Incase Incorporated v. Timex Corporation
2007 U.S. App. LEXIS 12109, 83 U.S.P.Q. 2d (BNA) 1032, 488 F.3d 46 (2007)
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Rule of Law:
To succeed on a claim for misappropriation of a trade secret, a plaintiff must prove it took affirmative and reasonable steps to preserve the information's secrecy as against the party accused of misappropriation, beyond simply maintaining general business discretion.
Facts:
- In 1997, Incase, Inc. ('Incase'), a plastic packaging designer, began developing watch packaging for Timex Corporation ('Timex').
- Incase's business practice was to provide design services for free with the expectation of being awarded the manufacturing contract for successful designs.
- Incase developed a watch holder design, the 'S-5,' which featured a unique, removable multi-position price flag, and provided numerous prototypes and drawings to Timex.
- Throughout the development process, Incase never marked any S-5 design documents as 'confidential' or 'secret'.
- Incase never requested that Timex sign a confidentiality or non-disclosure agreement regarding the S-5 design.
- No employee from Incase ever verbally informed anyone at Timex that the S-5 price flag design was considered a secret or proprietary information.
- Unbeknownst to Incase, Timex took Incase's S-5 drawings and prototypes to another manufacturer, Yuhing, to produce the watch holders.
- Yuhing subsequently manufactured over 3.5 million S-5 units for Timex, incorporating Incase's price flag design.
Procedural Posture:
- Incase filed suit against Timex in Massachusetts state court, alleging claims including misappropriation of trade secrets and breach of contract.
- Timex removed the case to the U.S. District Court for the District of Massachusetts based on diversity of citizenship.
- A jury trial was held on the trade secret, breach of express contract, and implied contract claims.
- The jury returned a verdict for Incase on all three claims.
- Following the verdict, Timex moved for judgment as a matter of law.
- The district court granted Timex's motion as to the misappropriation of trade secrets and implied contract claims, overturning the jury's verdict on those counts, but upheld the verdict on the breach of express contract claim.
- In a separate bench trial, the district court found Timex liable for unfair trade practices but denied Incase punitive damages.
- Incase, as appellant, appealed the district court's judgment as a matter of law on the trade secret claim to the U.S. Court of Appeals for the First Circuit.
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Issue:
Does a company fail to take reasonable steps to protect an alleged trade secret if it does not use confidentiality agreements, mark documents as confidential, or explicitly inform a business partner that a design is considered secret?
Opinions:
Majority - Stahl, Senior Circuit Judge
Yes. A company fails to take reasonable steps to protect an alleged trade secret under these circumstances. To prevail on a claim of misappropriation, a plaintiff must show it took affirmative steps to preserve secrecy against the party being sued, not just discretion from the public at large. The court found no evidence that Incase took such steps. Merely treating a project as confidential internally or keeping it private from the rest of the world is insufficient. The law requires 'constant warnings to all persons to whom the trade secret has become known and obtaining from each an agreement...acknowledging its secrecy.' Because Incase failed to mark documents, use confidentiality agreements, or even tell Timex the design was a secret, it did not meet the required burden of taking reasonable steps to preserve the secrecy of its design, and therefore the trade secret claim fails.
Analysis:
This case clarifies that the 'reasonable steps' requirement for trade secret protection is an active, not passive, standard. It serves as a strong caution to companies, particularly those in design and development, that they cannot rely on implicit understandings of confidentiality in business relationships. The ruling establishes that a failure to use basic protective measures, like confidentiality agreements and markings, can be fatal to a misappropriation claim, even if the defendant's conduct appears unethical. This places the burden squarely on the creator of the intellectual property to formally declare and protect its confidential nature from the outset of any collaboration.
