Tuesday, July 02, 2013

Convolve/MIT lose on trade secret issue at CAFC

Of the case Convolve and MIT vs. Compaq and Seagate

Of background

In July 2000, Convolve and MIT sued Compaq and Seagate for, among other things, trade secret misappro- priation and patent infringement. Convolve was con- ceived and is owned by Dr. Neil Singer. While a graduate student at MIT, Dr. Singer set out to solve the general problem of moving equipment quickly while minimizing the resultant vibrations. The ’635 and ’473 patents grew out of that research. MIT owns the ’635 patent while Convolve owns the ’473 patent and all alleged trade secrets in this suit. Convolve contends that Seagate manufactured drives and tools that infringe the ’473 and ’635 patents and misappropriated Convolve’s trade se- crets. Convolve also asserts that Compaq incorporated the Seagate drives into its computers and provided tools, such as the “F10 BIOS,” that together infringe certain claims of the ’473 patent. Convolve further claims that Compaq misappropriated multiple trade secrets relating to the Quick and Quiet User Interface.

Of the non-disclosure agreement [NDA]:

In 1998, Convolve and Compaq began licensing nego- tiations regarding Convolve’s technology. To facilitate the discussions, Convolve and Compaq signed a non- disclosure Agreement (“NDA”) and agreed to share their respective confidential information for “furthering a business relationship.” J.A. at 820. The confidential information to be disclosed was described as “storage peripheral market information and technology infor- mation” from Compaq and “algorithms and processes for enhancing positioning systems” from Convolve. Id. The NDA states that, to trigger either party’s obligations, the disclosed information must be: (1) marked as confidential at the time of disclosure; or (2) unmarked, but treated as confidential at the time of disclosure, and later designated confidential in a written memorandum summarizing and identifying the confidential information. The NDA explic- itly excludes from its scope any information that: (1) the recipient possessed prior to disclosure; (2) was a matter of public knowledge; (3) was received from a third party without a duty of confidentiality attached; (4) was inde- pendently developed by the recipient; (5) was disclosed under operation of law; or (6) was disclosed by the recipi- ent with the discloser’s prior written approval. The NDA covered any confidential disclosures between August 13, 1998 and October 15, 2000.


With the NDAs in place, Compaq, Seagate, and Con- volve had a meeting on October 15 and 16, 1998, during which Convolve gave a presentation regarding its input shaping technology and its application to computer disk drives. After the meeting, the parties acknowledged in writing that any oral disclosure of confidential infor- mation during that meeting was covered by the NDAs. Convolve gave two other presentations to Compaq and Seagate, on February 10 and April 7, 1999. Although Convolve sent Seagate copies of the slides from the Feb- ruary presentation and a letter discussing the April demonstration, Convolve did not state in writing that any of the disclosures during or in connection with those later meetings were confidential. Despite these meetings and continued communications, Convolve never consummated a deal with Compaq and Seagate regarding the technology.

**Of the trade secrets

Convolve asserts three grounds for its belief that the district court improperly granted summary judgment on its trade secret claims: (1) that it presented sufficient evidence to create material issues of fact regarding Seagate and Compaq’s claims of prior knowledge and non- use of the trade secrets, as well as enough evidence that the trade secrets were disclosed in accordance with the NDA marking provisions; (2) that it presented evidence that would support a verdict that the parties, through their course of conduct, adopted a broad construction of the NDAs or waived their specific requirements for designating matters as confidential; and (3) that the Convolve- Seagate NDA did not govern the entire confidential relationship between the parties because trade secret misappropriation claims may also be analyzed as tort claims under California law. Each of Convolve’s arguments will be addressed in turn.

The CAFC began:

Trade secret misappropriation is a matter of state law. See Atlantic Research Mktg. Sys., Inc. v. Troy, 659 F.3d 1345, 1356 (Fed. Cir. 2011) (citing Ultimax Cement Mfg. Corp. v. CTS Cement Mfg. Corp., 587 F.3d 1339, 1355 (Fed. Cir. 2009)). The parties agree that California law applies to Convolve’s trade secret claims against Seagate. The district court concluded that New York law applies to the claims against Compaq. We apply our own law “to substantive and procedural issues ‘pertaining to patent law.’” Finjan, Inc. v. Secure Computer Corp., 626 F.3d 1197, 1207 (Fed. Cir. 2010) (quoting Aero Prods. Int’l, Inc. v. Intex Recreation Corp., 466 F.3d 1000, 1016 (Fed. Cir. 2006)). We review the district court’s grant of summary judgment under the law of the regional circuit. See IGT v. Alliance Gaming Corp., 702 F.3d 1338, 1343 (Fed. Cir. 2012) (citing MicroStrategy Inc. v. Bus. Objects, S.A., 4229 F.3d 1344, 1349 (Fed. Cir. 2005)).

Of the first point:

ATSIs 1B, 2A, 2C, 2E, and 3B–D were disclosed in the absence of the written confidentiality follow-up memorandum mandated by the NDAs. For this reason, barring waiver of the NDAs marking requirements (discussed below) we conclude that Seagate did not breach the NDA to the extent it may have appropriated the information disclosed. Because the disclosure of the information was not subject to the confidentiality obligations of the NDAs, moreover, barring some other basis upon which to predi- cate a promise of confidentiality (which we also discuss below) information relating to those ATSIs lost any trade secret status it might have had upon disclosure.

Of the language of the NDA:

The plain language of the Convolve-Seagate NDA unambiguously requires that, for any oral or visual disclosures, Convolve was required to confirm in writing, within twenty (20) days of the disclosure, that the information was confidential.

Of a separate claim under California statutory law:

Convolve next argues that, even if it failed to disclose or confirm its trade secrets in writing, such failure only warranted dismissal of its contract claims. Convolve also pled a separate claim for trade secret misappropriation; Convolve argues that its failure to comply with the NDA is irrelevant to that tort claim. Instead, Convolve contends that the California Uniform Trade Secrets Act (“CUTSA”) controls its misappropriation claims against Seagate. And, because CUTSA does not require trade secrets to be disclosed in writing, the NDA does not define the entirety of the parties’ relationship. According to Convolve, CUTSA provides that confidential relationships can be express or implied, and can depend on whether the defendant knew or should have known that disclosures were made under circumstances that compelled the receiving party to maintain confidentiality. As such, Convolve argues that it presented enough evidence to support a finding that the confidential relationship be- tween it and Seagate was either not governed by, or not fully governed by, the NDA.

The CAFC did not accept this argument:

As another panel from this court found, the most relevant authority is from the Ninth Circuit (applying Oregon law), that “a written non-disclosure agreement supplants any implied duty of confidentiality that may have existed between the parties.” Id. (citing Union Pacific R.R. Co. v. Mower, 219 F.3d 1069, 1076 (9th Cir. 2000)). This conclu- sion is fully consistent with general principles of California contract law. See Faigan v. Signature Grp. Holdings, Inc., 150 Cal. Rptr. 3d 123, 134 (Cal. Ct. App. 2012) (“There cannot be a valid express contract and an implied contract, each embracing the same subject, but requiring different results.”) (citing Shapiro v. Wells Fargo Realty Advisors, 199 Cal. Rptr. 613 (Cal. Ct. App. 1984)); see also Hill v. State Farm Mut. Auto Ins. Co., 83 Cal. Rptr. 3d 651, 663 (Cal. Ct. App. 2008) (“Express covenants abro- gate the operation of implied covenants so courts will not permit implied agreements to overrule or modify the express contract of the parties.”); Wagner v. Glendale Adventist Med. Ctr., 265 Cal. Rptr. 412 (Cal. Ct. App. 1989) (holding that there can be no implied contractual term at variance with an express term of a contract).


If the parties have contracted the limits of their confidential relationship regarding a particular subject matter, one party should not be able to circumvent its contractual obligations or impose new ones over the other via some implied duty of confidentiality.

The CAFC continued:

Indeed, the CUTSA itself compels such a result. The CUTSA states that misappropriation occurs when a trade secret is acquired under circumstances giving rise to a duty to maintain its secrecy. Cal. Civ. Code § 3426.1(b). Convolve disclosed its alleged trade secrets to Seagate pursuant to the provisions of the NDA. Therefore, the “circumstances” giving rise to a duty to maintain the secrecy of the disclosed information is dictated by the terms of the NDA. Convolve did not follow the procedures set forth in the NDA to protect the shared information, so no duty ever arose to maintain secrecy of that information. As such, Convolve’s argument must fail.

The conclusion:

For the foregoing reasons, we affirm the district court’s findings that Seagate and Compaq did not misappropriate Convolve’s trade secrets and that the ’635 patent is non-enabling and, thus, invalid under 35 U.S.C. § 112.


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