Opinion ID: 657247
Heading Depth: 2
Heading Rank: 2

Heading: the trade secret issue.

Text: 105 The district court concluded that Bando had misappropriated trade secrets belonging to Gates and ordered Bando to return any and all information containing the constants used in either the Chauffeur program or the Design Flex program ... [and] restrained [them] from further use of these constants. Gates Rubber, 798 F.Supp. at 1523. Bando appeals this order and the underlying finding of trade secret misappropriation alleging that: (1) the state law misappropriation claim is preempted by 17 U.S.C. Sec. 301, (2) the constants have no competitive economic value and are therefore not appropriately considered trade secrets, and (3) the disclosure of the constants during the course of the trial, in open court, deprived them of their status as trade secrets. Aplt.Br. at 14. 106
107 Bando contends that the district court incorrectly considered Gates' state law misappropriation claim because the claim was preempted by 17 U.S.C. Sec. 301. Section 301(a) provides that: 108 (a) On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by Section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State. 109 17 U.S.C. Sec. 301(a) (emphasis added). However, Sec. 301(a) is qualified by Sec. 301(b), which provides in relevant part: 110 (b) Nothing in this title annuls or limits any rights or remedies under the common law or statutes of any State with respect to-- 111 (1) subject matter that does not come within the subject matter of copyright as specified by sections 102 and 103, including works of authorship not fixed in any tangible medium of expression; or 112 (2) any cause of action arising from undertakings commenced before January 1, 1978; 113 (3) activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106; ... 114 .... 115 17 U.S.C. Sec. 301(b) (Supp.1993). 116 Thus, a state common law or statutory claim is preempted by Section 301 if: (1) the work is within the scope of the 'subject matter of copyright' as specified in 17 U.S.C. Secs. 102 and 103; and (2) the rights granted under state law are equivalent to any exclusive rights within the scope of federal copyright as set out in 17 U.S.C. Sec. 106. Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir.1985), cert. denied, 479 U.S. 820, 107 S.Ct. 86, 93 L.Ed.2d 39 (1986) (citing Harper & Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 199-200 (2d Cir.1983), rev'd on other grounds, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985)). 117 In its amended complaint, Gates alleged that the use of the proprietary data, engineering formula, and the code of the Design Flex and the Life in Hours computer programs constitute a misappropriation of the trade secret [sic] of The Gates Rubber Company as stated in the Colorado Uniform Trade Secrets Act, C.R.S. 7-74-102(2). Aplt.Apx. at 8. The parties do not dispute that the computer programs at issue in this case fall within the subject matter of copyright as specified by 17 U.S.C. Secs. 102 and 103. Accordingly, the question before us is whether the rights granted by those provisions of the Colorado Uniform Trade Secrets Act, Colo.Rev.Stat. 7-74-102(2), upon which Gates relies, are equivalent to any of the exclusive rights granted by the Copyright Act, 17 U.S.C. Secs. 102-103. 118 Section 106 of the Copyright Act grants to the copyright owner the exclusive rights to: (i) reproduce the copyrighted work; (ii) prepare derivative works; (iii) distribute copies of the work; (iv) perform the work publicly; and (v) display the work publicly. 17 U.S.C. Sec. 106 (1977 and Supp.1993). In order to determine whether Gates' misappropriation claim asserts rights equivalent to those delineated in Section 106, we refer to the elements of the state law cause of action. Federal law will preempt a state-created right if that right may be abridged by an act which, in and of itself, would infringe one of the exclusive rights established by federal law. G.S. Rasmussen & Assoc. v. Kalitta Flying Service, Inc., 958 F.2d 896, 904 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 2927, 124 L.Ed.2d 678 (1993). However, if a state cause of action requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display, then the state cause of action is qualitatively different from, and not subsumed within, a copyright infringement claim and federal law will not preempt the state action. Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693, 716 (2nd Cir.1992). 119 Under Colorado law, to prove misappropriation of a trade secret, a plaintiff must show: (i) that he or she possessed a valid trade secret, (ii) that the trade secret was disclosed or used without consent, and (iii) that the defendant knew, or should have known, that the trade secret was acquired by improper means. 25 The breach of a duty of trust or confidence is the gravamen of such trade secret claims and supplies the 'extra element' that qualitatively distinguishes such trade secret causes of action from claims for copyright infringement that are based solely on copying. 26 Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693, 717 (2nd Cir.1992); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 660 (4th Cir.1993); S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1090 n. 13 (9th Cir.1989); Restatement (First) of Torts Sec. 757 cmt. a (1939). Because Gates' claim for trade secret misappropriation under the Colorado Uniform Trade Secrets Act requires proof of a breach of trust or confidence--proof that is not required under the Copyright Act--Gates' state law claims are not preempted by federal law. 120 The appellants suggest that this court's opinion in Ehat v. Tanner, 780 F.2d 876 (10th Cir.1985), cert. denied, 479 U.S. 820, 107 S.Ct. 86, 93 L.Ed.2d 39 (1986), compels a different result. We disagree. The cause of action in Ehat sought damages for the reproduction and distribution of copyrighted notes from individuals who had no part in the misappropriation of the materials. Moreover, it was not necessary under the common law claims asserted in Ehat that the plaintiff show a breach of trust or confidence.
121 The appellants claim that the district court erred when it failed to set forth the elements of a trade secret claim and make specific findings as to each element. Further, the appellants argue that if the court had engaged in this analysis the constants would not have been found to be trade secrets because they had no competitive economic value. 122 What constitutes a trade secret is a question of fact that will only be disturbed if clearly erroneous. Network Communications v. Boor-Crepeau, 790 P.2d 901, 902 (Colo.App.1990). Recognizing that the term trade secret defies exact definition, the Colorado courts have enunciated a number of factors that are relevant in determining whether a trade secret exists. They include: 123 1) the extent to which the information is known outside the business; 124 2) the extent to which it is known to those inside the business, i.e., by the employees; 125 3) the precautions taken by the holder of the trade secret to guard the secrecy of the information; 126 4) the savings effected and the value of the holder in having the information as against competitors; 127 5) the amount of effort or money expended in obtaining and developing the information; and 128 6) the amount of time and expense it would take for others to acquire and duplicate the information. 129 Colorado Supply Co. v. Stewart, 797 P.2d 1303, 1306 (Colo.App.1990), cert. denied (Oct. 7, 1991). We are unable to find that the district court erred in its implicit finding that the constants were trade secrets and that they were misappropriated. There is evidence that Gates spent in excess of 25,000 man hours and over $500,000 developing and upgrading the Design Flex program. The program was considered to be one of the best of its kind and was an efficient application and marketing tool. Gates took extensive measures to protect the program and, in particular, the constants. Although there is some evidence that some of the constants might be reverse engineered through mathematical trial and error, that fact alone does not deprive the constants of their status as trade secrets.
130 The defendants note that the numerical constants were revealed during the course of the permanent injunction hearing. They contend that as a result of these disclosures the constants lost their status as trade secrets and therefore it was inappropriate for the district court to issue a permanent injunction. 131 Although the constants were disclosed at the permanent injunction hearing, we conclude that as a result of Gates' post-hearing measures to protect the confidentiality of the constants, they retained their status as trade secrets. Gates evidenced a continuing intent to maintain the secrecy of the constants. Under Colorado law, the holder of a trade secret is only required to exercise reasonable efforts to maintain its secrecy. See Colorado Supply, 797 P.2d at 1306; Network Telecommunications, 790 P.2d at 902. The record indicates that counsel for Gates monitored the presence of observers in the courtroom. Furthermore, after the hearing was completed, Gates had the permanent injunction hearing record placed under seal. Similarly, Gates has moved to place certain exhibits on appeal under seal. We conclude that Gates' post-hearing measures, including sealing the record, were adequate to maintain the secrecy of the constants under the facts of this case. Compare Littlejohn v. BIC Corp., 851 F.2d 673, 680 (3d Cir.1988) (failure to seek an order sealing record constitutes waiver of confidentiality interests). 132 The defendants point out that the record was not sealed until this appeal had already been instituted and the defendants had filed their opening brief. However, there has been no evidence that a competitor had access to or learned of the constants during the period after the hearing and before the record was sealed. As the case comes before us, the record has been sealed and Bando has been permanently enjoined from using or disclosing these constraints. Absent a showing that the constants were published outside the court records, we conclude that Gates' inadvertent and inconsequential disclosure of the constants at trial and delay in sealing the record, are inadequate to deprive the constants of their status as trade secrets.