Northern District of California Court Finds State-Law Trade Secrets Action Is Preempted by Federal Patent Law on Issue of Inventorship

A plaintiff’s identification of trade secrets is one of the most important aspects of trade secrets litigation, as this case illustrates.
David A. Sergenian

David A. Sergenian

Co-founder and partner of Sergenian Ashby LLP
Formerly an attorney with Quinn Emanuel Urquhart & Sullivan LLP; Glaser Weil Fink Howard Avchen & Shapiro LLP; and Gradstein, Luskin & Van Dalsem PC
J.D. from the University of Virginia School of Law

In Intellisoft, Ltd. v. Acer America Corp., 2018 WL 6421872 (N.D. Cal. Dec. 6, 2018), the United States District Court for the Northern District of California granted summary judgment of plaintiff’s complaint for misappropriation of trade secrets under the California Uniform Trade Secrets Act and related state law claims.

The plaintiff, Intellisoft, Ltd. claimed that it was the assignee of an invention by its president and CEO Bruce Bierman comprising software relating to external computer devices, that Intellisoft shared its trade secrets with Acer America pursuant to a nondisclosure agreement, and that Acer America used those trade secrets to obtain a patent on Intellisoft’s invention.

The summary judgment order was based on numerous grounds, including a statute of limitations defense (the alleged misappropriation of trade secrets occurred in the early 1990s), inability to show damages, and patent law preemption.

With respect to the latter, the court found that Intellisoft could not prevail on its trade secrets misappropriation claim unless it could prove that it was the owner of the trade secrets under prevailing patent law. Federal patent law applied to Intellisoft’s state-law trade secrets misappropriation claim because Intellisoft’s description of its trade secrets was essentially the same as the technology that Acer had patented. Federal patent law “preempts” (i.e., trumps) state law on the issue of inventorship. Accordingly, under federal precedent, patent law governed the issue of whether Intellisoft’s president and CEO Bruce Bierman invented the technology. Under this standard, the court held that there was not enough evidence for Intellisoft to put the issue before a jury.

A plaintiff’s identification of trade secrets is one of the most important aspects of trade secrets litigation, as this case illustrates. Although admittedly this is speculation, it is hard not to wonder whether the court’s order granting summary judgment could have been avoided if the plaintiff had identified the trade secrets in a way that did not line up as perfectly with the technology claimed in Acer America’s patent.

Another interesting aspect of this case is that patent-law preemption likely would have been avoided if the trade secret claim was alleged under the federal Defend Trade Secrets Act, as opposed to under state law. Doing so in this particular case was an impossibility (at least in the initial iterations of the complaint) because the original complaint was filed in 2014, whereas the Defend Trade Secrets Act did not become effective until 2016. Patent preemption only applies to state law claims. Presumably, if the trade secret claim had been brought under the federal statute the standard for ownership would be under the Defend Trade Secrets Act, not under patent law, because patent law does not preempt other federal statutes.