Resolving Trade Secret Disputes Without Destroying the Secret

Resolving trade secret disputes without destroying the secret

Trade secret litigation forces a plaintiff to describe, in a proceeding its adversary attends, the very thing it is suing to keep secret. Courts manage that tension by sequencing and containment: identifying the secret before discovery opens, protective orders limiting who sees what, examination of technical material by a court-appointed neutral, and resolution in a private forum that builds no public docket. This article maps the federal and state rules behind each of those steps.

The paradox is structural, not tactical

The federal claim requires proof that the owner "has taken reasonable measures to keep such information secret" and that the information "derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information" (18 U.S.C. § 1839(3)). Both elements are proven with the secret itself, and the second one — ready ascertainability — is often where the fight actually is. Meanwhile "improper means" expressly "does not include reverse engineering, independent derivation, or any other lawful means of acquisition" (18 U.S.C. § 1839(6)), so the defendant's core answer is frequently we developed it ourselves, which it cannot make without seeing what the plaintiff claims.

Congress addressed part of this directly. In any prosecution or other proceeding under the chapter, 18 U.S.C. § 1835(a) provides that a court "shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets" — but the same sentence qualifies that duty, requiring it to be exercised "consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws." It is a direction to use the ordinary tools, not a licence to bypass them. Section 1835(b) adds that a court "may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential."

California's state-law analogue is more specific about the tools. In an action under California's Uniform Trade Secrets Act, Cal. Civ. Code § 3426.5 directs that a court "shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval." Massachusetts imposes a materially identical duty in an action under Mass. Gen. Laws ch. 93, §§ 42 to 42G (id. § 42D(a)).

Those are the authorities. The work is in how they are sequenced.

Identification with particularity is the first real decision point

Two states require it by statute, each within its own scope.

California: "In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act..., 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" (Cal. Code Civ. Proc. § 2019.210). It is a provision of California's Code of Civil Procedure, keyed by its own terms to claims under California's UTSA.

Massachusetts states the purpose. In an action under ch. 93, §§ 42 to 42G, a party alleging misappropriation "must state with reasonable particularity the circumstances thereof, including the nature of the trade secrets and the basis for their protection," and before commencing discovery relating to an alleged trade secret must identify it "with sufficient particularity under the circumstances of the case to allow the court to determine the appropriate parameters of discovery and to enable reasonably other parties to prepare their defense" (Mass. Gen. Laws ch. 93, § 42D(b)).

The Defend Trade Secrets Act has no counterpart. Section 1836(b)(1) creates the private action — available where "the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce" — and says nothing about identifying the secret before discovery. In federal court the requirement, where a court imposes one, comes from case management rather than from the DTSA: Rule 16(c)(2)(L) authorizes "adopting special procedures for managing potentially difficult or protracted actions that may involve complex issues, multiple parties, difficult legal questions, or unusual proof problems," and Rule 26(c)(1)(G) supplies the protective-order power. This divide over identification requirements is one of the four topics addressed in Understanding Trade Secret Disputes and the Advantage of Resolving Them Through ADR.

Some practical consequences of that divide:

• Sequencing is generally raised at the Rule 16 conference. Once general discovery has opened, a defendant's objection that the plaintiff is searching its files to find a secret to accuse is harder to unwind than it would have been at the scheduling stage.
• Identifications are commonly amended, and the terms of amendment are themselves negotiable. A statement written before discovery necessarily reflects only what the plaintiff knows before discovery.
• The identification constrains the damages theory. A narrow, defensible identification limits what can later be claimed as taken; a sprawling one invites a motion and suggests the plaintiff has not settled internally what it owns.

Protective orders, AEO tiers, and what they do not accomplish

Rule 26(c)(1)(G) permits an order "requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way." The attorneys'-eyes-only tier is a creature of that last clause — a specification of manner, not a separate statutory protection. The motion must include "a certification that the movant has in good faith conferred or attempted to confer with other affected parties in an effort to resolve the dispute without court action," and the court issues the order "for good cause" (Fed. R. Civ. P. 26(c)(1)).

Three limits matter in practice.

An AEO tier does not stop the knowledge from reaching the adversary's decision-makers through counsel. The framework courts use to assess that risk comes from U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 (Fed. Cir. 1984), which held that the counsel-by-counsel determination should turn on the extent to which counsel is involved in "competitive decisionmaking" with its client. In re Deutsche Bank Trust Co. Americas, 605 F.3d 1373 (Fed. Cir. 2010), applied that standard to patent prosecution bars, reasoning that "it is shortsighted to conclude that every patent prosecution attorney is necessarily involved in competitive decisionmaking" and that a court must "examine all relevant facts surrounding counsel's actual preparation and prosecution activities, on a counsel-by-counsel basis." The court also made clear the analysis does not stop at risk: "Even if a district court is satisfied that such a risk exists, the district court must balance this risk against the potential harm to the opposing party from restrictions imposed on that party's right to have the benefit of counsel of its choice."

Two limits on borrowing that case. Deutsche Bank applied Federal Circuit rather than regional circuit law precisely because it treated the question — whether a trial lawyer should be denied access under a protective order "because of his additional role in patent prosecution" — as "an issue unique to patent law." So it is not controlling authority for an access or bar dispute in a trade secret case that involves no patent prosecution. What transfers is the underlying U.S. Steel framework: facts over categories, counsel by counsel, and risk balanced against the party's interest in its chosen counsel.

The order has to specify the mechanics. Rule 16(b)(3)(B)(iv) lets the scheduling order include "the timing and method for complying with Rule 26(b)(5)(A) and any agreements the parties reach for asserting claims of privilege or of protection as trial-preparation material after information is produced, including agreements reached under Federal Rule of Evidence 502." The difference between an agreement and an order is spelled out in the rule itself: under Fed. R. Evid. 502(e), an agreement on the effect of disclosure "is binding only on the parties to the agreement, unless it is incorporated into a court order," whereas under Rule 502(d) a federal court may order that privilege or protection is not waived by a disclosure connected with the litigation before it, "in which event the disclosure is also not a waiver in any other federal or state proceeding."

Confidentiality in discovery is not confidentiality at trial. A protective order governs exchange between the parties. Public filing, exhibits, and testimony are separate questions, decided later and usually under time pressure.

Neutral examination: letting someone who is not the adversary look

For source code, formulations, manufacturing parameters, or model weights, the structural answer is that the person who examines the material is neither party.

Rule 53(a)(1)(A) permits appointment of a master to "perform duties consented to by the parties" — often the cleanest route in a trade secret case, because unlike Rule 53(a)(1)(B)(i) it carries no exceptional-condition showing. Rule 53(a)(1)(C) covers pretrial and posttrial matters "that cannot be effectively and timely addressed by an available district judge or magistrate judge of the district." The appointing order does the real work: under Rule 53(b)(2) it must state the master's duties "including any investigation or enforcement duties, and any limits on the master's authority under Rule 53(c)"; "the circumstances, if any, in which the master may communicate ex parte with the court or a party"; "the nature of the materials to be preserved and filed as the record of the master's activities"; and the time limits, method of filing the record, and standards of review.

Note the two constraints that shape how narrow such an examination can be. The ex parte provision is permissive and contemplates that an order may allow none — so single-party technical sessions depend on the order actually authorizing them. And Rule 53(f)(1) requires that, in acting on a master's order, report, or recommendations, "the court must give the parties notice and an opportunity to be heard." A conclusion the parties never see is not something the court can simply adopt, which is why the record provision in Rule 53(b)(2)(C) is negotiated alongside the scope of the examination itself. Attorney Rulebook for Working with Special Masters in Federal Court and Maximizing Case Efficiency: Discovery Referees and Special Masters in ADR go deeper on the reference itself.

The alternative instrument is Fed. R. Evid. 706. A court-appointed expert must "advise the parties of any findings the expert makes," "may be deposed by any party," "may be called to testify by the court or any party," and "may be cross-examined by any party, including the party that called the expert." Rule 706(e) preserves each side's own experts: "This rule does not limit a party in calling its own experts." The trade-off is visible on the face of the rule — a 706 expert produces findings that are testable at trial but are disclosed to both sides, while a Rule 53 master operates within whatever scope the appointing order draws, subject to the notice and record requirements above.

Departing-employee cases: the forensic protocol and the imaging

Rule 34(a)(1) permits a requesting party to "inspect, copy, test, or sample" the items listed in the rule, including the electronically stored information described in Rule 34(a)(1)(A). The 2006 Committee Notes set the boundary: the addition of testing and sampling "is not meant to create a routine right of direct access to a party's electronic information system, although such access might be justified in some circumstances," and "[c]ourts should guard against undue intrusiveness resulting from inspecting or testing such systems."

That boundary is the argument in most departing-employee cases, and it is one that parties frequently resolve by protocol rather than motion. A protocol of that kind typically names the examiner and allocates cost; defines the devices and accounts in scope by date range; specifies search terms and artifact categories rather than open browsing; routes results through a privilege and personal-data review before either party sees them; and is paired with a Rule 502(d) order.

The DTSA's civil seizure remedy exists but is deliberately hard to obtain. A court may order seizure of property necessary to prevent the propagation or dissemination of the trade secret "upon ex parte application but only in extraordinary circumstances" (18 U.S.C. § 1836(b)(2)(A)(i)), and only on eight findings that must "clearly appear[] from specific facts" (§ 1836(b)(2)(A)(ii)). Those include that a Rule 65 order or other equitable relief "would be inadequate to achieve the purpose of this paragraph because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order"; immediate and irreparable injury absent seizure; a balance of harms favouring the applicant; likely success in showing both that the information is a trade secret and that the target misappropriated it by improper means or conspired to do so; that the target "has actual possession" of both the trade secret and the property to be seized; that the application "describes with reasonable particularity the matter to be seized"; that the target "would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice"; and that "the applicant has not publicized the requested seizure."

The custody rules are equally specific. Seized materials are "taken into the custody of the court," which must secure them from physical and electronic access (§ 1836(b)(2)(D)(i)); a storage medium may not "be connected to a network or the Internet without the consent of both parties" until the hearing (§ 1836(b)(2)(D)(ii)); "[a] party or a person who claims to have an interest in the subject matter seized" may move at any time, and the motion "may be heard ex parte," to encrypt material "seized or to be seized," stating the desired encryption method where possible (§ 1836(b)(2)(H)); and the seizure order must set a hearing date "at the earliest possible time, and not later than 7 days after the order has issued," unless the party against whom it is directed and others harmed by it consent to another date (§ 1836(b)(2)(B)(v)), with the hearing held on that date (§ 1836(b)(2)(F)(i)). At that hearing the applicant bears the burden of proving the facts supporting the order, failing which the order "shall be dissolved or modified appropriately" (§ 1836(b)(2)(F)(ii)). In many departing-employee matters a negotiated imaging protocol with a neutral examiner reaches comparable evidence without that exposure.

The federal and state overlay

The DTSA does not displace state law: except as provided in § 1833(b), the chapter "shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret" (18 U.S.C. § 1838). Complaints therefore commonly plead the DTSA alongside a state Uniform Trade Secrets Act claim, and the state claim is what carries forum-specific doctrine.

Three overlay points with direct consequences:

• The clock. A DTSA action "may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered," and "a continuing misappropriation constitutes a single claim of misappropriation" (18 U.S.C. § 1836(d)). State limitations periods run on their own terms.
• Injunctions cannot substitute for a non-compete. A court may enjoin actual or threatened misappropriation "on such terms as the court deems reasonable," provided the order does not "prevent a person from entering into an employment relationship," and provided "that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows," or "otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business" (18 U.S.C. § 1836(b)(3)(A)(i)(I)-(II)). California has gone further as a matter of state law: in Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443 (2002), the Court of Appeal held the inevitable disclosure doctrine "is contrary to California law and policy because it creates an after-the-fact covenant not to compete restricting employee mobility." The same opinion recorded that, on the court's 2002 survey, "the majority of jurisdictions addressing the issue have adopted some form of the inevitable disclosure doctrine" — a count that reflects the law as of that decision, not necessarily the position in any given jurisdiction today. Forum therefore does substantial work on this issue.
• The § 1833(b)(3) notice, and its limits. An employer "shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information" (§ 1833(b)(3)(A)), and is in compliance if it "provides a cross-reference to a policy document provided to the employee that sets forth the employer's reporting policy for a suspected violation of law" (§ 1833(b)(3)(B)). If it does not comply, "the employer may not be awarded exemplary damages or attorney fees under subparagraph (C) or (D) of section 1836(b)(3) in an action against an employee to whom notice was not provided" (§ 1833(b)(3)(C)). Two qualifiers are easy to miss: the bar reaches the DTSA's own exemplary-damages and fee remedies, not remedies under other law; and the notice paragraph "shall apply to contracts and agreements that are entered into or updated after the date of enactment of this subsection" (§ 1833(b)(3)(D)) — that is, after May 11, 2016. "Employee" for these purposes "includes any individual performing work as a contractor or consultant for an employer" (§ 1833(b)(4)).

Why these disputes are often routed to ADR

The structural argument is about the record. A protective order operates against a public docket; sealing is decided case by case, and material tends to move toward exposure as a case moves toward trial. A private process starts from a different default — but the scope of that default should be read carefully rather than assumed.

Under JAMS Comprehensive Arbitration Rule 26(a), "JAMS and the Arbitrator shall maintain the confidential nature of the Arbitration proceeding and the Award, including the Hearing, except as necessary in connection with a judicial challenge to or enforcement of an Award, or unless otherwise required by law or judicial decision." Rule 26(b) provides that "[t]he Arbitrator may issue orders to protect the confidentiality of proprietary information, trade secrets or other sensitive information." Two features of that text are worth noting. First, by its terms Rule 26(a) binds JAMS and the arbitrator — it does not itself impose a confidentiality obligation on the parties, so party-level confidentiality has to come from the arbitration agreement or from an order under Rule 26(b). Second, the carve-out for a judicial challenge to or enforcement of an award means that a party expecting to confirm or resist an award in court is planning for a court filing, and the confidentiality architecture has to account for that from the drafting stage.

Court-annexed ADR has its own confidentiality layer, also qualified. Under 28 U.S.C. § 652(a), "[n]otwithstanding any provision of law to the contrary and except as provided in subsections (b) and (c), each district court shall, by local rule adopted under section 2071(a), require that litigants in all civil cases consider the use of an alternative dispute resolution process at an appropriate stage in the litigation." Section 652(d) provides that "[u]ntil such time as rules are adopted under chapter 131 of this title providing for the confidentiality of alternative dispute resolution processes under this chapter, each district court shall, by local rule adopted under section 2071(a), provide for the confidentiality of the alternative dispute resolution processes and to prohibit disclosure of confidential dispute resolution communications." Because the protection is supplied district by district by local rule, its scope is not uniform, and the governing local rule is the operative text.

Two further structural points. A neutral can be selected for subject-matter fluency, which matters where the dispute turns on whether two implementations share non-public architecture — the same reason parties seek a technically literate master. And the range of terms available by agreement is wider than what a court is likely to order: audited deletion, third-party verification, field-of-use restrictions, licensing, and staged monitoring are all negotiable outcomes. That is a difference of scope and negotiability rather than an absolute one — the DTSA does authorize an injunction "requiring affirmative actions to be taken to protect the trade secret," and, in exceptional circumstances that render an injunction inequitable, one conditioning future use on "payment of a reasonable royalty" (18 U.S.C. § 1836(b)(3)(A)(ii)-(iii)) — but the negotiated version is not constrained by what a court would find reasonable to compel.

ADR and Mediation covers the process choices; Zooming Towards Resolution: Success in Virtual Mediation addresses running a technical session remotely; and Data Disputes: Navigating Data Breach Mediation and ADR and Mediation in Cyber and Data Breach Disputes address the adjacent situation in which the misappropriation and a security incident arise from the same facts.

Recurring failure points

• An identification statement written to preserve options rather than to describe an asset, which does not survive the first motion.
• An AEO tier agreed without a bar provision, leaving the competitive-role question to be litigated after in-house counsel has already read the production.
• A forensic protocol negotiated after imaging, so the scope dispute proceeds with the data already collected.
• A Rule 502 clawback agreement signed but never entered as an order, leaving Rule 502(e) — binding only on the parties — as the only protection.
• Exemplary damages and fees pleaded under the DTSA without anyone checking the relevant agreements for the § 1833(b)(3) notice, or checking whether those agreements postdate May 11, 2016.

Learn more

• Understanding Trade Secret Disputes and the Advantage of Resolving Them Through ADR — a panel covering what trade secrets are and why they are litigated, the DTSA's remedies and their limits, the divide over identification requirements, and when ADR is preferable to litigation.
• Yoav Griver, Partner, Zeichner Ellman & Krause LLP, and Bradford Newman, Chair of the North America Trade Secret Practice at Baker McKenzie, are among the faculty for that course.
• Claude M. Stern is a neutral at JAMS and served as chair or co-chair of Quinn Emanuel Urquhart & Sullivan's national intellectual property litigation practice from 2003 through 2021.
• Gregory M. Sleet is a neutral at JAMS and served 20 years on the U.S. District Court for the District of Delaware, including seven as chief judge.
• James Orenstein is a neutral at JAMS and a former federal magistrate judge.
• Katherine Charonko, Partner and ESI Practice Group Leader at Bailey & Glasser, teaches on electronic discovery practice.
• Attorney Rulebook for Working with Special Masters in Federal Court and Maximizing Case Efficiency: Discovery Referees and Special Masters in ADR.

This article is general information about legal procedure and is not legal advice; consult counsel about any specific matter.