A competitor just acquired your most valuable business asset – your private list of the contact information for your most loyal customers. In an effort to stop the damage to your business, you bring suit in North Carolina state court for misappropriation of trade secrets, alleging that the competitor improperly acquired your “proprietary customer data.” You go through the long, grueling litigation process…only to have the Court decide before trial that you cannot win your claim because you did not offer enough specificity in your description of your trade secret.
While this outcome may seem harsh to many trade secret plaintiffs, it is a common story in misappropriation of trade secret litigation. Recently, the North Carolina Court of Appeals found that the description “proprietary customer lists, data, and contract information, as well as client data and client contact computer programs” was insufficient to properly plead the existence of a trade secret with the required specificity and granted summary judgment in favor of the defendant. See Stephenson v. Langdon, 699 S.E.2d 140 (N.C. App. 2010). This decision is only the most recent in a line of cases requiring greater specificity in articulating trade secret claims.
Rule 8 of the North Carolina Rules of Civil Procedure sets forth the general rule that a complaint contain “a short and plain statement of the claim sufficiently particular to give the court and the parties notice of the transactions…intended to be proved showing that the pleader is entitled to relief.” Although the rule for trade secret pleading echoes the sentiment that a plaintiff plead his trade secret “with sufficient particularity,” courts scrutinizing a plaintiff’s trade secret claims take a position more in line with the Rule 9 specificity requirement of pleading. Plaintiffs who fail to meet the required level of specificity are unable to succeed on their misappropriation claims. See, e.g., Panos v. Timco Engine Center, Inc., 197 N.C. App. 510, 518-522, 677 S.E.2d 868, 875-877 (2009); VisionAIR v. James, 167 N.C. App. 504, 606 S.E.2d 359 (2004).
The trade secret pleading rule gives rise to the question every plaintiff must answer: how much information is necessary to meet the “sufficient particularity” requirement? In North Carolina, a trade secret claim is plead with sufficient particularity if it “enable[s] a defendant to delineate that which he is accused of misappropriating and a court to determine whether misappropriation has…occurr[ed].” Washburn v. Yadkin Valley Bank and Trust Co., 190 N.C. App. 315, 325, 660 S.E.2d 577, 585 (2008) (affirming judgment on pleadings where plaintiff failed to identify trade secrets with specificity). In other words, the plaintiff must provide enough information and description for the defendant to identify exactly what information the plaintiff is claiming as a trade secret.
The policy behind this rule is sound. A defendant should not have to guess what the plaintiff claims it misappropriated, and requiring the plaintiff to specifically identify a trade secret prevents plaintiffs from bringing frivolous claims. Nonetheless, a plaintiff may find itself toeing a difficult line between disclosing enough information to permit the defendant to identify exactly what comprises the trade secret and protecting the valuable substance of that secret from public disclosure. Some trade secrets may be easier to plead in a publicly-accessible complaint than others. For example, the secret formula to the famous soft drink Coca-cola Classic may be considered sufficiently identified by stating “the secret formula for Coca-cola Classic,” as there is only one Coca-cola Classic formula. On the other hand, more information will be needed when the trade secret is contained in a compilation of both secret and widely-known components. For example, computer source code often includes both unprotectable “open source” code and potentially-protectable proprietary code. A trade secret contained in the code cannot be adequately identified by generally stating “secret source code” – the defendant is entitled to learn what portions of the source code the plaintiff considers to be a trade secret. See, e.g., Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 579 S.E.2d 449 (2003) (submission of schematics and documents, coupled with general allegations of misappropriation, was not specific enough to identify trade secret).
So what is a trade secret plaintiff to do? If the trade secret cannot be easily identified without risking public disclosure of the proprietary information, one potential solution might be to provide the specific identity of the trade secret via an exhibit filed under seal with the court. Such an approach would permit the court and the defendant to learn exactly what the defendant is accused of misappropriating without risking the secret’s disclosure to the public at large. Ultimately, the plaintiff will need to make some disclosure that specifically identifies the trade secret. Failure to do so will result in judgment against the plaintiff. Washburn, 190 N.C. App. 315, 326-327, 660 S.E.2d at 585-586 (granting defendant’s 12(b)(6) motion because plaintiff failed to specifically identify trade secrets); Panos, 197 N.C. App. at 518-522, 677 S.E.2d at 875-877 (granting summary judgment in favor of defendant when plaintiff failed to specifically identify trade secrets); accord Stephenson v. Langdon, 699 S.E.2d 140 (N.C. App. 2010).