Imax Corp. v. Cinema Technologies, Inc.

• Decision Date: 19 August 1998
• Docket Number: No. 96-16094,96-16094
• Citation: 152 F.3d 1161
• Parties: , 98 Cal. Daily Op. Serv. 6424, 98 Daily Journal D.A.R. 8903 IMAX CORPORATION, Plaintiff-Appellant, v. CINEMA TECHNOLOGIES, INC.; Neil Johnson, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1161

152 F.3d 1161

47 U.S.P.Q.2d 1821, 98 Cal. Daily Op. Serv. 6424,

98 Daily Journal D.A.R. 8903

IMAX CORPORATION, Plaintiff-Appellant, v. CINEMA TECHNOLOGIES, INC.; Neil Johnson, Defendants-Appellees.

No. 96-16094.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 12, 1998.

Decided Aug. 19, 1998.

Robert S. Warren, Gibson, Dunn & Crutcher, Los Angeles, California; Matthew D. Powers, Weil, Gotshal & Manges, Menlo Park, California, for plaintiff-appellant.

William Sloan Coats, Howrey & Simon, Menlo Park, California, for defendants-appellees.

Appeal from the United States District Court for the Northern District of California D. Lowell Jensen, District Judge, Presiding. D.C. No. CV-95-02252-DLJ.

Before: SNEED, KOZINSKI, and THOMPSON, Circuit Judges.

SNEED, Circuit Judge:

Capitalism requires that both property rights and vigorous competition, each within the limits fixed by law, coexist. The tension between these two imperatives generates many disputes. This case is concerned with one such dispute.

In this case, Imax Corporation ("Imax") seeks to protect its interests in large format motion picture projectors, generally known as "rolling loop" projectors, with respect to which Imax acquired several patents in the 1970s. Thereafter, it manufactured and sold over 100 "rolling loop" projectors worldwide. Certain of these patents have expired and Imax does not here assert a claim of patent infringement.

Its present claims against Cinema Technologies, Inc. ("CTI"), and Neil Johnson are grounded on the State of California's law of trade secrets and unfair competition.

We affirm the judgment of the district court against Imax with respect to the alleged misappropriation of trade secrets by CTI and Johnson. However, we reverse and remand for further proceedings the judgment of the district court, also against Imax, with respect to its unfair competition claim.

I. BACKGROUND AND PROCEDURAL HISTORY

Imax is the world's largest supplier of "rolling loop" projectors, and until recently it was the only such supplier. In 1971, the Patent and Trademark Office issued the first of several patents relating to the "rolling loop" projector (the " '073 patent"). Imax acquired the rights to several of these patents and went on to manufacture and sell over 100 "rolling loop" projectors worldwide.

The Imax patents did not disclose everything needed to mass-produce its "rolling loop" projector. Therefore, there remained the possibility of trade secrets qualified for protection under state law. To maintain the secrecy of its undisclosed technology, Imax inserted a confidentiality provision in each of its sales or lease agreements forbidding its customers from "disclos[ing] any information ... of a confidential nature concerning the system."

A. The Formation of NJ Engineering

In June 1988, mechanical engineer Neil A. Johnson, along with David Mariani and Keith Merrill, formed NJ Engineering with the goal of developing a large format projector that would compete with Imax. Mariani and Merrill gave Johnson copies of several of the Imax patents and a service manual obtained from an Imax customer. This manual was not marked confidential. In July 1988, Johnson visited the Imax Theatre at the Los Angeles Museum of Space and Industry. He spent several hours in the projection booth, in the presence of the chief projectionist, observing the operation of the Imax projector. Imax's '073 patent expired in August 1988.

B. The Post-Expiration Inspections by Johnson's Team

Shortly thereafter, Mariani and Merrill arranged for Johnson and a team from NJ Engineering to inspect an Imax projector at the Great America theme park in Santa Clara, California ("Great America"). Johnson and his colleagues spent two weeks disassembling, photographing, measuring, tracing, and making sketches of various aspects of the Imax projector. ¹

C. The Inspection in Buenos Aires

In March 1990, Mariani arranged for Johnson to inspect a projector that originally had been sold by Imax to the Parques Interama in Buenos Aires, Argentina. Mariani had indicated that he was interested in purchasing this projector for "reverse engineering" and subsequent resale. Johnson flew to Buenos Aires and met with an individual who claimed to own the projector, and allowed Johnson to inspect the partially disassembled projector over a two-day period.

D. The Formation of CTI

Johnson's work apparently was successful. In September 1990, NJ Engineering and its subsidiary, World Odyssey, Inc., unveiled its "rolling loop" projector at a trade show in Amsterdam. Almost three years later, in June 1993, Johnson left NJ Engineering and formed Cinema Technologies, Inc. ("CTI"). Shortly thereafter, CTI entered the market with its own "rolling loop" projector. According to Johnson, CTI developed its projector relying solely upon information it knew to be in the public domain and not from information Johnson acquired at NJ Engineering.

E. District Court Proceedings

On August 31, 1994, Imax filed its suit against CTI and Johnson in which it alleged misappropriation of trade secrets and unfair competition. Imax originally named NJ Engineering as a defendant; however, it later dismissed them without prejudice. ² Thereafter, CTI moved for summary judgment on the grounds that Imax: (1) failed to identify any trade secrets; (2) placed all of its alleged trade secrets in the public domain; (3) failed In granting summary judgment for CTI, the district court's basic premise was that Imax had failed to carry its burden of identifying which "dimensions and tolerances" it claimed as its trade secrets. It noted that such failure entitled CTI to summary judgment on Imax's misappropriation of trade secrets claim. However, the district court did not dispose of Imax's trade secrets claim on precisely that basis. It adjudicated Imax's trade secrets claim in the following manner:

to make reasonable efforts to maintain the confidentiality of its alleged trade secrets; and (4) failed to demonstrate any misappropriation. In response, Imax filed a countermotion requesting partial adjudication that 24 of its alleged trade secrets were not in the public domain. ³

First, the district court excluded all evidence concerning the precise numerical dimensions and tolerances of the Imax projector. Its theory appears to have been that an action based on misappropriation of a trade secret must divulge what was misappropriated in reasonably precise terms. Second, it considered whether any of the 80 "attributes" listed in Imax's Fourth Supplemental Responses--minus their precise numerical dimensions and tolerances--met the definition of a trade secret under California law. Third, it found that Imax failed to rebut CTI's evidence that all 80 "attributes" were either generally known to persons in the industry or readily available through public means. The district court on that basis granted CTI summary judgment on Imax's trade secrets claim.

It also granted CTI summary judgment on the unfair competition claim on the basis that Imax's unfair competition claim necessarily depended upon "a threshold finding that [Imax] ha[d] identified at least one legally protectable trade secret." The district court also denied Imax's motion for partial adjudication that 24 of its alleged trade secrets were not in the public domain. Imax timely appeals these rulings.

II. JURISDICTION AND STANDARD OF REVIEW

The district court's jurisdiction rests on 28 U.S.C. § 1332. Our appellate jurisdiction rests on 28 U.S.C. § 1291.

A grant of summary judgment is reviewed de novo. See Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the relevant substantive law was correctly applied. See id.

III. DISCUSSION

A. Summary Judgment on Imax's Trade Secrets Claim

The heart of Imax's appeal is the propriety of the district court's ruling that the failure of Imax to identify the precise numerical "dimensions and tolerances" of its projector, of which its trade secrets consist, defeats the trade secrets claim. Imax's various assignments of error presuppose a ruling that it need not identify the precise numerical "dimensions and tolerances" of its projector in its interrogatory responses.

1. Did Imax Identify the Numerical Dimensions and Tolerances as Trade Secrets with Sufficient Particularity?

Imax first contends that it identified in its Fourth Supplemental Responses the precise numerical dimensions and tolerances as trade secrets with sufficient particularity. We disagree.

A plaintiff seeking relief for misappropriation of trade secrets "must identify the trade secrets and carry the burden of showing that they exist." MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir.1993). The plaintiff "should describe the subject matter of the trade secret with sufficient particularity to separate it from matters California law defines a trade secret as follows:

of general knowledge in the trade or of special knowledge of those persons ... skilled in the trade." Universal Analytics v. MacNeal-Schwendler Corp., 707 F.Supp. 1170, 1177 (C.D.Cal.1989) (citation omitted) (emphasis added), aff'd, 914 F.2d 1256 (9th Cir.1990).

"Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Cal. Civ.Code § 3426.1(d) (West 1997). ⁴

To understand this issue, some background pertaining to the discovery process is necessary. CTI's Interrogatory Nos. 1 and 2 asked Imax to "identify the entire content of each and every trade...