Not-So-Secret Secrets Are Not Sheltered Under Colorado Trade Secret Law

A recently decided case provides a great study in how to preserve your trade secrets and successfully defend appeals.

Summary of Trade Secrets Case

Joe Ficken, one of the defendants in the case, designed a sealed bearing pack for Daniel Gallagher, who operated the company New Venture, to be used in New Venture’s mud motors, which are earth drilling apparatuses. Though Mr. Ficken did not get paid, he assigned his rights in the design to the machinist. The machinist sold the rights to Mr. Gallagher. Mr. Gallagher eventually became the owner of another company, Hawg Tools, and assigned his rights to the design of the sealed bearing pack to Hawg Tools.

Mr. Ficken continued to make changes in the design. Later, Mr. Ficken received a job at Newsco International, for which he also designed a sealed bearing pack. When Mr. Gallagher heard of this and found that the designs resembled each other, he filed a lawsuit against Mr. Ficken and Newsco, alleging misappropriation of a trade secret and conversion, as well as breach of contract by Mr. Ficken.

The jury ruled in favor of Hawg Tools on all claims, awarding $1.3 million to Hawg Tools for its claim of a misappropriated trade secret. While the Colorado Court of Appeals upheld the trial court’s judgment in favor of Hawg Tools regarding the claims for conversion and breach of contract, the Court reversed the trial court’s judgment on misappropriation of a trade secret. Here are some lessons learned from this reversing judgment by the Court.

Know What Issue/s are at Stake

It may seem obvious, but the Court held that under Colorado law a secret must actually be secret, i.e. not generally known, in order to qualify for trade secret protection. Following the ruling in Kewanee Oil Co. v. Bicron Corp 416 U.S. 470, the Court asserted that “the subject of a trade secret must be secret, and must not be of public knowledge or of a general knowledge in the trade or business.”

Had Hawg protected the design of the sealed bearing pack created by Joseph Ficken? Yes, but the Court held that simply protecting information does not make it a secret if that information is already readily available.

This holding ruined Hawg’s case. While Hawg “presented ample evidence to establish that its design and the Newsco design were essentially the same” it did not “present sufficient evidence to distinguish its design from other designs that were publicly available at the same time.” While the two designs had many points in common, Hawg did not sufficiently show at trial that the designs were different from the other designs that were out there.

It seems that the attorneys for Hawg either didn’t realize that they needed to establish the secrecy of the design or did not have sufficient evidence to demonstrate such. Either way, they failed to bolster a weak link that would become the central issue.

Preserve, Preserve, Preserve

The Plaintiff-Appellee’s motion for rehearing was flatly denied by the court on solid grounds: the Plaintiff-Appellee did not preserve the arguments that it wanted to raise for review on appeal by raising them at the proper point in trial proceedings.

To raise an argument on appeal, it must be preserved for appellate review. In this particular instance, the Court ruled that of the two arguments offered in their petition for rehearing, “Neither argument ever leaves the starting gate.”

Endeavoring to raise a defense on appeal that hasn’t been preserved is like driving to the shooting range intending to shoot your weapon without even bringing it along. It just doesn’t work.

So be careful to preserve arguments for review on appeal.