3 minute read | September.26.2019
It’s common sense that, to protect a trade secret, the information must remain secret. However, when trade secret misappropriation claims arise and litigation ensues, the court and the parties involved need to understand at least the broad confines of the alleged trade secret. While the Federal pleading standard for a plaintiff’s complaint is the same regardless of what the trade secret may be—namely, that the plaintiff include sufficient particularity of the trade secret’s subject matter—what constitutes “sufficient particularity” will depend on the type of information alleged to be a trade secret. AlterG, Inc. v. Boost Treadmills LLC, a recent decision in the Northern District of California, highlighted this fact when the court found the plaintiff had adequately pleaded facts to describe one trade secret, but failed to do so for another.
In AlterG, after three former employees from medical device company AlterG, Inc. founded a competing business in 2016, AlterG filed a complaint alleging nine causes of action, including a claim for trade secret misappropriation under the federal Defend Trade Secret Act, against the ex-employees and their new business, Boost Treadmills, LLC.
According to the complaint, AlterG is considered a leading provider of “Anti-Gravity Treadmills”—treadmills that are designed to lower impact on the user’s body and are used for orthopedic rehabilitation and training. AlterG alleged that Defendants conspired to create a competing machine using AlterG’s intellectual property and that they had used confidential, proprietary, and trade secret information “to shortcut the research and development time to come to market with a lower cost unweighting treadmill.”
AlterG’s initial complaint was dismissed as it was insufficiently pleaded. When AlterG filed an amended complaint, Defendants again sought to have claims dismissed. As for the trade secret misappropriation claim, Defendants argued that two of eight alleged trade secrets were not identified with sufficient particularity: one was regarding “AlterG’s pricing and market strategy, especially with respect to price-sensitive accounts”; the other was “the concept of retrofitting an existing commercial treadmill with an air based unweighting system.”
The court recognized that, at the pleading stage, a plaintiff must “describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special persons who are skilled in the trade, and permit the defendant to ascertain at least the boundaries within which the secret lies.”
The court considered the pleadings surrounding each alleged trade secret in turn. With respect to AlterG’s pricing and marketing strategy trade secret, the court found AlterG had provided sufficient specificity to overcome Defendants’ motion to dismiss. On the other hand, the court found that the trade secret regarding retrofitting an existing commercial treadmill was notably much more complex and technical. Unlike pricing and marketing strategies, technical matters demanded a higher level of specificity. Given this, the allegations in the amended complaint were insufficient to explain what material differences existed between AlterG’s retrofitting and similar methods or technology found in existing prior art. Therefore, the Court granted Defendants’ motion to dismiss with respect to this trade secret.
The Court’s split decision on Defendants’ motion to dismiss is a good reminder that the level of detail required to adequately plead trade secret misappropriation depends on how technical an alleged trade secret is and how readily its scope can be understood from the pleadings.