Blockchain Innovation, LLC v. Franklin Resources, Inc.

Background

Blockchain Innovation, LLC brought claims against Franklin Resources, Inc. and other defendants for breach of fiduciary duty, violation of the Defend Trade Secrets Act (DTSA), copyright infringement, aiding and abetting breach of fiduciary duty, breach of contract, and injunctive relief. The parties submitted a joint discovery letter concerning Defendants’ request for a protective order, which is an order limiting or controlling discovery.

Defendants argued that California Code of Civil Procedure section 2019.210 applied. That provision generally prevents discovery about an alleged trade secret until the plaintiff identifies the trade secret with reasonable particularity. Defendants also argued that Blockchain Innovation’s 273-page disclosure, which included 56 appendices, did not adequately describe the alleged trade secrets. Blockchain Innovation argued that section 2019.210 did not apply to its DTSA claim and, alternatively, that its disclosure was adequate.

Court’s Analysis

The court held that section 2019.210 did not apply on its own terms. The statute concerns actions alleging trade-secret misappropriation under the Uniform Trade Secrets Act, a state-law framework. Blockchain Innovation’s complaint asserted misappropriation under the DTSA, 18 U.S.C. § 1836(b), which is a federal statute. The complaint also asserted other claims, including copyright infringement and state-law claims, but it did not allege a claim under the state Uniform Trade Secrets Act.

The court further explained that the DTSA does not require the plaintiff to disclose its alleged trade secrets before obtaining trade-secret-related discovery. Instead, discovery ordinarily proceeds under Federal Rule of Civil Procedure 26. Under Rule 26(d)(3)(B), one party’s discovery generally does not require another party to delay its own discovery unless the parties agree or the court orders otherwise.

The court recognized that federal courts have discretion to manage discovery, including by setting its timing and sequence. It therefore could require a trade-secret disclosure before allowing related discovery even though section 2019.210 did not directly govern. The court identified possible reasons for doing so, including overlapping state and federal trade-secret claims, effective case management, or concern that a plaintiff was attempting to avoid state-law requirements through its pleading.

The court found that those reasons did not justify sequencing discovery here. Blockchain Innovation had already served its first document requests in October 2022, while Defendants had resisted producing several categories of documents, including nearly all technical documents. The court concluded that formal sequencing would extend a substantial and one-sided delay affecting both the DTSA and copyright claims. It stated that discovery sequencing had become a tool for delay in this case.

The court noted that Defendants could raise alleged defects in Blockchain Innovation’s disclosure through a motion to compel, which is a request for an order requiring a party to provide discovery. The court observed that some of Defendants’ objections—particularly whether the alleged trade secrets were actually trade secrets and who owned them—could overlap with the merits of the case and might be harder to resolve through a discovery motion.

Disposition

The court denied Defendants’ motion for a protective order. It directed both sides to proceed with discovery simultaneously and expeditiously. Judge Thomas S. Hixson signed the order.