Phillip M. Hoyt, an Individual, R-con International, a Utahcorporation, Plaintiffs-counter-defendants-appellees, v. G.e. Stahl, an Individual, Defendant,andadvanced Monitoring Systems, Inc., a Corporation,defendant-counter-claimant-third-party Plaintiff-appellant, v. Wes Bailey, Duane White, William Veach, Third-partydefendants-appellees, 943 F.2d 57 (10th Cir. 1991)

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U.S. Court of Appeals for the Tenth Circuit - 943 F.2d 57 (10th Cir. 1991)

Sept. 9, 1991


Before MOORE and EBEL, Circuit Judges, and BABCOCK,*  District Judge.

ORDER AND JUDGMENT** 

BABCOCK, District Judge.

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a); 10th Cir.R. 34.1.9. The case is therefore ordered submitted without oral argument.

Advanced Monitoring Systems, Inc. (AMSI), which is defendant, counter-claimant, and third-party plaintiff in this declaratory judgment action, appeals from a summary judgment entered by the district court that (1) declared that plaintiffs and third-party defendants did not misappropriate AMSI's trade secrets and, consequently, did not breach any fiduciary, contractual, or general commercial duties owed to AMSI, and (2) dismissed AMSI's related counter- and third-party claims. AMSI alleged that plaintiff and third-party defendants had taken advantage of positions of confidence to obtain valuable information regarding the design of a pipeline inspection probe, which they later exploited in the development and sale of a rival product.

The district court expressly considered the four aspects of the AMSI probe identified by AMSI as constituting its alleged trade secrets. He ordered entry of summary judgment against AMSI because, on AMSI's own admissions, all of the identified matters either were never AMSI's property, had become public knowledge, or were not used by plaintiff and third-party defendants. On appeal, AMSI contends the district court misapplied the pertinent substantive law and ignored the presence of disputed facts, contrary to Fed. R. Civ. P. 56(c). Our review is de novo. See Missouri Pac. R.R. v. Kansas Gas & Elec. Co., 862 F.2d 796, 798 (10th Cir. 1988).

The parties agree that this case is controlled by Colorado law, specifically the Colorado Uniform Trade Secrets Act (CUTSA), Colo.Rev.Stat. §§ 7-74-101-110, and its interpretive case law. AMSI argues that the district court's analysis was contrary to this authority in (1) focusing on the substance of the alleged trade secrets to the exclusion of the "commercial morality" of the conduct involved, (2) placing undue emphasis on the requirement of novelty and invention, and (3) failing to recognize that a particular confidential and advantageous combination of admittedly known components may itself constitute a trade secret entitled to legal protection.

We discern no tendency in the pertinent Colorado decisions toward adoption of a commercial morality principle permitting protection of material that does not first satisfy the substantive requirements of a trade secret. On the contrary, these decisions mirror the district court's analysis in this case. See, e.g., Colorado Supply Co. v. Stewart, 797 P.2d 1303, 1305-07 (Colo.Ct.App.1990) (determining trade secret status on basis of content and secrecy); Network Telecommunications, Inc. v. Boor-Crepeau, 790 P.2d 901, 902-03 (Colo.Ct.App.1990) (same); see also Management Recruiters of Boulder, Inc. v. Miller, 762 P.2d 763, 765 (Colo.Ct.App.1988) (same approach taken with respect to trade secrets exception to statutory prohibition on noncompetition clauses, Colo.Rev.Stat. § 8-2-113(2) (b)); Porter Indus., Inc. v. Higgins, 680 P.2d 1339, 1341-42 (Colo.Ct.App.1984) (same). Indeed, CUTSA itself formally distinguishes the threshold trade secret inquiry from the separate and analytically subsequent issue of whether any qualifying material was obtained through improper means. Compare Colo.Rev.Stat. § 7-74-102(1), (2) with section 7-74-102(4). The district court correctly began and ended its analysis with a focus on the nature and secrecy of the material for which protection was sought.

AMSI misses the mark with its argument regarding the placement of undue emphasis on novelty and invention. The district court rejected AMSI's trade secrets claim in large part because much of the probe's design is not unique and involves technology readily available from other public sources. However, the significance of this determination does not concern innovation per se. Rather, it concerns the related, critical elements of exclusory possession and secrecy. See Colo.Rev.Stat. § 7-74-102(4) (" 'Trade secret' means ... information ... which is secret and of value. To be a 'trade secret' the owner thereof must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes."). See, e.g., Stewart, 797 P.2d at 1306 (formulas, which were "not created by or unique to" plaintiff and whose secrecy was not protected by other than "normal business precautions," did not constitute trade secrets under CUTSA). Consideration of these latter factors was clearly in accord with applicable Colorado law.

Finally, AMSI argues that material questions of fact remain with respect to whether its probe's particular combination of otherwise widely known components may be afforded trade secret status. We disagree.

While we do not disagree with the general legal principle advanced by AMSI, its application to the particular circumstances of this case is unsubstantiated and conclusory. AMSI has failed even to identify, much less substantiate with specific citation to the supporting record, precisely what is peculiarly advantageous and secret about its probe's synthesis of concededly available components and how this confidential information was used in the design of plaintiff's competing product. AMSI's failure to satisfy its burden in this respect renders any other factual questions immaterial to our disposition. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

The judgment of the United States District Court for the District of Utah is AFFIRMED.

 *

Honorable Lewis T. Babcock, District Judge, United States District Court for the District of Colorado, sitting by designation

 **

This order and judgment has no precedential value and shall not be cited, or used by any court within the Tenth Circuit, except for purposes of establishing the doctrines of the law of the case, res judicata, or collateral estoppel. 10th Cir.R. 36.3