Betwixt and Between: Finding Specificity in Trade Secret Misappropriation Cases

Trade secret misappropriation cases create a unique problem for courts. The parties become quickly embroiled in litigation over the misappropriation of trade secrets, sometimes with only bare-bone allegations of those trade secrets having been pled in the first place. Defendants, in many cases, are left trying to defend against claims that are vague and uncertain, putting them at a distinct disadvantage early in the case, especially when they are defending against morphing allegations of what was misappropriated. Plaintiffs resist the prompting to provide more detail out of concern over inadvertent disclosure and the fear that providing such detail may cut off discovery of the extent of the defendants’ transgressions due to a lack of knowledge of the full extent of the misappropriation. The stakes on both sides of a misappropriation case are high, and the pressure is on the courts to find the right path forward.

Originally published by the ABA Section of Litigation, Business Torts & Unfair Competition Litigation Committee, in the Business Torts Journal, Summer 2015, Vol. 22, No. 4.

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e.g., Cocona, Inc. v. Singtex Indus. Co., No. 14-CV-01593-MJW, 2014 WL 5072730, at *11 (D.
Colo. Oct. 9, 2014). None of these cases imposed a heightened pleading standard. Some courts
have even flatly rejected the argument that a higher standard is to be applied to a trade secret
claim, finding such a result unwarranted under that state’s trade secret act, or concluded that the
specificity could be obtained through discovery. Interactive Solutions Grp., Inc. v. Auozone
Parts, Inc., No. 11-13182, 2012 WL 1288173, at *3 (E.D. Mich. Apr. 16, 2012); Edgenet, Inc. v.
GS1 AISBL, 742 F. Supp. 2d 997, 1028 (E.D. Wis. 2010); DSMC, Inc. v. Convera Corp., 273 F.
Supp. 2d 14, 24 (D.D.C. 2002).
North Carolina’s Evolving Approach to Trade Secret Identification
North Carolina is an example of courts following a different path. Several years ago, the North
Carolina courts waded into the issue of the pleading specificity required for a trade secret claim
to withstand a motion to dismiss. In Washburn v. Yadkin Valley Bank & Trust Co., 660 S.E.2d
577 (2008), the North Carolina Court of Appeals affirmed the trial court’s dismissal of a
counterclaim brought under North Carolina’s Trade Secrets Protection Act, finding that the
“sweeping and conclusory statements [in the counterclaim], without specifically identifying the
trade secrets allegedly misappropriated, [were] ‘insufficient to state a claim for
misappropriation’.”
In arriving at this conclusion, the Washburn court relied on two opinions, Analog Devices, Inc. v.
Michalski, 579 S.E.2d 449, 454 (2003),and VisionAIR, Inc. v. James, 606 S.E.2d 359 (2004),
both of which involved motions for preliminary injunctions, not motions to dismiss under
Federal Rule of Civil Procedure 12(b)(6). The Washburn court latched onto a statement by the
VisionAIR court, which was clearly dicta: “To plead misappropriation of trade secrets, ‘a plaintiff
must identify a trade secret with sufficient particularity so as to enable a defendant to delineate
that which he is accused of misappropriating and a court to determine whether misappropriation
has or is threatened to occur.’” That statement—equating the proof issue in an injunction
proceeding with a pleading standard—was adopted by Washburn and set the standard for
motions to dismiss in trade secrets cases in North Carolina.
Curiously, though, North Carolina’s Trade Secrets Protection Act does not speak to the level of
specificity required for pleading a trade secret. It broadly defines a “trade secret” as “business or
technical information, including but not limited to a . . . compilation of information, method,
technique, or process” that (i) derives actual or potential commercial value from not being
generally known or readily ascertainable through independent development or reverse
engineering; and (ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. See N.C. Gen. Stat. § 66-152(3). This definition is similar to that employed
in the Uniform Trade Secrets Act. North Carolina’s Rules of Civil Procedure only require notice
pleading and do not single out trade secret misappropriation claims for greater pleading
specificity.
Following the decision in Washburn, motions to dismiss under Rule 12(b)(6) have become more
common, and North Carolina courts have struggled to find whether the claimed trade secret has
been pled with sufficient specificity. Some cases in which little detail was provided in the
_________________________________________________________________________________________________________
© 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any
portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database
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American Bar Association
Business Torts and Unfair Competition Litigation Committee
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complaint find approval while other complaints, with not terribly dissimilar allegations, fall
short. A comparison of several recent cases in the North Carolina Business Court highlights this
struggle.
In one case, allegations of misappropriated information, which included “customer lists,
customer contract information, pricing information and product information,” lacked the
requisite specificity for a trade secret claim because they were “sweeping and conclusory,” and
the court dismissed the claim. AECOM Tech. Corp. v. Keating, 2012 WL 370296, at *2 (N.C.
Super. Ct. Feb. 6, 2012). In another case, the trade secret was adequately identified because it
was alleged to include “(a) customer lists including names, contact persons, addresses and phone
number of [plaintiff’s] customers; (b) the ordering habits, history and needs of [plaintiff’s]
customers and (c) [plaintiff’s] pricing and inventory management strategies.” Koch Measurement
Devices, Inc. v. Armke, 2013 WL 5639221, at *3 (N.C. Super. Ct. Oct. 14, 2013). One must ask
if the heart of the allegation was any different in the one case than in the other. Each involved
customer lists, contact information, and pricing related information—all of which North Carolina
recognizes as trade secrets.
More recently, the North Carolina Business Court denied a motion to dismiss a trade secret
claim, finding that the allegations satisfied the required specificity because the plaintiff alleged
the trade secret included “confidential customer information such as customer contact
information and customer buying preferences and history . . . confidential freight information,
sales reports, prices and terms books, sales memos, sales training manuals, commission reports
and information concerning [plaintiff’s] relationship with its vendors.” S. Fastening Sys., Inc. v.
Grabber Const. Prods., Inc., 2015 WL 2031007, at *4 (N.C. Super. Ct. Apr. 28, 2015). This
allegation, conclusory and general as it was, satisfied the court, in part, because “more context”
was provided in the complaint.
A Different Path—Pre-Discovery Identification
Most courts, rather than imposing a higher level of pleading specificity, have gone down a
different path, requiring some form of early identification of the trade secret by the plaintiff in
discovery. See, e.g., Animal Care Sys., Inc. v. Hydropac/Lab Prods., Inc., No. 13-CV-00143-
MSK-BNB, 2015 WL 1469513, at *5 (D. Colo. Mar. 26, 2015); Dana Ltd. v. Am. Axle & Mfg.
Holdings, Inc., No. 1:10-CV-450, 2013 WL 603104, at *1 (W.D. Mich. Feb. 19, 2013); Porous
Media Crop. v. Midland Brake Inc., 187 F.R.D. 598, 599 (D. Minn. 1999). Many courts require
pre-discovery identification of the trade secret by the plaintiff before permitting any discovery of
the defendant. See, e.g., BioD, LLC v. Amnio Tech., LLC, No. 2:13-CV-1670-HRH, 2014 WL
3864658, at *5–6 (D. Ariz. Aug. 6, 2014); DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676, 681
(N.D. Ga. 2007); Del Monte Fresh Produce Co. v. Dole Food Co. Inc., 148 F. Supp. 2d 1322,
1324–25 (S.D. Fla. 2001); AutoMed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 925–26 (N.D. Ill.
2001); Engelhard Corp. v. Savin Corp., 505 A.2d 30, 33 (Del. Ch. 1986). California even has
legislation requiring this type of early identification. See Cal. Civ. Proc. Code § 2019.210.
_________________________________________________________________________________________________________
© 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any
portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database
or retrieval system without the express written consent of the American Bar Association.

Page 3 of 5
American Bar Association
Business Torts and Unfair Competition Litigation Committee
_________________________________________________________________________________________________________

Courts requiring pre-discovery identification do so to strike an appropriate balance between
allowing merited claims to proceed while permitting a defendant an opportunity to develop its
defense. Courts frequently note the following as rationale for permitting this identification:
• avoiding meritless claims;
• avoiding attempts by a plaintiff to uncover the defendant’s trade secrets for competitive
purposes;
• avoiding efforts to engage in “fishing expeditions” of the defendant;
• permitting a defendant to prepare an early defense;
• providing the court with the confines of relevance to decide future discovery disputes;
and
• avoiding the ever-morphing allegations based on what a plaintiff uncovers in discovery.
The option of requiring pre-discovery identification of the trade secret is finding increasing
acceptance throughout the country as a practical means of managing trade secret litigation early
in the case.
North Carolina has joined the growing list of states that recognize some re-sequencing of
discovery to provide early identification of the trade secrets. In a case of first impression, the
North Carolina Business Court recently permitted pre-discovery identification of the trade
secrets before permitting discovery of the defendant to proceed. DSM Dyneema, LLC v.
Thagard, No. 13 CVS 1686, 2014 WL 5317770, at *6 (N.C. Super. Ct. Oct. 17, 2014). In that
case, the court found that pre-discovery identification of the trade secrets was supported by
“strong practical and policy reasons,” including assisting the court in determining relevancy in
discovery disputes, which invariably occur when a defendant opposes broad and overreaching
discovery by a plaintiff. The court attempted to find a balance so as not to overly restrict
discovery (recognizing it may be difficult to ascertain the full extent of the misappropriation), yet
obtain enough specificity to address discovery concerns.
The court concluded that judicial discretion would control when pre-discovery identification
would be required, and this determination would be based on the “context” of the facts alleged.
Significantly, the court stated that the specificity required to survive a motion to dismiss was less
than the specificity required to engage in discovery of the defendant on the trade secret.
Allegations of misappropriation of “customer lists, pricing information, transaction histories, key
contacts, and customer leads” may be sufficient to plead a claim, yet fall short of the specificity
needed to permit discovery of the defendant.
A similar approach was taken recently by another North Carolina court, although through a
different route. The court denied the motion to dismiss a trade secret claim, finding the claim
_________________________________________________________________________________________________________
© 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any
portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database
or retrieval system without the express written consent of the American Bar Association.

Page 4 of 5
American Bar Association
Business Torts and Unfair Competition Litigation Committee
_________________________________________________________________________________________________________

sufficiently pled, but then sua sponte ordered the plaintiff to provide more specificity under Rule
12(e), holding discovery otherwise in abeyance. Le Bleu Corp. v. B. Kelley Enters., Inc., 2014
WL 7589495, at *5–6 (N.C. Super. Ct. Dec. 9, 2014). Other courts around the country have
followed this route as well. See, e.g., Metis Int’l, L.L.C v. Ace INA Holdings, Inc., No. CIV.A.SA
04CA-1033-XR, 2005 WL 1072587, at *5 (W.D. Tex. May 6, 2005).
Where to Go from Here?
From a defendant’s perspective, many options exist to challenge a trade secret misappropriation
claim, perhaps more so in North Carolina than in other jurisdictions. While a motion to dismiss
such a claim remains an option and may be appropriate in certain cases, the better course may
require delineation of the trade secret in advance of discovery, either through a re-sequencing of
discovery or a motion for a more definite statement coupled with a stay of discovery. Both
approaches would protect the defendant, while permitting the plaintiff to proceed with its case at
that early stage.
However, permitting pre-discovery identification raises a host of issues that must be addressed.
While the level of specificity needed in the pre-discovery identification stage must be higher than
that required to plead a claim, how much specificity is required remains undetermined. It has
been stated that “the term trade secret is one of the most elusive and difficult concepts in the law
to define” and the “question of whether an item taken . . . constitutes a trade secret is of the type
normally resolved by a fact finder after full presentation of evidence from each side.” Furmanite
Am., Inc. v. T.D. Williamson, Inc., 506 F. Supp. 2d 1134, 1141 (M.D. Fla. 2007). Courts will
likely continue to struggle in making these trade secret determinations without the aid of proof
that will follow in discovery.
Keywords: litigation, business torts, trade secrets, pre-discovery identification,
misappropriation, Uniform Trade Secrets Act
Eric Welsh is a partner in the Charlotte, North Carolina, office of Parker Poe Adams & Bernstein LLP. Blake
Stafford’s contribution to this article is greatly appreciated.

_________________________________________________________________________________________________________
© 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any
portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database
or retrieval system without the express written consent of the American Bar Association.

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