It is axiomatic that in order for information to be considered a trade secret, it must have been kept secret. But what if the trade secret is disclosed without the owner's consent? Such was the issue in Intellisoft, Ltd. v. Wistron Corp. et al., No. H044281, slip op. (Cal. Ct. App. Oct. 16, 2019), a recent unpublished decision from the California Court of Appeal for the Sixth Appellate District.
Intellisoft, Ltd. ("Intellisoft") created "Bookmark" in the 1990s, software that allowed users to return their computer to a previously saved state in the event of a power failure. Intellisoft shared Bookmark with Acer pursuant to a non-disclosure agreement, hoping Acer America Corporation ("Acer") would purchase and install the software on its computers.
Two decades later, in 2013, Intellisoft sued for misappropriation, naming Acer and others, including the Wistron Corporation and Wistron InfoComm Technology America (collectively, "Wistron") as defendants. Intellisoft alleged that Acer stole, rebranded, and patented the Bookmark software without its consent, making it appear like the software was proprietary to Acer. Acer then allegedly transferred those patents to Wistron, which did not exist at the time of Acer's alleged misappropriation, but which Intellisoft claimed was spun off from and related to Acer.
Wistron defended by arguing, among other things, that Intellisoft's purported trade secrets were made public by Acer's patents and, therefore, no longer deserved protection as a trade secret. The trial court agreed and dismissed Intellisoft's claims against Wistron. Intellisoft appealed, arguing that regardless of what Acer had done with its trade secrets, Intellisoft's software still deserved trade secret protection because it was the rightful owner and had made no public disclosure. In doing so, Intellisoft relied on the Seventh Circuit's decision in Syntex Ophthalmics, Inc. v. Tsuetaki, which held that "a wrongdoer who has made an unlawful disclosure of another's trade secrets cannot assert that publication to escape the protection of trade secret law" because "[t]o hold otherwise . . . would be to permit [the defendants] to profit from their own wrong." 701 F.2d 677, 683 (7th Cir. 1983).
The California appellate court rejected Intellisoft's argument, ruling that "information that is made public no longer retains the essential quality of a trade secret, regardless of whether the person who made the secret public was the rightful possessor or a third party. Once a third party makes the secret public, the possessor of the secret no longer has the option to withhold the information." Intellisoft, slip op. at 10 (emphasis in original). Because Acer, not Wistron, was the third-party that allegedly disclosed the secret and Wistron did not exist at the time of the disclosure, the court ruled that Wistron could not be held liable as a subsequent user of the trade secret. The court did, however, leave open the possibility that Acer could be held liable. Intellisoft, slip op. at 14.
This case is a stark reminder of the limits of non-disclosure agreements and that once disclosure is made, the ability to seek relief from subsequent users under a state's trade secret act may become very difficult.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.