Use of an algorithm disclosed in a textbook in a different field may warrant trade secret protection according to a recent Federal Circuit decision in Masimo Corp. v. True Wearables, Inc., No. 2021-2146, 2022 WL 205485 (Fed. Cir. Jan. 24, 2022). In this case, the Federal Circuit upheld a preliminary injunction to prevent an optimization algorithm from being released even though the defendants presented that the equivalent of the algorithm had been published in a conference paper cited more than 1,200 times and in statistic textbooks since 1960s.
Masimo and Cercacor filed a suit against True Wearables and Dr. Lamego and requested for a preliminary injunction to prevent the plaintiff’s trade secret from being released to the public. The purported trade secret is an optimization algorithm used by the plaintiff on medical devices for measuring blood characteristics. Dr. Lamego is a former employee of Cercacor, who developed the purported trade secret for Cercacor and left Cercacor to found True Wearables (TW). Masimo’s preliminary injunction requested to bar TW’s patent application, which bears Masimo’s trade secret of the optimization algorithm as alleged by Masimo, from issuing.
In response, TW presented an Institute of Electrical and Electronics Engineers (IEEE) conference paper that disclosed an algorithm equivalent to the purported trade secret. TW further showed that the conference paper had been cited over 1,200 times. Additionally, TW offered an expert testifying that the variant of the purported trade secret had appeared in textbooks since the early 1960s.
Nevertheless, the Federal Circuit upheld the district court’s finding that the defendant’s evidence at most may show that the purported trade secret is readily ascertainable, but this showing does not disqualify the plaintiffs’ algorithm as a protectable trade secret under the controlling law of California Uniform Trade Secrets Act (CUSTA). Specifically, trade secrets under CUSTA should not be “generally known to the public or to other persons who can obtain economic value from its disclosure or use.” The Federal Circuit opined that “persons who can obtain economic value from its disclosure or use” has been described as “those falling within the class of business competitors or others to whom the information would have some economic value,” but the scope may be broader than just developers of blood test devices here.
The Federal Circuit stated that “the fact that the trade secret has been revealed in some publication somewhere does not necessarily compel a finding that the information cannot maintain its status as a trade secret for a party in an entirely different field from the one to which the publication was addressed.” The Federal Circuit distinguished a series of cases in which the offered evidence showed that the alleged trade secret had been disclosed in the same field of the plaintiff’s application of such trade secret. The Federal Circuit stated that it is not the case here and stated that the evidence offered by TW failed to show that the optimization algorithm is applied to the blood test medical devices.
This case may be useful to certain trade secret holders. It can be used to argue that it is insufficient to only show that the underlying principle, such as the optimization algorithm here, has been disclosed in a specific field. Use of the underlying principle in a unique or different field may still warrant trade secret protection if such application is not known to persons who can obtain economic value from its disclosure or use. This case also counsels persons or companies with trade secrets to protect application of an otherwise conventional technique when the technique is applied in a new field in order to preserve the right to potential trade secret protection.
For further information, please contact:
Kent B. Goss, Partner, Crowell & Moring
kgoss@crowell.com
