Improper NDA Defeats Trade Secrets and Overly Broad Patent Claims are Invalid

| July 29, 2013

Convolve v. Compaq Computer

July 1, 2013

Panel:  Rader, Dyk and O’Malley.  Opinion by O’Malley


Convolve, Inc. (“Convolve”) and Massachusetts Institute of Technology (“MIT”) appeal the decision of the U.S. District Court for the Southern District of New York (“District Court”) granting summary judgment in favor of Compaq Computer Corp. (“Compaq”), Seagate Technology LLC. and Seagate Technology, Inc. (“Seagate”).

Convolve and MIT sued Compaq and Seagate in July 2000 for breach of contract; misappropriation of trade secrets listed in Amended Trade Secret Identification (ATSI); direct patent infringement; and inducement of patent infringement along with other complaints such as fraud; violation of California Business and Professions Code §17200 (“CA Unfair Competition”), etc.

In May 2006, the District Court disposed of all other charges from the suit except the breach of contract, misappropriation of trade secrets and patent infringement charges. The District Court later granted summary judgment in favor of Compaq and Seagate and dismissed the remaining charges. With regard to the trade secret charges, the District Court found that:

(1)    some of Convolve’s trade secrets (ATSI 1B, 2A, 2C, 2E, and 3B-D) were covered under a Non-Disclosure Agreement (NDA), which Convolve failed to properly preserve according to the NDA procedures;

(2)    some of Convolve’s trade secrets (ATSI 2A, 6B, and 7A) were public known or common knowledge in the industry, which were not entitled to protection;

(3)    some of Convolve’s trade secrets were never used by the defendants (ATSI 2F and 7E); and

(4)    because New York law does not extend trade secret protection to marketing concepts, some of the trade secrets alleged by Convolve are not recognized by the District Court.

With regard to the patent infringement charges, the District Court found that:

(1)   out of the four models of products alleged by Convolve as infringing Patent’473, none read on the claims of the patent;

(2)   Patent’635 was found invalid for being non-enabling based on the inventor’s testimony; and

(3)   since no direct infringement was found, the claim for inducement of patent infringement must fail.

Taking all inference in favor of Convolve, the CAFC affirmed all counts of summary judgment with regard to the trade secret allegations, as well as the invalidity of Patent’635, but reversed the non-infringement decision about Patent’473.


Convolve (原告)与Compaq, Seagate(康柏电脑和希捷数码,被告)就原告开发的一些硬盘技术进行技术合作谈判,双方就谈判涉及内容签订了保密协议。但原告在向被告透露相关技术时没有严格按保密协定约定的程序处理涉密内容。后来改谈判未能达成一致,原告诉被告在谈判涉及的保密内容上侵犯商业机密及在另一些技术问题上专利侵权。一审结果,联邦区域法院裁定原告败诉。


另外, 关于专利侵权案,原告的专利在当年提出申请时对该发明的描述超过了发明人的当时可以实施实际该发明的范畴,故该专利被认定未能适当描述其实施方法因而无效。上述法院部分维持一审法院的判决。


Dr. Singer, the owner of Convolve, was an MIT student when he invented the subject matter of Patent’635 and ’473. At the time this litigation arose, MIT was the assignee of the patents, and Convolve was the exclusive licensee of the patents.

Convolve, Compaq and Seagate were in a licensing negotiation for Convolve’s technology. Compaq and Seagate respectively entered similar NDAs with Convolve, in which it is prescribed “to trigger either party’s obligation, the disclosed information must be (1) marked as confidential at the time of disclosure; or (2) unmarked, but treated as confidential at the time of disclosure, and later designated confidential in a written memorandum summarizing and identifying the confidential information.”

Convolve subsequently disclosed technologies in presentations in three meetings during the period of October 1998 to April 1999. Convolve did not identify the information disclosed in the meetings or in the following communications as confidential. The negotiation fell apart, and Convolve sued Compaq and Seagate.

The District Court ruled against Convolve, as discussed above. Convolve brought the case to appeal.

On appeal, Convolve disputed:

Regarding Trade Secret Claims

(1) Convolve has presented evidence to create a material issue of fact regarding Seagate and Compaq’s claims of prior knowledge and nonuse of the trade secrets, as well as enough evidence that the trade secrets were disclosed in accordance with the NDA marking provisions;

CAFC reviews the evidence on record and concludes that “the information disclosed regarding ATSI’s 2A, 2C, 2F, 6B, 7A, and 7E—ATSI’s as to which the confidentiality obligations of the NDAs did apply—were either generally known before disclosure (and, thus, were not ‘trade secrets’ worthy of protection under the agreement or otherwise), or were not used by Seagate following disclosure” and that “New York law does not extend trade secret protection to the information designated as ASTIs 6A–6C.”

Also, CAFC finds that “ATSIs 1B, 2A, 2C, 2E, and 3B–D were disclosed in the absence of the written confidentiality follow-up memorandum mandated by the NDAs.”

(2) Convolve presented evidence that would support a verdict that the parties, through their course of conduct, adopted a broad construction of the NDAs or waived their specific requirements for designating matters as confidential;

Basically, Convolve argued that that it presented evidence that the parties waived the written confidentiality requirement through their course of conduct.

The CAFC treats this argument as a contract interpretation issue, and first discusses that “the plain language of the Convolve-Seagate NDA unambiguously requires that, for any oral or visual disclosures, Convolve was required to confirm in writing, within twenty (20) days of the disclosure, that the information was confidential.”

The CAFC first makes it clear that the NDAs do not appear reasonably susceptible to the interpretation Convolve urges. Also, the CAFC points out that evidence showing “the parties intended to modify the written contract” is needed for implied modification of the contract.  Convolve’s evidence (a single Seagate employee’s statement) is insufficient for this purpose.

AND (3) that the Convolve-Seagate NDA did not govern the entire confidential relationship between the parties because trade secret misappropriation claims may also be analyzed as tort claims under California law.

With regard to Convolve’s argument that there was an implied duty under tort theory, the CAFC particularly states that “if the parties have contracted the limits of their confidential relationship regarding a particular subject matter, one party should not be able to circumvent its contractual obligations or impose new ones over the other via some implied duty of confidentiality.”

The CAFC refers to California Uniform Trade Secrets Act (“CUTSA”)’s definition for misappropriation: “disclosure or use of a trade secret…the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy.” That is, misappropriation occurs only when the acquisition gives rise to a duty to maintain its secrecy. In this case, the “duty to maintain the secrecy” is dictated by the terms of NDA. Convolve did not follow the procedures set forth in the NDA to protect the shared information, so no duty ever arose to maintain secrecy of that information.

Regarding Patent Infringement Claims

(1) Invalidity of Patent’635

The CAFC repeats the enablement requirement stated in Genentech, Inc. v. Novo Nordisk, A/S, 108 F.3d 1361, 1365 (Fed. Cir. 1997): “to be enabling, the [written description] of a patent must teach those skilled in the art how to make and use the full scope of the claimed invention without undue experimentation.”

Dr. Singer admitted that in 1992, four years after filing the patent application, he was unable to fully implement the ’635 patent’s method (“long seek”) on disk drives.

The CAFC quickly disposes of Convolve’s “illogical” argument that Dr. Singer’s incapability of implementing a method in 1992 cannot prove that he was not able to achieve the same in 1988.

The evidence of record shows some of the physical systems, such as “simplified model of the dynamic motion of  the disk drive” may be implemented. Convolve argued that “because the claims of the ’635 patent have been implemented in other physical systems, and for short seeks on some disk drives, it is enabling for all disk drives.”

However, the courts interpret the claims as “[purporting] to cover inputs into any and all physical systems, including disk drives.” The court concluded that the patent was non-enabling with regard to the disk drives, because “long seeks are a fundamental requirement for proper hard drive functionality” and Patent’635 failed to enable long seeks.

(2) Infringement of Patent’473

The District Court granted summary judgment on infringement of Patent’473 because according to the term “selected unwanted frequencies” in the claim, Patent’473 requires targeting “at least the chosen unwanted frequencies.” This construction is based on the prosecution history, in which the patentee chose the term “selected” to distinguish from prior art that failed to “target” specific frequencies.

The District Court considered the accused products involves “[reducing] all frequencies indiscriminately,” do not “identify frequencies that were causing unwanted acoustics and then target those specific frequencies for reduction” and concluded that the drives did not target “selected unwanted frequencies.”

The CAFC disagrees with the District Court, because the CAFC finds material issue of fact with regard to “selected unwanted frequencies.” In Seagate’s drives, a “low-pass” filter was chosen, which “do not ‘indiscriminately’ reduce all frequencies, but discriminate between frequencies below and above a selected cutoff frequency.” The CAFC finds such evidence as indicative of genuine issue of material fact, because the cut-off frequency may be a “selected” frequency, and the reduction of all frequency beyond the cut-off frequency may be “targeting” specific frequencies.

The District Court also considered that one of Seagate’s drive involves targeting a single frequency of 2.6 kHz, while the claim language of Patent’473 is directed at reducing “multiple frequencies.”  The District Court accordingly concluded that the Seagate’s drive does not read on the claim of Patent’473.

The CAFC, based on testimony of Seagate’s developers, finds the Seagate’s drive target a narrow frequency band, which includes multiple peaks in the area around the 2.6 kHz frequency. That is, the Seagate’s drive involve multiple frequencies but not only the 2.6 kHz frequency in isolation. The CAFC subsequently reverses the decision of the District court on this matter, because genuine issue of material fact existed.


1. Although it is generally desirable to have the patent protection as broad as possible, patent Applicant runs the risk of having a patent invalidated if the scope of the claim language exceeds the actually achieved invention.

2. If a party intends to protect a technology as trade secret, appropriate measures for preservation of the trade secret shall be implemented and documented.

3. A poorly drafted contract or poorly enforced agreement may do more harm than benefits.

Full Opinion

Patent at Issue #1

Patent at Issue #2

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