The U.S. Court of Appeals for the Fifth Circuit has held that, under Texas law, unique combinations of previously disclosed elements can constitute a trade secret.  Tewari De-Ox Sys., Inc. v. Mountain States/Rosen, L.L.C., Case No.  10-50137 (5th Cir., Apr. 5, 2011) (Prado, J.).

Plaintiff Tewari developed a “zero oxygen” meat-packing method and disclosed the technology involved in multiple 2004 patent applications.  In 2005, defendant Mountain States/Rosen (MTSR) signed a non-disclosure agreement with Tewari in efforts to determine if the plaintiff’s method could increase the shelf-life of MTSR’s case-ready cuts of lamb.  Tewari claimed that it revealed trade secrets to MTSR during the demonstration of his method and that  MTSR later misappropriated those trade secrets.

The district court initially rejected the defendant’s argument that the prior disclosure in the 2004 patent application destroyed the secret, on the ground that a patent application does not disclose a trade secret.   However, on a motion for reconsideration, the court ruled that any information disclosed in the 2004 patent applications were no longer trade secrets when the NDA was signed in March 2005, relying on Group One v. Hallmark, and granted summary judgment to MTSR.  The district court determined that the difference between what was disclosed in the 2004 patent applications and the 2005 meeting with the defendant was “merely a customization” based on MTSR’s needs and using MTAR’s equipment, and therefore Tewari had no trade secret to protect.

The 5th Circuit, sitting de novo, agreed with the district court that any information disclosed in the 2004 patent applications were no longer trade secrets.  However, the court determined that the district court incorrectly ruled that Tewari’s unique combinations of previously disclosed elements could not constitute trade secrets.

Although no post-2000 Texas case directly addresses whether a published patent application destroys the secrecy of its contents for trade secret purposes, the 5th Circuit relied on the weight of authority from the other jurisdictions.  A published patent application is not “secret.”   The plaintiff’s 2004 applications were published a year prior to the meeting with MTSR, and any contents disclosed would no longer qualify as trade secrets.

Tewari, in an affidavit, defined multiple trade secrets that it argued were not disclosed in the 2004 applications.   They involved combinations of the disclosed information as well as new adaptations.  The 5th Circuit, relying on its opinion in Water Services, explained that a trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design or operation of which in unique combination, affords a competitive advantage and is a protectable secret.  Even though the district court rejected Tewari’s alleged trade secrets as “customization” or “trial-and-error” processes, the 5th Circuit cited to Ventura Manufacturing, which specifically granted trade-secret protections to a trial-and-error process.  As such, Tewari created a fact dispute as to whether it had trade secrets that it disclosed to the defendant.

Because the district court incorrectly defined Tewari’s trade secrets and failed to consider that a unique combination of previously disclosed elements constituted protectable trade secrets, the 5th Circuit reversed the summary judgment on the plaintiff’s trade secret misappropriation and breach of fiduciary duty claims and remanded the case.