Contractual Override of Trade Secret Law

By Dennis Crouch

Convolve and MIT v. Compaq and Seagate (Fed. Cir. 2013)

MIT has a long history with patent enforcement, including its historic link with Franklin Pierce Law Center (now UNH) and housing of the Lemelson-MIT Program. Of late, the not-for-profit institution has become quite a patent plaintiff. In addition to this case, MIT is the patent-owner-plaintiff in the Akamai and Ariad cases as well as many others. This case reaches back more than a decade when MIT and Convolve sued a group of defendants for both trade secret misappropriation and infringement of its U.S. Patent Nos. 6,314,473 and 4,916,635. In 2007, the Federal Circuit decided a prior appeal in this case on mandamus – In re Seagate Tech., LLC, 497 F.3d 1360 (Fed.Cir. 2007) (en banc) (holding that willful patent infringement at least requires showing of objective recklessness).

The present case began with a non-disclosure agreement and then failed license negotiation between Convolve and Compaq. The signal shaping technology in question is useful in computer read/write operations and Convolve agreed that Seagate (Compaq’s hard drive supplier) could be included in the conversation. No license was reached but Convolve and MIT sued two years later when the features (allegedly) showed up in Compaq/Seagate technology.

Contractual Override of Trade Secret Law: The main trade secret problem for Convolve in this case is the language of the non-disclosure agreement (NDA) that the parties signed. The agreement states that any confidential material or presentations must be particularly identified as confidential and Convolve was unable to show that it followed the procedures required by the NDA. In addition the trade secret claims regarding marketing information failed under NY law because NY trade secret law does not extend to marketing concepts. The Federal Circuit writes:

[B]arring 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 predicate 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.

A major legal and practical point here, that should already be well understood, is that is that a contractual agreement to transfer otherwise secret information will override trade secret protections that may be in place.

Patent Infringement: The district court also dismissed the patent infringement side of the action based upon a finding of non-infringement. On appeal, the Federal Circuit vacated that decision – finding that sufficient factual dispute existed to allow the plaintiff to overcome the summary judgment motion of non-infringement for the ‘473 patent.

While a very close call, we find that Convolve presented enough evidence to preclude summary judgment on its inducement claims. Convolve did not merely demonstrate that the drives are capable of infringing, but provided evidence of specific tools, with attendant instructions, on how to use the drives in an infringing way. Unlike Fujitsu Ltd. v. Netgear, Inc., 620 F.3d 1321 (Fed. Cir. 2010), upon which the district court relied, the evidence here does not demonstrate that the infringing option in the Seagate drives was disabled by default. See Toshiba Corp., 681 F.3d at 1365 (analyzing the holding in Fujitsu). Accordingly, given the procedural posture in which the claim is presented to us, we conclude that Convolve may proceed with its inducement claims on remand.

Thus, on remand, the case will continue to determine whether the ‘473 patent was actually infringed.

9 thoughts on “Contractual Override of Trade Secret Law

  1. 9

    LOL – and by the way, you still have not found the nuts to admit the obvious. I was right in Myriad and you were wrong (and you were wrong across at least two blogs and under various svckpuppets).

  2. 8

    Sorry Malcolm, but Keeping It Real, Robert, Francis, Shrivan, and Vivika M were all busy at the moment.

    Besides which, as you know – I have stuck to one moniker, so the, um, ‘stale’ comment is itself a bit stale – but hey, that fits in with your usual (and equally stale) motif of accuse others of that which you do.


  3. 7

    LOL – as I said, not enough balls.

    (speaking of which, has Malcolm found the nuts yet to admit the obvious fact that I was right – notwithstanding my ‘English as a second language’ – in the Myriad case and that he was wrong?)

    Just checked the 21,000 words on the topic spewed by Malcolm and those beautiful three words (anon was right) are not amongst the CRP.

  4. 6

    “The ball is the flaw in MM’s arugments.”

    Are you trying to imply that only 25 percent of Moonpie’s arguments contain a flaw?

  5. 5

    The hands are Ned’s fingers on the keyboard.

    The cups are Ned’s comments.

    The sound of the ball rolling around inside the cup is like Ned transparently telegraphing his agenda in the comments he makes.

    The ball is Ned’s agenda.

    The cat is all the other commenters who, having learned through repetition, have become accustomed to swiping at Ned’s agenda even though he thinks it is “hidden” inside of his cup/comment.

  6. 3

    Anon is the cat. MM is the hands. The cups are MM’s arguments. The ball is the flaw in MM’s arugments.

  7. 2

    In the Patent clarity thread, Paul Cole pointed out that the reason for the invalidity holding was the broad construction asserted by the patent holders which was not supported by the narrow disclosure of the specification. The present case was to the same effect. The patent owners had claimed to be able to reduce acoustic noise and all apparatus involving moving from one location to another, including disk drives moving their arms in what are known as “seeks.” But the inventor testified that he could not reduce noise in disk drives for “long seeks” until nine years after the patent application has been filed, and then only using trade secret methods.

    Based upon this testimony, the court ruled that the broad claim language was not enabled for full scope claimed. Claims invalid.

  8. 1

    Interesting. I don’t know as I’d couch it so much as “contract overrides Trade Secret Law” as it should be seen as a “lessons learned” about following the requirements of the contract in place.

    If your contract says “confidential information” is only that which is designated and marked as such upon disclosure (or which if disclosed verbally is summarized and identified as confidential in a follow-on writing within X days of disclosure), then do those things. Teach your clients to do those things.

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