A Nevada federal court recently held that a plaintiff must identify trade secrets with specificity prior to seeking discovery from the defendant regarding that claim, adding Nevada to the growing number of jurisdictions with that requirement.
In this case, Switch Communications Group v. Ballard, case no. 2:11-cv-00285-KJD-GWF, the plaintiff, owned and operated computer data centers in Las Vegas. Mr. Ballard, the defendant, had been employed by Switch as the company’s Chief Financial Officer for two years, before his employment was terminated in 2006. According to the complaint, as a result of his employment, Ballard had acquired substantial knowledge of confidential information, including the location of plaintiff’s carrier fiber and structure of carrier fiber agreements, location of key client installations, the terms of Switch’s agreements with customers, and other such information. Switch alleged Ballard was preparing to build a competing business and utilize these trade secrets, and sued him for misappropriation of intellectual property, breach of contract, unfair commercial advantage, unjust enrichment, copyright infringement, and tortious interference with contractual relations.
As the case progressed, the defendant served interrogatories on the plaintiff, seeking to require the plaintiff to provide more specific information concerning its trade secret claims. The plaintiff was asked what trade secrets and other intellectual property the defendant had allegedly misappropriated. The plaintiff’s initial answer to the interrogatory simply stated categories of trade secrets, but not the trade secrets themselves. The court found this was insufficient. The plaintiff then proceeded to serve discovery on Ballard, who argued that he should not be required to respond, since the plaintiff had not yet described the trade secrets with sufficient particularity.
The court held that Ballard was not required to respond, and that a party alleging a claim for misappropriation of trade secrets must disclose the trade secrets with reasonable particularity before being allowed to compel discovery. In making this ruling, the court relied on DeRubies v. Witten Technologies, 244 F.R.D. 676, 680-81 (N.D.Ga. 2007), which stated four policies supporting a reasonable particularity standard in alleging the existence of a trade secret. First, if discovery of a defendant’s trade secrets were automatically allowed, it would result in fishing expeditions. Second, if the plaintiff fails to identify the trade secret at issue with some degree of specificity, there is no way of knowing what information is relevant in responding to discovery requests. Third, a lack of particularity makes it difficult to mount a defense, since a defendant may not be aware of what the trade secret actually is, and finally, requiring a plaintiff to state what the trade secret is prior to misappropriation ensures that the plaintiff will not mold its cause of action around the received discovery.
The court also held that the defendant was required to supplement discovery responses once the trade secret was defined with reasonable particularity. Under Federal Rule of Civil Procedure 26, there is a duty to supplement discovery responses, and the court found that Ballard would have an obligation to comply once Switch properly defines the alleged misappropriated trade secrets. The court denied the plaintiff’s motion to compel, holding Ballard need not respond to Switch’s discovery requests until the trade secrets were defined with reasonable particularity.
Potential plaintiffs and defendants in trade secret misappropriation cases ought to keep this ruling in mind. A plaintiff who files a trade secret misappropriation complaint must be very specific in identifying the trade secret, and must be prepared to defend the specificity, at least in Nevada. Similarly, a defendant needs to be prepared challenge the plaintiff's trade secret identification if appropriate before providing substantive responses to discovery.