In an opinion published on August 22, 2018, but filed earlier on June 25, 2018, the Washington Court of Appeals reversed summary judgment in favor of the employer and remanded for trial on the merits of a trade secrets dispute. The opinion dealt with two controversial issues in trade secret law—the “inevitable disclosure” doctrine and the scope of UTSA preemption. See: Modumetal v Xtalic Corporation and John Hunter Martin.
The trade secrets at issue pertain to “electrodisposition,” namely allowing a coating of metal to be deposited onto a surface by submersing the item into a specially developed chemical bath and running an electrical current through it. Modumetal and Xtalic are competitors in the field of nanoscale technology. In 2008, John Martin began working at Modumetal as a student intern, and signed a non-disclosure agreement. After graduating, he continued working at Modumetal and, in particular, worked on developing an aspect of Modumetal’s electrodisposition process.
But by 2011, Modumetal had advised Martin that he might want to seek employment elsewhere, and Martin applied for and got a position at Xtalic. A few months after he started, Modumetal wrote to Xtalic and asked that Martin be walled off from working in the areas he had allegedly worked at Modumetal. Xtalic immediately assigned him to a new team. By 2013, Martin left Xtalic to work at another employer.
However, in May 2014, Xtalic submitted a patent application for an improved method of electrodisposition. Even though the application did not list Martin as one of the inventors, Modumental claimed that the process revealed in the application was the same one that Martin worked on or knew about while at Modumetal years earlier. Litigation ensued, with Modumetal claiming: (1) breach of obligation of confidentiality against Martin, (2) breach of contract against Martin, (3) misappropriation of trade secrets against Martin, (4) inducement to breach of obligation of confidentiality owed to Modumetal against Xtalic, (5) inducement to breach of contractual obligation of confidentiality owed to Modumetal against Xtalic, and (6) misappropriation of trade secrets against Xtalic. After months of discovery, the trial court granted summary judgment to Xtalic and dismissed all claims. The trial court found that there was no evidence that Xtalic’s patent applications grew out of misappropriated trade secrets, and that the common law breach of confidentiality claims were preempted by the WUTSA.
The Court of Appeals reversed, reasoning that “the act of filing patent applications that included its trade secrets is sufficient to constitute misappropriation.” The court pointed to the filing of patent applications by Xtalic as possible evidence against Xtalic, citing opinions from California, the Seventh Circuit, and the federal circuit. That allowed the court to sidestep the legal question of whether the “inevitable disclosure” doctrine is recognized in Washington State. (The court noted that Washington has neither accepted nor rejected the inevitable disclosure doctrine.)
The court also held that claims for breach of common law confidentiality may be brought independently of claims under the Uniform Trade Secrets Act (UTSA). The Court held that until Boeing Co. v. Sierracin Corp. is overruled, “Modumetal’s common law confidentiality claims are not preempted by its trade secrets claims, regardless of whether they are based on the same facts.” As a result, preemption under the UTSA did not apply to that claim and the trial court needed to address this claim on the merits.
Although the Court of Appeals’ decision was initially unpublished, Xtalic’s motion to publish was granted last week. Undoubtedly, that improves Xtalic’s chances of getting this opinion reviewed by Washington’s Supreme Court. Expect more to follow on this one, because if review is accepted (as it should be), the Supreme Court’s opinion will address some nagging issues in Washington trade secrets law.