ACUSON CORPORATION, Plaintiff and Respondent, V

ACUSON CORPORATION, Plaintiff and Respondent, v. ALOKA CO., LTD., Defendant and Appellant.

No. H004601.

Court of Appeal of California, Sixth Appellate District

209 Cal. App. 3d 425; 257 Cal. Rptr. 368; 1989 Cal. App. LEXIS 317; 10 U.S.P.Q.2D (BNA) 1814

April 5, 1989

NOT CITABLE - ORDERED NOT PUBLISHED
Modification of Opinion on Denial of Rehearing May 3, 1989; Review denied June 22, 1989 and Reporter of Decisions directed not to publish this opn. in the Official Reports (Cal. Const., art. Vi, § 14; rule 976, Cal. Rules of Ct.).

SuperiorCourtofSanta ClaraCounty, No. 639713, Leslie C. Nichols, Judge.
CALIFORNIA OFFICIAL REPORTS SUMMARY
CALIFORNIA OFFICIAL REPORTS HEADNOTES
Classified to California Digest of Official Reports
Baker & McKenzie, Orville A. Armstrong, Thomas S. Small, Thomas S. Kidde, Terry B. Bates and John R. Sommer for Defendant and Appellant.
Morrison & Foerster, Harold J. McElhinny, Paula S. Downey, Monique Van Yzerlooy and Jon K. Adams for Plaintiff and Respondent.

BRAUER
BRAUER, Acting P. J.
Plaintiff Acuson Corp. (Acuson) sued its competitor, defendant Aloka Co., Ltd. (Aloka) for misappropriation of alleged trade secrets. Aloka had purchased and studied an example of Acuson's product. Despite uncontroverted evidence that hundreds of the product had already been sold on the open market, the trial court granted broad injunctive relief to prevent Aloka from using any information learned through its examination of Acuson's product. Since it is[**2] fundamental that things publicly disclosed cannot be trade secrets, we reverse.
I. FACTS AND PROCEDURAL HISTORY
Acuson and Aloka both manufacture ultrasonic imaging equipment, a widely used medical diagnostic tool. That device uses sound waves to produce moving images of the inside of a patient's body. It works much like sonar: n1 A transducer emits and directs inaudible, high frequency sound waves. Tissues in the body reflect the sound. The transducer detects the echoes, and a computer processes them into an image. Finally, a video monitor displays the image.
n1 The process is also known as sonography.
While Aloka has been manufacturing ultrasonic imaging equipment much longer than Acuson, neither is a newcomer to the business. Aloka, a Japanese company, was formed in 1950 and has been manufacturing ultrasonic equipment since 1960. Acuson, a Delaware corporation, was formed in 1981 and first sold ultrasonic equipment in 1983.
Acuson's product is the Acuson 128, apparently so named because it simultaneously uses 128 ultrasonic channels. Aloka makes different models. One of these, the SSD-650, also uses 128 channels but in staggered bursts of 32 channels at a time. [**3] The parties seem to agree that the Acuson 128 provides finer resolution. But the Aloka SSD-650 is less expensive.
In November 1985 Aloka decided to buy an Acuson 128. The parties disagree on Aloka's motives. Aloka compared the Acuson 128 with its own product and claims that comparison was its reason for the purchase. According to Acuson, Aloka also planned to copy Acuson's product.
Acuson attaches much significance to the way in which Aloka obtained an Acuson 128. Aloka, of course, had no reason to expect that Acuson would want to assist its competitor by selling it an Acuson 128 directly. And Aloka did not bother to ask. Instead it asked its American distributor, Johnson & Johnson Ultrasound (Johnson & Johnson), to purchase the unit. Johnson & Johnson arranged to buy one through Northeastern Medical Equipment Co. (Northeastern).
Northeastern's representative, Bruce Gallit, n2 ordered the machine from Acuson. He also asked for service manuals and a crate suitable for export. Gallit explained that the equipment was going overseas and [*372] could not be serviced by Acuson's technicians. Acuson delivered the unit to Northeastern as requested on May 5, 1986. Aloka received[**4] it on May 12, 1986, and paid Johnson & Johnson's invoice in full. Johnson & Johnson paid Northeastern.
n2 Acuson argues in its brief that Gallit's declaration is unreliable because he had, in an earlier deposition, exercised his rights under the Fifth Amendment of the United States Constitution. But Acuson has not controverted any of the specific facts from Gallit's declaration that we set out above.
At Aloka's plant in Tokyo, Aloka's engineers operated the Acuson 128 and compared it with their own product. n3 Although the engineers partially dismantled the Acuson unit, they did not read the machine's software. n4 The engineers recorded their observations in notebooks. The parties do not say how long Aloka's engineers spent examining the Acuson 128, but the evidence suggests that they spent only 11 days on the entire project.
n3 Aloka had already exhibited its SSD-650 to the public on May 7, 1986, shortly before it received the Acuson 128.
n4 Aloka supports this claim with the declarations of engineers that examined the Acuson 128, and Acuson has offered no contradictory evidence. (See also fn. 14.)
Meanwhile, back in the United States, Northeastern failed to forward[**5] Aloka's payment to Acuson. Acuson sued Northeastern to collect the balance due. When Acuson discovered that Aloka was the purchaser, Acuson dismissed the collection action and demanded the unit's return. Aloka declined.
Acuson filed this action against Aloka on October 6, 1987, claiming that Aloka had misappropriated its trade secrets. n5 Six months later Acuson moved for a preliminary injunction, and the court issued an injunction in the form proposed by Acuson.
n5 Acuson also alleged in conclusory terms causes of action for breach of the software license agreement, unfair competition ( Bus. & Prof. Code, § 17200 et seq.), and fraud. Each cause of action incorporates the earlier allegations about misappropriation of trade secrets.
The injunction as issued does not refer to trade secrets and is not limited to preventing their exploitation. Instead, to summarize its most important terms, it broadly prohibits Aloka from "[u]sing in any manner whatsoever including, but not limited to . . . the manufacture or improvement of any ultrasound sonography system, the information derived from its study of the Acuson 128 system . . . ." The injunction[**6] also bars Aloka from "[d]esigning, fabricating, or delivering any ultrasound sonography system, or any drawings, plans or description of any ultrasound sonography system . . . modeled upon or derived from in any way the design of the Acuson 128." Aloka is also ordered not to permit nine engineers who had access to the Acuson 128 "to work in Aloka's Research and Development and Manufacturing Divisions." Finally, the injunction requires Alokato deliver to Acuson, without compensation, both its Acuson 128 and any materials which reflect information derived from its study of the machine.
II. DISCUSSION
On appeal, Aloka makes four contentions, any one of which if valid would require us to vacate the preliminary injunction: (1) Acuson's product cannot contain trade secrets since hundreds have been sold on the open market; (2) Acuson has failed to identify its alleged trade secrets; n6 [*373] (3) Acuson has failed to satisfy certain traditional prerequisites for injunctive relief (a probability of success on the merits, irreparable harm, diligence); n7 and (4) the injunction is overly broad. n8
n6 A plaintiff who seeks relief for misappropriation of trade secrets must identify the trade secrets and carry the burden of showing that they exist. ( Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 250 [67 Cal.Rptr. 19].) While Acuson asserts repeatedly that it does have trade secrets, the voluminous record in this case contains only one attempt by Acuson in the form of admissible evidence to identify the trade secrets that Aloka is said to have misappropriated. And that one attempt is sorely deficient. It is contained in the declaration of Acuson's Director of Research, who states in conclusory fashion that the secrets "include, but are not limited to, information concerning both Acuson's 128 channel and doppler technology."
But it is not a secret that the Acuson 128 uses 128 channels; the product's name advertises that important feature. Nor is it a secret that Acuson's product makes use of the doppler effect (a shift in observed wavelength due to a reflecting object's motion) to provide information about the speed and direction of blood flow. Although Acuson may accomplish this in a different way from other manufacturers, the undisputed evidence shows that doppler capability is a standard feature.
Perhaps Acuson has information related to doppler technology and the simultaneous use of 128 channels that it has not disclosed to the public. But, as our discussion will show, whatever can be learned through examination of a publicly available product is not a trade secret. Conversely, if Acuson had trade secrets which were not discoverable by examination of Acuson's product, they were not acquired by Aloka. (See also fn. 16.)
n7 Delay in seeking relief is one factor which the trial court should take into consideration. ( Tustin Community Hospital, Inc. v. Santa Ana Community Hospital Assn. (1979) 89 Cal.App.3d 889, 894-906 [153 Cal.Rptr. 76].) After learning that Aloka had an Acuson 128, Acuson waited 10 months to file suit and another 6 months before moving for injunctive relief.
n8 The injunction may be overly broad in several respects. As we have mentioned, one major flaw is that it does not refer to trade secrets and is not limited to preventing their exploitation. Instead, it broadly prohibits Aloka from using any "information derived from its study of the Acuson 128 system," regardless whether the technology was already in the public domain or known to Aloka. [**7]
While each of Aloka's contentions has substantial merit, it will be necessary to consider only the first.
A. Standard of Review
We begin with the standard of review. While the "decision to grant a preliminary injunction rests in the sound discretion of the trial court" ( IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69 [196 Cal.Rptr. 715, 672 P.2d 121]), the decision must have the support of at least some evidence and must reflect a correct view of the law. The "abuse of discretion" standard cannot shield a total failure of proof or legal error.
Of course, the court was not required to enter detailed, formal findings and conclusions and did not do so. ( Code Civ. Proc., § 632.) The brief statement of decision makes the injunction's purported legal basis sufficiently clear. The court believed that there were trade secrets, that Acuson "took reasonable steps" to protect them, and that Aloka had in some unarticulated way misappropriated them.
But what constitutes a trade secret is a question of law, not a finding of fact. ( Agricultural Labor Relations Bd. v. Richard A. Glass Co. (1985) 175 Cal.App.3d 703, 713 [221 Cal.Rptr. 63];[**8]Uribe v. Howie (1971) 19 Cal.App.3d 194, 207 [96 Cal.Rptr. 493].) And conclusions of law do not bind a reviewing court. ( Agricultural Labor Relations Bd. v. Richard A. Glass Co., supra, at p. 713.) So, while we defer to those necessarily implicit findings of fact that have the support of substantial evidence and resolve conflicts in the evidence to favor the prevailing party, we also decide for ourselves whether the facts support the legal conclusion that a trade secret exists. If it can be said as a matter of law that no trade secrets exist, injunctive relief cannot have been proper in this case. n9
n9 In its brief Acuson makes passing references to unfair competition law but does not attempt to explain how that law would make Aloka liable in this case if the Acuson 128 does not contain trade secrets.
B. Does the Acuson 128 Contain Trade Secrets ?
Aloka's main contention is that the Acuson 128 cannot contain trade secrets since hundreds of the machine have been sold. The argument rests on two well-established principles. First, a trade secret loses its secrecy, and thus its protection under state law, after being disclosed[**9] to the public. ( Civ. Code, § 3426.1, subd. (d)(1).) Second, state law may not prohibit the copying of objects in the public domain. n10 ( Bonito Boats, Inc. v. Thunder Craft Boats, Inc. (1989) 489 U.S., [103 L.Ed.2d 118, 137-145, 109 S.Ct. 971, 980-986]; Sears, Roebuck & Co. v. Stiffel Co. (1964) 376 U.S. 225, 232-233 [11 L.Ed.2d 661, 667-668, 84 S.Ct. 784]; Compco Corp. v. Day-Brite Lighting (1964) 376 U.S. 234, 237-239 [11 L.Ed.2d 669, 672-673, 84 S.Ct. 779].)
n10 There is no evidence that Aloka has copied the Acuson 128. But if the law permits copying, it will of necessity permit preparations for copying, such as detailed study.
The concept of public disclosure is embodied in the statutory definition of "trade secret." Under the California Uniform Trade Secret Act, "[t]rade secret' means [*374] 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[**10]from its disclosure or use ; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy ." ( Civ. Code, § 3426.1, subd. (d), italics added.)
While the point may be obvious, it bears emphasis that the term "secret" has a literal meaning in the context of trade secret law. "The character of the secret if important to the business is not material but it must, as the term implies, be kept secret by the one who claims it." ( By-Buk Co. v. Printed Cellophane Tape Co. (1958) 163 Cal.App.2d 157, 166 [329 P.2d 147].) In particular, information and goods publicly disclosed cannot be trade secrets. ( Aetna Bldg. Maintenance Co. v. West (1952) 39 Cal.2d 198, 206 [246 P.2d 11]; Futurecraft Corp. v. Clary Corp. (1962) 205 Cal.App.2d 279, 289 [23 Cal.Rptr. 198].)
The other important principle that affects this case derives from federal law. Patent and copyright law provide the exclusive means of obtaining a monopoly on a product that has been disclosed to the public. In contrast, "ownership of a trade secret does not give the owner a monopoly in its[**11] use, but merely a proprietary right which equity protects against usurpation by unfair means." ( Futurecraft Corp. v. Clary Corp., supra, 205 Cal.App.2d 279, 283.) If federal law leaves an object in the public domain, state law may not prohibit its copying. ( Sears, Roebuck & Co. v. Stiffel Co., supra, 376 U.S. at pp. 232-233 [11 L.Ed.2d at pp. 667-668]; Compco Corp. v. Day-Brite Lighting, supra, 376 U.S. at pp. 237-239 [11 L.Ed.2d at pp. 672-673].)
These principles, applied to the uncontradicted facts of this case, compel the conclusion that Aloka is free to examine and even to copy the Acuson 128 to the extent it lacks protection under federal patent or copyright law.
1. Public disclosure
Uncontradicted evidence shows that the Acuson 128 has been disclosed to the public. At least hundreds of the product have been sold since it was introduced in 1983. If the term "hundreds" is vague, it is because the record demonstrates an understandable reluctance on Acuson's part to disclose actual sales figures. The company has admitted, however, that virtually all of its revenues derive from sales of the Acuson[**12] 128, and one can divide sales revenue by unit price to obtain an approximate figure. Acuson does not contest Aloka's assertion that it sold about 400 units in 1984 in the United States alone.
Acuson argues that wide sales of its product have not resulted in public disclosure since it "restricts the sale of its product to doctors and hospitals . . . ." n11 It may well be that, with the rare exception of competitors like Aloka, only doctors and hospitals are interested in the machine since it is, after all, a medical diagnostic tool. But to say that one sells only to those who want to buy is an irrelevant tautology.
n11 Acuson's declarations do not support the assertion in any event.
According to Acuson, if a product is normally sold only to the medical community, then that means the product "is not available to the general public ." (Italics added.) This purely semantic argument depends upon uncritical acceptance of the term "general public," which Acuson has invented in its brief. The term is an argumentative derivation from the statutory phrase: "generally known to the public or to other persons who can obtain economic value from its disclosure or use." ( Civ. Code, § 3426.1[**13] , subd. (d).) The invented term "general public" suggests that a product must be a household appliance to lose trade secret protection. But the drafters' comment to the Uniform Trade Secret Act expressly refutes the argument: "The [statutory] language 'not being generally known to the public or to other persons' does not require that information [*375] be generally known to the public for trade secret rights to be lost. If the principal person who can obtain economic benefit from information is aware of it, there is no trade secret. A method of casting metal, for example, may be unknown to the general public but readily known within the foundry industry." n12
n12 The Commissioners' Comment to the Uniform Trade Secrets Act has been adopted in California as the Legislative Committee comment (Senate) to Civil Code section 3426.1.
In the case of the Acuson 128, it is precisely physicians and hospitals who have an economic interest in the product and whose demand for the product encourages manufacturers to supply it. Disclosure to them is, for all relevant purposes, disclosure to the world.
2. Efforts to maintain secrecy
[**14] Under California law a trade secret loses protection either when disclosed to the relevant public or when its owner does not make "efforts that are reasonable under the circumstances to maintain its secrecy." ( Civ. Code, § 3426.1, subd. (d)(2).) In view of the Acuson 128's wide distribution, Acuson cannot even satisfy the first part of this test. But, for the sake of completeness, we will address Acuson's arguments on the second part as well.