The United States District Court, Northern District of California, recently issued a decision, which makes pleading trade secret protection for patent applications easier.  It also underscores the risk of liability to third parties receiving or using such information.

In Wang v Palo Alto Networks, Inc. (2013 WL 415615 (N.D.Cal.)), plaintiff Wang alleged the following in his complaint:  Wang invented a certain computer firewall technology and applied for a patent.  Wang entered into a joint venture with defendant Gong to commercialize his inventions.  Gong developed a thorough knowledge of the technology, understood that the information was confidential and agreed to maintain it in confidence.  Wang and Gong met with defendant Zuk and discussed potentially joining forces with Zuk’s company, defendant Palo Alto Networks, Inc. (PAN).  Wang and Gong told Zuk that Wang had a pending patent on his firewall technology.  Wang decided not to work with PAN.  Unbeknownst to Wang and without his consent, Gong disclosed Wang’s technology to Zuk.  Gong and Zuk replicated Wang’s ideas and patented them without naming Wang.  Wang alleged that Gong and Zuk misappropriated his trade secrets under the California Uniform Trade Secret Act (CUTSA).

Applying CUTSA’s definition of a trade secret, the Court rejected Zuk’s and PAN’s 12(b) motion challenging the sufficiency of Wang’s pleading of a trade secret infringement claim. The Court stated that “[b]ecause patent applications are usually confidential until published, it is reasonable to infer that Zuk should have known … Gong had acquired trade secrets in the context of a business relationship with Wang …”  Id at 3.

This observation drawn by the Court affects third parties, such as Zuk and PAN, who receive or use information that is subject to a patent application.  At the pleading stage, the court may infer that the information subject to a patent application is a trade secret.  Furthermore, in the context of discussing information that may be subject to a patent application, business parties are expected to know what a trade secret is and how to treat it.  In the very least, this should result in a heightened level of diligence when entering transactions where such information may be disclosed or used.