Confold Pacific, Inc. v. Polaris Industries, Inc.
2006 U.S. App. LEXIS 513, 433 F.3d 952, 77 U.S.P.Q. 2d (BNA) 1566 (2006)
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Rule of Law:
A non-disclosure agreement (NDA) between commercially sophisticated parties concerning consulting services will be strictly construed according to its plain language, and will not be extended to cover proprietary information, such as product designs, not explicitly mentioned or clearly germane to the specified consulting project, especially when the drafting party also had a specific design-focused NDA form available but did not use it. Furthermore, a claim for unjust enrichment based on the use of an unpatented, non-trade-secret design is generally preempted by federal patent law, absent evidence of a tort or contractual breach.
Facts:
- In 1993, Polaris, a manufacturer of snowmobiles and other vehicles, began considering using returnable shipping containers instead of disposable ones.
- Between 1993 and 1995, ConFold, a new company producing returnable containers, assisted by CAPS Logistics, conducted a "reverse logistics analysis" for Polaris.
- This analysis was performed pursuant to a "Mutual Non-Disclosure Agreement — Logistics Consulting Version," prepared by ConFold, which stated it covered ConFold's proprietary software systems, documentation, and related consulting services.
- Two months after the NDA was signed, Polaris requested proposals for the design of a returnable container from nine firms, including ConFold.
- Polaris accepted none of the design proposals submitted by the firms.
- A few years later, Polaris designed its own returnable container and subsequently began using containers manufactured by a firm to which it had provided its design.
- ConFold claimed that Polaris's container design was based on the design ConFold had submitted to Polaris in response to the request for proposals.
- ConFold admitted that its designs for returnable containers were not trade secrets.
- ConFold had a form confidentiality agreement "specific for design" but did not ask Polaris to sign it.
Procedural Posture:
- ConFold sued Polaris in a federal district court (exercising diversity jurisdiction) for breach of contract and unjust enrichment.
- The district judge granted summary judgment in favor of Polaris on both claims.
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Issue:
Does a "Mutual Non-Disclosure Agreement — Logistics Consulting Version" covering "proprietary software systems, documentation, and related consulting services" extend to proprietary container designs submitted by the consulting firm as part of a separate design proposal, thereby creating a claim for breach of contract or unjust enrichment when the client later uses a similar design?
Opinions:
Majority - Posner, Circuit Judge
No, the "Mutual Non-Disclosure Agreement—Logistics Consulting Version" did not bind Polaris not to reveal a returnable-container design ConFold submitted, and ConFold's unjust enrichment claim for an unpatented, non-trade-secret design is preempted. The court held that the contract's title and preamble, which referred to "software systems, documentation, and related consulting services," confined its scope to the reverse logistics analysis and did not encompass container design. The agreement specifically stated it was the "entire Agreement between the two parties concerning the exchange and protection of proprietary information relating to the program," referring to the software program for the logistics analysis. The court emphasized that determining whether to switch to returnable containers is distinct from designing them. Although the district court found a facial ambiguity in a clause about "future business," the appellate court clarified that this merely explained the reason for the information exchange regarding logistics, not an expansion of confidentiality to all future endeavors. Furthermore, undisputed extrinsic evidence strongly supported Polaris's interpretation: the NDA was copied from ConFold's agreement with CAPS (a firm that does not design containers), and ConFold possessed, but did not use, a separate confidentiality agreement specifically for design. The court affirmed the principle that unambiguous contracts between commercially sophisticated parties should be enforced as written to reduce litigation risk and transaction costs. For the unjust enrichment claim, the court applied Wisconsin law, which denies recovery for the use of an idea that is neither a trade secret nor protected by patent. ConFold conceded its designs were not trade secrets. The court distinguished various restitutionary theories (quasi-contract, quantum meruit), finding them inapplicable because firms commonly disseminate information without an expectation of payment, unless protected by patent, copyright, or a specific contract. A claim of infringement for an unpatented design is preempted by federal patent law, as established in Bonito Boats, Inc. v. Thunder Craft Boats, Inc. ConFold failed to establish the elements of an International News Service-type misappropriation claim (e.g., time-sensitive value, direct competition, threat to incentive), further undermining its claim.
Analysis:
This case strongly reinforces the importance of precise contractual drafting, particularly for non-disclosure agreements concerning different types of proprietary information. It clarifies that a general NDA for consulting services will not be implied to cover distinct design-related disclosures, especially when the drafting party fails to use a more specific contract form. The ruling also reiterates the broad preemptive scope of federal patent law, preventing state law unjust enrichment claims from being used as a substitute for patent protection for unpatented designs. This decision guides businesses to explicitly delineate the scope of confidentiality for various intellectual property assets to avoid unintended gaps in protection.
