Welcome to the August edition of Debevoise’s Trade Secrets Spotlight, our monthly newsletter highlighting three significant developments in trade secret law. Each issue will distill decisions of practical importance to companies navigating trade secret issues and disputes. Please contact any member of our trade secrets team with questions.
- Neuron Space Corp. v. Blue Cubed, LLC—trade-secret protection may survive disclosure to venture capital investors without NDAs
The Northern District of California held that a startup’s disclosure of alleged trade secrets to venture capital investors without NDAs did not necessarily destroy trade-secret protection where the materials were labeled “Confidential & Proprietary” and industry norms could support an implied expectation of confidentiality.
Neuron, an aerospace startup based in Menlo Park, asserted a DTSA claim against Blue Cubed, a Colorado-based startup with which Neuron had an IP license agreement. Blue Cubed moved for summary judgment as to one of Neuron’s alleged trade secrets on the basis that Neuron shared PowerPoint presentations containing the alleged trade secret with venture capital (“VC”) investors without NDAs or confidentiality agreements and therefore had not taken reasonable measures to protect the trade secret.
The court rejected Blue Cubed’s argument. The court concluded that “implicit business expectations” of confidentiality may suffice even in the absence of a formal NDA, particularly where materials are marked confidential. Conflicting expert testimony about whether venture capital investors ordinarily treat pitch decks as confidential made summary judgment inappropriate because “there is a genuine dispute of fact as to how the venture capital industry treats confidential pitch decks and whether a company’s disclosure of trade secrets in a VC pitch deck—without any explicit guarantee of confidentiality—constitutes reasonable protection of those trade secrets.”
The decision underscores that the analysis of reasonable measures to protect trade secrets can be highly fact—and industry—dependent.
- Flextronics AP, LLC v. Ricci—California’s “reasonable particularity” requirement does not apply at the pleading stage in federal court
The Northern District of California held that CUTSA’s requirement that trade secrets be identified with “reasonable particularity” does not impose a heightened pleading standard in federal court.
Flextronics AP, LLC and Flextronics International USA, Inc. (“Flex”) alleged that, after departing from the company, their former chief intellectual property officer Ricci retained more than 1,700 company documents on his laptop, including source code for technology under development and internal strategy documents. Flex brought several claims against Ricci, including a trade secret claim under CUTSA. Ricci moved to dismiss, arguing that Flex failed to describe its alleged trade secrets with “sufficient particularity.”
The court disagreed and held that Flex adequately pleaded its CUTSA claim. The court found that Ricci’s argument “is based on California Civil Procedure Code § 2019.210.” The court then found that § 2019.210 is not a substantive pleading standard, and if it were, “it would still be inappropriate to import that standard into federal court because it is inconsistent with Federal Rule of Civil Procedure 8(a)(2).” Flex “need only plead factual allegations sufficient to support an inference that its claimed trade secrets were not generally known and to provide Ricci with adequate notice of the nature of Flex’s claims.” Applying those standards, the court held that Flex’s “anchoring of broad categories of plausibly confidential information in a closed set of documents is sufficient” for its CUTSA claim to survive a motion to dismiss.
The Flextronics decision is another data point in analyzing the pleading standard for trade secret claims.
- West Series of Lockton Companies, LLC v. Kaufman—a colorable DTSA claim can provide a jurisdictional hook for related state-law disputes
The Eighth Circuit held that a colorable DTSA claim supplied federal-question jurisdiction over a departure dispute and permitted the federal court to exercise supplemental jurisdiction over related state-law claims.
Two Lockton members who lived in California left the company for a competitor. The members brought state-law claims in California seeking to void the customer non-solicitation clauses in their membership agreements, while Lockton filed federal actions in Missouri asserting, among other things, trade secret claims under the DTSA as well as claims for declaratory relief that the non-solicitation clauses were enforceable. The district court presiding over the federal actions denied the members’ motions to dismiss Lockton’s trade secret claims and held that the non-solicitation clauses were enforceable. After the district court issued its summary judgment rulings, Lockton voluntarily dismissed its remaining claims, including its DTSA claims.
On appeal, the Eighth Circuit held that the federal district court had subject matter jurisdiction over all of Lockton’s claims—including its DTSA and state-law claims. A DTSA claim, the court explained, arises under federal law and therefore supplies federal-question jurisdiction so long as it is “colorable.” Because the state-law claims arose from the same circumstances surrounding the members’ departures, they fell within the district court’s supplemental jurisdiction. Responding to the dissent’s concern that Lockton used its DTSA claim merely as a “ruse to get into federal court and circumvent the California court’s rulings by having the same claims by the same parties adjudicated in Missouri federal court,” evidenced by the fact that Lockton did not litigate that claim as vigorously as the state-law claims, the majority emphasized that “there is no relative-vigor exception to federal subject matter jurisdiction.” The court then went on to uphold the district court’s ruling that the non-solicitation clauses were enforceable.
The decision highlights the potentially significant jurisdictional consequences of asserting a DTSA claim in a “dueling litigation” scenario.
This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.