Reasonable Steps Protect Software Trade Secrets

A software owner must take steps to preserve trade secrets in software, but those steps need only be reasonable, rather than including every conceivable action.  That is the lesson from PQ Labs, Inc. v. Qi, No. 12-0450 CW (N.D. Cal., Jan 29, 2014), denying the defendants summary judgment on the plaintiff’s claim brought under the California Uniform Trade Secrets Act (CUTSA), Cal. Civ. Code §§ 3426 – 3426.11.

Under CUTSA, “a plaintiff must show that (1) it owned a trade secret; (2) the defendant acquired, disclosed, or used that trade secret through improper means, and (3) the defendant’s actions damaged the plaintiff.”  Here, the court rejected the defense that the plaintiff allegedly had “failed to present sufficient evidence to support an inference that it took reasonable steps to maintain the secrecy of its alleged trade secrets.”

The plaintiff’s CEO had averred that one of the defendants had been explicitly told about the plaintiff’s trade secrets.  That defendant had signed a nondisclosure agreement acknowledging the confidentiality of the plaintiff’s software and source and object code.  Another of the defendants had likewise been warned to keep the plaintiff’s technical information secret.

Further, the plaintiff had given similar warnings regarding its trade secrets to its own employees, “and those with access to sensitive information were required to sign confidentiality agreements.”  Also, the plaintiff had security protocols in place, including controlled access to “research, development, and production facilities with fingerprint scanners and security personnel and relie[d] on passwords and firewalls to protect its electronic information.”  The court found that “[t]hese protocols are sufficient to support an inference that [the plaintiff] took reasonable measures to protect its trade secrets.”

The court rejected the defendants’ argument that the plaintiff’s security measures were not “reasonable efforts to protect its trade secrets because [the plaintiff did] nothing to prevent reverse-engineering of its products.”  However, the defendants’ only evidence supporting this argument was the plaintiff’s CEO’s deposition testimony stating that “if you have billions of dollars, you can reverse engineer possibly everything.”  Such statement was insufficient to show that the plaintiff “failed to make reasonable efforts to prevent reverse-engineering of its products,” or that it’s other efforts “were not ‘reasonable under the circumstances.’”

Further, the plaintiff’s 20 month delay in bringing suit was not unreasonable.  Moreover, at no time had the plaintiff’s trade secrets been publicly disclosed.

In sum, in ruling on a number of issues, the court denied the defendants’ motion for summary judgment on the plaintiff’s trade secret claim.

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