses, confidentiality (including protective orders, trade secret owner participation, and cooperation between the government and the victim), extraterritorial application, whether to stay a parallel civil case, and sentencing/penalties.
Call for Comments
Please send comments to me at firstname.lastname@example.org.
* Koret Professor of Law; Director, Berkeley Center for Law & Technology; Faculty Director, Berkeley Judicial Institute; University of California at Berkeley School of Law.