A California appellate court has taken the unusual step of issuing a peremptory writ of mandate, directing a lower court to vacate a discovery order that had compelled a party in civil litigation to disclose its trade secrets to its opponent.
In 2007, Sybase, Inc. (Sybase) and ANTs Software Inc. (ANTs) signed a nondisclosure agreement to facilitate their negotiations for a new product that was code named “Pegasus.” In 2008, the parties entered into a licensing agreement with ANTs for ANTs Data Server (ADS) software with respect to Pegasus. Sybase is a data management software developer, and Pegasus was to be a product for Sybase's flagship database product, ASE. Following their negotiations, in 2008, they entered into the license agreement. Sybase would later sue ANTs alleging violations of the licensing and nondisclosure agreements.
Sybase's complaint alleges that, at the time ANTs was negotiating with Sybase, its vice-president was also negotiating with Sybase's competitor, Four J’s Development Tools, Inc. (Four J’s), for the sale of ADS, and passed confidential information about the negotiation with Sybase to Four J's. During their negotiations, an ANT vice president who participated in the negotiations went to work for Four J's, and a week after Sybase and ANTs signed the license agreement, ANTs emailed Four J's a copy of the agreement, which disclosed the names of four key ANTs employees that Sybase was supposed to hire. ANTs and Four J’s then entered into an asset purchase agreement for ADS, but ANTs did not assign the license agreement to Four J’s. Four J’s then solicited two of the key employees, who resigned from Sybase and began working for Four J’s.
Sybase sued ANTs, asserting several causes of action in connection with for alleged violations of this licensing agreement and a related nondisclosure agreement. Its allegations included that ANTs’ source code was defective when it was delivered and that it could not be successfully integrated into Sybase’s source code, in violation of the agreement.
During discovery, ANTs requested documents from Sybase including "all source code for" a related product. Sybase objected. In the ensuing discovery dispute, Sybase added its source code to a log of materials it asserted were privileged against disclosure because, it contended, it was Sybase's trade secret. ANT conceded the source code met the test for a trade secret, but maintained it nevertheless was entitled to obtain it because it was necessary to defend against Sybase's claims. Sybase countered that there were "other, better ways" for ANTS to obtain the information it asserted was necessary.
Because Sybase was claiming that ANTs’ source code was defective and could not successfully be integrated into Sybase’s source code, the trial court agreed that Sybase's source code and related documents were directly relevant to ANTs’s defense and that ANTs would be unfairly disadvantaged in defending the case without its disclosure. The lower court therefore ordered Sybase to disclose its source code and other materials. Sybase promptly filed a writ with the appellate court.
California Evidence Code § 1060 provides that the owner of a trade secret has a privilege to refuse to disclose a secret if maintaining the privilege "will not tend to conceal fraud or otherwise work injustice." The lower court found that ANTs made the appropriate showing required for ordering the disclosure of trade secrets as required under the case Bridgestone/Firestone, Inc. v. Superior Court (1992) 7 Cal.App.4th 1384 (Bridgestone). However, the Court of Appeal disagreed:
Bridgestone sets forth the standard for determining whether a trade secret must be disclosed in litigation: Once a party claiming the trade secret privilege has shown that it applies, the party seeking discovery must make “a prima facie, particularized showing that the information sought is relevant and necessary to the proof of, or defense against, a material element of one or more causes of action presented in the case, and that it is reasonable to conclude that the information sought is essential to a fair resolution of the lawsuit. It is then up to the holder of the privilege to demonstrate any claimed disadvantages of a protective order. Either party may propose or oppose less intrusive alternatives to disclosure of the trade secret, but the burden is upon the trade secret claimant to demonstrate that an alternative to disclosure will not be unduly burdensome to the opposing side and that it will maintain the same fair balance in the litigation that would have been achieved by disclosure.
The appellate court held that ANT had failed to show the actual source code was necessary to its defense and a fair resolution of the proceedings because other avenues appeared to be available for obtaining the relevant information short of requiring disclosure of the actual code, for example, by taking the deposition of relevant individuals. The court also found that the certain of ANTs' arguments were not supported by the evidence, and refused to consider other arguments that had not been raised with the trial court. However, given that additional documents had been ordered disclosed discovery on the issue was not yet complete, the Court of Appeal left the door open and explained that, if additional evidence is discovered by which the Bridgestone standard may be satisfied, ANTs could renew its motion.
The case, Sybase v. Superior Court, Case No. A132541 (2011), is available here.
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