United States: Burden of Proof and The Defense of Independent Development in Trade Secret Litigation

The allocation of the burden of proof on a defendant’s assertion of "independent development" can have a substantial effect upon a plaintiff’s claim for trade secret misappropriation. Accordingly, how courts treat the allocation of the burden of proof should play a critical role in a trade secret owner’s strategic litigation planning.

It is well settled that one of the key defenses to a claim of trade secret misappropriation is the independent development of the allegedly misappropriated technique. What is not well settled, however, is which party bears the burden of proof with respect to allegations of independent development.

Various jurisdictions appear to have reached differing conclusions. Some jurisdictions hold that a defendant alleging independent development bears the burden of proof, while other jurisdictions recognize that where a defendant is possessed of substantial capacity to independently develop matter claimed secret by the plaintiff, the plaintiff retains the burden of proving that the defendant in fact misappropriated the plaintiff’s matter.

The Third Circuit Court of Appeals has recently addressed the issue in Moore v. Kulicke & Soffa Industries, Inc., 318 F. 3d 561 (3rd Cir. 2003) and has come down on the side of the defendant.

Proving A Negative

Moore v. Kulicke was a trade secret misappropriation case arising under the court’s diversity jurisdiction and governed by Pennsylvania law. At trial, the defense to the misappropriation claim was the independent development of the allegedly misappropriated technique.

In a decision that appears to impose a significant burden on those who bring a trade secret misappropriation claim, the Third Circuit held that the ultimate burden of persuasion remains on the plaintiff to prove that the defendant did not arrive at a technique similar to the trade secret through its own independent development. In other words, the plaintiff must prove a negative.

The Court framed the issue in the following manner: Whether, as Moore contended, independent development, in Pennsylvania trade secret law, is an affirmative defense so that the proponent bears not only the burden of production but also the risk of non-persuasion? Or whether, as Kulicke and Soffa Industries, Inc. contended, raising the defense of independent development acts a rebuttal of one of the prima facie elements of a trade secret misappropriation claim—that the defendant used the plaintiff’s trade secret—such that the defense only shifts the burden of going forward onto the proponent, with the risk of non-persuasion remaining with the plaintiff?

To answer that question, the Court analyzed the nature of affirmative defenses under Pennsylvania law. The Court concluded that "affirmative defenses in Pennsylvania law require the establishment of facts extrinsic to the plaintiff’s complaint." 318 F.3d at 570. The Court also examined the prima facie elements of a trade secret misappropriation claim and reasoned that "…it is the defendant’s theft of the plaintiff’s idea that this tort attempts to prevent. In other words, the element of ‘use’ refers to improper use." Id. at 567.

Based on its analysis of the "use" element of the trade secret misappropriation claim, the Court concluded that independent development "is inextricably linked to whether the defendant ‘used’ the plaintiff’s trade secret." Id. at 570. Because independent development is linked to use, the Court reasoned that independent development does not require the establishment of facts extrinsic to the complaint. Accordingly, the Court concluded that, under Pennsylvania law, independent development is not an affirmative defense and therefore the ultimate burden of persuasion remains on the plaintiff. Id. at 570.

The Court further stated that its decision was supported by the fact that the Pennsylvania Supreme Court, for policy reasons, has already made it difficult for the plaintiff to recover on a claim of trade secret misappropriation. Id. at 571-572. Indeed, the Court gave little weight to the fact that its decision would place the burden of persuasion on the party that not only must prove a negative, but also does not have access to the relevant facts.

While the Court recognized that Pennsylvania courts generally place the burden of proof on the party that has better access to the facts that would prove or disprove the defense, the Court was unconcerned, reasoning that the defendant who alleges independent development is required by the Rules of Civil Procedure to turn over relevant information upon plaintiff’s request during the discovery period. Id. at 571.

The Court also recognized that Pennsylvania courts are often reticent to place upon a party the burden of proving a negative. Again, however, the Court was unconcerned, reasoning that the policy of not requiring proof of a negative was counterbalanced by "the normal requirement that complainants prove their own cases." Id. at 571, (citations omitted). The Court further reasoned that "…where proving a negative ‘lie[s] at the foundation of plaintiff’s right of action,’ the burden of proof will remain with the plaintiff." Id. at 572, (citation omitted). Accordingly, the Court concluded that because independent development is "inextricably linked" to use in trade secret misappropriation, it is necessary for the plaintiff to disprove the defense of independent development in order to meet its burden of proving the element of use. Id. at 572.

As noted above, however, the Third Circuit is not the only jurisdiction that requires proof of a negative.

The Burden of Proof In Other Jurisdictions

As the Moore v. Kulicke court noted, courts of other jurisdictions have addressed the issue of assigning the burden of proof with respect to allegations of independent development. And, as the Moore v. Kulicke court also noted, many of the decisions of those jurisdictions do not clarify whether they are referring to the burden of production or the burden of persuasion, such that it is difficult to determine the holding in those jurisdictions.

At least one other court, however, appears to have held that only the burden of going forward shifts to the defendant, while the burden of persuasion remains with the plaintiff with respect to allegations of independent development. The Eighth Circuit in Pioneer Hi-Bred International v. Holden Foundation Seeds, Inc., 35 F.3d 1226 (8th Cir. 1994), in a case brought under Iowa trade secret misappropriation law, found that the trial court’s "discussion of ‘burden shifting’ merely expresses its appreciation of the fact that once [the plaintiff] produced convincing evidence of misappropriation, [the defendant] was obligated to provide persuasive evidence of lawful derivation…The court’s procedure can simply be read as an allocation of the burdens of going forward with the evidence." Id. at 1241.

A few other jurisdictions, on the contrary, have held that the burden of persuasion shifts to the defendant when it alleges independent development. Indeed, the Third Circuit has reached such a conclusion when interpreting New Jersey trade secret law. In Bolt Associates, Inc. v. Alpine Geophysical Associates, Inc., 365 F.2d 742 (3rd Cir. 1966), the court found that "a heavy burden of persuasion rests upon one so charged to show that the production was the result of independent development and not from the use of the information confidentially reposed." Id. at 749-750.

California, relying on the Third Circuit’s decision in Bolt Associates, held that the shifting of the burden of persuasion to the defendant that asserts independent development was a "well recognized principle." Cybertek Computer Prods., Inc. v. Whitfield, 203 U.S.P.Q. 1020, 1024-1025 (Cal. Super. Ct. 1977). Likewise, the Ninth Circuit, applying California law, has held that, where the defendant had the ability to independently develop, the burden shifted to the defendant to establish that it did not use the confidential or trade secret information that the plaintiff disclosed to it. Garter-Bare Co. v. Munsingwear, Inc., 723 F. 2d 707, 715 (9th Cir.), cert. denied, 469 U.S. 980 (1984).

Thus, there appears to be no consensus among various jurisdictions as to how to allocate the burden of proof upon the defendant’s assertion of independent development. And, unfortunately, similar legal issues in other contexts provide no guidance. In copyright law, under the doctrine of independent creation, like the doctrine of independent development, a defendant can show that it did not steal the plaintiff’s copyrighted material by presenting evidence that it developed the idea without reference to the copyrighted material. An examination of that doctrine, however, only highlights the lack of consensus regarding the allocation of the burden of proof.

For example, the Fourth Circuit has held that the doctrine of independent creation only shifts the burden of production to the defendant, while "the burden of persuasion normally remains on the plaintiff for his claim throughout the trial." Keeler Brass Co. v. Cont’l Brass Co., 862 F.2d 1063, 1066 (4th Cir. 1988). In contrast, the Ninth Circuit has held that once the plaintiff has shown that the defendant had access, the burden of persuasion may shift to the defendant to prove that it did not improperly copy. Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1018-1019 (9th Cir. 1985), cert. denied, 474 U.S. 1059 (1986).

Choice of Law and Choice of Forum is Critical

Why is there such differing treatment within the various jurisdictions that have addressed this issue? Perhaps the answer to that questions lies with the significant effect the allocation of the burden of proof can have upon the success of a trade secret misappropriation claim.

While the Moore v. Kulicke court appeared unconcerned, placing the burden of proving a negative upon a plaintiff can have a substantial impact on its ability to prevail on a trade secret misappropriation claim, particularly where the plaintiff does not have access to the relevant facts. As we have seen, the Third Circuit overcame this concern, arguing that the defendant is required to provide all relevant information to the plaintiff upon request during discovery.

It is difficult, however, to see how the plaintiff would know what information is relevant and even how to ask for it when the plaintiff is entirely unfamiliar with the defendant’s methods of operation. This problem of proof is brushed aside by the Moore v. Kulicke court based, at least in part, on the court’s acknowledgement that Pennsylvania law, for policy reasons, has made it difficult for plaintiffs to recover on a claim for trade secret misappropriation. But would other jurisdictions, for policy reasons, seek to make it more difficult for plaintiffs to succeed on a claim for trade secret misappropriation?

Because of the different state statutes and the different interpretations which have been placed upon them by state and federal courts, choice of law and choice of forum remain crucial elements in a trade secret owner’s strategic planning. Failure to account for a jurisdiction’s treatment of the allocation of the burden of proof upon a defendant’s assertion of independent development may be the difference between success or failure of a claim for trade secret misappropriation.