Is a Trade Secret Readily Ascertainable if it is in the Prior Art?

Since the passage of the Defend Trade Secret Protections Act (DTSA) in 2016, trade secret litigation has become more attractive. The DTSA provides a federal remedy in place of the scattershot approaches previously available under varying state laws. Often times, a trade secret claim will accompany a patent assertion.

More recently courts are beginning to consider the impact of a given trade secret being in the prior art, akin to patent validity analyses.

In its recent non-precedential opinion in Olaplex, Inc. v. L’Oreal USA, Inc., (here) the Federal Circuit provided some insights into trade secrets and how they may be defeated with prior art given the “readily ascertainable” standard.

Olaplex involved claims of patent infringement as well as trade secret misappropriation and breach of a non-disclosure agreement. Previously, the plaintiffs had won at the district court, including jury findings for the plaintiff for trade secret misappropriation and breach of contract.

The Federal Circuit reversed the district court’s denial of JMOL on the non-patent claims, concluding that “no reasonable jury could have found either trade-secret misappropriation or breach of contract.” Noting that the alleged trade secret owner “bears the burden of proving both the existence and misappropriation of a trade secret,” the court found that a jury could not have reasonably found sufficient proof of the elements of liability for any of Olaplex’s asserted trade secrets.

The lower court focused its analysis on whether the alleged trade secret was “readily ascertainable through proper means.” One of Olaplex’s claimed trade secrets regarded “using maleic acid during bleaching.” The Federal Circuit found that Olaplex had provided little affirmative evidence supporting their position. While their experts had opined that the information was valuable, they did not opine that the use of maleic acid in bleaching was “neither generally known nor readily ascertainable.” The lower court also pointed out that while one expert testified that certain combinations of references did not prove that the information was obvious, this testimony was applicable to patent validity, not trade secrecy.

In contrast, the Federal Circuit responded favorably to L’Oreal’s use of prior art references to show that the alleged trade secret had been disclosed before the alleged misappropriation. The court emphasized that “information in published patents or patent applications is readily ascertainable by proper means.” The opinion cited earlier Federal Circuit and other circuit opinions declaring “[t]hat which is disclosed in a patent cannot be a trade secret” and that “any specifications and tolerances disclosed or ascertainable” in a patent application become publically available when published, preventing such knowledge from constituting a trade secret.

In addition, the Federal Circuit noted that the PTAB had already found one of the prior art references disclosed using maleic acid during bleaching, and thus found no basis for the jury to find otherwise. The court further pointed out that Olaplex had implicitly acknowledged the prior art taught using maleic acid during bleaching during related patent prosecution, since it had only challenged the reference applied on other teachings.

In a footnote, the court clarified that it was not suggesting that patent-level novelty is required for information to be considered a trade secret. Rather, the takeaway is that the clear meaning of prior art references can show that information was in fact readily ascertainable and thus not protectable as a trade secret.

Those accused of trade secret misappropriation may utilize the PTAB in advance of impending DTSA litigation to demonstrate the alleged secret being readily ascertainable in the art.  Of course, Patent Owners will need to consider fashioning their alleged trade secret allegations in view of related art, and argue any challenges against related patents accordingly.