Software Compilation Not A Trade Secret Under State Law

The U.S. Court of Appeals for the Fourth Circuit vacated and remanded a grant of summary judgment to Defendants on Plaintiff’s claims for misappropriation of trade secrets and breach of contract against defendant Sentia Group and several former employees of the plaintiff.  Decision Insights, Inc. v. Sentia Group, Inc et al., Case No. 09-2300, (4th Cir., March 15, 2011) (per curiam).

Decision Insights offers software used as an analytical tool in preparing negotiation strategies.   In 2006, Decision Insights filed suit against a group of former employees alleging that they improperly used the plaintiff’s propriety source code and breached non-disclosure agreements in forming Sentia Group, a competing software company.   Decision Insights also alleged that the defendants used materials containing the plaintiff’s trade secrets, such as marketing and research reports, client information and information contained in its software user manual.   

To qualify as a trade secret under Virginia law, information must possess independent economic value, not be generally known or readily ascertainable by proper means and   be subject to reasonable efforts to maintain secrecy. 

The district court granted summary judgment for the defendants, holding that Decision Insights failed to establish that its software qualified as a trade secret, because the plaintiffs did not show that the software was not generally known or ascertainable.   The district court also dismissed the plaintiff’s trade secret claims towards the additional, non-software materials, finding that because the plaintiff’s claims failed towards its source code, the plaintiff’s other claims also failed. 

On appeal, the 4th Circuit determined that the deposition testimony and testimony of Plaintiffs’ expert witnesses created sufficient issues of fact to merit consideration by a jury and on that basis vacated and remanded the summary judgment determination.   One of the plaintiff’s expert witnesses, a co-author of the original source code at issue, opined that certain elements of the source code had never been published, supporting a finding that the plaintiff’s source code qualified as a trade secret.   A second expert witness, also a co-author of the source code, testified that portions of the source code and its sequence had been purposefully kept confidential. 

Further, the 4th Circuit determined that the district court improperly granted summary judgment without considering the other two elements required for trade secret protection – whether the plaintiff’s source code possessed independent economic value and whether Decision Insights engaged in reasonable efforts to maintain secrecy.   Further, the 4th Circuit directed the district court to consider the plaintiff’s trade secret claims towards non-source code materials independently from the trade secret claim concerning the plaintiff’s source code.