United States: Hold My Beer: Ninth Circuit Hears Oral Argument In Trade Secret/Anti-SLAPP Row For A Second Time

A Ninth Circuit panel consisting of Judges A. Wallace Tashima, Johnnie B. Rawlinson, and Paul J. Watford recently heard oral argument in Anheuser-Busch Companies v. Clark, 17-15591, concerning the denial of a former employer's anti-SLAPP motion in a trade secret misappropriation and breach of contract case. This is the second time the case has made its way up to the Ninth Circuit. We previously reported on this case in March 2017. The panel has not yet issued its decision but the Ninth Circuit's decision could have far reaching implications for trade secret and data theft cases involving purported whistleblowing activities.

Background

On March 1, 2013, the company sued its former employee James Alan Clark ("Clark") for trade secret misappropriation and breach of nondisclosure agreements in the Eastern District of California. Specifically, the company alleged that Clark stole a trade secret document containing beer specifications, known as "Page 13," for use in connection with a consumer class action filed one week prior to this action. In the class action, consumers alleged the beer company intentionally mislabels the alcohol content of their beverages.

Clark subsequently filed a motion to dismiss and strike the Complaint under California's anti-SLAPP statute. Clark argued that the company's claims were an attempt to punish him for exercising his constitutional rights of petition and free speech in connection with the consumer class action. The district court denied Clark's anti-SLAPP motion, finding that Clark failed to meet the first prong of the anti-SLAPP inquiry—the company's claims did not arise out of Clark's protected litigation activity. The district court did not reach the second prong, whether the company established a probability of prevailing on the merits. Clark appealed the order to the Ninth Circuit.

Ninth Circuit – Round 1

On November 13, 2015, the Ninth Circuit reversed the district court and held that Clark's suit against the beer company arises out of his constitutionally protected pre-litigation activity, and therefore Clark satisfied the first prong. The Ninth Circuit vacated the order denying the anti-SLAPP motion and remanded the case for the district court to consider the second prong, whether the company can establish a probability that it will prevail on its claims.

Upon its second review of Clark's anti-SLAPP motion, the federal district court found that the company had demonstrated a likelihood of prevailing on its trade secret misappropriation and breach of contract claims, and the district court also rejected the Clark's substantive legal defenses of public policy, whistleblower immunity, and litigation privilege. Clark appealed to the Ninth Circuit for a second time.

Ninth Circuit – Round 2

During the second round of oral argument, the three-judge panel focused primarily on whether a witness declaration describing the trade secret is admissible to show the existence of a trade secret, as well as whether the company alleged sufficient damages to support both of its claims.

Counsel for Clark urged the panel to reverse the order denying Clark's anti-SLAPP motion, arguing the company failed to meet its burden of establishing a probability that it will prevail on its claims for trade secret misappropriation and breach of contract. Clark's counsel argued that the company failed to submit admissible evidence in support of its position that Page 13 is, in fact, a trade secret. Instead of proving its trade secret by filing Page 13 under seal or pursuant to a protective order, the company relied on a witness declaration, which Clark asserts is inadmissible hearsay. Additionally, Clark argued that the company could not prevail on its claim for trade secret misappropriation because the company did not use reasonable efforts to maintain the secrecy of Page 13. Clark's Counsel argued that the document was readily available and frequently hanging in printed form on bulletin boards and employee workstations. Finally, Clark addressed that the company had not submitted admissible evidence of damages for either claim.

Counsel for the company argued that its claims met the "minimal merit" requirement under the second prong of California's anti-SLAPP statute. The company's counsel stated that the declaration did show that Page 13 is a trade secret because it describes the beer specifications which are not generally known to the public, possess independent economic value, and are subject to reasonable efforts to protect its secrecy. Additionally, the beer company contends it has made a prima facie showing of damages from legal fees incurred by defending this action and the various consumer class actions caused by the misappropriation. Moreover, the beer company has also sought injunctive relief separate and apart from monetary damages.

Takeaways

While the alleged misappropriation occurred after the enactment of the Defend Trade Secret Act (DTSA), this case raises interesting issues about whistleblower protections. The DTSA provides additional whistleblower protections, along with California's whistleblower statute. Specifically, the DTSA protects individuals from criminal and civil liability under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation, or that is made in a complaint or other document filed under seal in a lawsuit or other proceeding. (For additional information of the DTSA and its implications regarding whistleblowers, please see our DTSA Guide).

We are hopeful that the court will affirm that employees do not have an unfettered right to surreptitiously take documents from the workplace for their own use in litigation or otherwise. The Ninth Circuit has previously rejected the concept of "blanket" protection for whistleblowers for violation of confidentiality agreements and misappropriation of confidential documents. See Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047 (9th Cir. 2011).

Access to the oral argument can be found here.

We will keep you apprised of the Ninth Circut's decision.

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