Ninth Circuit Holds Trade Secret Claims Under the DTSA Do Not Need to Be Fully Defined at the Start of Litigation

The U.S. Court of Appeals for the Ninth Circuit provided important guidance regarding pleading standards for claims under the Defend Trade Secrets Act (DTSA) in Quintara Biosciences, Inc. v. Rufeng Bitztehc, Inc.¹ The opinion clarified that plaintiffs are not required to fully define their trade secrets at the outset of a case. Instead, the court emphasized that identifying trade secrets is often a gradual process that develops through discovery.

Background

In Quintara, after the parties’ business relationship ended, the plaintiff brought, among other counts, a claim for misappropriation of trade secrets under the DTSA, but no California Uniform Trade Secrets Act (CUTSA) claims.

Early in discovery, the defendant moved for a protective order to halt discovery until the plaintiff further specified its trade secrets under state and federal law. Relying on California state law, and specifically Cal. Civ. Proc. Code section 2019.210, the district court ordered the plaintiff to explain what each trade secret was, why it was valuable, and how it was kept secret, and to provide a detailed breakdown of each secret, similar to how patent claims are structured. The plaintiff provided a revised disclosure with expanded descriptions, but the defendant argued it was still too vague. The district court agreed and struck nine of the 11 trade secrets forming the basis of the plaintiff’s claim.

Ninth Circuit’s Ruling

On appeal, the Ninth Circuit reversed the district court’s decision, holding that the plaintiff’s trade secret disclosure was not a pleading and therefore could not be struck under Federal Rule of Civil Procedure 12(f), which is intended for improper or irrelevant content in formal pleadings. 

Next, the Ninth Circuit reviewed whether dismissing nine of the plaintiff’s trade secrets at the outset of discovery was an appropriate discovery sanction. It found that the delay in discovery caused by the motion to strike was minimal and did not significantly impact the court’s schedule. At the time of dismissal, two months of discovery remained, and trial was still six months away. The court noted that the defendant was not prejudiced, as both parties had chosen to litigate the issue of trade secret disclosure. Dismissing the claims before discovery had progressed prevented the issues from being fully developed and resolved on the merits. The court further observed that less-drastic alternatives were available, such as issuing a protective order to limit discovery. Importantly, the plaintiff had not been given notice that its amended disclosure would be treated as its final opportunity to define its trade secrets.

In reaching its decision, the Ninth Circuit recognized the delicate nature of trade secret cases, where each party has an interest in protecting its respective trade secrets, which often requires an ongoing discovery process to define the trade secrets at issue with sufficient particularity. The Ninth Circuit noted that unlike the CUTSA, the “DTSA does not require a plaintiff to identify with particularity its alleged trade secrets from the start.” The court stated it would be rare for a trade secret claim to be dismissed as a discovery sanction early in the litigation, before the parties had an opportunity to conduct discovery to refine and clarify the identification of trade secrets at issue, and whether something constitutes a “trade secret” under the DTSA is a question of fact and, therefore, usually a matter for summary judgment or trial.

Takeaways

The Ninth Circuit made it clear that under the DTSA, plaintiffs do not need to identify their trade secrets with particularity at the very start of a case. Instead, courts should allow a step-by-step discovery process to help clarify and refine what the trade secrets are. Additionally, parties should focus on managing discovery through protective orders or targeted motions, rather than seeking early dismissal of trade secret claims, as whether information qualifies as a trade secret is a fact-intensive question, typically resolved at summary judgment or trial, not during early discovery.

In light of this, in some situations, it may be preferrable for a plaintiff to not file a cause of action under the CUTSA and instead rely solely on the DTSA for a misappropriation of trade secrets claim to prevent delays and additional discovery hurdles in the litigation.