Last summer the U.S. Court of Appeals for the Ninth Circuit issued a pivotal ruling in Quintara Biosciences, Inc. v. Ruifeng Biztech, Inc. that significantly alters the landscape of federal trade secret litigation. The court held that the Defend Trade Secrets Act (DTSA) does not require a plaintiff to identify allegedly misappropriated trade secrets with “reasonable particularity” at the outset of a case. This decision establishes a clear distinction between the DTSA and almost all state-level trade secret laws.
Shifting the burden of defining trade secrets from the pleading stage to later phases of litigation such as summary judgment or trial. While this represents a significant win for plaintiffs by lowering the barrier to entry for federal claims, it introduces substantial complexities for defendants, including increased discovery costs and the risk of “shifting sands” litigation where trade secrets are defined based on information uncovered during discovery. Consequently, the decision necessitates more active judicial management through protective orders and phased discovery to prevent potential abuse.
It is important to note that the Ninth Circuit Court of Appeals is comprised of states on the West Coast. Federal district courts in California and Arizona are already relying on Quintana because it is binding precedent for them. For those of us elsewhere, this case will not be binding on our courts. That said, our courts will certainly look at this case for guidance.
Case Background and Procedural History
The dispute originated between two California-based DNA sequencing companies, Quintara Biosciences and Ruifeng Biztech, following a breakdown in their business relationship. Quintara filed a complaint in the Northern District of California, asserting a DTSA claim and alleging the misappropriation of various trade secrets, including:
- Customer and vendor databases
- Marketing plans
- Software code
- Proprietary technologies and product designs
District Court Decision
During the discovery phase, the district court applied the discovery rules set forth in California state law requiring Quintara to summarize its trade secrets with “reasonable particularity” before proceeding. The court demanded precise elements for each secret, similar to patent claims, to define the bounds of discovery and provide the defendant with notice.
When Quintara’s disclosures failed to meet these standards, the district court granted the defendant’s motion to strike under Federal Rule of Civil Procedure 12(f), effectively dismissing nine of the 11 alleged trade secrets as a discovery sanction.
Ninth Court Reversal–The Waiting Game Under the DTSA
The Ninth Circuit concluded that the district court abused its discretion. The appellate court emphasized that the DTSA does not contain the specific timing or scope requirements for trade secret identification found in California state law. Furthermore, it ruled that striking these claims under Rule 12(f) or as a discovery sanction under Rule 16 was inappropriate, as dismissal is a harsh penalty reserved only for “extreme circumstances.”
The Ninth Circuit clarified that whether a trade secret is sufficiently particularized is usually a matter of fact to be decided at summary judgment or trial, rather than a prerequisite for discovery. The court categorized trade secret identification as both a procedural notice issue and a substantive element of the claim that must eventually meet statutory definitions.
The Court effectively said identification of a secret during a lawsuit is not a substitute for the eventual merits-based determination. My response: WTF? What a way to add hundreds of thousands or millions of dollars to trade secret litigation!
What Does This Mean to You–Plaintiffs?
- Increased Accessibility: Plaintiffs are more likely to pursue DTSA claims in federal court to avoid the stringent pre-discovery particularity requirements of CUTSA.
- Discovery Advantages: Plaintiffs can initiate litigation with broader, more ambiguous descriptions, obtaining the benefits of discovery before precisely defining their claims.
- Reduced Dismissal Risk: The threat of early-stage dismissal for lack of specificity is significantly diminished.
What Does This Mean For You–Defendants?
- Escalating Costs: Defendants may be forced deeper into discovery without a clear understanding of the scope of the claims against them.
- “Shifting Sands” Risk: Plaintiffs may attempt to define their trade secrets based on what they find in the defendant’s files during discovery—a tactic described as “drawing the bullseye around the arrow.”
Strategic Countermeasures: Defendants must use contention interrogatories and expert witnesses early to force plaintiffs to define their secrets with enough specificity to distinguish them from general industry knowledge.
Unanswered Questions
One of the most frustrating things for attorneys is when courts leave a variety of questions related to a decision unanswered. These three questions are driving me crazy:
- Mixed Claims: It remains unclear if CUTSA’s particularity requirements are binding in federal court when a plaintiff asserts both DTSA and CUTSA claims.
- Standards of Precision: The court did not articulate a specific standard for how precisely a plaintiff must define a secret to survive summary judgment or trial.
- Dispositive Remedies: There is no clear guidance on when a defendant might seek a dispositive pretrial remedy for poorly identified trade secrets if discovery motions fail to provide clarity.
Because trade secret cases are on the rise, it is imperative to understand the landscape in which businesses are protecting their trade secrets. With this change in judicial attitude, trade secret holders now have one more thing to worry about. Check those NDAs, NCNDAs, and Confidentiality Agreements!
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, and other issues.
He can be reached at david@seidmanlawgroup.com or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.
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