As one of the most hotly contested trade secrets lawsuits in Los Angeles barrels toward a November trial date, a new federal statute has added an additional layer of scrutiny and uncertainty.

The litigation, which pits toy inventor Elinor Shapiro against industry titan Hasbro Inc. in a battle over My Little Pony, is one of the first cases to invoke the Defense of Trade Secrets Act signed into law by President Barack Obama on May 11 – the first statute to codify trade-secret protections at the federal level.

Rick Richmond, a partner in law firm Jenner & Block’s downtown office not affiliated with the My Little Pony case, said the law, passed in part to create a more uniform system for adjudicating trade-secret disputes nationwide, will likely be a boon for plaintiffs looking to assert claims of trade-secret violations.

“The fact that the new statute offers federal jurisdiction allows plaintiffs new remedies,” he said.

What’s more, in cases where a defendant’s trade-secret violation is found to be “willful and malicious,” damage awards could be tripled. Federal courts also allow for a more rigorous discovery process, another possible benefit for plaintiffs.

But how these allowances play out in court has yet to be determined. While the law is modeled on the Uniform Trade Secrets Act – a nonbinding resolution on which many state trade-secret laws are based – there is no true precedent for federal judges to follow.

Filed on Aug. 2, the My Little Pony dispute is one of maybe a half-dozen cases nationwide to invoke the DTSA, according to Shapiro’s attorney Lisa Borodkin.

The dispute was filed as an addendum to an ongoing case in which Shapiro alleges Hasbro stole her idea for a line of transparent dolls that had a sparkly or snow globe-like feature after she pitched the concept to the company in 2013. Hasbro has denied the allegations, claiming the idea for My Little Pony was developed in-house.

“It’s a very interesting test case because the technology is understandable to nonlawyers,” Borodkin said, referencing that the underlying claims deal with children’s toys. “There are no complicated motions about identifying what the trade secret is.”

The DTSA can’t be applied retroactively, but Shapiro claims that the release of a new My Little Pony line in August constitutes a fresh misappropriation of her intellectual property. She is seeking unspecified damages.

Hasbro’s attorneys argue the new filing is an attempt to shoehorn additional facts into the underlying litigation and disrupt the original case, which was filed in April of last year and is set for trial in November. In its motion to dismiss, Hasbro argues Shapiro’s second lawsuit is “duplicative,” despite the use of the new federal statute to advance trade-secret claims.

“Because the claims stem from the same confidential relationship, there can only be one cause of action,” Hasbro’s motion reads.

Whether the court allows Shapiro to consolidate the cases and advance a theory of liability under the new federal trade-secret law remains to be seen – the court is scheduled to hear arguments on Oct. 11.

Risk, reward

The DTSA might offer new remedies against trade-secret violations, but the claims remain the oddballs of the intellectual property world. While other types of intellectual property such as copyrights, patents, and trademarks require the filing of public documentation, trade secrets are inherently private matters.

“With the first three, you have to file public claims and, essentially, shout to the world that something is your idea,” Jenner’s Richmond said. “If you want to protect a trade secret, you have to keep it completely secret.”

This makes bringing a lawsuit somewhat tricky because filing a case in public court means the misappropriated intellectual property could potentially be exposed to an even wider audience.

“Trade secrets and litigation are on the opposite sides of the privacy coin,” said attorney Shawn Hansen, a partner in Nixon Peabody’s downtown office.

However, prophylactic measures are often employed to restrict public access to court filings, especially during the discovery and motion stages, said Hansen and Richmond. But those tactics are less effective as proceedings move to the trial phase, where the right to an open courtroom is almost sacrosanct. That’s why trade-secret cases rarely go to trial, they added.

“In trial, it’s a public proceeding and the confidentiality restrictions on documents mostly go away,” Richmond said. “It becomes a push and pull situation. The defense is going to try and get as much information as possible and demand as much specificity as possible.”

But that’s a risk Shapiro’s attorney seems willing to take in the My Little Pony case. Borodkin, who’s based in Redondo Beach, said the parties are exchanging witness lists and going over jury instructions as the trial’s start draws near.

“It’s going to be a detailed look at the development of a toy from conception to realization,” she said.

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