Loop AI Labs Inc. v. Gatti

195 F.Supp.3d 1107

LOOP AI LABS INC., Plaintiff,

v.Anna GATTI, et al., Defendants.

Case No. 15-cv-00798-HSG (DMR)

United States District Court, N.D. California.

Signed July 6, 2016

Bryan Jacob Wolin, Diana Wong, Valeria Calafiore Healy, Eric A. Lerner, Healy LLC, New York, NY, Daniel Justin Weinberg, Freitas Angell & Weinberg LLP, Redwood Shores, CA, for Plaintiff.

James Francis Regan, Thomas J. Losavio, Low Ball and Lynch, Thomas Edward Wallerstein, Venable LLP, Janet M. Brayer, Law Offices of Janet Brayer, San Francisco, CA, for Defendants.

ORDER ON MOTION TO ENFORCE COURT ORDER RE PLAINTIFF'S TRADE SECRET DISCLOSURE

Donna M. Ryu, United States Magistrate Judge

Defendant IQSystem, Inc. ("IQS") filed a motion to enforce the court's December 21, 2015 order directing Plaintiff Loop AI Labs Inc. to submit a particularized trade secret disclosure. Defendant Almawave USA, Inc. ("Almawave") joins in IQS's motion. [Docket Nos. 459 (Mot.), 472.] Plaintiff timely filed an opposition. [Docket No. 541 (Opp'n).] This matter is appropriate for resolution without a hearing. Civ. L.R. 7-1(b). For the following reasons, IQS's motion is granted.

I. BACKGROUND

Plaintiff is a startup that develops artificial intelligence technology. In this action, Plaintiff pursues a number of claims for relief, including a claim for misappropriation of trade secrets against all Defendants based upon their alleged violation of California Civil Code section 3426, California's Uniform Trade Secrets Act ("CUTSA"). In October 2015, IQS moved to compel Plaintiff to comply with California Code of Civil Procedure section 2019.210 by identifying its alleged trade secrets with particularity. IQS also asked the court to stay all discovery until Plaintiff provided a proper trade secret disclosure. [Docket No. 232.] Section 2019.210 provides that in any action alleging misappropriation of trade secrets under CUTSA, "before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code."¹ Cal. Civ. Proc. Code § 2019.210. Plaintiff opposed the motion on the ground that section 2019.210 is a state procedural rule that does not apply in federal court. Alternatively, Plaintiff argued that if section 2019.210 applies, then Plaintiff had already complied with the statute by providing a detailed explanation of the trade secrets at issue in its pleadings and other submissions. In support of this assertion, instead of submitting a trade secret disclosure document, Plaintiff identified descriptions of trade secrets contained in specific paragraphs in its amended complaint, second amended complaint, and three declarations filed in support of two April 2015 motions.

On December 21, 2015, the court granted in part and denied in part IQS's motion (Docket No. 331). Loop AI Labs Inc. v. Gatti , No. 15–cv–00798 HSG, 2015 WL 9269758 (N.D.Cal. Dec. 21, 2015). The court first concluded that section 2019.210 applies to CUTSA claims brought in federal court. Id. at *3. It then analyzed the sufficiency of Plaintiff's purported trade secret disclosure. Id. at *3–4. The court concluded that "Plaintiff's ersatz ‘trade secret disclosure’ [was] insufficient to meet the requirements of section 2019.210," and that its designation of certain paragraphs in previous court filings "[was] no substitute for specifically identifying and describing the actual claimed trade secrets in order ‘to permit [Defendants] to ascertain at least the boundaries within which the secret[s] lie[ ].’ " Id. at *4 (quoting Brescia v. Angelin , 172 Cal.App.4th 133, 147, 90 Cal.Rptr.3d 842 (2009) ). The court ordered Plaintiff to file and serve a statement identifying the specific trade secrets at issue by a date certain. The court warned Plaintiff that its trade secret disclosure "must be thorough and complete," and that "[a]ny future amendment to the disclosure [would] only be permitted upon a showing of good cause." Id. (citing Neothermia Corp. v. Rubicor Med., Inc. , 345 F.Supp.2d 1042, 1045 (N.D.Cal.2004) ). The court also denied IQS's motion to stay all discovery, but did stay discovery as to Plaintiff's CUTSA claim until such time that Plaintiff filed a statement "identifying with reasonable particularity the trade secrets at issue in this lawsuit." Id.

Plaintiff timely filed its trade secret disclosure on the public docket. [Docket No. 372 (Disclosure).] IQS challenges the sufficiency of Plaintiff's disclosure. It moves to enforce the court's December 21, 2015 order that Plaintiff provide a thorough and complete identification of the trade secrets that are the basis of its CUTSA claim. It also asks the court to sanction Plaintiff by precluding Plaintiff's introduction of evidence as to its CUTSA claim and/or dismissing Plaintiff's suit for failing to specify the trade secrets at issue.

II. DISCUSSION

A. Legal Standards

California Civil Code section 3426.1 defines a trade secret as follows:

"Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Cal. Civ. Code § 3426.1(d). "The sine qua non of a trade secret, then, is the plaintiff's possession of information of a type that can, at the possessor's option, be made known to others, or withheld from them, i.e., kept secret." Silvaco Data Sys. v. Intel Corp. , 184 Cal.App.4th 210, 220, 109 Cal.Rptr.3d 27 (2010), disapproved on other grounds by Kwikset Corp. v. Superior Court , 51 Cal.4th 310, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011). As explained by the court in Silvaco Data Systems , trade secret law protects the right to maintain the confidentiality of facts, not ideas:

A patent protects an idea , i.e., an invention, against appropriation by others. Trade secret law does not protect ideas as such. Indeed, a trade secret may consist of something we would not ordinarily consider an idea (a conceptual datum) at all, but more a fact (an empirical datum), such as a customer's preferences, or the location of a mineral deposit. In either case, the trade secret is not the idea or fact itself, but information tending to communicate (disclose) the idea or fact to another. Trade secret law, in short, protects only the right to control the dissemination of information.

It is critical to any CUTSA cause of action—and any defense—that the information claimed to have been misappropriated be clearly identified.

Id. at 220–21 (emphases in original).

Under section 2019.210, a plaintiff is required "to identify or designate the trade secrets at issue with ‘sufficient particularity’ to limit the permissible scope of discovery by distinguishing the trade secrets ‘from matters of general knowledge in the trade or of special knowledge of those persons ... skilled in the trade.’ " Advanced Modular Sputtering, Inc. v. Superior Court , 132 Cal.App.4th 826, 835, 33 Cal.Rptr.3d 901 (2005) (quoting Imax Corp. v. Cinema Techs., Inc. , 152 F.3d 1161, 1164–65 (9th Cir.1998) (citation omitted)). Review of the case law cited in the moving papers, as well as the court's own research, makes clear that there is no bright-line rule governing the level of particularity required by section 2019.210. See Advanced Modular , 132 Cal.App.4th at 835, 33 Cal.Rptr.3d 901 (noting the lack of clear authority defining "reasonable particularity," and observing that "the law is purposely vague in some areas so that there is ‘play in the joints.’ " (quoting Locke v. Davey , 540 U.S. 712, 718, 124 S.Ct. 1307, 158 L.Ed.2d 1 (2004) ). However, courts generally agree that in order to satisfy section 2019.210, a party alleging misappropriation need not "define every minute detail of its claimed trade secret at the outset of the litigation," but nevertheless "must make some showing that is reasonable, i.e., fair, proper, just and rational." Advanced Modular , 132 Cal.App.4th at 835–36, 33 Cal.Rptr.3d 901 ; see, e.g. , Lilith Games (Shanghai) Co. v. uCool, Inc. , No. 15–CV–01267–SC, 2015 WL 4149066, at *3–4 (N.D.Cal. July 9, 2015) (discussing Advanced Modular ). "What is required is not absolute precision, but ‘reasonable particularity[,]’ " the degree of which "will differ, depending on the alleged trade secrets at issue in each case."

Advanced Modular , 132 Cal.App.4th at 836, 33 Cal.Rptr.3d 901. For example, as noted in Advanced Modular , where alleged trade secrets "consist of incremental variations on, or advances in the state of the art in a highly specialized technical field, a more exacting level of particularity may be required to distinguish the alleged trade secrets from matters already known to persons skilled in that field." Id. at 836, 33 Cal.Rptr.3d 901 ; see also Perlan Therapeutics, Inc. v. Superior Court , 178 Cal.App.4th 1333, 1350, 101 Cal.Rptr.3d 211 (2009) (applying "more exacting level of particularity" standard in trade secrets case involving protein-based therapeutics).

" ‘[R]easonable particularity’ should ... be understood in light of the purpose of section 2019.210," which is as follows:

First, [section 2019.210 ] promotes well-investigated claims and dissuades the filing of meritless trade secret complaints. Second, it prevents plaintiffs from using the discovery process as a means to obtain the defendant's trade secrets. Third, the rule assists the court in framing the appropriate scope of discovery and in determining whether plaintiff's discovery requests fall within that scope. Fourth, it enables defendants to form complete and well-reasoned defenses, ensuring that they need not wait until the eve of trial to effectively defend against charges of trade secret misappropriation.

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