No Explicit Efforts to Maintain Secrecy? No Problem, Suggests the Ninth Circuit

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In Direct Technologies, LLC v. Electronic Arts, Inc., the Ninth Circuit set forth an interesting take on what is sufficient to demonstrate reasonable efforts to maintain secrecy under the California Uniform Trade Secrets Act (“CUTSA”). In the case, plaintiff Direct Technologies, LLC asserted a trade secret misappropriation claim against defendant Electronic Arts regarding the disclosure of its usb drive prototype for Electronic Arts to a third-party. The district court granted summary judgment for Electronic Arts, finding that no reasonable jury could find that Direct Technologies had taken reasonable efforts to maintain the confidentiality of its prototype.

The Ninth Circuit disagreed. While agreeing that “the record shows that [Direct Technologies] did not do much, if anything, to explicitly protect its prototype design,” the Ninth Circuit nevertheless declined to affirm the decision on that basis. Citing the 1974 Ninth Circuit decision in Pachmayr Gun Works, Inc. v. Olin Mathieson Chemical Corp., the Ninth Circuit reasoned that there might be factual circumstances where an “implied relationship of confidentiality exists between two business partners,” and thus, it could be reasonable not to make any additional efforts to maintain the confidentiality of the information at issue. One such circumstance, discussed in Pachmayr and raised again here, is the disclosure of a trade secret to a potential purchaser to enable the appraisal of the object or information. Ultimately, the Ninth Circuit side stepped the confidentiality issue and whether the enactment of CUTSA preempted Pachmayr, by affirming the trade secret judgment on the grounds that Direct Technologies had not demonstrated any independent economic value for the prototype.

It will be interesting to see whether this case and the potential of implied confidential relationships will alter the landscape of summary judgment rulings on confidentiality issues in CUTSA cases. Only time will tell.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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