Growing Consensus That Trade Secret Claims Must Be Pleaded With Particularity In New York And Elsewhere

• Published date: 13 July 2022
• Subject Matter: Employment and HR, Intellectual Property, Contract of Employment, Employment Litigation/ Tribunals, Trade Secrets
• Law Firm: Foley Hoag LLP
• Author: Mr Robert Haney Jr, Jeffrey I.D. Lewis and Paul F. Downs

Key Takeaways:

• Federal courts in New York, and elsewhere, are increasingly requiring plaintiffs in trade secret cases to describe their trade secrets with specificity.
• This heightened standard makes it even more important for counsel to thoroughly investigate, and understand, a client's trade secrets so that he or she can carefully craft a complaint that complies with applicable pleading standards.

Under conventional pleading standards, courts generally allowed plaintiffs to describe their trade secrets with a level of generality when filing a complaint in a trade secret case. It often sufficed for plaintiffs to provide a rough description of the allegedly protected secrets along with allegations that the material was held as a secret and possessed "independent economic value" by virtue of being secret. This enabled plaintiffs to shield their trade secrets from the public and gave plaintiffs some flexibility in developing the trade secrets case as the litigation progressed.

But over the last several years, federal courts in New York'and California, Delaware, and Massachusetts, among others'are requiring plaintiffs to describe their trade secrets with greater detail or face dismissal.¹ In fact, Massachusetts codified this requirement in 2018.²

Momentum for a heightened pleading standard began to appear in New York with the cases of Elsevier Inc. v. Doctor Evidence, LLC, 2018 U.S. Dist. LEXIS 10730 (S.D.N.Y. 2018) and Zirvi v. Flatley, 433 F. Supp. 3d 448 (S.D.N.Y. 2020).³In those cases, the courts "require[d] that plaintiffs plead their trade secrets with sufficient specificity to inform the defendants of what they are alleged to have misappropriated." Zirvi, 433 F. Supp. 3d at 465 (citations omitted). The decisions acknowledged that the existence of a trade secret is generally a question of fact, but "a party alleging that it owns a trade secret must put forth specific allegations as to the information owned and its value." Elsevier, 2018 U.S. Dist. LEXIS 10730, at *11. Applying this standard, the court in Zirvi scrutinized the plaintiff's allegation that its trade secret has value, finding it "difficult to see how negative trade secrets consisting of unsuccessful efforts to develop trade secrets and experimental dead ends, can have independent economic value when the end result of the process, the positive trade secrets, have in fact been uncovered." Zirvi, 433 F. Supp. 3d at 465. In each case, the court dismissed the plaintiffs' trade secret claims.

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