California Court of Appeals Decision Strengthens Trade Secret Protections

May 23, 2014

Earlier this month, in Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc., The California Court of Appeals held that patentable ideas that are kept secret can be protected by trade secret law. This decision clarifies an area of law that was muddied in 2010 by the court's decision in Silvaco Data Systems v. Intel Corp., which seemed to indicate that trade secret law did not protect such ideas. This seeming change in the law is a good reason for California businesses, both small and large, to contact a licensed attorney who practices business and commercial law.

The Court's opinion in Altavion starts by explaining the purpose of trade protection, that it "promotes the sharing of knowledge, and the efficient operation of industry by permitting the individual inventor to reap the rewards of his labor by contracting with a company large enough to develop and exploit it." The basic idea is that those who come up with ideas should be able to pitch their ideas to companies without fear of the company using the idea without compensating the person who came up with it

Altavion invented a process for creating self-authenticating documents through the use of barcodes that contain encrypted data about the original documents. Konica Minolta is a research subsidiary of a company that manufactures multifunction printers. The two companies entered into negotiations for Konica Minolta to use Altavion's newly developed technology. Of course, in those negotiations, Altavion had to disclose details about the technology, so both sides agreed to a nondisclosure agreement. After negotiations proved unsuccessful, Altavion learned that Konica Minolta had filed for patents encompassing Altavion's technology.

Altavion sued, and the trial court agreed that Konica Minolta had misappropriated Altavion's trade secrets. Konica Minolta argued on appeal that Altavion's technology was not protectable as a trade secret because, it argued, design concepts are not protectable trade secrets.

The case was governed by the Uniform Trade Secrets Act (UTSA), which creates a statutory cause of action for the misappropriation of a trade secret. It defines a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, or process 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."

The appellate court rejected "any contention that Altavion's [technology] on the whole was inherently not protectable as a trade secret." It stated specifically that ideas are protectable as trade secrets. It discussed a line from the Silvaco opinion that says "[t]rade secret law does not protect ideas as such[,]" and explained that the Silvaco statement is easily misunderstood. It went on to explain that "if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law." The law is different from patent law. Trade secret law protects the inventors right to control the dissemination of information, while patent law is about the subsequent use of novel technology.