Intellectual Property – Trade Secrets Misappropriation Claim – Disclosure – Patents – Different Fields – Breach of Contract – Confidentiality — Tort/Negligence

SCR-Tech LLC v. Evonik Energy Services LLC (Lawyers Weekly No. 11-15-0775, 50 pp.) (James L. Gale, J.) N.C. Bus. Ct.

Holding: Plaintiff and others have published the general steps involved in plaintiff’s process for cleaning and regenerating the catalysts used by coal plants to remove harmful constituents from their exhaust; therefore, the general steps are not trade secrets. However, there are questions of fact as to whether some of the specific steps in plaintiff’s process have been publicly disclosed, independently developed, or wrongfully misappropriated by defendant from plaintiff’s former employees.

Defendants are granted summary judgment as to the general steps in plaintiff’s process. Defendants’ motion for summary judgment is otherwise denied.

The N.C. Court of Appeals has identified six factors for courts to consider when determining whether information is a trade secret: (1) the extent to which information is known outside the business; (2) the extent to which it is known to employees and others involved in the business; (3) the extent of measures taken to guard secrecy of the information; (4) the value of information to business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could properly be acquired or duplicated by others.

The factors overlap. Some of the factors, and particularly the ease or difficulty which would accompany the use of public information might inform the accused party, lend support for an argument that publication alone of separate steps of a process does not necessarily negate a trade secret claim in the overall process. In this case, the trade secret claims depend on what has been publicly disclosed and whether the court can conclude as a matter of law that a competitor could piece together the public disclosures into plaintiff’s process, defeating trade secret protection.

The tension presented by the parties’ positions presents two fundamental questions: (1) whether information necessarily loses any possible trade secret protection by the mere publication of that information in any source; and (2) if publication thwarts protection for information at one level, whether the holder may still maintain a protectable interest in information at a different level of abstraction than what is published (that is, in information that is more specific than the general disclosure).

Once a company makes its secret information public by its own advertising, the information loses trade secret protection.

Information published as a patent cannot be protected as a trade secret. However, trade secrets can coexist with patent protection directed to the same general subject matter. Thus, holders of intellectual property rights may in some instances use both trade secrets law and patent law to protect the same body of information.

Plaintiff correctly argues that a “trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design, and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.”

Comparing the publication of component parts of a process to a trade secret claim in the overall process involves a mixture of fact and law.

Plaintiff takes issue with defendants’ reliance on patents outside the relevant field and the assertion without further discovery or testimony that any trade secret claim has been foreclosed as a matter of law.

At this stage, without the benefit of further discovery or expert testimony, the court cannot conclude as a matter of law that a disclosure related to automobile catalytic converters and gas-fired turbines sufficiently discloses information about selective catalyst reduction (SCR) catalyst regeneration so that plaintiff’s potential competitors could readily ascertain part of plaintiff’s otherwise secret process for power plant scrubbers. In those instances where defendants rely only on publications in such different fields of application, the court concludes that there are material issues precluding summary judgment.

The court is further confronted with different positions on whether the actual source of defendants’ knowledge in entering the market is material to the determination of whether any trade secret protection has been lost.

Plaintiff contends that information can be published without becoming generally known and the court should inquire as to what information defendants actually used in developing their process and not be satisfied with a demonstration that defendants could have developed the process from independently available information.

The issue of whether to inquire into a defendant’s actual use of plaintiff’s information takes on a different dimension when the defendant claims that trade secret status has been foreclosed by a combination of multiple publications that may be pieced together.

The issue becomes even more complicated with the trade secret claim arises with a backdrop of strong evidence of a contractual confidential relationship between the parties and some evidence that the defendant actually used plaintiff’s information. In those circumstances, the focus is more on the affirmative defense of misappropriation rather than on whether the information can be defined as a trade secret in the first instance.

Evidence of independent development is then potentially relevant both to the statutory defense of independent development and to the factor used in defining a trade secret by the ease or difficulty with which the information could properly be acquired and used.

In Servo Corp. of America v. General Elec. Co., 393 F.2d 551 (4th Cir. 1968), the court noted that “the gravamen of a trade secret case is a breach of confidence, rather than an infringement of property right; hence, reliance on innocent sources of information involving no breach of duty, is an essential element of the defense that secrets were previously disclosed.” The court held that while information that has been clearly and completely published cannot be the basis on which a confidential relationship or trade secret is based, the question of whether the disclosures were obvious and complete raised an issue of fact, thereby placing the burden on the alleged misappropriating party to prove innocent reliance on non-confidential sources.

The controlling question, then, is whether the publications upon which defendants rely result in a complete and obvious disclosure of the technical information which plaintiff claims as a trade secret. The Court finds the answer may vary depending on whether the published information arises within the SCR technology field.

As to plaintiff’s claim that its general multi-step process in and of itself remains a protected trade secret, the court notes that plaintiff’s own internet disclosures make that process public. As such, this general description of the process does not constitute a trade secret.

Defendants’ motion with respect to the general description of plaintiff’s process is granted.

As to the individual steps within the overall process and the specific recipes that plaintiff has developed using them, the court grants defendants’ motion with regard to steps published by plaintiff and other companies, including information in patent applications in the SCR field.

Where defendants cite information from patents in other fields, a question of fact arises, precluding summary judgment.

Defendants cite defendant Evonik Energy Services LLC’s 2007 patent application to show that plaintiff’s underdrying step has been disclosed and that “it may be carried out under increased temperature or low pressure.”

Generally, this patent disclosure would preclude any trade secret claim for the general process. But, plaintiff claims that Evonik actually misappropriated plaintiff’s trade secrets to prepare it prosecute its patent. Trade secret misappropriation may arise from publishing a competitor’s trade secret.

Also, the Evonik disclosure does not list the times and temperatures that are appropriate to use for initial under-drying.

Defendants have not presented evidence that plaintiff’s claimed temperatures and drying times have been disclosed. Defendants’ motion with respect to this drying step is denied.

While the court has considered the evidence each party has presented about Evonik’s claim of independent development, the court does not conclude that such evidence is dispositive at this stage.

The motion for summary judgment on plaintiffs’ breach of contract claim fails to the extent that it mirrors the trade secret claims on which the court did not grant summary judgment. But there are also other reasons why the breach of contract claims should not be summarily dismissed.

Plaintiff claims that defendants Hans-Ulrich and Brigitte Hartenstein breached their contract with it by failing to take reasonable measures to protect the secrecy of its confidential information, failing to turn over all confidential information, and failing to maintain the confidentiality of its confidential information. Plaintiff also claims that Maik Blohm and Marcel Förster breached their confidentiality agreements with plaintiff’s parent company Envica Kat GmbH when they provided their expertise to Evonik, and that the Hartensteins at least should have known that these former Envica employees had knowledge of plaintiff’s process that required protection.

Admittedly, defendants argue and may ultimately prevail with proof that Evonik came into legitimate possession of plaintiff’s technical and pricing information, as it came from either plaintiff’s former customer or from the customer’s employee. But the court believes there are unresolved fact issues underlying defendants’ position.

As the court finds that material issues of fact exist as to the breach of contract claim, it cannot conclude as a matter of law that plaintiff’s tortious interference claim must fail.

Defendants argue that plaintiff’s claim for unfair and deceptive trade practices must fail because the claim is dependent upon plaintiff’s claims for trade secret misappropriation and tortious interference. As these claims survive, defendants’ motion with respect to the unfair and deceptive trade practices claim on the basis asserted in the motion is denied.

Defendants’ summary judgment motion is granted in part and denied in part.