New York Court Requires Specific Identification of Stolen Trade Secrets Before Allowing Discovery to Proceed

In an important recent decision, the Supreme Court of the State of New York, New York County, required plaintiffs asserting a cause of action for misappropriation of trade secrets to identify the trade secrets with particularity before being able to proceed with discovery.

The plaintiffs -- MSCI Inc., Financial Engineering Associates, Inc., RiskMetrics Group, Inc., and RiskMetrics Solutions, Inc. -- offer sophisticated computer software to clients who participate in the global financial market. Plaintiffs’ allegations against their former worker Philip Jacob and his new employer Axioma, Inc. center upon computer source codes and their components and sequencing.

As discovery began, defendants served interrogatories seeking clarification as to what portions of plaintiffs’ source codes are alleged to be stolen trade secrets. At a discovery conference, the Court first allowed plaintiffs to answer such interrogatories by specifying what portions of its source code are not claimed to be trade secrets by providing a list of source code components that (1) are covered by third party licenses, (2) are in the public domain, or (3) otherwise are not claimed by plaintiffs to be trade secrets.

Defendants subsequently argued and persuaded the court that this was insufficient, and that the law requires that a plaintiff identify trade secrets with reasonable particularity early in the case. The court held that only “by distinguishing between the general knowledge in their field and their trade secrets, will the court be capable of setting the parameters of discovery and will defendants be able to prepare their defense.” The court further stated that it would be unfair to allow the plaintiffs to discover the defendants’ trade secrets prior to revealing their own, as this could allow the plaintiffs to tailor their theory of misappropriation to Axioma’s work, or even to misappropriate Axioma’s trade secrets!

Accordingly, the court ordered that the plaintiffs were precluded from seeking further discovery until they supplemented their responses to defendants’ interrogatories.

This decision appears to be the first of its kind in New York state court, but is in line with a trend seen in numerous other states.

The decision also calls to mind the inherent tension in asserting a claim for misappropriation of trade secrets in a publicly filed complaint without actually disclosing the secret information, a tension that often requires very careful drafting by practitioners. Going forward in New York, it appears that even if a trade secret plaintiff need not reveal the secret information in its complaint, it will need to identify such information with specificity shortly afterward (although perhaps not publicly) in order to proceed with discovery.