New Castle Beverage, Inc. v. Spicy Beer Mix, Inc.
In an unpublished opinion, the Court of Appeal of the State of California’s Second Appellate District affirmed the lower court’s denial of a preliminary injunction for misappropriation of trade secrets because the trade secret at issue was not sufficiently described, as required under California law. New Castle Beverage, Inc. v. Spicy Beer Mix, Inc. (Cal. App. Ct., 2014) (Segal, J.) (unpublished).
In 2010, the president of New Castle developed a beverage cup called the “Micheladas Antojitos,” which contained a spicy mix around the rim and inside of the cup. New Castle claimed as a trade secret the formulas for the spice mixture, the solution that caused the mixture to adhere to the beverage cup and the process for applying the spices to the cup.
An employee of New Castle, Robert Montiel, had access to and knowledge of New Castle’s trade secrets and signed a nondisclosure agreement relating to such trade secrets. When Montiel left the company, however, he was induced by the president of Spicy Beer to disclose New Castle’s trade secrets, after which Spicy Beer developed its own spicy beverage cup called “Cheveladas.”
In 2013, New Castle filed an action against Spicy Beer in the Superior Court of Los Angeles County for misappropriation of trade secrets, conspiracy to misappropriate trade secrets and unfair competition under California Business and Professions Code 17200. New Castle sought preliminary and permanent injunctions, damages, disgorgement of profits and accounting. The trial court denied the preliminary injunction on the grounds that New Castle failed to describe its alleged trade secrets with enough particularity to allow the court to issue an enforceable preliminary injunction. New Castle appealed.
On appeal, the court noted that New Castle failed to provide the trial court with any evidence that it would suffer irreparable injury in order to merit a preliminary injunction. Moreover, the court explained that even if New Castle had made an adequate showing of irreparable injury, its appeal failed to address the other bases for the trial court’s denial of the injunction, including whether New Castle even had a protectable trade secret. Specifically, the court found that New Castle did not comply with Section 2019.210 of the California Code of Civil Procedure, which requires in any cause of action under the Uniform Trade Secrets Act (UTSA) that the party alleging misappropriation must “identify the trade secret with reasonable particularity.”
The court reviewed the explanation of the trade secret as it was alleged by New Castle, namely, “a) the process of applying a secret solution to the inner and outer surfaces adjacent the lip of a beverage cup to permit a first mixture of spices to adhere…; b) an apparatus specially designed… that distributes the secret solution to the inner and outer surfaces…; and c) the sequence in which pre-determined quantities of the ingredients of a second mixture are blended” and cited concerns that were previously expressed by the trial court. The court explained that the description lacked the required “sufficient particularity,” and due to the lack of information regarding the specifics of the trade secret, the lower court would not be able to determine whether the trade secret had been violated or not. When New Castle argued that a review of the actual beverage cup device could have resolved the sufficiency of the trade secret, the court stated that it was unclear as to how an inspection of the beverage cup would reveal the precise nature of the secrets or to determine the actual spice mixture and blending. Thus, the court found that it would be impossible to craft an appropriate injunction without such detail in the trade secret disclosure and affirmed the denial of the preliminary injunction.
Practice Note: Section 2019.210 of the California Code of Civil Procedure requiring the specific written description of a trade secret is unique to California law and generally is not required under the UTSA. While courts in various jurisdictions have adopted California’s approach in trade secret cases, a case with a similar fact pattern in a different jurisdiction could result in a different outcome.