Federal Circuit Deems Algorithm Potentially Valid Trade Secret Notwithstanding Prior Publication
On January 24, 2022, the Federal Circuit affirmed the grant of a preliminary injunction blocking the publication of a patent application on the basis that it contained the plaintiff, Masimo Corp.’s trade secrets. Masimo Corp. v. True Wearables, Inc., No. 2021-2146, 2022 WL 205485 (Fed. Cir. Jan. 24, 2022). The Court of Appeals did so despite evidence that a widely circulated and cited paper on statistics had disclosed an equivalent algorithm, because the defendant failed to show that others in Masimo’s particular field (or a related field) were aware of the paper.
In November 2018, Masimo Corp. and its spin-off company Cercacor Laboratories Inc. (collectively, “Masimo”), medical device companies specializing in patient monitoring technologies, sued competitor True Wearables, Inc. and its founder Dr. Marcelo Lamego for various claims including trade secret misappropriation and patent infringement.
In the lawsuit, Masimo alleges that Dr. Lamego misappropriated Masimo’s TSS algorithm which is used in pulse oximeters to more accurately measure blood oxygen levels. Dr. Lamego is a former Cercacor employee who developed the TSS algorithm in the course of his employment. After leaving Cercacor, he founded True Wearables where he developed the Oxxiom pulse oximeter device. True Wearables attempted to protect some aspects of this device by filing patent applications. One of True Wearables’ patent applications contains the TSS algorithm. Accordingly, Masimo moved for a preliminary injunction on its trade secret claims to prevent the patent application from publishing, which would make public the contents of the patent application, including the TSS algorithm.
The District Court for the Central District of California granted the preliminary injunction, finding that Masimo was likely to succeed on the merits of its trade secret claim.
On appeal, True Wearables argued that the district court erred in determining that Masimo was likely to establish that the TSS algorithm was a trade secret. Specifically, True Wearables argued that the district court erred in finding that Masimo was likely to show that the TSS algorithm derives economic value from not being publicly known. To constitute a trade secret under the California Uniform Trade Secrets Act, information is eligible for trade secret protection if it “[d]erives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use.” Cal. Civ. Code § 3426.1(d).
To make this showing, Masimo pointed to evidence that Dr. Lamego protected the TSS algorithm as a trade secret while working at Cercacor, including by stating in an email that TSS was “not known in the literature and . . . a trade secret.” Additionally, after founding True Wearables, Dr. Lamego treated the TSS algorithm as a trade secret, as he labeled a notebook that included the algorithm as containing trade secrets. Dr. Lamego also argued to the United States Patent and Trademark Office that the TSS algorithm was not “common knowledge.”
Notwithstanding this evidence, True Wearables argued that it had presented sufficient evidence to show that the algorithm was generally known, as an IEEE conference paper disclosed an algorithm equivalent to the TSS algorithm, and that paper had been cited over 1,200 times. However, the Federal Circuit found that while this publication showed that TSS was known in the field of statistics, there was no evidence showing “that the statistical principle had particular application to Masimo’s field or a related field.” True Wearables cited a number of cases for the proposition that “display in a single publication of an alleged trade secret in its entirety is conclusive evidence that it is generally known.” However, the Federal Circuit found those cases distinguishable, including because in those cases, (1) the alleged trade secret was disclosed to others in the plaintiff’s field, and (2) the plaintiff had authorized the publication of the alleged trade secret, thereby extinguishing the plaintiff’s rights. Here, True Wearables had failed to make a showing that others in Masimo’s particular field (or a related field) were aware of the IEEE paper.
In affirming the lower court’s decision, the Federal Circuit held that “[u]nder some circumstances, the publication of an alleged trade secret will clearly be sufficient to indicate that the information is generally known. However, the fact that the trade secret has been revealed in some publication somewhere does not necessary 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.”
Masimo is a reminder that whether a trade secret has been published and therefore lost the element of trade secret is a fact-specific determination that may turn in part on the scope and nature of the audience who received the publication.
The case is Masimo Corporation v. True Wearables Inc., U.S. Court of Appeals for the Federal Circuit, Case No. 21-2146.