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One of the most interesting Business Court decisions of last year was Judge Bledsoe's opinion in DSM Dyneema, LLC v. Thagard, 2014 NCBC 50, in which he held that the Plaintiff, which was suing for misappropriation of trade secrets, was barred from pursuing discovery because it had not identified its trade secrets with "sufficient particularity [an enhanced version of this opinion is available to lexis.com subscribers].” The alleged trade secrets involved the development of ballistic-resistant fibers for enhanced combat helmets. If you missed that case, click here.
This week, Judge Bledsoe followed up on that decision by denying the Motion for Judgment on the Pleadings of Defendants Honeywell Specialty Materials, LLC, Honeywell Advanced Composites, Inc., and Honeywell International, Inc.
There is so much worth writing about in this Opinion, DSM Dyneema, LLC v. Thagard, 2015 NCBC 47 [enhanced version], that I've split it into two posts. More later.
The Honeywell Defendants argued that they were entitled to judgment on the pleadings because the Court had already ruled that the Plaintiff had not identified its alleged trade secrets with the necessary particularity.
While the Court had indeed made that ruling, it pointed out in this second ruling in the case that:
the level of specificity required of a plaintiff to survive a motion for judgment on the pleadings under Rule 12(c) is less than that required to permit discovery into an adversary's confidential and trade secret information.
Adequately Pleading A Trade Secrets Claim
If you are hoping that this case provides a road map for an adequate trade secrets description in a case involving manufacturing/technical type trade secrets, you are bound to be disappointed. Judge Bledsoe merely measured the allegations in the amended complaint against other cases where the trade secret description had been ruled to be insufficient, finding the Plaintiff's allegations to be "more detailed and specific, and less sweeping and conclusory, than those allegations our courts have found to fail the pleading standard of Rule 12.” Op. ¶19.
Nevertheless, the Court's citation of six Court of Appeals and Business Court decisions finding trade secret allegations to be sufficient to survive a motion to dismiss probably will provide at least some direction to those looking to avoid an early dismissal of a trade secrets claim. Those cases (which involve mostly customer type trade secrets) are:
Horner Int'l Co. v. McKoy, 754 S.E.2d 852, 859 (N.C. Ct. App. 2014) (holding sufficient under Rule 12(b)(6) plaintiff’s identification of “various raw materials and raw material treatments; extraction, filtration, separation, and distillation techniques; and methods for compounding of flavors, packaging, and plant utility. . . used in the production of flavor materials derived from seven specifically identified substances, such as cocoa, ginseng, and chamomile”) [enhanced version];
S. Fastening Sys., Inc. v. Grabber Constr. Products, Inc., 2015 NCBC 40 ¶¶ 23–25 (N.C. Super. Ct. Apr. 28, 2015) (holding sufficient under Rule 12(b)(6) “confidential customer information such as customer contact information and customer buying preferences and history . . . confidential freight information, sales reports, prices and terms books, sales memos, sales training manuals, commission reports, and information concerning SFS’s relationship with its vendors”) [enhanced version];
Veer Right Mgmt. Grp., Inc. v. Czarnowski Display Serv., Inc., 2015 NCBC 12 ¶ 29 (N.C. Super. Ct. Feb. 4, 2015), www.ncbusinesscourt.net/opinions/2015_NCBC_12.pdf (holding sufficient under Rule 12(b)(6) “compilations of information, methods, techniques, and processes that [it uses] in planning, organizing and managing all aspects associated with identifying appropriate shows for their clients, pricing and budgeting, procuring space, setting up booths, staffing booths during the show, tracking sales leads generated by each show, tearing down booths after each show”) [enhanced version];
Le Bleu Corp., 2014 NCBC 65 ¶ 29 (holding sufficient under Rule 12(b)(6) “customer lists, pricing information, transaction histories, key contacts, and customer leads”) [enhanced version];
Koch Measurement Devices, Inc. v. Armke, 2013 NCBC 48 ¶ 19 (N.C. Super. Ct. Oct. 14, 2013), (holding sufficient under Rule 12(b)(6) “customer lists, including names, contact persons, addresses, phone numbers . . . [customer] ordering habits, history . . . [and company] pricing and inventory management strategies”); and
TSG Finishing, LLC v. Bollinger, 767 S.E.2d 870, 877 (N.C. Ct. App. 2014) (recognizing in directing entry of preliminary injunction that particular steps in a process may be trade secrets, not simply the process as a whole) [enhanced version].
If you use the descriptions from those cases as a model for your trade secrets complaint, you will stand a pretty good chance of surviving a Motion to Dismiss (at least in Judge Bledsoe's Court).
Discovery Will Go Forward In This Case
The good news in this decision for the Plaintiff -- apart from escaping the Motion to Dismiss -- is that it is now entitled to discovery of the Honeywell Defendants' own trade secrets.
You will remember that the heart of the first Dyneema decision was that the Plaintiff was not entitled to any discovery of the Defendants' confidential information without describing the trade secrets which Plaintiff claimed had been misappropriated.
That ruling caused me to wonder how a plaintiff in a technical case of this type who claims misappropriation of its trade secrets can ever know exactly which of it proprietary processes have been stolen without having the defendant reveal its own trade secrets.
Now, the Court has shown some understanding of the box in which DSM Dyneema found itself in pursuing its trade secrets claim. Judge Bledsoe said:
the Court is persuaded that in these circumstances—where DSM reasonably contends that the finished product at issue is 'the result of a recipe or formula of numerous variables' and is not publicly available for purchase or inspection, (DSM’s Resp. Honeywell’s Mot. Prot. Order, p. 13), and where the Court finds that the nature of Defendants’ alleged misappropriation creates an inherent difficulty for DSM to identify which portions of its trade secrets have been misappropriated prior to the receipt of discovery from Defendants —the Court concludes that DSM has satisfactorily complied with the Court’s [Order in 2014 NCBC 47] and that the Honeywell Defendants should now be required to produce to DSM their relevant and responsive confidential information and trade secrets.
Op. ¶33. The Court looked to a Georgia federal court decision recognizing the same difficulty a trade secret plaintiff may face in identifying the trade secrets it says were stolen from it. In that case, DeRubeis v. Witten Techs., Inc., 244 F.R.D. 676 (N.D. Ga. 2007), the Court held:
[T]he trade secret plaintiff, particularly if it is a company that has hundreds of thousands of trade secrets, may have no way of knowing what trade secrets have been misappropriated until it receives discovery on how the defendant is operating [enhanced version].
Id. at 680.
In a future post: Whether the inevitable disclosure doctrine applies in North Carolina, and the near impossibility of making breach of fiduciary duty claims against employees.
Read other articles on the North Carolina Business Litigation Report, a blog for lawyers focusing on issues of North Carolina business law and the day-to-day practice of business litigation in North Carolina courts.
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