When suing over trade secrets, make sure they are real secrets or get fined by the court

Trade SecretsThis week the California Court of Appeal ruled against All American Semiconductor, LLC in its theft of trade secrets lawsuit against APX Technology Corp, affirming an award of $200,000 against the plaintiff in attorneys fees for bringing a meritless claim.

The court held (as many courts have rightfully held before it), that ” a plaintiff seeking trade secret protection must be able to identify the trade secret with reasonable particularity.” Notably, the court wrote:

Plaintiff did not identify for the court in sealed filings or otherwise any particular secret manner of designing memory modules [or its other trade secret claims]… plaintiff also omitted specifying in its opposition what constituted the trade secret in any particular module design.

The court then confirmed that the plaintiff was in essence harassing the defendant with unfounded claims, and confirmed an award against plaintiff requiring it to pay defendant’s attorney’s fees of over $200,000.

The take-away here is pretty simple: Regardless of whether your non-disclosure agreements make general recitations of trade secrets, it is extremely risky to sue for breach of such agreements unless you have actual trade secrets (which you can articulate to the court) that need protecting. General business ideas and other vague “things” will not suffice.

3 Comments

  1. Of course California! This might have a chilling effect for smaller companies that really do think they have a trade secret. Of course, after reading the opinion, the guy had no idea what a memory module even looked like. But the whole “specific designs were not sold” concept, coupled with NIzam’s assertion that he thought they were trade secrets in good faith, seems like it could be trouble down the road.

  2. A chilling effect on frivolous lawsuits? It’s one thing to think you have trade secrets, it is another to have your attorney honestly evaluate the merits of your case prior to filing it. I think this is a good decision, law and policy-wise. IP and trade secret protection mechanisms have their place, but they should not be used to harass legitimate competitors.

  3. That’s fair. In a sue-happy country, there’s nothing worse than wielding lawsuits like weapons. I didn’t think about it from the perspective of the legitimate competitor, I suppose.

Leave a comment

Please be polite. We appreciate that. Your email address will not be published and required fields are marked