California Appellate Decision Strengthens Trade Secret Protections for Ideas and Compilations

In a decision filed on May 8, 2014, the California Court of Appeals held that patentable ideas, if kept secret, can constitute information protectable by trade secret law. By so holding, the Court in Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc., went a long way in clearing up confusion created by a 2010 decision (Silvaco Data Systems v. Intel Corp.), which had stated that “[t]rade secret law does not protect ideas as such” and that trade secret protection only extends to information tending to communicate or disclose ideas to another.

In Altavion, the dispute arose when the defendant took the plaintiff’s overall concept and specific design implementations for digital stamping technology — which it had received under an NDA executed in the course of business negotiations between the parties — and covertly incorporated them into patent applications in its own name. The trial court found for Altavion on its claims of trade secret misappropriation, and on appeal Konica Minolta Systems Laboratory (KMSL) argued that, under Silvaco, Altavion’s concept was not protectable because “[g]eneralized ideas and inventions are protectable by patents and thus cannot be trade secrets.” The California Court of Appeals rejected this argument, relying on earlier precedent explaining the overlap between trade secret law and patent law and which explained that “a trade secret in the broad sense consists of any unpatented idea which may be used for industrial and commercial purposes.” The Court unambiguously declared that “it is clear that if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law” and that “trade secret law may be used to sanction the misappropriation of the idea the plaintiff kept secret.”

By clearly assigning trade secret status to ideas, the Altavion decision provides important additional protections for inventors and companies electing not to patent their intellectual property. As the Court recognized, while patents can and do convey significant rights and benefits to their owners, they also come with some significant risks — particularly if those patents are later invalidated: “Indeed, as a leading scholar has observed, because a ‘substantial number of patents’ are invalidated by the courts, resulting in disclosure of an invention to competitors with no benefit, ‘many businesses now elect to protect commercially valuable information through reliance upon the state law of trade secret protection.’” As long as a company’s ideas and information meet the general requirements for trade secret status under the Uniform Trade Secrets Act (i.e., the ideas and information: (1) are not generally known; (2) derive independent economic value from their secrecy; and (3) are the subject of reasonable efforts under the circumstances to protect their secrecy), then trade secrets law will provide powerful remedies for misappropriation.

The Altavion decision also reiterated the protected status of so-called “compilation” trade secrets, which can consist of information in the public domain. Citing federal appellate decisions from other jurisdictions, the Court held that, even if some or all of the elements of Altavion’s design concepts were in the public domain and thus individually unprotectable, the combination of those elements can be a protectable trade secret if the compilation itself: (1) is secret; and (2) has independent economic value. The Court embraced the doctrine that “a trade secret can include a system where the elements are in the public domain, but there has been accomplished an effective, successful and valuable integration of the public domain elements.” As long as the secret compilation provides the owner with a competitive advantage, trade secret law can provide protections from misappropriation.

Arent Fox has a multi-disciplinary trade secrets practice group with extensive experience helping individuals and companies identify, exploit, and protect their valuable intellectual property. The firm has notable experience on the best practices for identifying valuable trade secrets, and for designing, implementing, and maintaining trade secret policies and protections under the Uniform Trade Secrets Act and related state laws. We represent clients across the nation in asserting or defending claims of trade secret misappropriation and unfair competition in federal and state courts, and before public agencies. If you have any questions, please contact the attorney listed with this alert, or the Arent Fox professional who handles your matters.