Keeping Trade Secrets a Secret Depends on Which Court You Choose

The Defend Trade Secrets Act complements state law by creating a uniform federal remedy for trade-secret theft, adding tools that weren’t universally available under the Uniform Trade Secrets Act alone.

But inconsistent applications of pleading standards has made it difficult to determine whether a trade secrets complaint should be brough before a federal court or if there is a better chance of success at the state level.

Accordingly, litigators should proceed with caution and not assume the DTSA offers a more lenient path to survive a motion to dismiss, particularly in jurisdictions that conflate federal and state pleading standards.

Conflicting States

Before the DTSA was enacted in 2016, only states could prosecute trade secret misappropriation. Plaintiffs relied on each state’s version of the UTSA, with no federal civil cause of action available.

As a result, every trade secret case was governed by the procedural and substantive rules of the state where it was filed, including the state’s rules of civil procedure, filing requirements, pleading standards, discovery procedures, and available remedies. The lack of uniformity created uncertainty for multi-state businesses and led to strategic forum shopping based on procedural advantages.

A significant procedural challenge to emerge under this patchwork was the tension between specificity and secrecy in pleadings.

Unlike other civil claims, trade secret cases require a delicate balance. Plaintiffs must allege enough detail to demonstrate the information at issue qualifies as a trade secret and was misappropriated—while doing so risks exposing the information they seek to protect.

Under both state laws and the DTSA, a core requirement of trade secret protection is that “the owner thereof has taken reasonable measures to keep such information secret.”

Plaintiffs must disclose enough detail at the pleading stage to give defendants fair notice, while possibly jeopardizing the secrecy defining a trade secret. Because the existence of a trade secret is generally a question of fact, overly specific disclosures may lead a court to conclude the plaintiff failed to take adequate steps to protect the information, stripping it of trade secret status.

Courts and legislatures have long struggled to reconcile this tension, particularly in jurisdictions that impose heightened pleading or disclosure standards, which inadvertently may pressure plaintiffs into revealing too much, too soon.

Under the California Uniform Trade Secrets Act, plaintiffs must provide enough detail to give the defendant fair notice of the alleged misappropriation. But California law goes even further: A plaintiff must identify the trade secret with “reasonable particularity” before initiating discovery.

This pre-discovery disclosure requirement forces plaintiffs into a precarious position where they must balance revealing enough to move the case forward, but not so much that they forfeit trade secret protection through over-disclosure.

Similarly, North Carolina courts consistently have held that plaintiffs “must identify a trade secret with sufficient particularity so as to enable a defendant to delineate that which he is accused of misappropriating and a court to determine whether misappropriation has or is threatened to occur.”

Additional complications arise when a third-party defendant (such as a new employer) is named in a trade secret complaint but isn’t bound by any prior confidentiality agreement. In such cases, disclosing the trade secret in the complaint may expose it to an entity with no legal obligation to maintain secrecy. This can jeopardize the trade secret’s protected status and undermine the plaintiff’s claim.

Federal Problems

With the DTSA, these long-standing tensions have migrated into the federal system. Federal courts have taken inconsistent approaches to this issue, varying widely in how much detail they require at the pleading stage and in what constitutes adequate protection of the trade secret during litigation.

The US District Court for the Western District of North Carolina demonstrated a flexible approach, finding that a plaintiff can satisfy the pleading standard under the DTSA without identifying trade secrets with exacting specificity, as long as the allegations provide the defendant with enough detail to understand what they are accused of misappropriating.

Similarly, courts in other districts have adopted a plausibility-based approach, holding that a plaintiff need only plead enough facts to state a trade secret claim plausible on its face, rejecting a heightened pleading standard both under their state’s laws and under the DTSA.

Lower courts in the Ninth Circuit also appear lenient in evaluating whether a plaintiff has satisfied the DTSA’s pleading requirements. Although these courts haven’t articulated a clear framework for how plaintiffs should navigate the tension between specificity and secrecy, they have emphasized that although a party “need not disclose its alleged trade secrets in such detail that it would result in public disclosure of those trade secrets,” it must “sufficiently identify those alleged trade secrets.”

Some plaintiffs, however, have failed to strike that necessary balance, and courts have dismissed claims when the alleged trade secrets were described too generically.

Not all courts may take a flexible approach to the pleading standard under the DTSA, and litigators should be aware of the risk—particularly where district courts apply the same pleading standards to DTSA claims as they do to state law trade secret actions.

In ClearOne Advantage, LLC v. Kersen, the court evaluated claims under both the DTSA and the Maryland Uniform Trade Secrets Act using a unified standard, citing case law interchangeably and noting the statutes’ near-identical definitions.

This practice collapses any distinction between federal and state pleading requirements and suggests that plaintiffs may be subject to heightened specificity standards rooted in state law, even when asserting a federal claim.

As federal trade secret jurisprudence continues to develop, practitioners must stay vigilant and adapt their strategies to an evolving landscape where the choice of forum and the precision of the pleadings may increasingly determine whether critical intellectual assets remain protected or are lost at the outset.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Stefanie D. Fischer is a career law clerk in the judiciary and an adjunct professor at Roger Williams University.

Daniel J. Procaccini is an attorney and shareholder with Adler Pollock & Sheehan PC based in Providence, Rhode Island.

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