Ninth Circuit Relaxes Pleading Standard for DTSA Claims

This decision distinguishes the DTSA from the California Uniform Trade Secrets Act (CUTSA), which requires a plaintiff to disclose any allegedly misappropriated trade secrets with “reasonable particularity” prior to discovery. In doing so, this decision may impact how parties and courts navigate trade secret identification within the Ninth Circuit.

The District Court Decision

Quintara Biosciences, Inc. alleged that Ruifeng Biztech, Inc. violated the DTSA by misappropriating eleven trade secrets, including customer and vendor databases, marketing plans, and new product designs. Prior to discovery, the district court directed Quintara to summarize its allegedly misappropriated trade secrets with “reasonable particularity” by describing their independent economic value by not being generally known, explaining how Quintara kept them secret, and listing the precise elements for each secret consistent with claims at the end of a patent. Dissatisfied with Quintara’s disclosure, Ruifeng moved to strike.

The district court granted the motion to strike nine of the 11 allegedly misappropriated trade secrets, effectively dismissing them as a discovery sanction. While Quintara only alleged a DTSA claim, the court applied section 2019.210 of CUTSA, which requires a plaintiff to identify allegedly misappropriated trade secrets with “reasonable particularity” before discovery. The court explained that the purpose of this disclosure requirement was “to permit us to discern the reasonable bounds of discovery, to give defendants enough notice to mount a cogent defense, and to prevent plaintiff from indulging in shifting sands.” It cautioned that this requirement “should not drive us into the actual merits[.]” Following this order, the parties conducted discovery on the remaining two trade secrets, and Quintara focused on just one at trial. After a jury returned a verdict in Ruifeng’s favor, Quintara appealed the order granting Ruifeng’s motion to strike.

The Ninth Circuit Decision

The Ninth Circuit reversed and held that while CUTSA requires a plaintiff to disclose an allegedly misappropriated trade secret with “reasonable particularity” prior to discovery, federal law has no such requirement. Instead, whether a plaintiff identifies an allegedly misappropriated trade secret with “sufficient particularity” for a DTSA claim is a question of fact meant for summary judgment or trial. While acknowledging that identifying allegedly misappropriated trade secrets presents a “delicate problem,” the Ninth Circuit stressed that the “iterative process” of discovery can lead to sufficiently particularized identifications. Ultimately, the Ninth Circuit determined that the district court abused its discretion and imposed an overly harsh penalty because “neither Rule 12(f) nor Rule 16 authorized the district court to strike—and functionally dismiss—Quintara’s claim to nine of its trade secrets.”

This iterative process is consistent with the recommendations of the Sedona Conference, which states that “[t]he identification of an asserted trade secret during a lawsuit is not an adjudication of the merits and is not a substitute for discovery.”[1] Rather, it is “a procedural notice issue—a drafting step to provide clarity so that merits issues can separately and later be determined in a facilitated manner.” The Federal Judicial Center’s Trade Secret Case Management Judicial Guide similarly indicates that trade secret identification “is solely a procedural tool to help manage trade secret cases. It is not an adjudication of the merits.”[2] It further explains that once a case reaches the merits phase, the question is “whether the trade secret as identified meets the statutory or common law definitions for a trade secret.”

Practical Considerations

While the Quintara[3] decision ultimately hinged on whether Rule 12(f) or Rule 16 permitted the district court to strike Quintara’s trade secret identifications prior to discovery, the decision held that trade secret identification was both a procedural and substantive issue. When assessing the merits of a DTSA claim at summary judgment or trial, the Ninth Circuit now requires a factfinder to determine whether a plaintiff defined a trade secret with “sufficient particularity.” This holding could be viewed as a departure from existing precedent and other well-accepted principles indicating that trade secret identification is solely a procedural issue.

As a result, the Quintara decision may impact how parties and courts navigate trade secret claims within the Ninth Circuit. For example, plaintiffs may prefer pursuing federal DTSA claims instead of state law claims with stronger pre-discovery identification requirements. In return, defendants may face higher discovery costs and the need for more advanced strategies to narrow trade secret definitions prior to summary judgment. District courts may need to allocate additional resources to supervise the early discovery process, potentially using phased or bifurcated mechanisms that can lead to delays and additional motion practice. Further, courts must now evaluate trade secret identification on the merits at summary judgment and trial.

The decision still leaves open several questions. For instance, it provides no guidance as to when, if ever, a defendant can seek a dispositive pretrial remedy instead of just additional discovery motions for poorly identified trade secrets. The decision also provides no guidance on how district courts should manage discovery when a plaintiff alleges both CUTSA and DTSA claims. It also articulates no standard on how precisely a plaintiff must identify the allegedly misappropriated trade secret and whether that level of precision is satisfactory for substantive purposes at summary judgment or trial. Finally, the decision did not address whether CUTSA’s disclosure rule is binding on federal courts considering CUTSA claims.

While Quintara underscores the differences between DTSA and CUTSA claims, it also intertwines procedural and substantive considerations regarding trade secret identification, which may introduce new challenges for litigants and courts. Going forward, parties should expect more iterative discovery and new case-management techniques from district courts overseeing the trade secret identification process within the Ninth Circuit.