Intellectual Property Law

California Appellate Court Defines Statute of Limitations Period for Third-Party Trade Secret Actions

The One Sentence Summary: Court holds that the statute of limitations on a cause of action for third-party trade secret misappropriation begins to run when the plaintiff has any reason to suspect that the third-party knows or reasonably should know that the information is a trade secret.

What They Were Fighting About: Plaintiff Silvaco Data Systems had developed source code, which it held as a trade secret. A former employee with access to plaintiff's trade secret left for a competitor and used the secret source code in a competing software. Plaintiff sued the competitor for trade secret misappropriation and reached a settlement whereby the competitor admitted misappropriation. The competitor, however, had sold its infringing software to its customers. One customer, defendant Cypress Semiconductor Corporation, continued to use plaintiff's trade secret. Plaintiff sued for misappropriation under California's Uniform Trade Secrets Act (Civ. Code § 3426 et seq.). Defendant argued that the three year statute of limitations period had expired (Id. § 3426.6).

California Appellate Court Holdings:

• The court rejected the single-claim rule, whereby a plaintiff for misappropriation has but one claim and the clock on the statute of limitations commences when the plaintiff learns of the original misappropriation. Instead, the court held that "a plaintiff may have more than one claim for misappropriation, each with its own statute of limitations, when more than one defendant is involved."


• The court also rejected the plaintiff's argument that the statute of limitations should begin when a third-party defendant learns that it possesses plaintiff's trade secrets. Instead, the court held that the "proper focus, for purposes of the running of the statute of limitations, is not upon the defendant?s actual state of mind but upon the plaintiff?s suspicions." As such, the court held that the statute of limitations on a cause of action for third-party trade secret misappropriation begins to run when the plaintiff has any reason to suspect that the third-party knows or reasonably should know that the information is a trade secret.


• In the case at hand, the court concluded that whether the statute of limitations had expired was a factual question for the jury. They jury was tasked with determining "When did Silvaco first have any reason to suspect that a CSI customer had obtained or used DynaSpice [the infinging product] knowing, or with reason to know, that the software contained Silvaco?s trade secrets?

Full post as published by IP Law Observer on June 20, 2008 (boomark / email).