In Perlan Therapeutics, Inc. v. Superior Court, which was filed on November 4, 2009 and certified for publication, a California Court of Appeal held that trial courts have broad discretion in determining at the outset of a case whether a plaintiff alleging trade secret misappropriation may commence discovery. Discovery in such cases is allowed only after a plaintiff identifies its stolen trade secrets with “reasonable particularity.” In upholding a finding that a trade secret disclosure was inadequate, Perlan provides trial courts with discretion to require more detail. Reinforcing this holding, Perlan also concluded that disputes over trade secret disclosures should only rarely be subject to interlocutory review because the parties are unlikely to suffer undue hardship.

The Case

Plaintiff Perlan Therapeutics alleged that two of its former employees stole trade secrets related to anti-viral therapeutics. Plaintiff filed its complaint, served its trade secret disclosure and sought discovery. Defendants moved for a protective order seeking to halt discovery on the ground the trade secret disclosure failed to meet the requirements of California Code of Civil Procedure Section 2019.210. Section 2019.210 requires plaintiffs alleging misappropriation of trade secrets to identify in writing the stolen trade secrets with “reasonable particularity” before commencing discovery. After the defendants challenged the disclosure, plaintiff served an amended version that was much more detailed; it included highly technical language and references to hundreds of pages of other materials. Defendants again moved for a protective order to prevent discovery, which the trial court granted. Plaintiff then petitioned the Court of Appeal for review.

The Appellate Opinion

In assessing the adequacy of the Section 2019.210 disclosure, the Court of Appeal carefully analyzed two recent opinions: Brescia v. Angelin, 172 Cal. App. 4th 133 (2009) and Advanced Modular Sputtering, Inc. v. Superior Court, 132 Cal. App. 4th 826 (2005). The Court confirmed the findings in those cases that the policies advanced by Section 2019.210 include dissuading meritless claims, protecting the defendant’s trade secrets, allowing the court to frame discovery, and permitting defendants sufficient time to form and develop defenses. The Court also discussed the “ubiquitous” litigation strategies used by litigants in trade secret disputes. On the one hand, plaintiffs try to disclose their trade secrets at a high level and with “catch-all” language such as “all related research, development advancements, improvements and processes related thereto.” Defendants, on the other hand, try to box in the plaintiffs by demanding a high degree of particularity, including statements addressing each element of the statutory definition of trade secrets.

In the context of the policies that Section 2019.210 advances, and the strategies deployed in such cases, the Court offered three guidelines in evaluating the sufficiency of trade secret disclosures. First, while the definition of trade secrets demands them not to be known to the public, the Court made clear that disclosures need not include detailed facts establishing that the trade secrets were, in fact, secret. Second, the Court stated that plaintiffs are not entitled to use broad, catch-all language “as a tactic to preserve an unrestricted, unilateral right to subsequently amend its trade secret statement.” Third, the Court confirmed a prior court holding that in specialized technical fields a more exacting level of particularly may be required.

The Court applied its guidelines and found that Perlan’s trade secret disclosure was insufficient. The Court agreed that Perlan did not need to convince the trial court or the defendants that its alleged trade secrets were not generally known to the public. But the Court rejected Perlan’s catch-all language, stating that “[i]f Perlan does not know what its own trade secrets are, it has no basis for suggesting defendants misappropriated them.” The Court also concluded that despite the technical information presented in its disclosure, Perlan did not specify how its alleged trade secrets “differed from publicly available knowledge.” Based on the latter two grounds, the Court upheld the trial court’s finding that Perlan’s trade secret disclosure did not meet the requirements of Section 2019.210.

The Court addressed one additional point: the standard of review. It noted that Brescia and Advanced Modular posed questions about the interpretation of Section 2019.210, and thus were appropriately reviewed de novo. In this case, however, the Court held that the dispute was nothing more than a discovery ruling, and discovery rulings are reviewed under an abuse of discretion standard. The Court went on to say that such a ruling “does not usually justify appellate court intervention upon a petition for a writ of mandate.” It continued, “so long as a trial court applies the correct legal standard and there is basis in the record for its decision, appellate courts should not micromanage discovery.”

Conclusion

Near the beginning of its opinion the Court of Appeal stated that Brescia and Advanced Modular “make clear that that trial courts can require too much particularity in a trade secret statement and thereby abuse their discretion under Section 2019.210.” Counterbalancing those opinions, the Court wrote: “We publish this opinion to emphasize that trial courts still have broad discretion under Section 2019.210.” Unless a plaintiff identifies its trade secrets with absolute precision (e.g., by disclosing the recipe or the equations), or provides an “exacting level of particularity” with respect to how the trade secrets differ from publicly available information, the Court made clear that a trial court has discretion to reject a Section 2019.210 disclosure. Adding weight to this conclusion, the Court commented that trial court decisions on the adequacy of a Section 2019.210 disclosure should not be subject to interlocutory review.