In June 2022, the Court of Appeals of North Carolina granted summary judgment (Elite Vehicles v. Lee) for a trade secret misappropriation defendant after the plaintiff principal admitted in deposition that it was “possible” that a third party who allegedly received its design came up with a similar design concept through independent thinking. This statement was presented in the context of the defendant’s summary judgment motion—in which the defendant needed to establish that “no genuine issue of material fact” existed. Yet the plaintiff’s statement was taken as sufficient to establish the lack of a trade secret. While this case is reported as nonprecedential, it serves as a timely reminder to be careful in characterizing your own trade secrets and how others may have come up with similar designs.
At issue was a proposed design for a swim platform for a boat. The plaintiffs disclosed design drawings to the defendant under confidentiality restrictions and later contended that the defendant disseminated the design to others without authorization. The court recognized that the defendant, as the moving party, assumed the burden of showing that there was no genuine issue of material fact. The court explained that once this burden is met, the plaintiffs must either show that such an issue of material fact does exist or provide an excuse for not doing so. The court also noted that all inferences are to be drawn against the moving party (the defendant) and in favor of the opposing party (the plaintiffs).
Nonetheless, the court of appeals began by considering whether the plaintiffs had made a prima facie case of misappropriation of a trade secret. The court determined that the plaintiffs had not met this burden, specifically with the requirement from the North Carolina Trade Secrets Protection Act that the design “[d]erives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use.”
The court asserted that the plaintiffs’ principal “acknowledges various swim platform designs are prevalent in the industry, and the possibility that a competitor could independently develop a design that is substantially similar to the one that he created.” More specifically, the court pointed to evidence of various patents on swim platform designs and the principal’s admission in deposition that it was “possible” for the third-party manufacturer to independently come up with his design concept. As a result, the court granted the defendant’s summary judgment motion. Although the rationale is not clearly laid out and it may be that the court was influenced by multiple factors, the court determined that the facts, as a matter of law, did not support the claim that the information at issue was a trade secret.
One can imagine countless trade secret misappropriation situations in technology areas in which patents are also present—the court here did not make any determination whether those designs were anything more than “comparable.” Likewise, it is a maxim of trade secrets law that independent development is a defense to misappropriation, but acknowledging the possibility of such independent development does not seem to speak to whether the subject matter qualifies as a trade secret in the first place.
Regardless of whether this case is further appealed, the takeaway for trade secret owners is to be careful to both argue differences to distinguish what might be construed as “comparable” designs and to avoid speculating in a manner that might be interpreted as an admission against interest.
