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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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