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In Trade Secrets Case Related to Barnes and Noble’s Nook Device: Court Grants Partial Summary Judgment Based on Disclosure of Secrets in Patent Applications, But Rejects UTSA Preemption Argument as Premature

In Disclosure of Secret in Patent Application, Motions for Summary Judgment/Adjudication, Patents and Copyrights, Preemption on January 2, 2011 at 10:03 pm
Barnes & Noble Nook e-reader is tiny!
Image by Todd Barnard via Flickr

The Northern District of California granted partial summary judgment to a defendant in a trade secrets case on the ground that plaintiff disclosed its information to the public in its published patent applications.  Spring Design, Inc. v. Barnesandnoble.com, LLC, No. C 09-05185 JW, 2010 WL 5422556 (N.D. Cal. Dec. 27, 2010) (slip op.).  The court rejected defendant’s argument that plaintiff’s UCL claim was preempted by the UTSA because “if the confidential information is not a trade secret, then preemption would not apply because the claim would seek a civil remedy not based on the  misappropriation of a trade secret.” Id. *10.

Background

In 2006 and 2007, Plaintiff filed several patent applications which claim different variations of an eReader with a dual-display design, consisting of an electronic paper display (“EPD”) and a liquid crystal display (“LCD”).  Id. *1.  In 2009, Plaintiff and Defendant explored possible collaboration on an eReader, and the parties entered into a nondisclosure agreement (“NDA”) in which the parties agreed not to disclose, reproduce, transmit or use the other’s confidential information except to certain employees on a need-to-know basis.  Id. From February to October 2009, Plaintiff and Defendant conducted several meetings and exchanged emails regarding Plaintiff’s eReader technology.  But on October 20, 2009, Defendant announced the release of the NOOK—its Android-based, dual-screen eReader.  Id. *2.  In 2010, Plaintiff launched its competing eReader device, the Alex, which is also a dual-screen eReader. Id.

Plaintiff Spring Design, Inc. brought an action Barnesandnoble.com, LLC alleging, inter alia, misappropriation of trade secrets and violations of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code section 17200, et. seq. Id. *1.Plaintiff alleged that Barnesandnoble.com used Plaintiff’s confidential information to develop a competing eReader device, the Nook, in violation of the parties’ non-disclosure agreement. Id. The parties brought cross motions for summary judgment.

Discussion

Defendant moved for summary judgment on the UTSA cause of action on the grounds that, inter alia: Plaintiff’s information does not qualify for trade secret protection because Plaintiff disclosed its information to the public in its published patent applications.  Id. **3-4.

The court recited the law as follows:

[I]t is well established that disclosure of a trade secret in a patent places the information comprising the secret into the public domain. Once the information is in the public domain and the element of secrecy is gone, the trade secret is extinguished….” Ultimax Cement Mfg. Corp v. CTS Cement Mfg. Corp., 587 F.3d 1339, 1355 (Fed. Cir. 2009) (citation and quotations omitted); see also Forcier v. Microsoft Corp., 123 F.Supp.2d 520, 528 (N.D.Cal.2000) (alleged trade secrets were not entitled to protection because they had been placed in the public domain either in patents or in patent applications).

Id. *4.

Plaintiff had designed four categories of trade secrets.  Defendant presented the following evidence to support its contention that the trade secrets had been placed in the public domain: (1) an expert declaration opining that Plaintiff’s patent applications disclosed Plaintiff’s trade secrets;  and (2) a claim chart showing how Plaintiff’s published patent applications disclosed each element of Plaintiff’s alleged trade secrets.  Id. In response, Plaintiff offered the following evidence: (1) a competing expert declaration opining that Plaintiff’s patent applications did not disclose certain aspects of Plaintiff’s trade secrets;  (2) deposition testimony from defendant’s expert in which he admitted that Plaintiff’s patent applications do not disclose any of Plaintiff’s trade secrets in their entirety;  and (3) deposition testimony from Plaintiff’s co-founder, that the patent applications do not disclose Plaintiff’s trade secrets because they were drafted and filed before Plaintiff had developed its software and human-computer interaction solutions.  Id.

Upon reviewing the evidence, the court concluded that 1 of the four trade secrets were disclosed in the provisional application:  “the Court finds that Plaintiff’s ‘979 provisional application disclosed all of the elements of Trade Secret Number 1 and thus, Defendant is entitled to summary judgment as to this trade secret.”  Id. *5.  The court denied summary judgment with respect to the other challenged trade secrets, and denied defendant’s summary judgment motion as to whether it misappropriated Plaintiff’s trade secrets.

Preemption of the Unfair Competition Law Claim

Defendant also moved for summary judgment on Plaintiff’s claims for violation of California’s UCL.  Id. *8.  Defendant contented that Plaintiff’s UCL claim cannot be based on Defendant’s alleged exploitation of Plaintiff’s confidential information due to preemption of the UCL claim by the UTSA.  Id. *9.  The court reject this view:

[I]f the confidential information allegedly disclosed is proved to be a trade secret, then the UCL claim based on this allegation is preempted…. However, if the confidential information is not a trade secret, then preemption would not apply because the claim would seek a civil remedy not based on the  misappropriation of a trade secret.

Id. *10.

Because the Court has determined that Trade Secret Number 1 is not entitled to protection, Plaintiff’s UCL claim based on improper use of that information would not be preempted. See Cal. Civ.Code s 3426.7(b). With respect to Trade Secret Numbers 2-4, issues of fact preclude summary judgment as to whether these secrets are protectable under the law. Thus, the Court finds that a preemption determination as to Trade Secret Numbers 2-4 is premature.

Id.

Plaintiff’s Motion

Plaintiff moved for summary judgment on the grounds that it was entitled to judgment as a matter of law on its claims for: (1) breach of contract; and (2) violations of the UCL. The Court found significant factual issues and denied denied Plaintiff’s Motion for Summary Judgment.

Judge

District Judge James Ware.

By CHARLES JUNG

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