A recent California federal district court decision in FormFactor, Inc. v. Micro-Probe, Inc., Case No. C 10-3095 PJH highlights the importance of companies proactively taking measures to protect their trade secrets before litigation arises and specifically identifying trade secrets that have allegedly been misappropriated.

FormFactor, a company which designs, manufactures, sells and supports high-performance advanced wafer probe card assemblies, alleged that a competitor, Micro-Probe, Inc., had been hiring FormFactor personnel for the express purpose of having them disclose FormFactor confidential technical and marketing information. FormFactor filed suit alleging, patent infringement, trade secret misappropriation, breach confidence, unfair competition, and civil conspiracy. FormFactor also sued the former VP of its DRAM Business, Mr. Browne, who joined Micro-Probe and was alleged to have misappropriated FormFactor trade secrets.

The parties filed cross-motions for summary judgment on the non-patent claims. In granting Micro-Probe’s motion, the court highlighted several trade secret litigation fundamentals that, in its view, were not satisfied by FormFactor. The court then held that FormFactor’s non-trade secret claims (other than patent infringement) were preempted by CUTSA.

Specifically, the court held that:

1.      FormFactor had not described its trade secrets with sufficient particularity or shown that the information claimed to be trade secret in fact qualified as trade secrets. 

(a)    The court cited common law and California Code of Civil Procedure § 2019.210 for the requirement that trade secret plaintiffs identify trade secrets with “sufficient particularity”, which FormFactor had not done through submission of lists of files allegedly misappropriated by defendants. That FormFactor’s list contained many entries only identifying file names that even FormFactor’s 30(b)(6) designee could not identify as trade secret were cited by the court as evidence that FormFactor had not met its burden (“Here, neither the List nor the testimony of FormFactor’s witnesses provides the requisite showing to clearly identify what each individual thing is that it alleged to be trade secret”); and

(b)   In holding that FormFactor had not shown that the information at issue qualified as trade secrets, the court highlighted the following facts:

(1)  there was no evidence that FormFactor made reasonable efforts to protect the secrecy of any particular trade secret because:

                                                                           i.       There was no written agreement with Browne to protect FormFactor’s trade secrets;

                                                                         ii.       FormFactor allowed Browne to retain his contact information when he left FormFactor;

                                                                        iii.      FormFactor allowed/authorized Browne and other employees to work from home (including using personal email to conduct FormFactor business, and to back up FormFactor data onto external hard drives);

                                                                       iv.        FormFactor did not request that Browne return any FormFactor data when he tendered his resignation and left the company; and

                                                                         v.       After being ordered by the Magistrate Judge to “conduct an internal investigation to determine which of its listed trade secrets had never been disclosed publicly,” FormFactor was not able to provide a specific information as to how the information was maintained in confidence.

2.      FormFactor had not provided evidence of misappropriation. Specifically, FormFactor’s reliance on Browne’s copying files onto his home computer and admitting that he “used” information at Micro-Probe that he learned at FormFactor failed to show misappropriation because:

(a)   There was no policy at FormFactor for or against employees working from  home, or for or against the backing up and downloading of FormFactor files;

(b)   There was no evidence that Browne and FormFactor ever entered into a written employment agreement, a non-disclosure agreement, a non-compete agreement, or a non-solicitation agreement. Although Browne signed an agreement while at FormFactor, providing in part that after his employment had terminated, he would not “claim[ ], construe[ ], or pre-sent[ ] as property” any “work product created on the job using FormFactor information or property”, the court held that the agreement did not provide that Browne would not retain any Form-Factor documents after terminating his employment—just that he would not claim ownership of such documents;

(c)   When Browne resigned and was asked to leave the same day, no one inquired regarding any back-up files he might have on his home computer; and

(d)   FormFactor provided no evidence of improper/unauthorized copying by Browne or use by defendants of any specific trade secret included on FormFactor’s trade secret designation list. Although the court relied on several facts to reach this conclusion, among them were its rejection as unreliable of FormFactor’s expert’s opinion that from a from “a neurological and physiological standpoint, Mr. Browne cannot do anything but use [Form Factor’s] information given the similarity of his job at [Micro–Probe] with his job at [FormFactor] and the length of time.” The court also held that, in proffering this opinion, FormFactor was trying to invoke the so-called inevitable disclosure doctrine, which is not recognized in California.

Having found that FormFactor’s trade secret claim had not raised a triable issue of material fact, the court then found that the trade secret claim preempted FormFactor’s breach of confidence and unfair competition claims because they were “based on the same nucleus of operative facts as the trade secret misappropriation claim.” Although the court recognized that there is “some dispute” among the courts as to whether CUTSA preempts claims for misappropriation of confidential information not rising to the level of a trade secret, the court rejected application of that law here because “Form Factor’s position has consistently been that there is no distinction between the alleged trade secret information and the alleged confidential information” at issue.

The FormFactor decision highlights the importance of identifying, maintaining the confidentiality of, and taking proactive steps to ensure that outgoing employees have been appropriately screened to determine whether they have retained company confidential, proprietary, and trade secret information. Failure to do so while asserting a claim for misappropriation of trade secrets can not only cause the trade secret claim to fail, but cause potentially otherwise viable non-trade secret claims to be preempted by CUTSA.