Case Report: Spring Design, Inc. v. Barnesandnoble.com, LLC
On March 2, 2011, Barnes & Noble and Spring Design, Inc., an electronic reader (or “eReader”) development company, announced a settlement in a lawsuit over the companies' competing eReaders. In the lawsuit, filed in November of 2009, Spring Design accused Barnes & Noble of misappropriating its trade secrets to create the NOOK eReader device. The settlement comes after a December 27, 2010 order, in which a federal judge in the United States District Court for the Northern District of California denied motions for summary judgment and ruled that the case could proceed to trial.
Under the settlement, Spring Design will grant Barnes & Noble a non-exclusive, royalty-free license for use of the entire portfolio of Spring Design patents and patent applications. The other terms of the settlement have not been disclosed.
This case concerned eReaders, which are portable electronic devices that allow an individual to download, store, and read digital books. The trade secret at issue was the combination of product features of Spring Design’s dual-screen eReader, known as the “Alex.” In 2006, Spring Design developed the patent pending, dual-screen “Alex” design, featuring one screen for reading and a second screen for Web browsing, the Android operating system, WiFi and 3G connectivity, and a Micro SD slot, allowing a user to increase the device’s memory. According to Spring Design, the design gave it a significant competitive advantage over its competitors. However, Barnes & Noble has characterized these features as commonplace and well-known in the industry.
Back in 2008, Barnes & Noble expressed interest in meeting with Spring Design and exploring the dual-screen design in order to compete with the Kindle, a top-selling eReader sold by Amazon.com. On February 12, 2009, the two companies entered into a non-disclosure agreement in which they agreed not to disclose, reproduce, transmit or use each other's confidential information. In October of 2009, after eight months of discussions - and without notice to Spring Design - Barnes & Noble independently launched the NOOK eReader, which featured dual screens, Android, WiFi and 3G connectivity, and a Micro SD slot, much like the Alex design. The NOOK’s release led Spring Design to file the now settled action for misappropriation of trade secrets, breach of the non-disclosure agreement, and unfair competition. The defendant named by Spring Design was the bookseller's e-commerce and digital media division, Barnesandnoble.com, LLC.
The Parties’ Motions
Spring Design’s attempt to stop sales of the NOOK failed when its motion for a preliminary injunction was denied in December 2009. In October of 2010, both parties filed cross-motions for summary judgment, which were addressed in the December 2010 order. In its motion, Barnes & Noble argued that Spring Design's information did not qualify for trade secret protection because (1) the information at issue was publicly available through Spring Design’s own patent applications, (2) other publicly available eReader devices incorporated all of Spring Design’s alleged trade secrets, and (3) Spring Design could not show that the information had independent economic value.
The court addressed each of Barnes & Noble’s claims in turn. In a sealed filing, Spring Design had delineated four categories of trade secrets. The court found that Spring Design had disclosed all of the elements of its first trade secret in one of its provisional patent applications, but that issues of fact existed as to the disclosure of trade secrets numbered two through four which precluded summary judgment. In regards to the claim that other publicly available eReaders incorporated all of Spring Design’s trade secrets, the court found disputed issues of fact. Finally, in response to Barnes & Noble’s third claim that the trade secrets did not have independent economic value, the Court again found that material issues of fact existed. Accordingly, the Court granted in part and denied in part Barnes & Noble’s motion. Since the Court found that there were significant factual issues as to whether Barnes & Noble breached the parties’ non-disclosure agreement, Spring Design’s motion for summary judgment was denied.
Significance of Decision
In allowing the case to proceed, the court appeared to indicate that it wanted to take a closer look at the interactions and discussions between these two companies. This highlights an important feature of trade secrets law, which is that it is relational. The use of trade secrets often involves confidentiality or non-disclosure agreements or an employee’s duty implied by law to keep its employer’s trade secrets confidential. A court usually wants to determine the obligations of a party to whom information was disclosed and make sure that both parties acted with proper business ethics. Here, the judge essentially said that there was insufficient information in the summary judgment briefs to guarantee that Barnes & Noble’s actions did not violate California law and, thus, disputed issues of fact.
Furthermore, this case exemplifies the use of trade secrets in the digital age, which is characterized by an exceedingly fast pace of technological development. In the instant case, Barnes & Noble claimed that the design features claimed as trade secrets by Spring Design were well known in the industry and simply represented a progression to the next generation of eReader products. In a period where companies are scrambling to launch the next big product and dominate the market, one company may independently (and innocently) develop another company’s alleged trade secret within a relatively short period of time through the process of innovation. Since trade secrets law offers no protection against independent development by others, the effectiveness and value of protecting the design of an electronic product through trade secret law is debatable.