Trade secret discovery fraught with challenges

Recent case reveals 'Catch-22' for IP lawyers

Attorneys say that a recent ruling out of the Business Litigation Session demonstrates the "Catch-22" that intellectual property lawyers face when seeking or defending discovery requests in trade secret cases — especially when the secrets are of an electronic nature.

In the five-page decision of Tourtellotte Solutions, Inc. v. Tradestone Software, Inc., et al. (Lawyers Weekly No. 12-355-05), Judge Allan van Gestel denied a plaintiff company's attempt to get expedited discovery from a defendant accused of violating a proprietary software arrangement.

Following the defendant's argument, the judge denied the plaintiff's motion because its discovery request was not pled with enough particularity.

Boston attorney Michael N. Sheetz, the attorney for the defendant, said that the Tourtellotte case and other recent ones like it raise some practical and crucial discovery issues for both plaintiffs and defendants.

For example, the requirement for specific pleadings in trade secret cases causes a quandary for plaintiffs' lawyers who don't want to reveal their own trade secrets in the process. On the other side, defendants also may want to avoid answering to an overbroad discovery request for fear of losing their own trade secrets.

Despite the dilemma, however, attorneys suggested there are ways for lawyers on both sides to conduct trade secret discovery without sacrificing the privacy attached to the secrets, noting that in-camera applications or "attorney-only" requests may appease both parties and the judge.

Sheetz added that plaintiffs' attorneys might be best served by convincing a judge that a protective order can be put in place that will protect a defendant's interests.

The moral of the story in all these cases is the same, he said. "You can't use litigation as a means to discovery."

Stolen code?

In Tourtellotte, the plaintiff, according to Sheetz, purchased software from his client, the defendant.

But at some point after the purchase, the plaintiff believed that the defendant had used what should have been the plaintiff's proprietary intellectual property purchased as part of the software, in a different software program.

The plaintiff sued the defendant for allegedly misappropriating its trade secrets — or more specifically, for stealing its software source code.

"[The plaintiff] had certain information and couldn't say exactly what was taken, but had anecdotal information that it was similar enough to [the plaintiff's software code]," explained Sheetz.

Van Gestel ultimately denied the plaintiff's request for expedited discovery on the matter.

"The issue of software misappropriation sounds very much like trade secret misappropriation. As such, there are two issues that properly should be resolved before discovery begins. A detailed description of what is claimed to be a trade secret must be provided and a protective order of some sort needs to be worked out," wrote the judge.

Van Gestel continued: "Both for the defendants to respond to the charges against them, and for the Court to make appropriate findings and rulings in the case, there must be a clear designation that distinguishes unique or proprietary material from the vast body of the [plaintiff's] program and code source, and apprises a person what trade secrets [the plaintiff] claims are to be found in [the defendant's] product. That cannot be done on the present record."

The decision is the second of its kind issued by van Gestel, said Sheetz. Last year, in Communications Corporation et al. v. Reveal Imaging Technologies, Inc., et al. (Lawyers Weekly No. 12-412-04), the judge ruled that a party alleging theft of trade secrets must identify with particularity the allegedly stolen secret before being permitted to conduct discovery.

Sheetz mentioned that he was aware of at least a third, similar case — not his own — that had also recently been heard in the Business Litigation Session.

Boston attorney Michael P. Boudett, who represented the plaintiff in Tourtellotte, declined to comment citing the pending nature of the dispute.

How much is enough?

The sticking point for plaintiffs' attorneys in trade secret cases is not revealing your client's secret while still pleading with enough specificity to get you to discovery.

But the Rules of Civil Procedure do not require that trade secrets need to be pled with particularity, explained Boston attorney T. Christopher Donnelly, who represents both plaintiffs and defendants in such matters.

"So the approach on the plaintiff side is to describe the trade secret generally and seek discovery. Then, if the other side resists, offer to disclose to the judge in camera what the trade secret is," advised Donnelly.

"Sometimes as a plaintiff you get a bad rap because you haven't described [the trade secret] with particularity, but if it's truly a secret, it cannot be publicly revealed," he stressed.

Donnelly explained that the Uniform Rules of Impoundment would require a writing, but he believes that many judges would be flexible enough to allow the disclosure to be done orally instead, in light of the importance of keeping a secret private.

Giving an example of what is enough to successfully plead a trade secret violation, Sheetz said: "Say you have a software program with seven elements, and an engineer reviews your competitor's software and finds that elements three and four look identical to your clients. That's being specific about what is allegedly copied."Another example, he said, is for a plaintiff to point to a source-code writer's signature — the specific and unique way of getting from point A to point B.

"It's something that gives a neutral enough to know that it's more than a fishing expedition," Sheetz said.

Attorneys'eyes only

Just as plaintiffs' attorneys must protect their clients' secrets from being revealed in a pleading or in open court, so too must defense attorneys guard their clients' secrets from prying eyes.

That's why once a plaintiff gets over the initial hurdle, the plaintiff must also consider how to protect the opposing party's secrets, lawyers said. In turn, the defense attorney will want to limit any disclosures it must make.

Donnelly suggested that an "attorney's eyes only" disclosure is an option, but one fraught with controversy.

"There's usually a big fight because the typical and understandable response is that the attorney can't deal with it alone. He has to be able to let the client in on it," he said.

"It could mean agreeing on one expert for both sides who will do a detailed analysis and come up with a decision," Sheetz offered.

Donnelly explained that "it's often negotiated down to the attorney and then one or two people on the client's side who have to personally sign the protective order."

But Sheetz cautioned that one must bear in mind "that a company will put it all on the line to protect its crown jewels. There's nothing more important to a software company than its software."

© 2005 Lawyers Weekly Inc., All Rights Reserved.

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