When it comes to determining liability for stolen trade secrets used by unsuspecting third parties, the question in litigation often becomes who knew what when? It has not always been clear when the statute of limitations for these third-party lawsuits begins ticking. Does it start when the trade-secret owner realizes its stolen intellectual property has been licensed to third parties? Does it begin when the trade-secret owner files a lawsuit against the company that stole the secrets and then licensed them to others? Or does it only begin counting down when third-party users are notified that they possess stolen IP?
In a recent case closely watched in the high tech industry, the California Court of Appeal clarified when the three-year statute of limitations countdown begins. According to the unanimous ruling in Cypress Semiconductor Corp. v. Superior Court, the "statute of limitations on a cause of action for 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." The appellate court's conclusion overturned a trial court's decision that found the statute of limitations began when the third party had actual notice of the trade-secret owner's claim.
In its ruling, the appeals court noted, "The question is: When did Silvaco first have any reason to suspect that a CSI customer had obtained or used DynaSpice knowing, or with reason to know, that the software contained Silvaco's trade secrets?" Since that question could not be answered as a matter of law, the appeals court sent the case back to trial to allow a jury to consider Cypress' statute of limitations defense. At press time, no trial date had been set.
Attorneys for both Silvaco and Cypress have found bright spots in the ruling.
Arturo J. Gonz??lez, a Morrison & Foerster partner who represented Cypress, points to the section of the ruling that found "... the failure of the trade-secrets owner to take prompt action to protect its trade secrets or to alert good-faith acquirers to the existence of its trade-secret claims can serve as a defense in the event the trade-secret owner eventually decides to pursue a misappropriation claim against the third party."
"If it is a secret, and you know somebody has it, you in effect waive that right to consider it a secret," he says.
However, Jill F. Kopeikin, a Dechert partner who represented Silvaco at trial, points out that the court also found the California statute in question, Section 3426.6, "imposes no duty upon the plaintiff in such a situation to notify the third party of its claim."