Recent 10th Circuit Decision May Offer Greater Trade Secret Protection
by John M. "Jack" Tanner

Although determining what constitutes a "trade secret" is often a complicated, multi-factor analysis, one principal has stood out for its simplicity: if a party disclosed information to a third party without taking adequate steps to protect confidentiality, then it was likely that the information could never be successfully claimed to be a trade secret in the future. This rule was well established in numerous cases. E.g., Colorado Supply Co. v. Stewart, 797 P.2d 1303 (Colo. App. 1990) (party claiming information is a trade secret must take reasonable measures to maintain its secrecy).

A recent case out of the Tenth Circuit Court of Appeals, however, calls this axiom into question, and may allow a party to successfully protect information as a trade secret even if the information has been disclosed to third parties without any protection against further disclosure. In Herrick v. Garvey, 298 F.3d 1184 (10th Circuit 2002), the Tenth Circuit ruled that information which had been provided to the government decades before, along with permission to the government to share it with anyone who asked, could still be a trade secret.

Specifically, in 1935 Fairchild Engine Airplane Corporation ("Fairchild") submitted plans and specifications to the Civil Aeronautics Agency ("CAA") for an F-45 airplane it proposed to build. This submission was necessary to obtain approval to build the plane. Although approval was granted, only sixteen F-45s were ever built.

In 1955 Fairchild gave the CAA permission to share the plans with anyone who asked to see them for the purpose of repairing or rebuilding such a plane. This apparently was because Fairchild no longer wanted to be bothered by requests for information regarding its airplanes.

In 1997, Mr. Greg Herrick sought information regarding a 1936 F-45 aircraft for the purpose of restoring one that he owned. He contacted Fairchild, which told Herrick it had donated all its materials to the Smithsonian. After learning the Smithsonian had no materials on the F-45, Herrick filed a request under the Freedom of Information Act (5 U.S.C. Section 552, "FOIA") with the Federal Aviation Administration ("FAA", the successor to the CAA). Herrick sought the original plans and specifications which Fairchild had submitted to the CAA in 1935.

The FAA contacted Fairchild, which objected to the release on the grounds that the plans and specifications contained trade secrets. Based on this, the FAA refused to disclose the information under the FOIA request, and Herrick brought suit. Fairchild prevailed on summary judgment. Herrick then appealed to the Tenth Circuit, which affirmed.

The Tenth Circuit held that the information was still "secret" even though it had been disclosed to the CAA, possibly the Smithsonian, and even though Fairchild authorized the CAA to show the material to anyone who asked. The Tenth Circuit held that because it was not shown that the CAA/FAA had ever actually disclosed the information, the grant of permission to disclose them which had stood for more than 40 years did not cause a loss of trade secret protection and could be revoked by Fairchild.

The result of this case may well have been different had state law been applied. Under Colorado law, the failure to adequate steps to protect information from disclosures would likely result in a court determining that the information is not, in fact, a trade secret.

Further, in International Broth. of Elec. Workers Local 68 v. Denver Metropolitan Major League Baseball Stadium Dist., 880 P.2d 160 (Colo. App. 1994), the plaintiff sought bid information that had been submitted to the Stadium District by a competitor under the Colorado's Open Records Act (C.R.S. Section 24-72-101). The trial court ordered the information provided, but that material which was "confidential" be redacted. The Court of Appeals held that for information to be considered "confidential" (and therefore exempt from disclosure under the Open Records Act), the party claiming confidentiality had to show something more than that the information was considered confidential in the industry. The Tenth Circuit opinion is silent as to how Fairchild showed it had taken adequate steps to protect the secrecy of information which, in fact, it had given the government permission to disclose to anyone who asked more than forty years previously.

It may well be that the Tenth Circuit opinion needs to be limited to FOIA requests and the particular definition of trade secrets contained in that statute. The opinion may be helpful, however, to anyone wishing to protect information as a trade secret which has previously been disclosed to third parties without protection against further disclosure.

Copyright © 2003, Fairfield and Woods, P.C.,
ALL RIGHTS RESERVED.

Comments or inquiries may be directed to:
John M. Tanner.