Trade Secret Owners Need to Find the Facts Instead of Letting the Facts Find Them
Recent case law confirms that trade secret owners should proactively investigate any suspicions of theft, and if they do not, they may be at greater risk of being barred under the statute of limitations than they may expect.
The federal trade secret act, the Defend Trade Secrets Act (“DTSA”), and many state trade secret statutes have a three-year statute of limitations period in which a complaint must be filed. Due to the generally covert nature of the offense, the DTSA and many state trade secret statutes start the clock not at the time of actual theft, but rather based on the “discovery rule,” meaning that the clock starts when the trade secret owner discovers or should have discovered the misappropriation. 18 U.S.C. § 1836(d).
However, as recent case law confirms, given the right circumstances, the clock may start as early as when the plaintiff had its first suspicions of theft—or should have—which is a lower standard and earlier timeline than many might expect. Whether the plaintiff should have suspected misappropriation is a complex factual inquiry, and what its obligations are after that point is not always clear. For example, courts have held that discovery of evidence that is insufficient to ultimately prove a claim of misappropriation may still start the limitations clock. Elite Semiconductor, Inc., v. Anchor Semiconductor, Inc., 5:20-cv-06846, 2025 U.S. Dist. LEXIS 6608, at *5 (N.D. Cal. Jan. 13, 2025). Courts have also stated the obligation that arises upon actual or constructive suspicion is an obligation to conduct a reasonable investigation. Id. Then, when evaluating compliance with statute of limitations and the discovery rule, some courts phrase the analysis as one of imputing any knowledge that would have come from a reasonable search, and evaluating whether that would have amounted to discovery of the theft, whereas other courts seem to focus on the reasonableness of the search itself and appear to hold that if no investigation is done, the clock starts regardless of whether or not a search would have uncovered enough evidence to learn of the theft. Compare Elite Semiconductor, 2025 U.S. Dist. LEXIS 6608 at *5 OrbusNeich Med. Co. v. Boston Sci. Corp., 694 F. Supp. 2d 106, 117 (D. Mass. 2010) with Gabriel Techs. Corp. v. Qualcomm Inc., 857 F. Supp. 2d 997,1004-05 (S.D. Cal. 2012).
What is clear is that a “plaintiff must go find the facts; she cannot wait for the facts to find her.” Id.
The below cases provide a few examples and demonstrate the importance of early investigation and early filing.
Elite Semiconductor, Inc., v. Anchor Semiconductor, Inc., No. 5:20-cv-06846, 2025 U.S. Dist. LEXIS 6608 (N.D. Cal. Jan. 13, 2025)
Anchor argued that Elite was or should have been suspicious of trade secret misappropriation when it became aware of Anchor’s patent application. The parties agreed Elite received actual notice of the patent application six years prior to filing suit. In fact, not only had Elite’s CEO received a copy of the application, but he received an analysis comparing the patent application to Elite’s own technology. In a declaration, Elite’s CEO stated that the patent application was based on Elite’s misappropriated trade secrets. Elite’s technical expert conceded that “[Elite’s] trade secrets were explained in detail in [the Patent Application].”
Given the above admissions and evidence, the court concluded that statute of limitations began running when Elite had become aware of the patent application. The court stated “[a]ny reasonable company presented with a third-party patent application that describes its trade secrets in detail should certainly be suspicious that someone stole those secrets and begin investigating whether that is the case.” The court distinguished this case from instances where trade secrets were described in patent applications, but the trade secret owners were not aware of the patent applications. In other words, while a trade secret owner does not have a duty to discover incriminating patent applications, a trade secret owner who does discover a patent application describing its trade secrets has a duty to investigate.
When granting the motion to dismiss, the court also emphasized “it is the suspicion of a claim, not proof of a claim, that triggers the running of the statute of limitations” and “[t]he statute of limitations does not wait until a plaintiff is in a position to present evidence which will . . . establish facts which make liability a legal certainty.” In other words, a trade secret owner who finds out about a patent application describing a trade secret cannot delay an investigation, regardless of whether the owner does not have access to the patent applicant’s documents, or whether the patent applicant could have independently invented the same technology.
OrbusNeich Med. Co. v. Boston Sci. Corp., 694 F. Supp. 2d 106 (D. Mass. 2010).
In support of a joint venture, Orbus disclosed trade secrets to Boston Scientific. But after it reviewed Orbus’s trade secret information, Boston Scientific declined to pursue the joint venture arrangement. According to the complaint filed by Orbus in the District of Massachusetts, Boston Scientific’s later-filed patent applications contained the trade secrets Orbus previously disclosed to Boston Scientific.
Boston Scientific moved to dismiss, arguing that the publishing date of the relevant patent applications proceeded Orbus’s complaint by more than three years. While the court acknowledged that plaintiffs sometimes have a duty to inquire into the contents of the relevant public records, such as patent applications, the court also acknowledge that such a duty only arose “when sufficient facts were available to provoke a reasonable person to investigate their contents.” The court denied the motion to dismiss, stating that “[Boston Scientific] alleges nothing which would suggest that Orbus had any reason to suspect potential misappropriation of its confidential information, such that it was under a duty investigate the contents of [Boston Scientific’s] published patent applications. . . .”
Gabriel Techs. Corp. v. Qualcomm Inc., 857 F. Supp. 2d 997 (S.D. Cal. 2012).
In this case, a joint venture was also the source of the alleged trade secret misappropriation. The defendants argued that the plaintiffs were suspicious of the trade secret misappropriation based on at least two events. Both dates would have rendered the plaintiffs’ claims outside the statute of limitations.
The first alleged event was an email sent by the CTO of one of the plaintiffs. The email included a presentation published by the defendants. In reference to the emailed presentation, the CTO stated in an email “did you notice that [product] [is] a direct rip-off of our work.” The plaintiffs attempted to explain this email by positing that the CTO may have investigated further by re-reading the presentation and concluding his original suspicion was a mistake. But the court did not accept this explanation, as the CTO admitted during deposition that he had believed defendants “ripped off” the trade secret at the time of the email and its attached presentation, and then did nothing to investigate his suspicion because he “didn't think it was important.” The plaintiff also tried to argue that the CTO’s suspicion was mistaken by arguing that the attached presentation was not relevant because it did not disclose a specific technology. The court also dismissed this argument because the plaintiff previously asserted that the trade secret was a “general concept, not the specific implementation.”
The second alleged event was the renegotiation of license agreement. Qualcomm, a defendant, had attempted to delete the “proprietary rights” paragraph from a license agreement. Defendants argued that this renegotiation sparked suspicion by the CFO of one of the plaintiffs. Defendants pointed to emails, meeting memos, meetings with trial counsel, and the CFO’s deposition testimony. For example, the CFO met with trial counsel soon after defendant attempted to renegotiate the license agreement and admitted that the meeting was “to determine if there was any merit to [plaintiffs’] claim again [defendant].” The CFO further admitted during deposition that the renegotiations had made him suspicious that defendants may have taken plaintiffs’ technology. Plaintiff attempted to explain this evidence as amounting to nothing but “business suspicion” and produced affidavits in support of the argument. The court disregarded the affidavits as “sham affidavits.”
The court distinguished the cases that plaintiff cited by holding that “in each of these cases the plaintiff conducted an investigation and either the information necessary to discover the claim was not available or, in one case, a second expert informed the plaintiff that no wrongdoing had occurred.” The court granted summary judgment to the defendants, finding that both events did or should have aroused suspicion in the plaintiff, which then failed to investigate.
Takeaways:
The cases show that whether a trade secret owner should have suspected that they were wronged is very fact-dependent. Nonetheless, as shown above, courts grant motions to dismiss or summary judgment when there is no genuine issue of fact that the trade secret owner did or should have suspected misappropriation outside of the statute of limitations and failed to properly investigate.
- When a plaintiff was suspicious or should have been suspicious, it has a duty to conduct a reasonable investigation and if they fail to conduct such an investigation, any knowledge that would have resulted from such a reasonable investigation will be imputed to it.
- Evidence that is useful for imputing suspicion and the knowledge that would have come from a reasonable investigation to the plaintiff may include:
- Emails showing that plaintiff was suspicious by using explicit language such as “ripped off”;
- Deposition testimony from employees of the plaintiff admitting they were suspicious at the time in question;
- Even if plaintiff argues that a specific document did not disclose a trade secret because it fails to include specific characteristics of the proprietary technology, a court may still find that the document should have aroused suspicion if the plaintiff had previously argued for a broader definition of the trade secret during litigation;
- Meetings with trial counsel following an event can be used as evidence that the event aroused suspicion; and
- Emails alluding to trial counsel investigating whether trade secrets were misappropriated can be used as evidence that the event aroused suspicion.
- Emails showing that plaintiff was suspicious by using explicit language such as “ripped off”;
- Suspicion is less likely to be imputed to a trade secret owner when the evidentiary documents originate from defendant or a third party, and the documents lack detailed descriptions of trade secrets.
- Documents originating from the plaintiff may nonetheless fail to convince a court that suspicion was aroused, if the documents lack explicit phrases of suspicion.
- Absent a provocation, trade secret owners usually do not have a duty to discover patent applications describing trade secrets. This is true even where the patent applications are filed by a trade secret owner’s past business associates who were given access to trade secrets. But if a trade secret owner was aware of a patent publication describing its trade secrets, the court will likely find that the owner had a duty to investigate further.
- A statute of limitations defense is more likely to succeed if a trade secret owner relies on evidence it became aware of more than three years prior to filing suit, even if it only relies on it as part of the proof, rather than as enough to prove misappropriation itself.
- A trade secret owner should investigate all suspected misappropriation, and if the suspicion is confirmed or nearly confirmed, file early.