Opinion ID: 984451
Heading Depth: 2
Heading Rank: 1

Heading: trade secret and contract claims

Text: Convolve asserts three grounds for its belief that the district court improperly granted summary judgment on its trade secret claims: (1) that it presented sufficient evidence to create material issues of fact regarding Seagate and Compaq’s claims of prior knowledge and nonuse of the trade secrets, as well as enough evidence that the trade secrets were disclosed in accordance with the NDA marking provisions; (2) that it presented evidence that would support a verdict that the parties, through their course of conduct, adopted a broad construction of the NDAs or waived their specific requirements for designating matters as confidential; and (3) that the ConvolveSeagate NDA did not govern the entire confidential relationship between the parties because trade secret misappropriation claims may also be analyzed as tort claims under California law. Each of Convolve’s arguments will be addressed in turn. 5 Convolve asserted claims of indirect infringement against Compaq on the asserted claims of the ’635 patent. While the district court’s decision only referred to Seagate’s motion for summary judgment on the asserted claims of the ’635 patent, because the district court found the asserted claims of the ’635 patent invalid, the indirect infringement claims against Compaq must also fail. 20 CONVOLVE v. COMPAQ COMPUTER Trade secret misappropriation is a matter of state law. See Atlantic Research Mktg. Sys., Inc. v. Troy, 659 F.3d 1345, 1356 (Fed. Cir. 2011) (citing Ultimax Cement Mfg. Corp. v. CTS Cement Mfg. Corp., 587 F.3d 1339, 1355 (Fed. Cir. 2009)). The parties agree that California law applies to Convolve’s trade secret claims against Seagate. The district court concluded that New York law applies to the claims against Compaq. We apply our own law “to substantive and procedural issues ‘pertaining to patent law.’” Finjan, Inc. v. Secure Computer Corp., 626 F.3d 1197, 1207 (Fed. Cir. 2010) (quoting Aero Prods. Int’l, Inc. v. Intex Recreation Corp., 466 F.3d 1000, 1016 (Fed. Cir. 2006)). We review the district court’s grant of summary judgment under the law of the regional circuit. See IGT v. Alliance Gaming Corp., 702 F.3d 1338, 1343 (Fed. Cir. 2012) (citing MicroStrategy Inc. v. Bus. Objects, S.A., 4229 F.3d 1344, 1349 (Fed. Cir. 2005)). The Second Circuit reviews a grant of summary judgment de novo, and will affirm “only where, construing all the evidence in the light most favorable to the non-movant and drawing all reasonable inferences in that party’s favor, there is no genuine [dispute] as to any material fact and the movant is entitled to judgment as a matter of law.” Bacolitsas v. 86th & 3rd Owner, LLC, 702 F.3d 673, 678 (2d Cir. 2012) (quoting McBride v. BIC Consumer Prods. Mfg. Co., 583 F.3d 92, 96 (2d Cir. 2009)) (alteration in original).
We have reviewed the district court’s opinion regarding the trade secrets and the evidence that Convolve contends precluded judgment as a matter of law. After such review, we perceive no error in the district court’s conclusions that Seagate and Compaq are entitled to summary judgment on Convolve’s contract and misappropriation claims. First, we find that the district court was correct when it concluded that, to the extent they would otherwise be CONVOLVE v. COMPAQ COMPUTER 21 trade secrets and were disclosed to either defendant, ATSIs 1B, 2A, 2C, 2E, and 3B–D were disclosed in the absence of the written confidentiality follow-up memorandum mandated by the NDAs. For this reason, barring 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. We also find that the trial court was correct to conclude that the information disclosed regarding ATSIs 2A, 2C, 2F, 6B, 7A, and 7E—ATSI’s as to which the confidentiality obligations of the NDAs did apply—were either generally known before disclosure (and, thus, were not “trade secrets” worthy of protection under the agreement or otherwise), or were not used by Seagate following disclosure. While Convolve contends it presented sufficient evidence to create genuine issues of material fact on these findings, for the reasons explained by the district court, we are not persuaded. Finally, we agree with the district court that New York law applies to Convolve’s claims against Compaq and that New York law does not extend trade secret protection to the information designated as ASTIs 6A–6C. For those reasons, subject to our discussion below of Convolve’s assertions that its trade secret and contract claims survive despite these careful findings by the trial court, we find no error in the trial court’s trade secret rulings and find no need to discuss those rulings in detail.
Convolve contends the district court erred when it found that Compaq failed to protect the confidentiality of 22 CONVOLVE v. COMPAQ COMPUTER certain information because it failed to designate it as such pursuant to its obligations under the NDAs. Convolve asserts that the parties understood that all of their mutual disclosures were confidential, notwithstanding the marking requirements in the NDAs. In other words, Convolve argues that fact issues remain as to whether those trade secrets were confidentially disclosed, despite Convolve’s failure to follow the NDA confidentiality procedures, because the right to enforce those procedures was waived. The district court found that Convolve did not send a confirmatory letter designating the alleged disclosure of the information relating to ATSIs 1B, 2A, 2C, 2E, and 3B–D as confidential. While Convolve does not dispute this finding, it contends that the parties’ course of conduct did not require a follow-up letter. To address this argument, we look to the relevant language of the NDAs. Convolve alleged that only Seagate misappropriated these particular trade secrets; therefore, we apply the law of the state that controls that NDA—as noted, that is California law. When interpreting a contract, California law requires courts to “give effect to the mutual intention of the contracting parties at the time the contract was formed.” Windsor Pacific LLC v. Samwood Co., Inc., 152 Cal. Rptr. 3d 518, 527 (Cal. Ct. App. 2013) (citing Cal. Civ. Code § 1636). Such intent is ascertained “solely from the written contract if possible,” and also “the circumstances under which the contract was made and the matter to which it relates.” Id. (citing Cal. Civ. Code. §§ 1639, 1647). The contract’s terms and provisions are to be interpreted according to their ordinary meaning. See Canaan Taiwanese Christian Church v. All World Mission Ministries, 150 Cal. Rptr. 3d 415, 422 (Cal. Ct. App. 2012). Contract interpretation is a question of law that we review de novo. Wash. State Republican Party v. Wash. State Grange, 676 F.3d 784, 796 (9th Cir. 2012) CONVOLVE v. COMPAQ COMPUTER 23 (citing Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 681 (9th Cir. 2009)). The plain language of the Convolve-Seagate NDA unambiguously requires that, for any oral or visual disclosures, Convolve was required to confirm in writing, within twenty (20) days of the disclosure, that the information was confidential. Paragraph 7 of the Convolve-Seagate NDA provides that, for “any oral or visual disclosures,” the disclosing party must (1) designate the information as confidential at the time of disclosure and (2) confirm “in a writing delivered within twenty (20) days to the Recipient which provides clear notice of the claim of confidentiality and describes the specific information disclosed.” J.A. at 293. The intent of the parties, based on this language, is clear: for an oral or visual disclosure of information to be protected under the NDA, the disclosing party must provide a follow-up memorandum. And, we see no error in the district court’s conclusion that Convolve failed to provide this written follow-up memorandum with respect to each of these ASTIs. Convolve argues that, regardless of whether the confidentiality of the trade secrets was confirmed in writing, it presented evidence that the parties understood their mutual disclosures were confidential, notwithstanding the NDA strictures. In other words, Convolve argues that it presented evidence that the parties waived the written confidentiality requirement through their course of conduct. And, Convolve argues that the district court disregarded such evidence in contravention of controlling California law. Even assuming Convolve is correct that the district court was required to provisionally consider the evidence of the parties’ conduct, we still find the court’s conclusion to be correct. As previously stated, the NDAs do not appear reasonably susceptible to the interpretation Convolve urges. Convolve’s assertion that the parties understood that all 24 CONVOLVE v. COMPAQ COMPUTER oral and visual disclosures were under the purview of the NDAs absent a written follow-up memorandum so stating is contrary to the terms of the NDAs. Thus, Convolve’s interpretation is unreasonable and would render paragraph 7 of the NDA a dead letter. In California, “where the subsequent conduct of parties is inconsistent with and clearly contrary to provisions of the written agreement, the parties’ modification setting aside the written provisions will be implied.” Alvarado Orthopedic Research, L.P. v. Linvatech Corp., 2013 WL 2351814, at  (S.D. Cal. May 24, 2013) (quoting Diamond Woodworks, Inc. v. Argonaut Ins. Co., 135 Cal. Rprt. 2d 736, 747 (Cal. Ct. App. 2003)); see also Biren v. Equality Emergency Med. Grp., 125 Cal. Rptr. 325, 335 (Cal. Ct. App. 2002) (“[T]he parties may, by their conduct, waive such a provision where the evidence shows that was their intent.”) (quoting Frank T. Hickey, Inc. v. L.A. Jewish Cmty. Council, 128 Cal. App. 2d 676, 682–83 (Cal. Ct. App. 1954)). “Before a contract modifying a written contract can be implied, [however,] the conduct of the parties according to the findings of the trial court must be inconsistent with the written contract so as to warrant the conclusion that the parties intended to modify the written contract.” Garrison v. Edward Brown & Sons, 25 Cal. 2d 473, 479 (1944)). The operative question, therefore, is whether Convolve presented enough evidence to create a genuine issue of material fact that the parties, through their conduct, intended to waive or modify the NDA marking provision. Convolve’s evidence consists of the testimony of a single Seagate employee that he believed that all disclosures were confidential. But, the subjective intent of one of the parties is not indicative of the mutual intent of both parties. Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., 135 Cal. Rptr. 2d 505, 514 (Cal. Ct. App. 2003) (“The parties’ undisclosed intent or understanding is irrelevant to CONVOLVE v. COMPAQ COMPUTER 25 contract interpretation.”) (citations omitted). Convolve also argues that, because Seagate and Compaq acknowledged that the oral and visual disclosures at the October 1998 meeting were covered under the NDAs, this demonstrates that the parties understood that all subsequent disclosures were also covered under the NDA. This evidence, however, leads to precisely the opposite conclusion. By acknowledging that the disclosures at the October 1998 meeting were confidential, the parties’ conduct demonstrates they understood that oral and visual disclosures indeed required such written follow-up. As such, we perceive no error in the district court’s conclusion that the parties did not waive or modify the marking provisions of the NDAs.
Convolve next argues that, even if it failed to disclose or confirm its trade secrets in writing, such failure only warranted dismissal of its contract claims. Convolve also pled a separate claim for trade secret misappropriation; Convolve argues that its failure to comply with the NDA is irrelevant to that tort claim. Instead, Convolve contends that the California Uniform Trade Secrets Act (“CUTSA”) controls its misappropriation claims against Seagate. And, because CUTSA does not require trade secrets to be disclosed in writing, the NDA does not define the entirety of the parties’ relationship. According to Convolve, CUTSA provides that confidential relationships can be express or implied, and can depend on whether the defendant knew or should have known that disclosures were made under circumstances that compelled the receiving party to maintain confidentiality. As such, Convolve argues that it presented enough evidence to support a finding that the confidential relationship between it and Seagate was either not governed by, or not fully governed by, the NDA. 26 CONVOLVE v. COMPAQ COMPUTER Under CUTSA, misappropriation means, among other things, disclosure or use of a trade secret of another without express or implied consent by a person who, at the time of disclosure, knew or should have known that knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy. Cal. Civ. Code § 3426.1(b). While true that an implied duty may arise under certain circumstances, the parties have not provided any citation, and we have found no California case law that “discuss[es] the relationship between [NDAs] and implied duties of confidentiality.” Marketel Int’l, Inc. v. Priceline.com, Inc., 36 F. App’x. 423, 425 (Fed. Cir. 2002). As another panel from this court found, the most relevant authority is from the Ninth Circuit (applying Oregon law), that “a written non-disclosure agreement supplants any implied duty of confidentiality that may have existed between the parties.” Id. (citing Union Pacific R.R. Co. v. Mower, 219 F.3d 1069, 1076 (9th Cir. 2000)). This conclusion is fully consistent with general principles of California contract law. See Faigan v. Signature Grp. Holdings, Inc., 150 Cal. Rptr. 3d 123, 134 (Cal. Ct. App. 2012) (“There cannot be a valid express contract and an implied contract, each embracing the same subject, but requiring different results.”) (citing Shapiro v. Wells Fargo Realty Advisors, 199 Cal. Rptr. 613 (Cal. Ct. App. 1984)); see also Hill v. State Farm Mut. Auto Ins. Co., 83 Cal. Rptr. 3d 651, 663 (Cal. Ct. App. 2008) (“Express covenants abrogate the operation of implied covenants so courts will not permit implied agreements to overrule or modify the express contract of the parties.”); Wagner v. Glendale Adventist Med. Ctr., 265 Cal. Rptr. 412 (Cal. Ct. App. 1989) (holding that there can be no implied contractual term at variance with an express term of a contract). “The reason for the rule is simply that where the parties have freely, fairly and voluntarily bargained for certain benefits in exchange for undertaking certain obligations, CONVOLVE v. COMPAQ COMPUTER 27 it would be inequitable to imply a different liability.” Wal-Noon Corp. v. Hill, 119 Cal. Rptr. 646, 650–51 (Cal. Ct. App. 1975). Common sense leads to the same conclusion. If the parties have contracted the limits of their confidential relationship regarding a particular subject matter, one party should not be able to circumvent its contractual obligations or impose new ones over the other via some implied duty of confidentiality. Indeed, the CUTSA itself compels such a result. The CUTSA states that misappropriation occurs when a trade secret is acquired under circumstances giving rise to a duty to maintain its secrecy. Cal. Civ. Code § 3426.1(b). Convolve disclosed its alleged trade secrets to Seagate pursuant to the provisions of the NDA. Therefore, the “circumstances” giving rise to a duty to maintain the secrecy of the disclosed information is dictated by the terms of the NDA. Convolve did not follow the procedures set forth in the NDA to protect the shared information, so no duty ever arose to maintain secrecy of that information. As such, Convolve’s argument must fail. Convolve cites AT&T Commc’ns of Cal., Inc. v. Pacific Bell, 238 F.3d 427, 2000 WL 1277937, at  (9th Cir. 2000), for the proposition that the NDA’s marking provisions do not foreclose its CUTSA claims as a matter of law. In AT&T, the court found that “electronic data” was not within the scope of the parties’ agreement; therefore, no “duty of confidentiality as to [the] electronic data [was] established by contract.” Id. Because the record was not sufficient to “indisputably” determine whether a confidential relationship existed outside the confines of the contractual relationship regarding the electronic data, the court remanded to the district court for further proceedings. Id. AT&T, at most, allows for an implied confidential relationship regarding subject matter not covered by the parties’ contract. Convolve does not dispute, however, 28 CONVOLVE v. COMPAQ COMPUTER that its NDA with Seagate covers the substance of the information disclosed. And, since the subject matter covered under the NDA and that as to which Convolve alleges an “implied duty of confidentiality” are the same, the NDA controls the entirety of the parties’ relationship regarding those disclosures. AT&T is inapplicable on these facts, and does not undermine the parties’ NDA. Convolve’s argument that the district court erred in dismissing its tort-based trade secret misappropriation claims fails.
Convolve finally argues that the district court erred by granting Compaq summary judgment on all trade secrets-in-suit even though ATSI 2B and 3A survived Seagate’s motion for summary judgment. The district court found that Convolve only accused Compaq of misappropriating ATSIs 6 and 7 and that Convolve’s breach of contract claim against Compaq was predicated solely on the unlawful disclosure and use of ATSI 7A. The district court thus granted summary judgment in favor of Compaq based on its earlier noted findings as to ATSI 6 and 7A. Convolve now contends that it had always accused Compaq of misappropriating all of Convolve’s trade secrets, and that the district court’s judgment for Compaq must be vacated. We are unconvinced. During discovery, Compaq asked Convolve to identify “each and every” alleged trade secret Convolve contended Compaq disclosed to Seagate. In response, Convolve only identified ATSI 6 and 7A. That response made sense; Compaq is not in the disk drive business and all trade secrets other than ATSI 6 and 7A involve the development of such drives. ATSIs 6 and 7, on the other hand, are directed to the Quick and Quiet graphical user interface and marketing secrets, which are apropos to Compaq’s business. As such, we find that the district court properly found that Convolve’s allegations against ComCONVOLVE v. COMPAQ COMPUTER 29 paq for trade secret misappropriation and breach of contract were predicated only on ATSI 6 and 7, and that summary judgment in favor of Compaq was proper.