The US Court of Appeals for the Ninth Circuit reversed a district court’s grant of summary judgment, finding that the plaintiff had sufficiently pled trade secret misappropriation by identifying its trade secrets and how they were protected with sufficient particularity. InteliClear, LLC v. ETC Global Holdings, Inc., Case No. 19-55862 (9th Cir. Oct. 15, 2020) (Gould, J.).
In 2004, InteliClear began development on a comprehensive electronic system for managing stock brokerage firm accounting, securities clearance and securities settlement services using a Structured Query Language relational database designed to handle millions of trades each business day. It named the program the “InteliClear System.”
In 2008, ETC’s predecessor signed a software license agreement with InteliClear and obtained a license for the InteliClear System. The license agreement acknowledged that all information InteliClear provided was confidential, proprietary and copyrighted, and ETC agreed to maintain that information in confidence “during and after” the terms of the agreement.
In 2017, InteliClear sent ETC a notice terminating the license agreement. ETC committed to remove the InteliClear database from its systems by February 26, 2018. On March 5, 2018, ETC certified that the InteliClear System had been removed from all ETC servers and that all copies had been destroyed. But, before the license agreement ended, ETC had already begun building its own securities clearance software. Around the same time that InteliClear terminated the license agreement, ETC launched its own electronic trading system. InteliClear immediately contacted ETC about its suspicion that ETC had improperly used the InteliClear System to build its own system, and, after months of negotiations, ETC agreed to allow a computer forensics company to compare the two systems and investigate. The forensics company found an abundance of evidence that the elements of each system were identical.
InteliClear sued ETC for trade secret misappropriation under federal and state law and for unfair competition. The district court dismissed the claim for unfair competition, reasoning that it was preempted by the California Uniform Trade Secrets Act. One day into discovery, and before any discovery had been requested or provided, ETC moved for summary judgment, asserting that InteliClear failed to identify its trade secrets with sufficient particularity and that InteliClear did not show that the InteliClear System was a trade secret or that ETC had access to InteliClear’s source code. The district court granted ETC’s motion and denied InteliClear’s motion to defer ruling until after completion of discovery under Rule 56(d). InteliClear appealed.
The Ninth Circuit analyzed the federal and state trade secret misappropriation claims together because the elements were substantially similar. The Court noted that to succeed on a claim for misappropriation, a plaintiff must prove (1) that the plaintiff possessed trade secrets, (2) that the defendant misappropriated the trade secrets, and (3) that the misappropriation caused or threatened damage to the plaintiff. To prove the first element, “a plaintiff must identify the trade secrets and carry the burden of showing they exist.” The Court pointed out that it is important to identify trade secrets with sufficient particularity because [...]