Multimillion-Dollar Trade Secret Verdict Reversed by Federal Circuit Due to Prior Disclosure in Patents and Self-Evident Concepts in California Case

At a Glance

• Concepts that were already disclosed in prior patents were not protectable trade secrets because they were generally known to the public, regardless of whether they were ever made into actual products.
• Self-evident or common concepts may be unprotectable even if the concept is put to a different use than originally intended or anticipated.

Summary

The plaintiffs, urologist Dr. James Elist and his company International Medical Devices, Inc., developed the Penuma® cosmetic implant. Penuma® is a silicone penile implant for the aesthetic improvement of penile appearance in men. The plaintiffs alleged that Dr. Robert Cornell and others misappropriated four trade secrets related to the implant’s design and procedure and breached a nondisclosure agreement (NDA). Dr. Cornell had attended a Penuma® surgical training session hosted by Dr. Elist and signed an NDA in which he agreed not to disclose or use confidential information supplied to him. During the training, Dr. Elist disclosed to Dr. Cornell several ideas for improving the implant, which the plaintiffs alleged to be trade secrets subject to the NDA. The disputed trade secrets involved:

• Internal pockets within the implant for flexibility
• Mesh tabs for tissue ingrowth
• Use of absorbable sutures
• A particular instrument list for the procedure

The defendants countered that these concepts were already disclosed in prior patents and the general knowledge in the art, and thus were not protectable trade secrets. After a jury trial on liability in favor of the plaintiffs, the district court awarded $18.3 million in damages, including exemplary damages, and issued an injunction. The defendants appealed.

The Federal Circuit’s Analysis

In their appeal, the defendants argued that the plaintiffs’ asserted trade secrets had been publicly disclosed in patents, making them generally known and ineligible for trade secret protection. The plaintiffs argued that the prior patents had never been embodied in actual products, and therefore could not have been generally known.

The court rejected the plaintiffs’ argument. Relying on well-settled case law, the court emphasized the principle that what is disclosed in a patent is “generally known to the public” and cannot be a trade secret. Further, the “patent disclosures make the alleged trade secrets generally known whether or not they were ever made into real-world products.”

The plaintiffs asserted that the patent design was intended for a therapeutic use as opposed to the cosmetic use of Penuma^®. The court found, however, that therapeutic and cosmetic implants do not present different problems or require different solutions such that translating the generally known internal-pockets design from therapeutic use to a cosmetic use cannot sustain trade secret protection. The court also found other purported trade secrets unprotectable by coupling patent disclosures with knowledge in the art based on undisputed record evidence.

For the asserted trade secret of the instrument list for the procedure, the plaintiffs argued that although the instruments were not specialized, they were not typical of other types of penile surgery and were therefore a trade secret. Without resolving that argument, the court found that the list could not derive independent economic value from secrecy — and thus did reach trade secret status — because the plaintiffs did not preserve the secrecy of the list contents by emailing the list to Dr. Cornell and others without designating it as confidential, and the NDA did not provide that all communications between the parties were confidential or specifically designate the instrument list as confidential.

Because the court found that the alleged trade secrets did not qualify as trade secrets, the plaintiffs could not succeed on their claim for breach of the NDA either, as the plaintiffs did not identify any alleged confidential information other than the asserted trade secrets. The court also reversed patent invalidity due to improper inventorship because the unprotectable trade secrets that were generally known could not support an inventive contribution.

Key Takeaways

• Concepts or designs that have already been disclosed in patent publications may not qualify as trade secrets even if they are put towards a different use.
• The well-settled principle remains that publicly available information is not secret and therefore may not be afforded trade secret protection, regardless of whether the information was ever embodied in an actual product or is a self-evident variant.