Richard B. McNamara.
ORDER
Plaintiffs move to sequence discovery, requesting that Defendants be required to answer interrogatories specifically directed to the matter of identifying the Plaintiffs' documents and information now in the Defendants' possession. Plaintiffs also request that they be able to inspect Defendants' equipment and facilities before disclosure of what confidential trade secrets they claim has been misappropriated. The Defendants object. For the reasons stated in this Order, the Motion is DENIED.
I
The allegations and history of this case are set forth in the Court's Order of January 30, 2012 and need not be repeated here. The gravamen of the Plaintiffs' case is a claim that the Defendants have misappropriated Plaintiffs' trade secrets and used those trade secrets unfairly to compete against them. Because this case involves confidential trade secrets, the parties agreed that a protective order was necessary. However, Plaintiffs sought an attorney's eyes only protective order and the Defendants objected, arguing that they were a small company and the inability to have their principals consult on trade secrets result in unreasonable expense. After hearing, the Court denied the Plaintiffs' request, reasoning that requiring Defendants to educate outside experts would be prohibitively expensive to a startup company and, more significantly, the crux of the Plaintiffs' claims is that the Defendants already possess the information they seek to protect. Thus, the Plaintiffs could not be any more prejudiced when the Defendants designate one in-house counsel and one employee to have access to the discovery materials.
Plaintiffs now move to "sequence discovery." By sequencing discovery, Plaintiffs specifically request the following:
• First, Defendants must answer interrogatories specifically directed to the matter of identifying the Plaintiffs' documents and information now in the possession of Defendants, and permit Plaintiffs to inspect its equipment and facilities. Access to Defendants' disclosures in this phase of litigation would be limited to Plaintiffs' attorneys and outside experts.
• Second, except to the extent Plaintiffs expressly disclaim misappropriation claims as to specific areas of technology following Defendants' disclosures, Plaintiffs shall, within 30 days of completion of the first phase, fully respond to Defendants' interrogatories and production requests relating to the definition and documentation of Plaintiffs' trade secrets.
• Third, the parties shall complete remaining liability discovery.
• Fourth, discovery of financial information relating to the measure of Plaintiffs' remedies, including Plaintiffs' and Defendants' gross margin and profit data, shall not be conducted until further order of the court.
After oral argument on this Motion, the parties agreed to resolve the dispute regarding financial information by entering into an attorney's eyes only protective order with respect to such information. The principle issue which remains is the Plaintiffs' claim that it should, in substance, be allowed discovery of the Defendants' trade secrets before deciding which of its claims to bring.
II
At oral argument on their Motion, the Plaintiffs conceded that in order for their proposal to work they would not only need to have the Defendants answer interrogatories and be able to inspect Defendants' facilities, but the Plaintiffs would need to be able to question technicians about the facilities. The Plaintiffs did not propose any procedural safeguards to protect Defendants' business from this inquiry. The Defendants object to the Plaintiffs' proposed procedure arguing that any disclosure of Plaintiffs' allegedly misappropriated trade secrets is a threshold issue and should provide the starting point for more particular discovery.
Numerous state and federal courts have required parties claiming misappropriation of trade secrets to disclose their trade secrets at the outset of discovery. See, e.g., IKON Office Solutions, Inc. v. Konica Minolta Business Solutions, U.S.A., Inc., 2009 WL 4429156 at **4-5 (W.D.N.C. Nov. 25, 2009); Dura Global Techs, Inc. v. Magna Donnelly, Corp., 2007 WL 4303294 at *5 (E.D. Mich. Dec. 6, 2007); Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 148 F. Supp. 2d 1322, 1326 (S.D. Fla. 2001). As one court recently noted, requiring a plaintiff to identify with specificity the allegedly misappropriated trade secrets furthers important policy considerations:
(1) It promotes investigation of claims prior to suit and discourages the filing of meritless trade secret complaints; (2) it prevents a plaintiff from using the discovery process as a means to obtain the defendant's trade secrets; (3) it frames the appropriate scope of discovery; and (4) it enables the defendant to form complete and well-reasoned defenses.
Delphon Industries, LLC v. International Test Solutions, Inc., 2012 U.S. Dist.
LEXIS 659 at *8 (N.D. Cal. Jan. 4, 2012).
Although Delphon was decided under Cal. Code of Civ. Proc. Sec. 2019.201, the court noted that federal courts have long applied sec. 2019.201 "under either the Erie doctrine or simply as a case management tool." Id. at *7, n. 2.
The majority rule enunciated in these cases is common sense. "Where, as here, a plaintiff in a trade secret case seeks to discover the trade secrets and confidential proprietary information of its adversary, the plaintiff will normally be required to first identify with reasonable particularity the matter which it claims constitutes a trade secret before it will be allowed (given a proper showing of need) to compel discovery of its adversary's trade secrets." L-3 Communications Corp., et al. v. Reveal Imaging Technologies, Inc., et al., 2004 WL 2915743 at *13 (Mass. Super., Dec. 2, 2004), citing Engelhard Corp. v. Savin Corp., 505 A.2d 30, 33 (Del.Ch. 1986).
Plaintiffs set forth no compelling justification why the ordinary rules governing discovery in trade secrets cases should be reversed in this case. While Plaintiffs spend five pages of its nine page memo attempting to persuade the Court that "Defendants have demonstrated . . . by the evasiveness and outright falsity of their interrogatory responses that nothing other than physical inspection will provide reliable information regarding the extent to which their technology is based on Plaintiffs' proprietary information," Plaintiffs' Motion to "Sequence Discovery," p. 4, they did not mention this concern at oral argument. The only authority the Plaintiffs can muster of their position is Ansys, Inc. v. Computational Dynamics N. Am., 2010 WL 1416841 (D.N.H., Apr. 2, 2010), an unpublished decision in which the court staged discovery in a way similar to that sought by the Plaintiffs. But even the court in Ansys noted that the case before it presented "somewhat peculiar circumstances." Significantly, the court noted that in the case before it, the party who sought inspection made a good faith representation to the court that if the inspection did not reveal information it thought would support its claim, it would "bow out gracefully." Id. at *2. Here, the Plaintiffs have flatly stated that "[i]n the instant case, Plaintiffs do not anticipate the possibility of foregoing their trade secret claims in their entirety." Plaintiffs' Motion to "Sequence Discovery," p. 3.
In sum, the Plaintiffs have set forth no convincing reason why the Defendants should be required to allow a party alleging misappropriation of trade secrets against them complete access to their own trade secrets, equipment, facilities, and employees before that party is even required to state with particularity what it alleges has been misappropriated. The Court can see no justification for such a ruling. It follows that the Plaintiffs' Motion to Sequence Discovery must be DENIED.
SO ORDERED.
___________
Richard B. McNamara,
Presiding Justice
RBM/mrs