Alleging the Existence of a Trade Secret in a Misappropriation Case

In analyzing whether to grant the motion to dismiss, the court is faced with some fundamental questions: How much detail does it take to allege a trade secret under federal pleadings standards? Can the alleged trade secret be described generally in the complaint? Or must it be described in detail, so as to give the defendant notice of what exactly is at stake in the case? Courts are often inconsistent in the answers, and many decisions across the federal districts are in conflict. This article analyzes the various considerations that inform a court's viewpoint on the issue; ultimately, one of these viewpoints tends to make its way to the final written opinion. Lawyers who litigate trade secret cases should be well-aware of these considerations.

Start with the Rules: FRCP 8

The starting place for understanding what this article calls the trade secret pleadings “detail dilemma” are the Federal Rules of Civil Procedure. Rule 8 merely requires “a short and plain statement of the claim showing the pleader is entitled to relief.” Under the pleadings standard set forth by the United States Supreme Court in Ashcroft v. Iqbal, a complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. 662, 678 (2009). Under the Iqbal standard, a mere conclusion as to a trade secret does not suffice for “sufficient factual matter”; a plaintiff cannot merely allege that it “has a trade secret” that “is valuable” and was ultimately “stolen.” But, how much more factual detail is required?

The Language of the DTSA and Inconsistent Judicial Approaches

In order to answer this question, one must understand the DTSA's language. The DTSA defines a “trade secret” as “all forms and types” of “financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes. …” Often, a plaintiff will use these DTSA statutory buzzwords in the Complaint. For example, a plaintiff may allege that its proprietary trade secret consists of “business strategic plans, formulas and procedures regarding its secret customer pricing processes.” This sentence, arguably nonsensical, uses five different DTSA trade secret buzzwords. It is a good example of many complaints that are filed today, where little more than the DTSA statutory catchphrases are listed as “examples” of the plaintiff's trade secrets. Certainly, this is more than a bald conclusion as to the existence of a trade secret, but perhaps not much more. Is it enough to merely allege categories of information as the alleged trade secret?

For some courts, the answer is yes, and for other courts, the answer is no. And this inconsistency is often manifested within the same judicial district. Compare, McNamee v. MinXray, Inc., No. 17 C 02057, 2017 WL 6039960, at 4 (N.D. Ill. Dec. 6, 2017) (“With regard to the proprietary information at issue, courts in this District have held that trade secrets need not be disclosed in detail in a complaint.”) (internal quotations omitted); with GlobalTap LLC v. Elkay Mfg. Co., No. 13 C 632, 2015 WL 94235, at 6 (N.D. Ill. Jan. 5, 2015) (“The court cannot analyze whether a piece of information was sufficiently secret to derive economic value or whether [the plaintiff] took reasonable efforts to keep information secret without first knowing, with particularity, what information comprises the secret.”). And, to make matters more confusing, certain courts take a hybrid approach: not requiring a party to describe the actual trade secret in detail, but the party must use more than DTSA statutory catchphrases and describe the subject matter of the trade secret with particularity. See, Nelson Bros. Prof'l Real Estate LLC v. Jaussi, No. SACV170158DOCJCGX, 2017 WL 8220703, at 5 (C.D. Cal. Mar. 23, 2017) (“A party in a trade secrets case does not have to spell out the details of the trade secret, but the party does need to describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade … and to permit the defendant to ascertain at least the boundaries within which the secret lies.”) (internal citations omitted).

The Public Policy Battle: Confidentiality vs. the Burden on Employees

The competing judicial approaches to the trade secret “detail dilemma” undoubtedly balance important public policy concerns for each side in a DTSA case. For plaintiff employers, there is a public policy in favor of protecting a business' intellectual property and not putting a burden on the employer to publicly share details about its private, closely-guarded trade secrets. After all, the essence of a trade secret is two things according to the DTSA: 1) the information derived economic value from not being “generally known”; and 2) the “owner has taken reasonable measures to keep such information secret.” 18 U.S.C. §1839(3). Courts that allow broad, general allegations as to the trade secret often invoke this principle. See, e.g., You Fit, Inc. v. Pleasanton Fitness, LLC, No. 8:12-CV-1917-JDW-EAJ, 2012 WL 12905186, at 8 (M.D. Fla. Dec. 20, 2012) (“[C]ourts are in general agreement that trade secrets need not be disclosed in detail in a complaint alleging misappropriation for the simple reason that such a requirement would result in public disclosure of the purported trade secrets.”) (Internal citations omitted).