Technology Design Concepts Can Be Trade Secrets

by Wendel, Rosen, Black & Dean LLP
Contact

\

Conventional wisdom holds that software algorithms and source code can be protected as trade secrets, but broader technology “design concepts” can only be safeguarded by registering for patent protection.  But that conventional wisdom is bending as more and more courts grapple with the boundaries between trade secret and patent law.  In one of the more interesting California trade secret cases from the second quarter of 2014 — Altavion, Inc. v. Konica Minolta Systems Laboratory Inc. — the court of appeal confirmed that technology design concepts can be trade secrets.stock-photo-illustration-of-a-microprocessor-referring-to-concepts-such-as-product-design-research-and-99708605

Altavion’s Digital Stamping Technology (DST)

The plaintiff, Altavion, was a small company that invented a process for self-authenticating documents through the use of barcodes containing encrypted data about the contents of the original documents, otherwise known as digital stamping technology or DST.  Altavion alleged that several aspects of its DST process constituted trade secrets and that the defendant, Konica, stole those trade secrets.  Altavion and Konica had entered negotiations, subject to a nondisclosure agreement, aimed at embedding Altavion’s DST in Konica’s multifunction printers.  After those negotiations failed, Altavion discovered that Konica had secretly filed for patents encompassing Altavion’s DST process.

The trial court found that Altavion’s DST concepts were trade secrets, that Konica gained all of its knowledge of DST through the confidential negotiations with Altavion, and that Konica misappropriated Altavion’s DST trade secrets.  The court of appeal affirmed.

Can a patentable idea also be a trade secret?

On appeal, Konica argued that “[g]eneralized ideas and inventions are protectable by patents and thus cannot be trade secrets.”  The court of appeal disagreed, holding that “it is clear that if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law.”  The court noted the different aims of patent law (shielding a publicly disclosed idea from infringement) and trade secret law (the right to control the dissemination of secret information), and observed that due to concerns regarding patent validity many businesses now choose to protect commercially valuable information through trade secret protection.

The court distinguished between the various components of Altavion’s DST technology.  At one end of the spectrum was Altavion’s “general idea” for a barcode allowing for self-authentication of documents, which was not a trade secret because it had been disclosed to several companies without a nondisclosure agreement.  At the other end of the spectrum was Altavion’s “algorithms and source code,” which was the most specific and secret level of information, and unquestionably a trade secret.  In the middle of this spectrum, and the focus of the lawsuit, were the “design concepts” underlying Altavion’s DST concepts.

Design concepts are protectable as trade secrets

The court held that Altavion’s design concepts were protectable trade secrets because they had independent economic value, were created through Altavion’s substantial investment of time and effort, were not readily ascertainable by competitors, and had not been previously disclosed.  The last part — “not previously disclosed” — was key to the court’s decision.  The court recognized that some earlier decisions had ruled that software design concepts were not trade secrets where those concepts were already “disclosed and evident to the end user.”  According to those prior cases, “plans, flows, inputs, outputs, rules of operation, priorities of operation, and the like are not trade secrets to the extent they are manifest in the way a program works.”

But here, the court ruled that Altavion’s design concepts maintained trade secret protection because they had not yet been disclosed in any finished product.  Altavion and Konica merely anticipated that the concepts would be disclosed later if and when the finished product containing the concepts was placed on sale.  The parties never reached that point, however, because negotiations ended and Konica pursued its secret patent applications covering Altavion’s concepts.

Takeaway

Trade secrets are not just for formulas, algorithms, and customer information.  An idea or design concept that might otherwise be patentable can also constitute a trade secret if it has independent economic value, is not readily ascertainable, and the owner diligently keeps it confidential.  Given recent concerns over heightened standards for patent validity and the high stakes of disclosing inventions in patent applications that might be rejected, expect more companies to rely on trade secret protection for their design ideas.

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.

© Wendel, Rosen, Black & Dean LLP | Attorney Advertising

Written by:

Wendel, Rosen, Black & Dean LLP
Contact
more
less

Wendel, Rosen, Black & Dean LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.