DER Security Corp v. Enetrics LLC

Background

DER Security Corp sued Enetrics LLC and other defendants. The opinion describes allegations involving Robert Fox, who had worked for DER and had access to DER’s technical trade secrets—including source code, object code, and other specifications—and business trade secrets, including proprietary business information and contacts.

DER alleged that after Fox left DER, he started Enetrics and introduced a product very similar to DER’s DERSec LabTest. DER alleged that Fox could not have built the product from scratch in the time between leaving DER and introducing it without using DER’s trade secrets. DER also alleged that Fox and Enetrics targeted DER’s customers using contact information Fox would have known only through DER’s business trade secrets.

Court’s Analysis

The defendants moved to dismiss. The court held that DER stated a claim for trade-secret misappropriation. At the motion-to-dismiss stage, DER did not need to provide every detail of the alleged trade secret. It did need to describe the subject matter with enough particularity to distinguish it from general knowledge in the trade and to give the defendants notice of the boundaries of the alleged secrets.

The court found DER’s allegations sufficient. It pointed to DER’s allegations about a specific client, confidential business contact information, a confidential long-term business plan, a specific product that Fox allegedly copied, and Fox’s apparent improper access to DER’s product source code. The court concluded that the allegations plausibly involved information beyond general knowledge and gave the defendants notice of what DER claimed had been misappropriated.

The court also rejected the argument that DER needed to do more in its complaint to distinguish trade-secret protection from patent protection. DER alleged that it generally used overlapping protections for its technology, but it did not allege that the trade secrets at issue had already been made public.

Unresolved Issues and Ruling

The court declined to decide at this stage which state’s law applied to DER’s state-law misappropriation claim. DER had acknowledged that it would need to provide a particularized list of the trade secrets even if Delaware law applied, and the parties had agreed on a timeline for producing that list.

The court also declined to consider at this stage the defendants’ argument that DER’s tortious-interference claim might be preempted under California law because the argument had not been fully developed. The defendants may raise that issue again at summary judgment. The court likewise said the defendants could raise a choice-of-law issue at summary judgment if DER later sought to enforce the noncompete provisions in its agreement with Fox.

Judge Vince Chhabria denied the motion to dismiss.