Patent Applications and Stolen Trade Secrets

The court in VasoNova, Inc. v. Grunwald, No. C 12-02422 WHA (N.D. Cal. Sept. 18, 2012), addressed the classic scenario of a departing employee allegedly stealing trade secrets.  In a not wholly unusual twist, the departing employee, Grunwald, filed patent applications containing the alleged trade secrets.  Grunwald then sold the technology, including the patent applications, to a third-party, Bard Access Systems, Inc.  The plaintiff, VasoNova, sued Grunwald, Grunwald's company (Romodex), and Bard alleging various causes of action including trade secret misappropriation.  The court denied Bard's motion to dismiss insofar as it related to the trade secret claim.

The California Uniform Trade Secrets Act (CUTSA) requires a plaintiff to identify allegedly stolen trade secrets with “reasonable particularity.”  However, at the pleading stage the “trade secret designation is to be liberally construed, and reasonable doubts regarding its adequacy are to be resolved in favor of allowing discovery to go forward.”  Here, patent applications were alleged to include misappropriated trade secrets.  Trade secret information was identified as relating to software and its operation, as well as “and implementation information such as the 'devices, algorithms, and processes useful for catheter guidance.'”  Software could be a trade secret under the CUTSA.  Therefore, “[t]he first amended complaint identifies the misappropriated trade secrets with enough particularity to put Bard on notice of VasoNova's claims at this initial pleading stage.”

Bard also argued that the alleged trade secrets had been made public both by Grunwald's disclosure and in the patent applications.  The court rejected this argument because the alleged trade secrets were not public when Bard acquired them.  Further, what trade secrets Grunwald actually publicly disclosed was a matter for discovery.

Finally, Bard argued that VasoNova could not bring a claim for misappropriation of the alleged trade secrets because VasoNova never possessed them.  The court disagreed.  Although the California cases had somewhat split, the court here noted that there was “is no physical possession requirement within the language of CUTSA.”  Ownership, not possession, is a prerequisite for a claim of trade secret misappropriation.

Summarizing its holding regarding trade secret misappropriation, the court stated:

The essence of the first amended complaint is that Grunwald developed the inventions while he was em-ployed by VasoNova and therefore Grunwald should have turned the inventions over to VasoNova before he left but instead stole them, that is, stole VasoNova's inventions, which at that stage were trade secrets, and then sought to convert these secrets to patents. This is enough to satisfy the pleading standards in a trade secrets claim.