Rivendell Forest Products, Ltd. v. Georgia-Pacific Corp., GEORGIA-PACIFIC

Citation31 USPQ2d 1472,28 F.3d 1042
Decision Date30 June 1994
Docket NumberGEORGIA-PACIFIC,No. 93-1110,93-1110
PartiesRIVENDELL FOREST PRODUCTS, LTD., Plaintiff-Appellant, v.CORPORATION and Timothy L. Cornwell, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Brice A. Tondre of Strate and Tondre, P.C., Wheat Ridge, CO, for plaintiff-appellant.

Gregg I. Anderson (Scott S. Havlick, with him on the briefs) of Holland & Hart, Denver, CO, for defendants-appellees.

Before KELLY and SETH, Circuit Judges, and OWEN, District Judge *.

SETH, Circuit Judge.

This suit concerns an aspect of the lumber business in which both Plaintiff, Rivendell Forest Products, Inc., and the Defendant, Georgia-Pacific Corporation (G.P.), were engaged. Defendant Cornwell was employed originally by Rivendell and later by G.P. Rivendell was a wholesaler of lumber known as a "reload wholesaler" which provided lumber of the kind and sizes needed by its customers, quoted prices, and advised them as to delivery. It had a number of storage yards. G.P. was as to this aspect of its business a competitor of Rivendell.

Rivendell brought suit against G.P. for wrongful appropriation of a trade secret. The suit was also against Cornwell for a violation of confidence. The suit centers on a computer software system which Rivendell had developed over the years, and which system it asserted to be a trade secret under Colorado law. It asserts that this system enabled Rivendell to provide its customers with special service, and to manage its distribution centers as no competitor could do. This was a computer system which enabled Rivendell employees to give immediate answers to customers' questions and phone inquiries as to prices, quantities, places, and delivery time as to various lumber sizes and types without any computations which required a delay and a call back to the customer. It asserted that at the pertinent time no other wholesaler could provide such service and management, and this gave Rivendell a large advantage over its competitors including G.P. It is this software system that Rivendell asserts was its trade secret.

The Defendants filed a motion for summary judgment and the case was heard on affidavits and depositions. The trial court ultimately granted Defendant G.P.'s motion for summary judgment, 824 F.Supp. 961. It does not appear necessary to decide whether Rivendell made a counter-motion for summary judgment or only an argument in a brief.

The complaint was based on Colorado's Trade Secret Act, C.R.S. Sec. 7-74-102(4) (1986 Repl.Vol.), which provides:

" 'Trade secret' means the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, improvement, confidential business or financial information, listing of names, addresses, or telephone numbers, or other information relating to any business or profession 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."

C.R.S. Sec. 7-74-102(2) (Rep.Vol.1986) defines misappropriation of a trade secret as:

"(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

"(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

"(I) Used improper means to acquire knowledge of the trade secret; or

"(II) At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was:

"(A) Derived from or through a person who had utilized improper means to acquire it;

"(B) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

"(C) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; ...."

Our court in Telex Corp. v. I.B.M., 510 F.2d 894 (1975), and in Kodekey Electronics, Inc. v. Mechanex Corp., 486 F.2d 449 (1973), discussed the definition of "trade secrets" generally. This parallels the definition in the Colorado statutes and in Colorado Supply, both quoted above. In Telex we stated:

"In the recent case of Kodekey Electronics, Inc. v. Mechanex Corp., 486 F.2d 449 (10th Cir.1973), we hewed to the oft-repeated statement, found in the Restatement of the Law of Torts, Sec. 757, Comment b, that a trade secret consists of any formula, patent, device, plan, or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know it. In that case we also noted that generally just what constitutes a trade secret under the above definition is a question of fact for the trial court."

The Colorado court in Colorado Supply Co. v. Stewart, 797 P.2d 1303 (Colo.App.1990), set forth the several elements which can be used to identify a trade secret as follows:

"Although an exact definition of a trade secret may not be possible, the following factors may be considered in the determination whether a trade secret exists:

"1) The extent to which the information is known outside the business;

"2) The extent to which it is known to those inside the business i.e., by the employees;

"3) The precautions taken by the holder of the trade secret to guard the secrecy of the information;

"4) The savings effected and the value to the holder in having the information as against competitors;

"5) The amount of effort or money expended in obtaining and developing the information; and

"6) The amount of time and expense it would take for others to acquire and duplicate the information."

There seems to be no present difference of opinion as to whether computer software is protected under the typical trade secret statutes and doctrine. See 38 Geo.Wash.Law Rev. 909.

In Kodekey we contrasted the considerations in patent law with the factors relating to trade secrets and noted that novelty and invention are not elements of the trade secret doctrines. We stated:

"The Restatement of Torts Sec. 757, comment b at 6-7 (1939) is to the contrary. 'Novelty and invention are not requisite for a trade secret as they are for patentability ... (here a discussion of patent law). But such is not the case with a trade secret. Its protection is not based on a policy of rewarding or otherwise encouraging the development of secret processes or devices. The protection is merely against breach of faith and reprehensible means of learning anothers secret.' "

The patent law-trade secret mix in the trial court's consideration will be later considered. We also stated in Kodekey that what constitutes a trade secret is a question of fact.

This computer software system in issue, Rivendell asserts, took it nine years to develop at a cost of nearly a million dollars. Mr. Cornwell worked for Rivendell in this development, knew it well, and had a significant role although he was not a computer expert. While working for Rivendell he was contacted by an executive of G.P., and two months thereafter was hired by G.P. with a job description to develop a new computer software system for G.P. This new system had become necessary with the decision by G.P. to consolidate its entire Distribution Division which consisted of about 100 distribution centers. G.P. had no need before the consolidation decision for such a new system, and there had been none in place. After the decision to consolidate G.P. contacted Cornwell and he was offered the task to develop a system quickly to permit the consolidation.

Rivendell's system was the only one Cornwell had been familiar with, and was the only one then in the industry which could provide immediate answers on all aspects of the customers' needs. He was not a computer expert, as mentioned, but immediately after being hired by G.P. he went to work on a computer system for G.P. This system was very soon developed, and it was for all practical purposes the same as the one at Rivendell.

The trial court, in considering the summary judgment motion, acknowledged that there were essential disputed issues of fact presented as to two essential elements of Colorado's Trade Secret Act (C.R.S. Sec. 7-74-102(4) ). These elements were "the value of the information to ...

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