Enforcing Trade Secrets and IP Contract Rights

What happens when parties to a joint development agreement don't follow agreed-to procedures for identifying technology created under the agreement?  Lawyers can ensure that joint development agreements are larded with procedures under which rights in joint technology are protected.  But do we do enough -- and can we do enough -- to ensure that such provisions are followed?  A recent California case illustrates the perils of failing to properly identify joint technology, and also drives home the need to investigate and enforce possible trade secrets misappropriations as soon as misappropriations are at all suspected.  Gabriel Technologies Corp. v. Qualcomm, Inc., Civil No. 08CV1992 (S.D. Cal. March 13, 2012).

Background

Plaintiffs entered into a license agreement with Defendants for Global Positioning System software and locating technology.  The agreement defined "Program Technology" as "those items of work carried out by the parties in connection with this Agreement that are identified as Program Technology in the Project Plan."  Defendants subsequently filed patent applications and took other actions that Plaintiffs contended constituted misappropriation of their trade secrets and misuse of Program Technology.  Plaintiffs admittedly never identified Program technology in the Project Plan, but argued that "because the Project Plan expressly states what is not Program Technology, all other work in the Plan 'by implication' is Program Technology."  Further, Plaintiffs sold devices that were allegedly included in Program Technology, but failed to pay royalties for such sales as provided in the agreement.

Although Plaintiffs had not brought suit until 2008 (following a tolling agreement from 2007 to 2008), there was evidence that they had suspected Defendants of trade secret misappropriation and misuse of Program Technology in 2003.  California's statute of limitations for both trade secret misappropriation and breach of contract was three years (with possible exceptions for tolling while the claims were unsuspected or undiscovered).

Procedural Posture

Defendants filed a motion for partial summary judgment on Plaintiffs' claims for trade secret misappropriation and breach of contract.

Result

Defendants' motion was granted with respect to the trade secret misappropriation claims and also the breach of contract claims insofar as those claims related to intellectual property provisions.

Reasoning

The parties' agreement stated that Program Technology had to be identified.  Plaintiffs' argument that Program Technology included everything not expressly excluded in the Project Plan was unpersuasive.  The breach of contract claims related to intellectual property could not succeed because "no Program Technology exist[ed] by the clear terms of the agreements. Second, Plaintiffs concede[d] that they also failed to meet their own contractual obligations with regard to the identification and protection of Program Technology."  In addition, Plaintiffs had failed to pay required royalties on devices that were sold.  Further, the breach of contract claim was barred by the statute of limitations, because Plaintiffs had not acted within three years of discovering that they may have a cause of action.

The trade secret misappropriation claims could not survive the statute of limitations because Plaintiffs could not demonstrate that they had taken action to enforce their trade secret rights upon becoming suspicious that those rights were violated.  Moreover, Plaintiffs' deposition testimony and affidavits were contradictory.

Commentary

As I said above, lawyers can write agreements with a plethora of mechanisms for protecting intellectual property rights, and for giving parties rights in IP created under an agreement.  As Gabriel Technologies demonstrates, putting such mechanisms into the agreement is the easy part.  Especially for parties without in-house legal counsel, the challenge lies in adhering to the agreement in the years after it is executed.  To avoid compromising IP rights, companies should conduct ongoing reviews of agreements that are in force to avoid breaching continuing or newly-arising obligations.  Likewise, employee education regarding not only the existence and nature of trade secrets, but of the need to take prompt action when trade secrets are compromised, is crucial.

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