Opinion ID: 743588
Heading Depth: 3
Heading Rank: 2

Heading: New York Substantive Law of Trade Secrets

Text: 59 New York generally looks to section 757 of the first Restatement of Torts for its definition of a trade secret. See Ashland Management Inc. v. Janien, 82 N.Y.2d 395, 407, 624 N.E.2d 1007, 1012, 604 N.Y.S.2d 912, 917 (1993); Delta Filter Corp. v. Morin, 108 A.D.2d 991, 992, 485 N.Y.S.2d 143, 144 (3d Dep't 1985) (per curiam); see, e.g., Eagle Comtronics, Inc. v. Pico, Inc., 89 A.D.2d 803, 453 N.Y.S.2d 470 (4th Dep't 1982). Under this definition, a trade secret is any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Restatement of Torts § 757 cmt. b, at 5 (1939) (quoted in Ashland, 82 N.Y.2d at 407, 624 N.E.2d at 1013, 604 N.Y.S.2d at 918). [I]t is not simply information as to single or ephemeral events in the conduct of the business; rather, it is a process or device for continuous use in the operation of the business. Id. New York has recognized that a computer program can be a trade secret. See Integrated Cash Management Servs., Inc. v. Digital Transactions, Inc., 732 F.Supp. 370, 375 (S.D.N.Y.1989) (Integrated Cash Mngt. I ), aff'd, 920 F.2d 171 (2d Cir.1990) (Integrated Cash Mngt. II ); Belth v. Insurance Dep't, 95 Misc.2d 18, 406 N.Y.S.2d 649 (Sup.Ct.1977). 60 The district court found that the image retrieval routines were a protectible trade secret, and that Dragon had used these secrets after discovery by improper means. Softel II at C.L. pp 43-44. However, the court found that the structure, sequence and organization of Softel's code was not a protectible trade secret for two reasons: (1) Fiondella freely discussed his use of menus, English language commands, functional modules and external files with Darsee, id. at C.L. p 42, and (2) the evidence established that these elements were not novel or original, id. (citing Ferber v. Sterndent Corp., 51 N.Y.2d 782, 783-84, 412 N.E.2d 1311, 1312, 433 N.Y.S.2d 85, 86 (1980)). 61 These findings do not address Softel's claim that the sequence and organization of its code, i.e., the manner of combination of the various design elements, was a protectible trade secret. The fact that Fiondella told Darsee that his code contained four design elements does not disclose the manner of their combination. Cf. Integrated Cash Mngt. II, 920 F.2d at 174 (stating, in a case under New York law, that a user-oriented description of a computer program is not a disclosure of a trade secret). It may be that Fiondella disclosed the specific manner as well, but the district court's finding does not make this clear. Likewise, the court's holding that the four design elements were not novel or original does not address Softel's claim that the combination of the elements is a trade secret. See id. (stating that a combination of public domain elements may be a trade secret); SmokEnders, Inc. v. Smoke Watchers Int'l, Inc., 179 U.S.P.Q. 111, 112 (N.Y.Sup.Ct.1973) (same). Therefore, neither of the court's findings addressed Softel's claim and a remand is required. 62 We also caution the district court on its use of the term novelty. Under the Restatement's approach, novelty--at least as that term is used in patent law--is not required in a trade secret. See Restatement of Torts § 757 cmt. b, at 6-7 (Novelty and invention are not requisite for a trade secret as they are for patentability.). The district court may have been using the term novelty as that term is used in a line of New York cases perhaps best known as submission of ideas cases. 11 These cases, and their requirement of novelty, were recently explained by the New York Court of Appeals in Apfel v. Prudential-Bache Securities, Inc., 81 N.Y.2d 470, 616 N.E.2d 1095, 600 N.Y.S.2d 433 (1993). There, the court addressed the situation in which a seller submits an idea to a buyer, and the buyer uses the idea but does not pay for it. It analyzed the problems that arise in such cases in the following manner: 63 [Submission of ideas cases] pose two problems for the courts. On the one hand, how can sellers prove that the buyer obtained the idea from them, and nowhere else, and that the buyer's use of it thus constitutes misappropriation of property?.... On the other hand, there is no equity in enforcing a seemingly valid contract when, in fact, it turns out upon disclosure that the buyer already possessed the idea.... A showing of novelty, at least novelty as to the buyer, addresses these two concerns. Novelty can then serve to establish both the attributes of ownership necessary for a property-based claim and the value of the consideration--the disclosure--necessary for contract-based claims. 64 Apfel, 81 N.Y.2d at 478, 616 N.E.2d at 1098, 600 N.Y.S.2d at 436. This quotation (especially the comment at least novelty as to the buyer) illustrates that the term novelty is used in this line of cases in a very different, and much weaker, sense than it is used in patent law. Cf. 35 U.S.C. § 102 (defining novelty for purposes of patent law). Softel is not required on remand to show that the manner of combination of its various design elements was novel in the patent law sense.