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Federal courts distinguish between “direct” and “indirect” claims of trade secret misappropriation.  The United States District Court for the Northern District of California, in Heller v. Cepia, L.L.C., 2012 WL 13572 (N.D. Cal. Jan. 4, 2012), explained that the difference depends on whether a plaintiff alleges the defendant obtained the trade secrets directly from the plaintiff or indirectly “from someone other than plaintiff.”  Proving a claim of direct trade secret misappropriation is generally more simple than one asserting indirect misappropriation.  Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm  Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

To state a claim for direct trade secret misappropriation under the Defend Trade Secrets Act, “a plaintiff must allege (1) that it is the owner of a trade secret; (2) that the defendant misappropriated the trade secret; and (3) that it was damaged by the defendant’s actions.”  Alta Devices, Inc. v. LG Elecs., Inc., 343 F.Supp.3d 868 (N.D. Cal. 2018).

By contrast, the United States District Court for the Northern District of California, in Cal. Police Activities League v. Cal. Police Youth Charities, Inc., 2009 WL 537091 (N.D. Cal. Mar. 3, 2009), explained that claims of indirect trade secret misappropriation must set forth facts showing that a defendant: “(a) knew or had reason to know before the use or disclosure that the information was a trade secret and knew or had reason to know that the disclosing party had acquired it through improper means or was breaching a duty of confidentiality by disclosing it; or (b) knew or had reason to know it was a trade secret and that the disclosure was a mistake.”  The knowledge element places a much higher burden on the plaintiff.

Federal courts have found the knowledge element is sufficiently alleged when the plaintiff pleads specific facts to substantiate the defendant’s knowledge.  For example, in Genentech, Inc. v. JHL Biotech, Inc., 2019 WL 1046911 (N.D. Cal. Mar. 5, 2019), the court determined that the plaintiff sufficiently alleged the knowledge element based on facts that included the defendant’s receipt of a report “clearly labeled” with the plaintiff’s name and “clearly marked ‘Confidential’ and ‘Internal Only.’”  Similarly, in Wang v. Palo Alto Networks, Inc., 2013 WL 415615 (N.D. Cal. Jan. 31, 2013), the plaintiff sufficiently alleged the knowledge element where the defendant had been told during a meeting that the information was the subject of a pending patent application, which the Judge noted was “usually confidential until published.”  Courts, however, have held that the knowledge element is not satisfied when the allegations are merely “conclusory,” i.e., they lack specific facts backing up the allegation.  In Navigation Holdings. Inc. v. Molavi, 445 F.Supp.3d 69 (N.D. Cal. 2020), the federal court held that the plaintiff’s failed to sufficiently allege the defendants’ knowledge to substantiate a claim for indirect trade secret misappropriation.  The court in the Navigation decision explained in pertinent part: “Plaintiffs make a conclusory assertion that Defendants ‘had reason to know that the confidential information and trade secrets were acquired under circumstances giving rise to the duty to maintain their secrecy or limit their use.’ … But this assertion is devoid of any factual substantiation of Defendants’ knowledge.”  Relying on the United States Supreme Court’s precedent in Ashcroft v. Iqbal, 556 U.S. 662 (2009), the court explained that “‘[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.’”  This is consistent with earlier Supreme Court precedent in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), holding that “[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.

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