In Decision Insights, Inc. v. Sentia Group, Inc., No. 07-1596, 2009 WL 367585 (4th Cir. Feb. 4, 2009), the Fourth Circuit Court of Appeals grappled with the distinction between a claim that elements of a software program are trade secrets and a claim that the program is a trade secret as a total compilation. The Court of Appeals determined that the district court considered the former, but not the latter, and reversed the district court’s grant of summary judgment.
Decision Insights brought claims against Sentia and a number of former Decision Insights employees, alleging that the former employees used Decision Insights’ trade secrets and confidential information when they formed Sentia to develop a competing software application. Included in Decision Insights’ complaint were claims for breach of restrictive covenants and for misappropriation of trade secrets. Decision Insights alleged that the former employees used their knowledge of its software code to develop a competing product in “record time” that produced the same results as Decision Insights’ software.
After a discovery dispute regarding Decision Insights’ identification of its trade secrets and confidential information, Sentia moved for summary judgment. The district court granted the motion, holding that Decision Insights had not shown the existence of trade secrets or confidential information. The district court also found that the non-compete provision signed by one employee was unenforceable under Virginia law and that there was no evidence that any of the employees had breached their non-disclosure provisions.
The Court of Appeals reversed the district court’s grant of summary judgment. In its ruling, the Court of Appeals drew a distinction between Decision Insights’ two trade secret claims. The Court of Appeals affirmed the trial court’s conclusion that Decision Insights did not properly describe the 12 processes within its software that it claimed were trade secrets. The Court of Appeals agreed with Sentia’s expert that Decision Insights’ description of the trade secrets was “incomplete and fragmented,” thus preventing a meaningful evaluation of the trade secrets.
However, the Court of Appeals held that the trial court erred by concluding that Decision Insights had not shown, as a matter of law, that the software program as a total compilation was a trade secret. Decision Insights produced its entire source code, as well as a flow chart and narrative explaining its software program as a whole. The Court of Appeals held that the district court did not consider whether the software could collectively constitute a trade secret. Thus, the Court of Appeals remanded the matter to the district court with instructions to determine whether: (1) Decision Insights adequately identified its software compilation as a trade secret; and, if so, (2) whether Decision Insights had established a triable issue of fact as to the existence of a trade secret.
Based on the Court of Appeals’ finding that the district court did not properly consider whether the software program as a total compilation constituted a trade secret, it also reversed the dismissal of Decision Insights’ claims for breach of contract against the former employees. The trial court had concluded that Decision Insights presented no evidence that the former employees had breached their non-disclosure of confidential information agreements. Once the Court of Appeals found that the trial court had not considered Decision Insights’ trade secret claim in totality, it also concluded that the district court did not properly consider whether the former employees breached their agreements.
The Court of Appeals similarly found that the district court erred in concluding that a non-compete provision in one of the former employees’ employment agreements was unenforceable. The district court found that Decision Insights did not show a legitimate business interest supporting the provision. The Court of Appeals reversed, stating that the district court’s conclusion on the non-compete provision was tainted by its failure to properly address Decision Insights’ trade secret claim.