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Parties Involved:
Advanced Monitoring Systems, Inc.
Appellant
Wes Bailey
Appellee
Phillip M. Hoyt
Appellee
R-Con International
Appellee
G. E. Stahl
Not Party
William Veach
Appellee
Duane White
Appellee

Document Text:

,. FILED 

Unitm Stat.es Court of Appeals UNITED STATES COURT OF APPEALS Tenth Circuit 

FOR THE TENTH CIRCUIT 

PHILLIP M. HOYT, an individual; R-CON 

INTERNATIONAL, a Utah corporation, 

v. 

Plaintiffs-CounterDefendants-Appellees, 

G. E. STAHL, an individual, 

Defendant, 

and 

ADVANCED MONITORING SYSTEMS, INC., a 

corporation, 

v. 

Defendant-CounterClaimant-Third-Party 

Plaintiff-Appellant, 

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WES BAILEY; DUANE WHITE; WILLIAM VEACH, ) 

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Third-Party DefendantsAppellees. 

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ORDER AND JUDGMENT* 

SEP O 9 1991 

ROBERT L. HOECKER 

Clerk 

No. 91-4030 

(D.C. No. 88-C-396J) 

(D. Utah) 

This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-4030 Document: 010110089459 Date Filed: 09/09/1991 Page: 1 
Before MOORE, EBEL, Circuit Judges, and BABCOCK,** District Judge. 

**Honorable Lewis T. 

District Court for 

designation. 

Babcock, District 

the District of 

Judge, United States 

Colorado, sitting by 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The case is therefore ordered 

Advanced Monitoring Systems, Inc. (AMSI), which is defendant, 

counter-claimant, and third-party plaintiff in this declaratory 

judgment action, appeals from a summary judgment entered by the 

district court that (1) declared that plaintiffs and third-party 

defendants did not misappropriate AMSI's trade secrets and, 

consequently, did not breach any fiduciary, contractual, or 

general commercial duties owed to AMSI, and (2) dismissed AMSI's 

related counter- and third-party claims. AMSI alleged that 

plaintiff and third-party defendants had taken advantage of 

positions of confidence to obtain valuable information regarding 

the design of a pipeline inspection probe, which they later 

exploited in the development and sale of a rival product. 

The district court expressly considered the four aspects of 

the AMSI probe identified by AMSI as constituting its alleged 

trade secrets. He ordered entry of summary judgment against AMSI 

because, on AMSI's own admissions, all of the identified matters 

either were never AMSI's property, had become public knowledge, or 

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Appellate Case: 91-4030 Document: 010110089459 Date Filed: 09/09/1991 Page: 2 
were not used by plaintiff and third-party defendants. On appeal, 

AMSI contends the district court misapplied the pertinent 

substantive law and ignored the presence of disputed facts, 

contrary to Fed. R. Civ. P. 56(c). Our review is de novo. See 

Missouri Pac. R.R. v. Kansas Gas & Elec. Co., 862 F.2d 796, 798 

(10th Cir. 1988). 

The parties agree that this case is controlled by Colorado 

law, specifically the Colorado Uniform Trade Secrets Act (CUTSA), 

Colo. Rev. Stat.§§ 7-74-101-110, and its interpretive case law. 

AMSI argues that the district court's analysis was contrary to 

this authority in (1) focusing on the substance of the alleged 

trade secrets to the exclusion of the "commercial morality" of the 

conduct involved, (2) placing undue emphasis on the requirement of 

novelty and invention, and (3) failing to recognize that a 

particular confidential and advantageous combination of admittedly 

known components may itself constitute a trade secret entitled to 

legal protection. 

We discern no tendency in the pertinent Colorado decisions 

toward adoption of a commercial morality principle permitting 

protection of material that does not first satisfy the substantive 

requirements of a trade secret. On the contrary, these decisions 

mirror the district court's analysis in this case. See, e.g., 

Colorado Supply Co. v. Stewart, 797 P.2d 1303, 1305-07 (Colo. Ct. 

App. 1990)(determining trade secret status on basis of content and 

secrecy); Network Telecommunications, Inc. v. Boor-Crepeau, 790 

P.2d 901, 902-03 (Colo. Ct. App. 1990)(same); see also Management 

Recruiters of Boulder, Inc. v. Miller, 762 P.2d 763, 765 (Colo. 

3 

Appellate Case: 91-4030 Document: 010110089459 Date Filed: 09/09/1991 Page: 3 
... 

Ct. App. 1988)(same approach taken with respect to trade secrets 

exception to statutory prohibition on noncompetition clauses, 

Colo. Rev. Stat. § 8-2-113(2)(b)); Porter Indus., Inc. v. Higgins, 

680 P.2d 1339, 1341-42 (Colo. Ct. App. 1984)(same). Indeed, CUTSA 

itself formally . distinguishes the threshold trade secret inquiry 

from the separate and analytically subsequent issue of whether any 

qualifying material was obtained through improper means. Compare 

Colo. Rev. Stat.§ 7-74-102(1), (2) with section 7-74-102(4). The 

district court correctly began and ended its analysis with a focus 

on the nature and secrecy of the material for which protection was 

sought. 

AMSI misses the mark 

placement of undue emphasis 

with its argument 

on novelty and 

regarding 

invention. 

the 

The 

district court rejected AMSI's trade secrets claim in large part 

because much of the probe's design is not unique and involves 

technology readily available from other public sources. However, 

the significance of this determination does not concern innovation 

per se. Rather, it concerns the related, critical elements of 

exclusory possession and secrecy. See Colo. Rev. Stat. 

§ 7-74-102(4)("'Trade secret' means ... information ... which 

is secret and of value. To be a 'trade secret' the owner thereof 

must have taken measures to prevent the secret from becoming 

available to persons other than those selected by the owner to 

have access thereto for limited purposes."). See, e.g., Stewart, 

797 P.2d at 1306 (formulas, which were "not created by or unique 

to" plaintiff and whose secrecy was not protected by other than 

"normal business precautions, " did not constitute trade secrets 

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Appellate Case: 91-4030 Document: 010110089459 Date Filed: 09/09/1991 Page: 4 
under CUTSA). Consideration of these latter factors was clearly 

in accord with applicable Colorado law. 

Finally, AMSI argues that material questions of fact remain 

with respect to whether its probe's particular combination of 

otherwise widely known components may be afforded trade secret 

status. We disagree. 

While we do not disagree with the general legal principle 

advanced by AMSI, its application to the particular circumstances 

of this case is unsubstantiated and conclusory. AMSI has failed 

even to identify, much less substantiate with specific citation to 

the supporting record, precisely what is peculiarly advantageous 

and secret about its probe's synthesis of concededly available 

components and how this confidential information was used in the 

design of plaintiff's competing product. AMSI's failure to 

satisfy its burden in this respect renders any other factual 

questions immaterial to our disposition. 

Catrett, 477 U.S. 317, 322-23 (1986). 

See Celotex Corp. v. 

The judgment of the United States District Court for the 

District of Utah is AFFIRMED. 

Entered for the Court 

Lewis T. Babcock 

District Judge 

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Appellate Case: 91-4030 Document: 010110089459 Date Filed: 09/09/1991 Page: 5