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Citizens of Humanity, LLC v. Costco Wholesale Corp. - 171 Cal. App. 4th 1, 89 Cal. Rptr. 3d 455 (2009)

Rule:

In resolving a claim of trade secret privilege, the party claiming the privilege has the initial burden of proving its existence. Thereafter, the party seeking discovery must make a prima facie, particularized showing that the information sought is relevant and necessary to the proof of, or defense against, a material element of one or more causes of action presented in the case, and that it is reasonable to conclude that the information sought is essential to a fair resolution of the lawsuit. It is then up to the holder of the privilege to demonstrate any claimed disadvantages of a protective order. Either party may propose or oppose less intrusive alternatives to disclosure of the trade secret, but the burden is upon the trade secret claimant to demonstrate that an alternative to disclosure will not be unduly burdensome to the opposing side and that it will maintain the same fair balance in the litigation that would have been achieved by disclosure. This analysis is to be performed in the context of the pleadings; in determining whether the information is relevant and necessary to the issues presented by the case, a court must consider the causes of action and defenses alleged. 

Facts:

A manufacturer of high-end apparel discovered that some of its current seasonal products were being sold at a low-price warehouse store. The manufacturer sued the warehouse store under Cal. Pen. Code, § 496, for the sale of stolen property after the warehouse store refused to disclose its source for the products. The trial court ultimately denied the manufacturer discovery of the warehouse store's sources and sustained the warehouse store's demurrer to the operative complaint. The manufacturer appealed.

Issue:

Did the manufacturer state a claim?

Answer:

Yes

Conclusion:

The intermediate appellate court concluded that while the manufacturer was not entitled to the discovery it sought because the identity of the warehouse store's suppliers was a protectable trade secret and the warehouse store showed that the identity of its sources was information that derived economic value from not being generally known, and it introduced evidence indicating that it had taken reasonable efforts to maintain the secrecy of its sources, the manufacturer properly alleged a cause of action for sale of stolen goods that was sufficient to survive demurrer. The plain language of Pen. Code, § 496, subd. (c), clearly did not restrict the right to bring a civil action to the owner of the stolen property, and the manufacturer's action appeared to be within the intended scope of the statute. Thus, the court reversed the judgment and remanded the matter for further proceedings. The court, however, did note that the manufacturer had wholly failed to plead its cause of action for fraud with the necessary particularity. Furthermore, the manufacturer could not allege having suffered losses that would entitle it to restitution because it had no standing to pursue a cause of action for unfair competition. 

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