A recent California Court of Appeal decision broadly interprets trade secret protections to encompass general concepts and ideas. In Altavion, Inc. v. Konica Minolta Systems Laboratory Inc., Case Nos. A134343, A135831, 2014 WL 1846104 (Cal. Ct. App. May 8, 2014) (“Altavion”), the Court of Appeal upheld the trial court’s decision that appellant and defendant Konica Minolta Systems Laboratory, Inc. (“KMSL”) misappropriated respondent and plaintiff Altavion, Inc.’s (“Altavion”) confidential “digital stamping technology” (“DST”) following failed business negotiations. The negotiations were governed by a non-disclosure agreement and all discussions were to remain confidential. The court reasoned, “[a]s Altavion sought to commercialize its innovative DST with the assistance of KMSL, to the expected mutual benefit of both companies (and society as a whole, had a marketable product been achieved), Altavion was entitled to the protections afforded by trade secret law.”

The Background Facts

Altavion developed technology that enabled digital and paper documents to be self-authenticated by using bar codes encoded with the content of an original document.1 KMSL, a research and development subsidiary of Konica Minolta Business Technologies, Inc., manufactures products that can copy, scan and print documents. In 2003, Altavion and KMSL entered into negotiations regarding Altavion’s DST. The parties entered into a non-disclosure agreement pursuant to which the companies agreed that any confidential information disclosed during their discussions would be kept confidential. Prior to entering into discussions with Altavion regarding its DST, KMSL is alleged to have had no involvement in digital stamping projects or technology.

Following a breakdown in negotiations, Altavion purportedly discovered in 2006 that KMSL had applied for patents that included aspects of Altavion’s DST. Altavion sued KMSL in November 2007 for, among other claims, misappropriation of trade secrets.

The trial court determined that KMSL had misappropriated two types of Altavion’s confidential trade secrets: (1) the general design concepts underlying DST and (2) particular stamping technology, such as the algorithms and source code integral to DST. The trial court noted in particular that KMSL had begun the process of applying for the patents during negotiations with Altavion to exploit its technology. The court awarded Altavion $1 million in damages, prejudgment interest of approximately $500,000, as well as approximately $3.3 million in attorneys’ fees and expert fees and costs as a result of KMSL’s “willful and malicious” misappropriation of its trade secrets.

The Appellate Court’s Analysis

In 1984, California adopted the Uniform Trade Secrets Act (“UTSA”). See Cal. Civ. Code § 3426 et seq. The UTSA creates a statutory cause of action for the misappropriation of a trade secret. The UTSA 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.” Cal. Civ. Code § 3426.1(d). After considering the facts of the case and the relevant law, theAltavion Court affirmed the trial court’s decision. In doing so, the Court of Appeal held, among other things, that: 1) Altavion did not fail to adequately identify its trade secrets; 2) general ideas are protectable as trade secrets; 3) plaintiff’s specific design concepts constitute protectable information; and 4) substantial evidence supports the trial court’s decision that plaintiff’s design concepts had independent economic value.

The principal question before the Court of Appeal was whether general ideas and concepts are protectable trade secrets. As the Court of Appeal noted, the trade secret information at issue there was predominantly “comprised of the design concepts underlying Altavion’s DST.”2 In addressing this question, the Court of Appeal directed its attention to KMSL’s assertion that “generalized ideas and inventions are protectable by patents and thus cannot be trade secrets.” The court found the authority KMSL cited to support its position to be inappropriate. For example, in Silvaco Data Systems v. Intel Corp., 184 Cal. App. 4th 210, 220-21 (2010) (“Silvaco”), the court stated that the fundamental difference between trade secret law and patent law is that “[a] patent protects an idea, i.e. an invention, against appropriation by others. Trade secret law does not protect ideas as such. [] Trade secret law [] protects only theright to control dissemination of information.” KMSL argued thatSilvaco supports its position that ideas are protectable under patent law, not trade secret law. The Court of Appeal disagreed. The Altavion Court stated that an overlap exists between trade secret law and patent law. Referencing an earlier California appellate court opinion, the Court of Appeal posited that a “trade secret in the broad sense consists of an unpatented idea which may be used for industrial and commercial purposes.” See Sinclair v. Aquarius Electronics, Inc., 42 Cal. App. 3d 216, 222 (1974) (holding that plaintiff’s idea qualified as a trade secret). The Court of Appeal ultimately held that “it is clear that if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law. In that situation, trade secret law protects the inventor’s right to control the dissemination of information.”

Implications

Trade secret protection is designed to “promote[] 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.” According to the Altavion Court, this policy in California applies to inventors who disclose an idea — not necessarily just the formulae, patterns, or programs that compose that idea — in a confidential commercial negotiation.

A few lessons can be learned from Altavion. First, California inventors should protect their ideas in commercial negotiations by maintaining the secrecy of their trade secrets via confidentiality agreements.3 Failure to protect potentially lucrative ideas may lead to exploitation by a competitor. And second, even with a non-disclosure agreement, inventors should investigate following failed negotiations whether their protected ideas are being commercially exploited.