What is a Trade Secret?

Last week we discussed the past and future of trade secret legislation. This week we take a step back and look at how a California court broadly defined the information that would fall under the category of a trade secret. The case brought forth in the California Appeals Court,  Altavion, Inc. v. Konica Minolta Systems Laboratory Inc., added to our knowledge of trade secret law in this state. This case was notable because it expanded what qualifies as a trade secret and permitted a more general recovery for trade secret misappropriation. Let us take a closer look at the case on hand.

Altavion v. Konica Minolta Systems Laboratory

KMSL and Altavion had attempted to work together before this lawsuit came about. Defendant KMSL manufactured printers and plaintiff Altavion was a small company that “invented a process to create self-authenticating documents by using barcodes with encrypted data about the contents of the original document that enable detection if the document had been altered from the original.” KMSL approached Altavion about their technology and the pair discussed embedding Altavion’s technology into KMSL’s printers. After more than forty meetings about the possible licensing deal, the two were not able to come up with a suitable agreement.

About a year later, Altavion saw that KMSL was filing for patents with Altavion’s barcoding technology. Altavion immediately filed suit against KMSL for trade secret misappropriation. A bench trial revealed that KMSL had misappropriated trade secrets Altavion disclosed to KMSL during negotiations for a licensing deal. The trial court found more information about the misappropriation and awarded Altavion $1 million in damages, $513,400 in prejudgment interest, and almost $3.3 million in attorneys’ fees.

KMSL appealed the trial court’s decision by saying generalized ideas and inventions are protected under patent law, not trade secret law. The court disagreed and cited California’s UTSA, section 324, which states there is substantial overlap between patent and trade secret law. The Court of Appeals also determined that Altavion’s barcode has some independent economic value. KMSL made a second argument by saying that Altavion did not take the necessary steps to protect its trade secret because it publicly disclosed he concept of verifying documents using a unique barcode technology. Once again, the court did not agree and said Altavion only disclosed how the technology could be used, not its unique detail designs.

Future Implications

This ruling by a California Court of Appeals provides us with a better understanding of what exactly falls under the broad definition of a trade secret. We know now that trade secrets are more than a specific formula or a set of lists. Trade secrets can be concepts and designs to solve problems. This means technological innovations can also fall under trade secrets. We may be seeing an increase in the number of trade secrets in the near future.

Source referenced: Lexology

 

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