Trade Secret Trade Secret Trade Secret

The computer industry initially turned to the law of trade secrets to protect its commercial interest in its products.


Data General Corp. v. Digital Computer Controls, 297 A.2d 433 (Del. Ct. Chanc. 1971), affirmed, 297 A.2d 437 (Del. S. Ct. 1972).

FACTS:

In the late 1960's Data General developed and began to sell a small general-purpose computer called the "Nova 1200." Data General sold this computer complete with a free schematic diagram of how the computer was constructed and how it operated. This diagram was furnished to Data General’s customers in order that the customers might perform their own maintenance on the Nova 1200. Data General included a non-disclosure clause in its sales contract for the Nova 1200 and the schematic diagrams contained a legend saying that the information contained on them was the property of Data General and that the information could not be used by the purchaser for manufacturing purposes.

In 1971 the president of Digital Computer Controls (Digital) purchased a Nova 1200 from a customer of Data General. Along with the computer, Digital received the schematic designs which the original purchaser had received from Data General. Digital then used the drawings to construct a competing machine which it was about to market for sale when Data General brought suit.

Data General sued Digital claiming that its use of the schematic diagrams in the construction of its competing computer was a violation of the law of trade secrets. Digital moved for summary judgment contending that Data General did not take adequate safeguards to protect their trade secrets.

ISSUE:

Did Data General’s release of its schematic diagrams to purchasers of the Nova 1200 serve to make them public knowledge thereby dissolving their status as trade secrets?

HOLDING:

The Court held that Data General’s trade secrets were not made public knowledge as a matter of law by their release to customers who purchased their computer. Therefore, Digital’s motion for summary judgment was denied.

RATIONALE:

In its decision the court looked at the definition of "trade secrets" found in the Restatement of Torts section 757, comment (b) which states: "A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not use it."

The court also cited a 3 step test which must be satisfied by a plaintiff in a trade secret action in order to state a cause of action. The plaintiff must show:

(1) the existence of a trade secret and that the corporate defendant has either

(2) received the information within the confines of a confidential relationship and proposes to misuse the information in violation of such a relationship, or

(3) that the corporate defendant improperly received the information in question in such a manner that its confidential nature should have been known to it and that it nonetheless proposes to misuse such information.

The court decided that Data General had done enough to protect its trade secrets to deny Digital’s motion for summary judgment.

More importantly, this case tells us that if you make a disclosure of a trade secret to customers, being particularly careful to legally bind them to preserving your secret, the integrity of your trade secret claim will not be compromised.

This case has been noted as being strange in that although on first reading it appears that Data General won its case against Digital, in fact Digital seems to have actually won in the end. This is so because, although Digital did not succeed on its motion for summary judgment, the court also denied Data General’s motion for a preliminary injunction. Therefore, Digital was allowed to market its competing computer with the only stipulation being that it include the same legend on its schematic drawings that Data General did.


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