Trade Secret Protection Requires Steps to Protect Trade Secrets

A defendant who misappropriated a plaintiff’s designs could not be liable for trade secret misappropriation no matter how nefarious the defendant’s conduct, where the plaintiff had not taken reasonable steps to protect prototypes embodying the designs. Accordingly, in Direct Technologies, LLC v. Electronic Arts, Inc., No. SACV 10-1336 AG (PJWx) (C.D. Cal. Aug. 4, 2014), the court granted summary judgment for the defendant on the plaintiff’s claim for trade secret misappropriation under California’s Uniform Trade Secrets Act (“CUTSA”).

This case presented simple facts. Electronic Arts hired Lithomania to make a USB drive based on a SimCity character. Lithomania subcontracted design work for the USB drive to Direct Technologies. Then, after Direct Technologies provided prototypes embodying a design, Lithomania hired a different company to produce USB drives based on Direct Technologies’ design.

Electronic Arts argued in its summary judgment motion that Direct Technologies had not taken reasonable steps to protect the prototypes, and therefore they were not trade secrets. Direct Technologies argued in response that it had provided “substantial communication” about an NDA to Lithomania and had tried to get Lithomania to enter into an NDA, that Lithomania knew sending the designs to Direct Technologies’ competitor was wrong, and that Direct Technologies “had told its employees to keep things confidential.”

The alleged “substantial communication” about an NDA took place after Direct Technologies had provided the designs, embodied in prototypes, to Lithomania. Moreover, in none of the communications did Direct Technologies ask Lithomania to keep the prototypes confidential. The fact that Electronic Arts asked Lithomania to sign a confidentiality agreement with Direct Technologies did not create a genuine issue of material fact concerning whether Direct Technologies took reasonable steps to protect the prototypes.

The court did not find that there was no genuine issue of material fact concerning whether Lithomania knew that sharing Direct Technologies’ designs with a competitor was wrong. However, this question was not relevant, because Electronic Arts, and not Lithomania, was the defendant here.

The court also rejected Direct Technologies’ argument that its instruction to employees to maintain confidentiality of designs created trade secret protection with respect to the prototypes embodying those designs. There was no evidence that Direct Technologies had told employees to keep the prototypes secret, as opposed to designs stored on computer systems.