Innovatier, Inc. v. CardXX, Inc.

Filing 316

ORDER granting in part and denying in part 272 CardXX's Corrected Motion for Summary Judgment on the Fifth Counterclaim of the Third Amended Counterclaim and Jury Demand. The parties shall submit simultaneous supplemental briefs on the issue o f relief by 9/1/2011. The supplemental briefs shall be limited to the narrow issue of appropriate relief resulting from the Court's findings herein and shall not exceed 5 pages. By Judge Philip A. Brimmer on 8/1/11.(mnfsl, ) Modified on 8/1/2011 to add complete sentence regarding filing and due date of briefs (mnfsl, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer

Civil Action No. 08-cv-00273-PAB-KLM
INNOVATIER, INC.,
Plaintiff/Counterclaim Defendant,
v.
CARDXX, INC.,
Defendant/Counterclaimant,
v.
ROBERT SINGLETON,
Counterclaim Defendant.
_____________________________________________________________________
ORDER GRANTING IN PART AND DENYING IN PART SUMMARY JUDGMENT ON
THE FIFTH COUNTERCLAIM

This matter is before the Court on defendant-counterclaimant CardXX, Inc.
(“CardXX”)’s motion [Docket No. 272] for summary judgment on its fifth counterclaim,
relating to plaintiff Innovatier, Inc.’s (“Innovatier”) alleged misappropriation of trade
secrets. The motion is fully briefed and ripe for disposition. The Court has original
jurisdiction over this action based on diversity jurisdiction under 28 U.S.C. § 1332.
I. BACKGROUND1
CardXX has been assigned various United States Patents by the U.S. Patent
and Trademark Office (“USPTO”), including No. 7,225,537 (“’537 Patent”). CardXX

1

Unless otherwise indicated, the following facts are not in dispute.

also filed U.S. Application Serial No. 11/661,206 on March 23, 2005 entitled “Method for
making advanced smart cards with integrated electronics using isotropic thermoset
adhesive materials with high quality exterior surfaces” (the “’206 Application”), which
has been allowed by the USPTO. On May 19, 2004, Robert Singleton, the founder and
officer of Innovatier, entered into a Mutual Non-Disclosure Agreement (“MNDA”) with
CardXX, through his then-employer Solicore. Innovatier also entered into an MNDA
with CardXX on July 13, 2004. Both MNDAs prohibited disclosure of confidential
information detailing CardXX’s Reaction Assisted Molded Process (“RAMP”) proprietary
technology.
According to CardXX, it disclosed to Innovatier several trade secrets pursuant to
the MNDAs. These purported trade secrets include the RAMP technology itself, as well
as the manufacturing process used by CardXX at its manufacturing facility in Lakeland,
Florida. Some of these trade secrets later matured into the ’537 Patent and the ’206
Application. CardXX claims that Paul Meyer, Director of Engineering at CardXX from
August 2003 to October 2005, left CardXX to work at Innovatier and retained a copy of
the laptop hard drive he used at CardXX. Meyer then used the information from this
hard drive, which contained proprietary information, at Innovatier without CardXX’s
knowledge or consent. CardXX claims that Innovatier then filed its own patent
application, Patent Application Serial No. 11/455,936 (the “’936 Application”), which
CardXX claims incorporated CardXX’s trade secrets, including the inventive
embodiments shown in Figures 10-14 and 1-4 of CardXX’s ’537 Patent and the ’206
Application respectively. The USPTO rejected the ’936 Application based on the ’537
Patent as prior art. Given that CardXX disclosed this information in its own patent
2

application, which was granted, this information is now public; however, CardXX claims
it may still obtain relief for misappropriation of trade secrets that occurred before those
secrets became public through the USPTO’s approval of CardXX’s ’537 Patent.
Innovatier denies that it copied any information from CardXX’s ’537 Patent or
’206 Application. While Innovatier admits that Mr. Meyer left CardXX from Innovatier
and retained a copy of his laptop hard drive, it denies that Mr. Meyer used CardXX’s
trade secrets or proprietary information in his work at Innovatier. Alternatively,
Innovatier also claims that, because CardXX disclosed its RAMP technology to the
USPTO and to the public through its patent applications, it cannot now claim the benefit
of trade secret law.
II. STANDARD OF REVIEW
“In diversity cases like this one, . . . [federal courts] are governed by federal law
in determining the propriety of . . . summary judgment.” Hill v. Allstate Ins. Co., 479
F.3d 735, 739 (10th Cir. 2007) (internal quotations omitted). According to Federal Rule
of Civil Procedure 56, a court should grant summary judgment when the “movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248-50 (1986). A movant who bears the burden at trial must submit
evidence to establish every essential element of its claim. In re Ribozyme Pharms., Inc.
Sec. Litig., 209 F. Supp. 2d 1106, 1111 (D. Colo. 2002). The nonmoving party,
however, may not rest solely on the allegations in the pleadings, but instead must
designate “specific facts showing that there is a genuine issue for trial.” Celotex Corp.

3

v. Catrett, 477 U.S. 317, 324 (1986); see Fed. R. Civ. P. 56(c).
Only disputes over material facts can create a genuine issue for trial and
preclude summary judgment. Faustin v. City & County of Denver, 423 F.3d 1192, 1198
(10th Cir. 2005). A disputed fact is “material” if under the relevant substantive law it is
essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226,
1231-32 (10th Cir. 2001). An issue is “genuine” if the evidence is such that it might lead
a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119
F.3d 837, 839 (10th Cir. 1997). When reviewing a motion for summary judgment, a
court must view the evidence in the light most favorable to the non-moving party. Id.;
see McBeth v. Himes, 598 F.3d 708, 715 (10th Cir. 2010).
III. ANALYSIS
CardXX moves for summary judgment on its counterclaim for misappropriation of
trade secrets. The parties agree that Colorado law governs CardXX’s trade secrets
claim and that the elements of a trade secret misappropriation claim are: “(i) that
[CardXX] possessed a valid trade secret, (ii) that the trade secret was disclosed or used
without consent, and (iii) that [Innovatier] knew, or should have known, that the trade
secret was acquired by improper means.” Gates Rubber Co. v. Bando Chem. Indus,
Ltd., 9 F.3d 823, 847 (10th Cir. 1993). The Colorado Uniform Trade Secrets Act
(“CUTSA”) defines a trade secret as
scientific or technical information, design, process, procedure, formula,
improvement . . . or other information relating to any business or
profession which is secret and of value. To be a ‘trade secret’ the owner
thereof must have taken measures to prevent the secret from becoming
available to persons other than those selected by the owner to have
access thereto for limited purposes.
4

Colo. Rev. Stat. § 7-74-102(4). “Trade-secret status is a question of fact.” Harvey
Barnett, Inc. v. Shidler, 338 F.3d 1125, 1129 (10th Cir. 2003) (citing Colo. Supply Co. v.
Stewart, 797 P.2d 1303, 1306 (Colo. App. 1990)). Factors considered in determining
the existence of a trade secret include:
(1) the extent to which the information is known outside the business; (2)
the extent to which it is known to those inside the business, i.e., by the
employees; (3) the precautions taken by the holder of the trade secret to
guard the secrecy of the information; (4) the savings effected and the
value to the holder in having the information as against competitors; (5)
the amount of effort or money expended in obtaining and developing the
information; and (6) the amount of time and expense it would take for
others to acquire and duplicate the information.
Id. (quoting Colo. Supply Co. v. Stewart, 797 P.2d at 1306). In determining the
existence of trade secrets, courts do not look at individual components of a process, but
the entirety of the process, as “a trade secret can include a system where the elements
are in the public domain, but there has been accomplished an effective, successful and
valuable integration of the public domain elements and the trade secret gave the
claimant a competitive advantage which is protected from misappropriation.” Rivendell
Forest Prods., Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042, 1046 (10th Cir. 1994).
The first question for the Court is whether CardXX possessed valid trade secrets.
The Court understands CardXX’s motion to claim that the RAMP proprietary technology
along with a variety of processes and know-how related to its development are, or were,
trade secrets. In its prior order, the Court construed the term “RAMP Proprietary
Technology” in the parties’ Licensing Agreement as CardXX’s “proprietary chemistry
and related processes known as Reaction Assisted Molded Process (RAMP).” See
Docket No. 241 at 13. As for the “proprietary chemistry” component of the technology,

5

CardXX maintains that, although it does not own the polyurethane chemical formulation
used in the RAMP process, it does “own the confidential know-how for determining
viable formulations for use with the RAMP Proprietary Technology through the trial and
error process of research, testing, and development conducted by CardXX.” See
Docket No. 300 at 4. As for the components of the RAMP itself, CardXX laid out the
essential components of this process in its response to Innovatier’s interrogatory No. 9.
See Docket No. 300-2 at 3. CardXX has also alleged that a document related to RAMP
titled “Current Card Operating Parameters,” which includes more specific manufacturing
specifications and lists “Key Product/Process Requirements and Concerns,” includes
trade secrets. See Docket No. 216 at 2 (filed under seal) (“Process Parameter
Documents”). The specific processes described in the answer to Innovatier’s
interrogatory and the Process Parameter Documents appear to constitute the universe
of trade secrets for which CardXX seeks protection in its fifth counterclaim.
These alleged trade secrets fall into two categories: information related to the
RAMP technology that CardXX included in its patent applications and information
related to the RAMP technology that CardXX did not include in those applications. See
Docket No. 300-2 at 3 (RAMP technology “includes, but is not limited to” the processes
set forth in CardXX’s patent and pending patent application). As for the first category,
the Court finds that the USPTO’s approval of the application that matured into the ’537
Patent and its allowance of the ’206 Application is sufficient evidence that the material
included in these applications was not widely known in the industry at the time, thereby
satisfying the factors relevant to the existence of a trade secret related to the novelty
and value of the information. See Harvey Barnett, 338 F.3d at 1129. CardXX has also

6

demonstrated that it protected this information by entering into MNDAs with Singleton
and Innovatier. See id.
In response, Innovatier argues that this information cannot be a trade secret
because CardXX disclosed it in its patent applications. This argument fails. The fact
that CardXX included material in applications to the USPTO does not diminish the
secrecy of the material during the period before the USPTO approved the patent or
published the application. Material in a patent application remains secret unless and
until it is published by the USPTO. See Roger M. Milgrim & Eric E. Bensen, Milgrim on
Trade Secrets § 1.06 (“Patent applications filed with the United States Patent Office are
kept in confidence until they are published”). The USPTO does not generally publish
applications until 18 months after they are submitted. See 35 U.S.C. 122(b)(1)(A)
(applications are generally published 18 months after filing); cf. Tewari De-Ox Sys., Inc.
v. Mountain States/Rosen, LLC, 637 F.3d 604, 611-12 (5th Cir. 2011) (information
contained in published patent application no longer secret). Based on the timeline of
CardXX’s submissions to the USPTO, the content of the ’537 Patent and the ’206
Application were still confidential when Innovatier filed its ’936 Application. Therefore,
the Court concludes that the materials included in CardXX’s ’537 Patent and the ’206
Application related to the specifics of the RAMP technology were still trade secrets until
the ’537 Patent and the ’206 Application became public.
Next, the Court looks to whether this information was misappropriated by
Innovatier with knowledge that it was acquired by improper means. CardXX presents
evidence that Innovatier incorporated the inventive embodiments shown in Figures 1014 and 1-4 of the CardXX ’537 Patent and the ’206 Application, respectively, into the

7

‘936 Application. See Docket No. 272-2 at 6-8. In response, Innovatier denies this fact,
but only presents Robert Singleton’s declaration to contradict it. See Docket No. 279 at
2. Mr. Singleton’s declaration asserts that he did not “adopt, copy or incorporate” any
portions of the ’537 Patent or ’206 Application into his ’936 Application, nor did anyone
else associated with the filing of the ‘936 Application. See Docket No. 279-7 at 1. This
declaration does not present any facts on which the Court could conclude that it is
genuinely disputed that the ’936 Application did not incorporate the figures from the
’537 Patent and ’206 Application. See Fed. R. Civ. P. 56(c)(4) (“An affidavit or
declaration used to support or oppose a motion must be made on personal knowledge”
and “set out facts that would be admissible in evidence.”). Mr. Singleton’s declaration
merely states that CardXX’s evidence is not true without introducing any facts to the
contrary. Thus, the Court finds that there is no genuine issue of material fact on the
issue of whether Innovatier knowingly misappropriated CardXX’s trade secrets in its
’936 Application and that CardXX is entitled to judgment as a matter of law on its fifth
counterclaim insofar as it is based on trade secrets included in CardXX’s ’537 Patent
and ’206 Application.
In so finding, the Court rejects Innovatier’s argument that CardXX cannot seek a
remedy for misappropriation of trade secrets that have subsequently become public. In
order to prevail on its trade secret claim, CardXX need only show that it possessed a
trade secret at the time, which Innovatier disclosed or used without consent, knowing
that it was obtained by improper means. See Gates Rubber Co. v. Bando Chem.
Indus, Ltd., 9 F.3d 823, 847 (10th Cir. 1993). There is no dispute of material fact on
any of these elements related to the information in the ’537 Patent and ’206 Application.

8

However, the Court finds that CardXX has not sufficiently demonstrated the
existence of trade secrets outside these patent applications that were misappropriated
by Innovatier. The approval of the ’537 Patent and the allowance of the ’206
Application allow a jury to infer that the content included in the related patent
applications was novel in the industry and valuable. But CardXX has not presented
evidence related to the bulk of the trade secret factors for its other alleged trade
secrets, beyond its efforts to keep this information secret by obtaining MNDAs and
labeling documents as confidential. See Colo. Supply Co., 797 P.2d at 1306.
CardXX’s motion presents no evidence regarding the extent to which this information is
known outside the industry, the extent to which it is known inside the industry, the value
to CardXX in having the information as against competitors, the amount of effort or
money CardXX expended in developing the technology, or the amount of time and
expense it would take for competitors to develop it. See id. Therefore, the Court will
deny CardXX’s motion for summary judgment insofar as it seeks judgment on its fifth
counterclaim related to trade secrets not included in the ’537 Patent and ’206
Application.
For the foregoing reasons, it is
ORDERED that CardXX’s Corrected Motion for Summary Judgment on the Fifth
Counterclaim of the Third Amended Counterclaim and Jury Demand [Docket No. 272]
is GRANTED in part and DENIED in part. It is further
ORDERED that the parties shall submit simultaneous supplemental briefs on the
issue of relief by September 1, 2011. The supplemental briefs shall be limited to the
narrow issue of appropriate relief resulting from the Court’s findings herein and shall not

9

exceed 5 pages.

DATED August 1, 2011.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

10