Federal Court Addresses Trade-Secret Protection When Startups Pitch to Venture Capital Investors

At a Glance

• A federal court held that “implicit business expectations” of confidentiality in venture capital (VC) pitch deck disclosures — even without nondisclosure agreements (NDAs) — may be sufficient under Ninth Circuit law to protect trade secret status.
• The court held that external hardware photographs lacked independent economic value and therefore were not trade secrets where the exterior design was widely known in the industry.
• The court also held that a defendant’s provision of a trade-secret document to a third party without authorization constituted misappropriation even though the third party was subject to an NDA.

Background

Neuron Space Corporation and Blue Cubed, LLC were former collaborators in the space optical communications industry. Blue Cubed developed optical transceiver technology and licensed it to Neuron for use in providing “communication-as-a-service” between satellites in low Earth orbit. When the relationship deteriorated, Neuron asserted trade-secret misappropriation claims under the Defend Trade Secrets Act (DTSA) based on three categories of alleged trade secrets: (1) photos showing the configuration of components in the payload, (2) photos showing the exterior design of the telescope component, and (3) an interface control document detailing payload-gimbal integration.

What the Court Decided

Implicit Confidentiality May Satisfy Reasonable Protective Measures

Neuron had shared its first claimed trade secret — photos of the configuration of components in the payload — with VC investors and potential partners without using NDAs, by including the images in pitch decks labeled “Confidential & Proprietary.”

The US District Court for the Northern District of California nonetheless denied summary judgment, finding a genuine dispute of material fact as to whether Neuron took reasonable measures to protect its trade secret. Citing Direct Techs., LLC v. Electronic Arts, Inc., 836 F.3d 1059, 1070-71 (9th Cir. 2016), the court held that under Ninth Circuit law “implicit business expectations” of confidentiality can be sufficient to survive summary judgment even absent formal NDAs. The court noted that the parties presented conflicting testimony about industry norms. Neuron’s expert testified VCs would not distribute confidential decks and doing so would “jeopardize their credibility,” while Blue Cubed’s expert testified VCs generally do not treat pitch deck information as confidential. This factual dispute precluded summary judgment.

No Independent Economic Value for External Hardware Photos

The court granted summary judgment to Blue Cubed on the second claimed trade secret — photographs of the exterior of a telescope component — finding that it did not derive value from not being generally known. The court explained that:

• Undisputed evidence showed folded telescope designs for space applications are widely known, supported by published literature dating to 1988.
• The photos did not disclose specific information about the exterior design, such as subcomponents or sizing.
• The photos did not disclose the material used in the telescope, which had also been claimed as a trade secret.
• The photos showed only the telescope’s exterior, and did not reveal its internal optical design, making it implausible that the photos would benefit a competitor in the design process.

Because the design components that were discernible from the photographs were generally known in the industry, the court found that they did not derive independent economic value and therefore could not qualify as trade secret.

Unauthorized Disclosure Is Misappropriation Despite Recipient’s NDA

The court denied summary judgment on the third claimed trade secret, an interface control document. Blue Cubed conceded it provided the document to a third party without Neuron’s authorization but argued the disclosure was harmless because the recipient was under an NDA. The court rejected this argument, finding that unauthorized disclosure to a third party constitutes misappropriation under the DTSA. The court noted that while the use of an NDA with the recipient might mitigate damages by limiting the spread of the trade secret, it does not cure the unauthorized disclosure as a matter of law.

What This Means for You

• Startups seeking VC investment should be aware that labeling materials “Confidential & Proprietary” and relying on implicit industry norms may preserve trade-secret rights in the Ninth Circuit — but it remains a fact-intensive inquiry that could go either way at trial and disclosing trade secrets only under NDA or pursuant to other safeguards remains a best practice.
• Companies manufacturing physical products should note the court’s distinction between external form factor images and internal design specifications. Photographs revealing only the external aspects of hardware may lack independent economic value as trade secrets if the exterior design approach is well known in the field.
• Companies receiving others’ trade secrets should recognize that unauthorized disclosure of trade-secret documents to third parties may constitute misappropriation under the DTSA even if the discloser requires the recipient to sign an NDA. The obligation runs to the trade-secret owner’s authorization, not merely to the use of protective measures with downstream recipients.