Trade Secrets Do Not Need to Be in Writing

Legal Pad, pen and law book5. Trade Secrets do Not Need to be in Writing

Trade secrets need not be in writing. (Morlife, Inc, 56 Cal.App.4th at 1522 (“to afford protection to the employer, the information need not be in writing but may be in the employee’s memory”); Brocade Communications Systems, Inc. v. A10 Networks, Inc., 873 F.Supp.2d 1192, 1215 (N.D. Cal. June 12, 2012) (“It is this combination of elements that makes the information valuable and not generally known to the public. Moreover, the mere fact that the information is not in a written list is not dispositive of sufficient particularity.”) Here, many trade secret Defendants attempt to make much of the fact that some of the information in contention was in the Defendant’s “head.” However, as cited above, this is not dispositive and, at best, raises an issue of material fact as to what exactly was in the Defendant’s head and what combination of facts, whether in his head or not, fall under the Trade Secret claim.

What if the information is “generally known,” can that still be a trade secret? The next post will cover this question.

Eric Papp, Esq.

“Information” as a Trade Secret

Hand in the cookie jarImportantly, “Whether information is a trade secret is ordinarily a question of fact.” ( San Jose Const., Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1537 citing: In re Providian Credit Card Cases (2002) 96 Cal.App.4th 292, 300; Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th 1425, 1430; and Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1521, 66 Cal.Rptr.2d 731.) As the San Jose Const. Inc. case held, “Whether that information actually constituted a trade secret is a factual issue for the jury or court to determine at trial, as did the trial court in Morlife.” (San Jose Const., Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1540, citing Morlife v. Perry, supra, 56 Cal.App.4th 1514 at 1521.)

1. Facts as Trade Secrets
Trade secrets can consist of facts. (See Silvaco Data Systems v. Intel Corp., (2010) 184 Cal.App.4th 210, 220-221, as modified on denial of reh’g (May 27, 2010) disapproved of on other grounds by Kwikset Corp. v. Superior Court (2011) 51 Cal. 4th 310 (“Indeed a trade secret may consist of something we would not ordinarily consider an idea (a conceptual datum) at all, but more a fact (and empirical datum), such as a customer’s preferences, or the location of a mineral deposit. In either case, the trade secret is not the idea or fact itself, but information tending to communicate (disclose) the idea or fact to another. Trade secret law, in short, protects only the right to control the dissemination of information.”) (original italics) (Bold emphasis added).)

2. Ideas as Trade Secrets
Trade secrets may relate to ideas, even potentially patentable ideas, as well. (Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc. (2014) 226 Cal.App.4th 26, 54-55 (“[I]t has been held that a trade secret in the broad sense consists of any unpatented idea which may be used for industrial and commercial purposes . . . . In conclusion, it is clear that if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law.”) (italics omitted); Mattel, Inc. v. MGA Entertainment, Inc., 782 F.Supp.2d 911, 961-962 (C.D. Cal. Jan. 5, 2011.) Here, for example, if the ideas were kept secret, then, in short, the Plaintiff had all the pieces of the puzzle to the exclusion of all other competitors.

3. Negative Information as Trade Secrets
Trade secrets can consist of “negative information,” or information that results from failed efforts or experiments, because such “dead ends” in research or marketing may have value. (See, e.g., Cal. Civ. Code § 3426.1 comment (“The definition of trade secret . . . includes information that has commercial value from a negative viewpoint, for example the results of lengthy and expensive research which proves that a certain process will not work could be of great value to a competitor.”) (original italics); Courtesy Temporary Service, Inc. v. Camacho (1990) 222 Cal.App.3d 1278, 1287 (“The broader definition in the proposed Act . . . includes information that has commercial value from a negative viewpoint, for example the results of lengthy and expensive research which proves that a certain process will not work could be of great value to a competitor.”) (original italics) citing legis. committee com., Cal. Civ. Code § 3426.1, p. 108.) Here, for example, this is an important observation. Imagine a trade secret defendant who would declines to bid any job they know the Plaintiff is already supplying or that the Plaintiff can supply cheaper.”

This is exactly the type of secret, competitive information that anyone would like to have. Information that allows you to not waste your time, money and energy bidding and quoting and competing with an entity you know you cannot beat on certain jobs or, obversely, know you can beat on others. Oftentimes, the only way to know these competitive outcomes for certain, would be be to use the Plaintiff’s trade secret information, that is, to have all the pieces to the puzzle that the Defendant could use to bid jobs in order to beat the Plaintiff or to avoid other jobs altogether.

The next post will cover “Public” information as trade secrets.

Eric Papp, Esq.

Trade Secrets

 Watch out for snakes

“There’s no art to find the mind’s construction in the face: He was a gentleman on whom I built an absolute trust.” Macbeth ( 1.4.12-14)

“Trade secret law also helps maintain ‘standards of commercial ethics….’[Citation.] … By sanctioning the acquisition, use, and disclosure of another’s valuable, proprietary information by improper means, trade secret law minimizes ‘the inevitable cost to the basic decency of society when one … steals from another.’ [Citation.] In doing so, it recognizes that ‘good faith and honest, fair dealing, is the very life and spirit of the commercial world.’” (Altavion, Inc. v. Konica Minolta Systems Laboratory Inc. (2014) 226 Cal.App.4th 26, 42 citing DVD Copy Control Assn., Inc. v. Bunner (2003) 31 Cal.4th 864, 881.) This is exactly what is at stake in most trade secret cases – honesty, ethics and fair dealing

Most trade secret cases are is not about the formula to Coke, but rather, as in the San Jose Const., Inc. case, it is about having all the pieces to the puzzle. (San Jose Const., Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1539.) In this regard, California’s version of the Uniform Trade Secret Act (“UTSA”) defines a “trade secret” as “information, including a … compilation … that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ.Code, § 3426.1, subd. (d).) (San Jose Const., Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1537.)

However, as shown below, each of these elements involve a questions of fact.

Additionally, the statute includes a nonexclusive list of certain types of “information,” which includes, but is not limited to, “a formula, pattern, compilation, program, device, method, technique, or process.” As discussed below, the term “information” is not a significant limitation, as trade secrets may consist of any and all types of facts, ideas, devices, methods, or combinations thereof, regardless of whether it is novel or inventive, as long as the other requirements for establishing a trade secret are satisfied, i.e., that the “information” is secret and has independent economic value.

As the Altavion, Inc. case held,

‘Information’ has a broad meaning under the [UTSA].” (Trade Secrets Practice in Cal., supra, § 1.4, p. 1–5; see also Forro Precision, Inc. v. International Business Machines Corp. (9th Cir.1982) 673 F.2d 1045, 1057. “The definition of trade secret is … unlimited as to any particular class or kind of matter…“[A] trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” (Emphasis added) (Altavion, Inc. v. Konica Minolta Systems Laboratory Inc. (2014) 226 Cal.App.4th 26, 53.)

It is exactly this compilation of information that is at issue in many trade secret cases.

The Completed Puzzle
“Even still, you’re not going to divulge everything.”

The San Jose Construction case is worthy of a close examination. In San Jose Construction, the employer, San Jose Construction (“SJC”), filed suit against its former employee, Foust, and Foust’s new employer, South Bay Construction Company (“S.B.C.C.”), for among other things, Misappropriation of Trade Secrets. Foust gathered information, contacted clients and had contracts and projects moved to his new employer while he was still fully employed by SJC. Foust was not an officer, director nor owner of SJC. In San Jose Construction, the Defendant filed summary judgment claiming that there could be no trade secrets because the information in contention was public, was created by and/or published to third parties and much of it was created by Foust while he worked at SJC. Moreover, the defendants argued that the information could not be trade secrets because third parties were free to share it with anyone they chose. However, the San Jose Construction Court reversed summary judgment noting that,

As SJC describes it, “only SJC had the completed puzzle for each project, contained in the Project Binders…. No third party had it. The subcontractors each had a piece, and the owners had a piece, but no one except SJC had it all.” (San Jose Const., Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1538-1539.)

In many cases, only the trade secret Plaintiff has the “completed puzzle” for what constitutes the trade secrets, to the exclusion of any competitors.

The next few posts will examine the question of what can be trade secrets

Eric Papp, Esq.