Tech Transfer eNews Blog

Court decision protects start-up’s unpatented idea under trade secret law

By David Schwartz
Published: July 16th, 2014

A recent decision by the California Court of Appeals holds that ideas, even if not patented, may still be protected as trade secrets. The decision is highly relevant to cases in which an inventor reveals his or her idea to a company under a nondisclosure agreement (NDA) prior to any patent protection, and the company later breaks from the inventor and commercializes a similar technology without proper consent.

In the case at hand, Altavion Inc., a start-up with a proprietary digital stamping technology (DST) that enables the self-authentication of digital and paper documents, entered into an NDA with Konica Minolta Systems Laboratory Inc. (KMSL) to commercialize the technology. In the next year, the two companies signed a memorandum of understanding (MOU) stating that KMSL recognized the proprietary nature of Altavion’s innovation and promised to protect it as intellectual property.

However, in the month before the MOU was signed, KMSL quietly filed patent applications on a technology highly similar to Altavion’s. Not surprisingly, KMSL began to show less interest in a commercial partnership with Altavion, and in a few months negotiations ended altogether.

About two years later, Altavion learned that KMSL had filed the patent applications, and in response the start-up filed a lawsuit arguing KMSL had misappropriated its technology, including algorithms and source code internal to DST.

The court ruled in Altavion’s favor, even though the technology was not patented, concluding that “if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law. In that situation, trade secret law protects the inventor’s right to control the dissemination of information.”

Finding that both the general and specific designs of DST are protectable trade secrets, the court awarded Altavion economic damages of $1 million and attorney’s fees, expert fees and other costs of approximately $3.3 million. And importantly, even though the DST design concepts might be evident to a software end user, the court still found them protectable because they were disclosed to no one other than KMSL (under an NDA, no less).

Discussing trade secret law in relation to patent law, the court noted that “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.”

Source: Fish & Richardson

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