INSIGHTS

Addressing Wrinkles in California’s Threatened Misappropriation of Trade Secrets Law

June 1, 2021

While California law is clear regarding the elements required to establish a misappropriation of trade secrets claim, the law has remained unsettled on the elements required to maintain an action for threatened misappropriation of trade secrets. However, in the case of Beauty Barrage LLC, et al. v. Dermaceutical Laboratories LLC, et al., San Francisco Superior Court Judge Anne-Christine Massullo shed some light on the question.

Sonia Summers, the founder, owner, and CEO of Beauty Barrage LLC and Shielded. Beauty LLC developed a concept for an anti-microbial, anti-aging skin care product line. In order to manufacture the products, she partnered with Wendy McEvoy, a principal of Dermaceutical Laboratories LLC. Beauty Barrage shared a substantial amount of confidential and proprietary information with Dermaceutical, and the two scheduled a September 2020 product launch. However, Dermaceutical allegedly scuttled the launch and deserted the partnership. Beauty Barrage LLC brought suit against Dermaceutical alleging, among other things, misappropriation of trade secrets.

The court considered the question of whether plaintiffs pled sufficient facts to support a claim for threatened misappropriation. Noting that “[t]he Courts of Appeal have not clearly delineated the elements of a claim for threatened misappropriation, as opposed to actual misappropriation,” Judge Massullo identified the elements of three potential  tests to determine whether a claim for threatened misappropriation could stand: (1) “(a) Trade Secrets (b) remain in the possession of a defendant (c) who has actually misused or disclosed some of those secrets in the past”; (2) “(a) Trade secrets (b) are held by a defendant (c) who intends to improperly use or disclose some of those trade secrets”; and (3) “(a) Trade secrets (b) are held by a defendant (c) who wrongfully refuses to return them (d) after a demand for their return has been made.”

The court held that the plaintiffs had pled sufficient facts to state a claim under the second theory of threatened misappropriation. In particular, the court noted the following key factors in its decision: both parties were established participants in the beauty market; Summers brought the concept and business plan to McEvoy and the parties together developed formulations; McEvoy scuttled the product launch, took the trade secrets, and refused to return them; and McEvoy alleged that some of the trade secrets belong to her.  Judge Massullo explained that, “as alleged, Defendants took trade secrets from Plaintiffs, falsely claimed to be the true owners of the trade secrets, and are in the business of using such information and/or selling such information f factual allegations go beyond mere possession of trade secret information or profit. At the pleading stage, this supports a reasonable inference that Defendants intend to use or disclose the trade secrets.” The decision will likely add an additional option for trade secret plaintiffs.