The U.S. Court of Appeals for the Tenth Circuit reversed the district court holding that because process elements were known, the process was not a trade secret. Applying Colorado law, the Tenth Circuit determined that while individual components of a process may be considered when determining whether the process is a trade secret, the process must be considered in the aggregate. Hertz v. Luzenac Group, Case No. 06-1324 (10th Cir., Aug. 11, 2009) (Holmes, J.).
Luzenac America, sells various formulations of talc known as 604AV. Two of Luzenac’s former employees (collectively Hertz) were involved with the technical marketing and selling of 604AV. After leaving Luzenac, Hertz contracted to develop and market talc for another company. After Luzenac sent a cease-and-desist letter, Hertz filed an action for declaratory judgment. Luzenac counterclaimed for, among other things, misappropriation of trade secrets. Hertz filed for summary judgment on this issue.
To determine whether the manufacturing process of 604AV was a trade secret, the district court applied the test of Colorado Supply, which examines six factors. In reversing the district court, the Tenth Circuit found the district court made three major errors in its trade secret analysis.
First, the district court did not consider the manufacturing process in the aggregate. Instead, it focused on individual elements, some of which Luzenac admitted were publicly known. The Tenth Circuit observed that under Rivendell “a trade secret can exist in a combination of characteristics, each of which, considered separately, is in the public domain, but, taken together, may yield a competitive advantage that results in a protectable trade secret.” Thus, the district court erred in failing to consider the process as a whole.
Second, the district court did not view the evidence in the light most favorable to the nonmovant, Luzenac. In considering whether the individual elements of the process were in fact secret, the district court made several determinations of fact. This bolstered the Tenth Circuit’s conclusion that Hertz did not meet the standard for summary judgment.
Third, the district court incorrectly focused on the steps that Luzenac did not take to protect the secrecy of the information. While the owner of a trade secret must take reasonable steps to protect the secrecy of the trade secret, the owner need not take extreme and unduly expensive measures. The district court dismissed the measures Luzenac took to protect its trade secrets as “ceremonial.” As the Tenth Circuit noted, there are always more precautions that could have been taken, but this does not mean that the actual precautions taken were unreasonable under the circumstances. Therefore, the court found multiple issues of material fact that should have precluded summary judgment on the issue of misappropriation.