A battle that occurs in most theft of trade secrets lawsuits revolves around which side will first disclose its trade secrets in discovery. In Texas, the judge has discretion to set the order for this type of discovery. There is little authority from Texas state courts to guide the trial judge. However, several federal courts in Texas recently chose to require the plaintiff to specifically identify its trade secrets before permitting the plaintiff to conduct any discovery.
The case opinions are discussed at the end of this post. Before that, let’s look at why lawsuit plaintiffs and defendants care so much about this issue.
The plaintiff wants to delay taking a position that defines its trade secrets until after the plaintiff obtains discovery of what the defendant is doing in the defendants’ business. This allows the plaintiff to avoid describing its trade secrets in a manner that the defendant may easily be able to distinguish from the defendant’s business techniques. The plaintiff may also not be able to identify every stolen trade secret after the plaintiff obtains discovery from the defendant. Finally, an unscrupulous plaintiff might hope to “back fill” its list of alleged trade secrets with information it obtains in discovery from the defendant’s files.
The defendant has its own incentives. The defendant often desires to press the plaintiff to explain the plaintiff’s trade secrets in great detail before the defendant provides the plaintiff with discovery into the defendant’s business practices. There are legitimate, but also strategic reasons for this. On the one hand, it is reasonable for the defendant to state, “You sued me for stealing your trade secrets, so tell me what they are.” Disclosure of the plaintiff’s trade secrets also permits the court to determine what subject areas of discovery the defendant must provide to the plaintiff – and which areas of the defendant’s business are off-limits. On the other hand, if the plaintiff defines its trade secrets too narrowly so that the description does not cover business techniques or information that the defendant did take from the plaintiff, the defendant may hope to prevent the plaintiff from discovering that fact.
One example of a Texas state court case in which the trial court required the plaintiff to provide the defendant with a detailed description of the plaintiff’s trade secrets is Universal Computer Systems, Inc. v. Dealer Solutions, LLC, 183 S.W.3d 741, 745-46 (Tex. App.—Houston 2005; cert. denied at 549 U.S. 1031). The trial court did not prohibit the plaintiff from taking discovery at the outset of the case, but did so after the plaintiff failed to adequately disclose its trade secrets in response to written interrogatories.
Two federal courts in Texas went further – requiring the plaintiff to disclose its trade secrets with reasonable particularity before permitting any discovery to occur in the cases. StoneEagle Services, Inc. v. Valentine, No. 3:12-CV-1687-P, 2013 WL 9554563, **4-5 (N.D. Tex. June 5, 2013) (citations omitted); United States Automobile Assoc. v. Mitek Sys., Inc., 289 F.R.D. 244 (W.D. Tex. 2013). Both of those opinions review how federal courts across the country have addressed the issue, so they are a good resource for anyone who desires to learn more about this subject area.