A federal court in the Southern District of California recently burst the bubble on a plaintiff’s suit alleging that the defendant, the alleged creator of a novelty chewing gum product, had stolen the plaintiff’s idea for a NASCAR-themed bubble “chew” by granting the defendant’s motion for summary judgment.

The decision provides a reminder to companies that provide confidential and trade secret information to others under non-disclosure agreements that they need to follow the precise terms of those agreements, including properly designating all information that they seek to protect, otherwise they run the risk of their information being exposed and compromised.

In the colorful case, Hoffman v. Impact Confections, Inc., Case No. 06cv0489 BTM (NLS), 2008 WL 413751 (S.D. Cal.), the plaintiff alleged that together with a partner they established a bubble gum company named Ollie Pop Bubble Gum, Inc. (“Ollie Pop”). Plaintiff claimed that he came up with the concept of marketing novelty gum and candy “which was designed to combine the popularity of NASCAR and its drivers with the lure of the chew tobacco favored by many of NASCAR’s fans by providing a gum or candy in an original new packaging intended to appeal to all ages.” First Am. Complaint 11.

Plaintiff alleged that he contemplated two different packaging options, both to be sold under the mark “Pit Crew Chew.” Id. at 12. The first packaging option was a pouch containing gum or candy and the second packaging option was a plastic container shaped like a tire and wheel that would also contain gum or candy. Id. Plaintiff’s idea purportedly was to have the products licensed by NASCAR and bear NASCAR’s logos. Plaintiff also wanted to have the products endorsed by at least one NASCAR driver and display the driver’s image and/or his car and/or associated number. Id.

According to the plaintiff, he designed both packages and began working with Motorsports Management to establish a relationship between Ollie Pop and NASCAR. Id. at 13. Plaintiff claimed he entered into discussions with Joe Gibbs Racing to have one of its drivers endorse the product and allegedly was able to obtain the promise of an endorsement from Tony Stewart. Id. at 15.

Plaintiff claimed that in 2003, he entered into negotiations with the defendant regarding the marketing and selling of “Pit Crew Chew” products. Id. at 16. The parties entered into a written non-disclosure agreement in May 2003.

As part of his discussions with the defendant, plaintiff contended that he disclosed confidential information and materials to defendant, including, but not limited to, “the idea/concept of marketing and selling a NASCAR and NASCAR driver endorsed bubble gum, the idea/concept of providing gum and/or candy in a package which would appeal to NASCAR fans’ noted fondness for ‘chew,’ and the specific drawings of both the pouch and wheel to be marketed and sold.” Id. at 18. Plaintiff also claimed he introduced defendant’s employees to Motorsports employees.

According to plaintiff’s complaint, by July of 2003, defendant had submitted an application for a license to NASCAR seeking to market and sell “Pit Crew Chew” products with the NASCAR logos in place. Id. at 20. Following defendant’s submission of the licensing application to NASCAR, Motorsports allegedly informed defendant and Ollie Pop that NASCAR was indeed interested in licensing the “Pit Crew Chew” products. Id. at 21. Plaintiff alleged that by August 2003, Dale Earnhardt, Jr. was interested in endorsing “Pit Crew Chew” products. Id. at 22.

Then, around the beginning of September 2003, according to plaintiff, defendant abruptly ended its relationship with Ollie Pop and plaintiff. Id. at 24. With the failure to launch “Pit Crew Chew” products, Ollie Pop encountered financial difficulties and as a result plaintiff took a controlling interest in Ollie Pop. Id. Under the deal he allegedly struck with his former partner, plaintiff claimed that Ollie Pop granted him all right, title, and interest in and to and all intellectual property rights related to the “Pit Crew Chew” mark and products, all rights of Ollie Pop under the non-disclosure agreement, and all patent and copyright rights relating to the tire and wheel design and artwork. Id. at 26.

In 2005, plaintiff allegedly obtained copyright registrations for the two-dimensional artwork on Ollie Pop’s candy wheel design. Plaintiff also claimed in 2005 he learned that defendant had launched its own product, “Champion Chew.” According to plaintiff, the product consisted of gum enclosed in a tire and wheel and was designed to bear a resemblance to “chew” tobacco. Id. at 27. Plaintiff alleged that “Champion Chew” was licensed by NASCAR and was endorsed by one of NASCAR’s drivers. Id. at 28.

Plaintiff filed suit and his first amended complaint asserted claims for: (1) misappropriation of trade secrets under California’s trade secret misappropriation statute (Cal. Civ. Code § 3426.1); (2) intentional interference with economic relationships; (3) negligent interference with economic relationships; (4) breach of contract; (5) breach of implied contract; (6) copyright infringement; (7) quantum merit; (8) unfair business practices in violation of Cal. Bus. & Prof.Code § 17200 and California common law; (9) constructive trust/accounting; and (10) injunctive relief.

In his February 14, 2008 decision on defendant’s motion for summary judgment, district judge Barry Ted Moskowitz ruled, among other things, that the plaintiff failed to show that there was any evidence that the defendant had breached the non-disclosure agreement in question.

Plaintiff alleged that defendant breached the non-disclosure agreement by making use of “confidential” information, as defined by the agreement, and by conducting business with individuals and/or entities introduced to defendant by Ollie Pop. Plaintiff also alleged that defendant breached an implied contract to compensate Ollie Pop for the use of its information, concepts, materials, and ideas when and if defendant used them.

As a threshold issue, the court found that plaintiff’s contract claim failed because lacked standing to bring the claim because he was not a party to the non-disclosure agreement between Ollie Pop and defendant. The court found that when plaintiff acquired the legal entity of Ollie Pop in 2003, the acquisition documents did not transfer any rights under the non-disclosure agreement or any other contract between Ollie Pop and defendant.

Even assuming that plaintiff had standing, the court found that there was no evidence that defendant breached the non-disclosure agreement.

The non-disclosure agreement defined “Confidential Information” as follows:

Definition of “Confidential Information”. As used herein, “Confidential Information” means any and all non-public, confidential and proprietary information, as well as the intellectual property rights embodied therein (including patent, copyright, trademark, trade secrets and other intellectual property rights), disclosed by one party (the “Disclosing Party”) to the other party (the “Receiving Party”), including, without limitation, each party’s information concerning contracts, research, experimental work, development, literary works, marketing and creative concepts, financial information, business forecasts and sales and marketing plans. Any Confidential Information disclosed in tangible form shall be clearly marked as “confidential,” “proprietary” or words of similar import. Any Confidential Information disclosed orally shall be identified as confidential at the time of its disclosure and the Disclosing Party shall make reasonable efforts to reduce such Confidential Information to writing and to provide it to the Receiving Party within twenty (20) days of its disclosure. The existence of any business negotiations, discussions, consultations, or agreements in progress between the parties shall also be considered “Confidential Information.” (emphasis added)

Plaintiff alleged that his idea of marketing and selling NASCAR driver endorsed bubble gum in a package, such as a plastic wheel, that would appeal to NASCAR’s fans’ fondness for chew, was confidential, proprietary information. The court was not persuaded, however, as the president of the defendant declared that at no time did Ollie Pop ever provide defendant with tangible materials of any kind that were marked “Confidential,” or “Proprietary.” Further, the president declared that Ollie Pop never advised defendant that any information which was being conveyed orally was confidential. The court noted that plaintiff did not present any evidence in opposition that it designated its ideas regarding “Pit Crew Chew” as “confidential” under the terms of the non-disclosure agreement.

Similarly, the court also found that there was no evidence that the defendant violated the non-disclosure agreement’s prohibition against contacting or conducting business with “any entity or individual introduced by Discloser or its affiliates, directly or indirectly without the expressed written consent of Discloser for a period of three (3) years from the date of this Agreement.”

The defendant introduced evidence that during its involvement with Ollie Pop, Ollie Pop was pursuing a joint venture agreement for “Pit Crew Chew” with Motorsports in its capacity as an agent for the driver Tony Stewart, and Joe Gibbs Racing. The defendant proffered evidence that after the relationship with defendant and Ollie Pop terminated, defendant retained Elite Sports to negotiate non-exclusive, limited sponsorship agreements with Biaggi Brothers Racing LLC and Mike Wallace Racing for “Champion Chew.” Defendant further demonstrated that at no time during defendant’s business relationship with Ollie Pop did Ollie Pop have discussions with Mike Wallace, Biaggi Brothers Racing LLC, or Elite Sports regarding “Pit Crew Chew.”

Thus, the court concluded that even if the plaintiff had standing to sue under the non-disclosure agreement, there was no evidence that defendant breached the non-disclosure agreement.

The court further found that plaintiff’s trade secret claim failed because the defendant had presented evidence that the plaintiff did not make reasonable efforts to maintain the secrecy of the purported trade secret and confidential information provided. Plaintiff was required to provide evidence of efforts that were reasonable under the circumstances to make out a prima facie case under California’s Uniform Trade Secrets Act (Cal. Civ. Code § 3426.1(d)). Under the non-disclosure agreement, the parties were required to take certain steps to designate information as confidential. The court found that plaintiff never designated the information at issue as confidential, and thus, was not protected by the agreement. Further, plaintiff failed to present evidence that Ollie Pop took reasonable steps to maintain the secrecy of the information.

On plaintiff’s copyright claim, the court found that “[a]lthough both the ‘Pit Crew Chew’ art work and ‘Champion Chew’ artwork generally depict tires and display NASCAR car numbers and the NASCAR logo (a necessity if NASCAR or its drivers sponsor the product), there is little similarity between the two. The design, font, color scheme, and words are all different.”

Additionally, the court also found that plaintiff’s remaining claims of intentional interference with economic relationships, negligent interference with economic relationships, quantum merit, unfair business practices, constructive trust/accounting, and injunctive relief were based on the defendant’s alleged infringement of copyright and misappropriation of trade secrets and confidential information. Because the court found that those underlying claims failed, these derivative claims failed as well.

The take away……

This decision provides a reminder to companies that if you are going to provide confidential and trade secret information pursuant to a non-disclosure agreement, that you should make sure that you follow the procedures in the non-disclosure agreement concerning the designation of confidential and trade secret information. If you do not follow the procedures articulated in the agreement, you may face an uphill battle suing for a breach of the non-disclosure agreement and/or satisfying the “efforts that are reasonable under the circumstances” prong of the definition of a trade secret under California’s Uniform Trade Secrets Act.