Your Vice President of Product Design just left for your worst rival, and he took an entire team of designers and engineers with him. Before this band of traitors left, they printed thousands of pages of important documents and your head of IT tells you that computer forensics demonstrate that they copied nearly a terabyte of data onto flash drives and portable hard drives, all of which have mysteriously vanished. Worst of all, a number of the traitors erased their work computers, so you have lost months worth of their work product.
This seems like an open and shut case of trade secret misappropriation. You call your friend at Big Law Firm, and, after a few meetings, and a hundred thousand dollars of legal bills, you are in front of a District Court Judge in the United States District Court for the Northern District of Illinois. The partner from Big Law Firm that you hired is arguing your motion for preliminary injunction; explaining that the treasonous former employees should be discharged from their new positions at your competitor immediately, and not be allowed to work in the field for at least five years. Your counsel is just getting into how your rival will need to open up their network, as well as the business and personal computers of all it’s officers, when the Judge interrupts.
“Counsel, I reviewed your complaint and the briefs. One thing I cannot find anywhere is a description of what trade secret or trade secrets you actually claim that the defendants misappropriated. Can you tell me where I might find those?”
Before your eyes the argument shifts from how the thieving ex-employees and your rat rival should be punished, to your rival’s motion-to-dismiss. Fifteen minutes later, you listen with horror as the Judge denies your motion for preliminary injunction and dismisses your Complaint for failing to identify the specific trade secrets at issue.
An hour later, in the conference room of Big Law Firm, your hired partner is explaining your options to you:
“Our complaint was dismissed without prejudice, so we could just re-file the complaint with a bit more detail describing the actual trade secrets,” the partner says.
This goes against every measure of common sense. “If we describe our trade secrets in the complaint, where anyone can read it, won’t they stop being our trade secrets?” you say to the partner.
“That is a risk that you run for sure. Another option would be to immediately appeal this decision. We have that right, and it would be a great opportunity for you to show the Defendants how serious you are about this case. And one of our partners is the former Solicitor General; any arguments that she makes will be considered very carefully by the Seventh Circuit.” The partner pauses there for a bit, and looks you right in the eye. “It won’t even be that expensive. Given that your company is such a good customer, I am sure we can discount our rates so that the entire appeal will only cost a bit more than $1 million.”
Shortly thereafter you terminate the meeting. On the walk back to your office, you call your assistant. “George…get me a list of other law firms to handle the rest of this trade secret fiasco. We are firing Big Law Firm.”
Why Did the Court Dismiss Your Complaint?
At this point, you are probably wondering how the result above – a denied motion for preliminary injunction, a dismissed complaint, and a hundred thousand dollars in wasted legal fees – could have been avoided? And the answer, unfortunately, comes from understanding and embracing that trade secret litigation faces plaintiffs with a classic catch-22: in order to litigate, and protect, your trade secret, you need to describe the trade secret in enough detail so that the judge overseeing your case can actually understand that there is a trade secret. Segerdahl v. Ferruzza, Case No. 2017-CV-3015 at *4 (N.D. Ill. Feb. 10, 2018)(merely listing categories of information is not sufficient to survive a motion to dismiss); Covenant Aviation Security v. Berry, 15 F.Supp.3d 813, 818 (N.D. Ill. 2014)(all Plaintiff needs to do is identify the protected information in general terms); Mission Measurement v. Blackbaud, 216 F.Supp.3d 915, 921 (N.D. Ill. 2016)(identifying specific types of information, such as specialized methods, design specifications, business plans and product development plans sufficient); Carpenter v. Aspen Search Advisers, Case No. 2010-CV-6823 at *3 (N.D. Ill. Apr. 5, 2011)(trade secret counts dismissed because no specific allegations about nature of confidential information); Thermal Zone Products v. Echo Engineering, Case No. 1993-CV-556 at *5 (N.D. Ill. Sept. 14, 1993)(trade secret count dismissed because no specific allegations about the confidential data – only broad allegations about cooking oven documentation). However, if you reveal too much about the trade secret, the public disclosure of the trade secret will lead to the trade secret being destroyed. Ruckelshaus v. Monsanto, 467 US 986, 1011 (1984)(“Once the data that constitute a trade secret are disclosed to others, or others are allowed to use those data, the holder of the trade secret has lost his property interest in the data.”).
Accordingly, trade secret plaintiffs must walk a fine line. Below are a few strategies for litigating trade secret cases without giving your competitors a free look at your hard won trade secrets.
File the Case Under Seal
One tactic that comes to mind is just filing the complaint under seal. When a document is filed under seal, it is not placed on the public record, and the public cannot access it. Accordingly, a plaintiff can simply describe its trade secrets in extreme detail in the complaint, file the complaint under seal, and avoid any issue with a motion-to-dismiss. Simple, right?
This approach ignores a few important issues. First, when you initially file a case, you may not know what all of the stolen trade secrets are. Accordingly, you may end up spending a lot of time (and attorneys’ fees) putting together a detailed description of your pilfered trade secrets only to realize that your former employees made off with additional, or altogether different, trade secrets. When you find this out, you could potentially have to file an amended complaint, which will cost you even more attorneys’ fees.
More importantly, if you filed the complaint under seal, the other side is free to challenge whether the complaint should properly have been filed under seal. Undoubtedly, you will have arguments that it should have been filed under seal – you have set your trade secrets forth in detail. However, the other side can challenge this designation. In fact, if the other side’s attorney is on the ball, your rival will challenge the filing of the complaint under seal as improper. And, if you lose, the result will be that the complaint will be unsealed and published on the public docket for all to see. The trade secrets contained therein will be destroyed, along with your case.
Accordingly, this option – filing the complaint under seal – is generally a bad one.
Set Forth the General Outline of the Trade Secret
A popular approach is to describe the general outlines of the trade secret without specifying what the actual trade secret is. For example, a typical trade secret pleading in line with this approach might look like the following:
XX. The trade secret at issue in this matter consists of a specific way that a concrete frame is constructed, and in particular, consists of design parameters for a special tool that is used during the initial stage of constructing the concrete frame, prior to the actual pouring of concrete.
This approach embraces the catch-22 of trade secret litigation head on, and attempts to convey to the Judge that a trade secret actually exists without describing the trade secret in such detail that the secret is destroyed.
This is generally the approach that leading trade secret attorneys recommend. However, the success of such an approach cannot be guaranteed.
If this approach should fail, and the Judge should determine that more detail is required – a determination that is often made at a Preliminary Injunction Hearing – you have the option of trying to describe the trade secrets with more detail (while still avoiding disclosing the contents of the trade secrets), or transitioning to the third approach.
Set Forth a Broad Description of the Trade Secret and Stall…and Forget About a Preliminary Injunction
The last approach side steps the catch-22. Effectively, the Plaintiff pleads an extremely broad description of the trade secret or secrets at issue in the litigation, and dares the defendant to file a motion-to-dismiss. Many budget conscious defendants will not even raise the motion-to-dismiss. And for those that do, pretty much every judge will allow at least one opportunity to file an amended pleading, and most will allow several – some will allow a seemingly endless parade of amended complaints. In addition, most judges embrace the proposition that, while a concrete description of a cause may be vital early in the litigation, as a lawsuit progresses, the details of what the case is about is more the subject of discovery than the complaint. Nouis Technologies v. Polaris Industries, Case No. 14-CV-233 (W.D. Wis. May 27, 2015)(while plaintiff is probably correct that pleadings are insufficient, given that discovery is available, it would be a waste of time to make the Defendant replead).
A trade secret pleading in line with this approach might look like the following:
XX. The trade secrets at issue in this matter include compilations of information relating to Plaintiff’s business methods and practices, such as compilations of industry data; compilations of standard operating procedures and process maps, and proprietary quality management system documentation; and compilations of the various legal requirements in areas where Plaintiff competes.
The point of such a pleading is to literally give away no information at all to your rival, while still maintaining a good-faith argument that information sufficient to identify the trade secret (or secrets) at issue in the litigation has been pleaded. Even if a motion-to-dismiss is filed, discovery, and the lawsuit, will proceed – at least forums such as the Northern District of Illinois, where motions to dismiss pursuant to Rule 12(b)(6) do not hold discovery. While discovery proceeds, the Plaintiff can negotiate a protective order, disclose its trade secrets in detail via the standard discovery process – perhaps even under an Attorneys’ Eyes Only (AEO) designation, and, when it comes time to argue the motion-to-dismiss, make the case that the motion has been mooted because the trade secrets have now been disclosed to the Defendants in detail through the discovery process.
The main negative of this approach, of course, is the risk of your Judge denying a preliminary injunction for the failure to disclose the trade secrets. However, depending on the objectives of the litigation, this can be a reasonable approach.
Trade secret litigation is challenging and filled with numerous land mines. One of the biggest challenges facing trade secret plaintiffs is how to keep trade secrets secret during the lawsuit. If you are concerned about this issue, or you are seeking to prosecute or defend a trade secret lawsuit in the Northern District of Illinois or anywhere else in the United States, turn to a trade secret attorney Chicago trusts. Our attorneys have litigated numerous trade secret cases for clients around the world, and can help you with your trade secret and intellectual property needs. Reach out to us today, and we will quickly setup a time when you can speak to an attorney.
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The Law Offices of Konrad Sherinian, LLC