Ninth Circuit Eases Trade Secret Pleading Standards for DTSA Claims

On August 12, 2023, the Ninth Circuit Court of Appeals issued a significant ruling in the case of Quintara Biosciences, Inc. v. Ruifeng Biztech, Inc., determining that the Defend Trade Secrets Act (DTSA) does not require plaintiffs to identify their allegedly misappropriated trade secrets with particularity at the pleading stage. This ruling contrasts with the requirements under the California Uniform Trade Secrets Act (CUTSA), which mandates a plaintiff to disclose misappropriated trade secrets with “reasonable particularity” before discovery begins.

The implications of this decision could reshape how trade secret claims are approached in the Ninth Circuit, impacting both plaintiffs and defendants in these cases.

Background of the Case

In the matter at hand, Quintara Biosciences, Inc. accused Ruifeng Biztech, Inc. of violating the DTSA by allegedly misappropriating eleven trade secrets, which included customer databases, marketing strategies, and product designs. Before discovery could commence, the district court required Quintara to summarize these trade secrets in detail, explaining their independent economic value, the measures taken to keep them confidential, and providing precise elements for each secret.

Dissatisfied with Quintara’s disclosure, Ruifeng moved to strike nine of the eleven trade secrets, leading the district court to grant this motion as a sanction for what it considered inadequate disclosure. Although Quintara only pursued a DTSA claim, the court applied CUTSA’s disclosure requirements, emphasizing the need for clarity in trade secret identification to allow defendants to craft effective defenses.

Ninth Circuit Ruling

The Ninth Circuit’s decision reversed the district court’s ruling, clarifying that while CUTSA demands reasonable particularity in trade secret identification prior to discovery, federal law, under the DTSA, does not impose such stringent requirements. The court underscored that the determination of whether a plaintiff has sufficiently identified a trade secret is fundamentally a question of fact, appropriate for resolution at the summary judgment or trial stage.

Acknowledging the complexities involved in identifying misappropriated trade secrets, the Ninth Circuit noted that the discovery process often leads to more precise identifications. The court criticized the district court for imposing an excessive penalty, stating that neither Rule 12(f) nor Rule 16 permitted the striking of Quintara’s claims regarding nine of its trade secrets.

This decision aligns with recommendations from the Sedona Conference, which posits that the identification of trade secrets during litigation is procedural rather than substantive and should not replace the discovery process. The Federal Judicial Center’s guidelines similarly suggest that the identification of trade secrets serves as a tool for managing cases and does not determine the merits of the claims.

Implications for Trade Secret Litigation

The ruling from the Ninth Circuit introduces a new dynamic in how trade secret claims may be managed within the jurisdiction. By establishing that the identification of trade secrets is both a procedural and substantive issue, the decision encourages a more flexible approach in federal cases under the DTSA.

Plaintiffs may be incentivized to pursue DTSA claims over state law claims that require more stringent pre-discovery disclosures. Conversely, defendants may encounter higher discovery costs and necessitate more robust strategies to delineate trade secret definitions prior to summary judgment.

District courts may need to allocate additional resources to oversee the early stages of discovery, potentially implementing phased or bifurcated methods, which could result in delays and increased motion practice. Moreover, courts will now need to assess trade secret identification on the merits during summary judgment and trial phases.

Despite the clarity provided by the Ninth Circuit, the ruling leaves several questions unanswered. It does not clarify when a defendant may seek a pretrial remedy in response to poorly identified trade secrets or how district courts should manage discovery when plaintiffs allege both CUTSA and DTSA claims. Furthermore, the decision lacks clear standards for the level of precision required in identifying trade secrets at various stages of litigation.

The Quintara ruling highlights the evolving landscape of trade secret litigation in the Ninth Circuit, blending procedural and substantive considerations. As a result, parties should prepare for more iterative discovery processes and the potential adoption of new case-management strategies in trade secret identification.