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How Trade Secret Theft Cases Render Plaintiffs Vulnerable

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For companies seeking to sue others for stealing their trade secrets, here's two (2) uncomfortable, harsh truth you must confront:

  1. You can't win your case unless you're willing to disclose what those trade secrets are;
  2. You are going to have to disclose those trade secrets to the other side before they are required to disclose anything.

In a significant decision that was handed down on MSCI Inc., Financial Engineering Associates, Inc., et al. v. Jacob, Axioma, Inc., et al., New York County trial justice Shirley Kornreich held that a software company claiming that one of its competitors had wrongly misappropriated their trade secret software that is sold to their clients from the global financial sector, was precluded from seeking further discovery from defendants until they identify, with reasonable particularity, which of the component parts or sequencing of their source code are not (1) publicly available information, (2) commonly-used algorithms, or (3) third-party licensing.

Why This Decision is Significant

Because the court held that in the context of a trade secret theft case, the defendant was inherently entitled to priority of discovery, i.e., that the defendant did not have to disclose anything about its own technologies until the plaintiff first disclosed the specific trade secrets it claims were misappropriated, or stolen.

The Court's reasoning was compelling:

"[I]t would be unfair to allow plaintiffs to discover [defendant]'s trade secrets prior to revealing their own. Should defendants remain in the dark as to the explicit portions of the source codes that plaintiffs deem to be trade secrets misappropriated by defendants, plaintiffs, once privy to [defendant]'s source codes, could tailor their theory of misappropriation to [defendant]'s work."

The Takeaway(s)

The upshot from this decision leaves plaintiff's considering bringing suit for trade secret theft or misappropriation with a number of important things to consider, including the following:

  1. How significant are the trade secrets that were supposedly taken by the defendants?
  2. How sure are you that they were, in fact, taken, and if so, by the defendants?
  3. If you are wrong, and they weren't actually taken, have you now risked your core business by putting your trade secrets out in the open? 

Category: Breach of Fiduciary Duty

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer

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