United States District Court, Northern District of California
July 8, 1999
SECURITY PEOPLE, INC., PLAINTIFF,
MEDECO SECURITY LOCKS, INC., DEFENDANT.
The opinion of the court was delivered by: Legge, District Judge.
ORDER ON MOTION FOR SUMMARY JUDGMENT
Plaintiff Security People, Inc. ("SPI") and defendant Medeco Security
Locks, Inc. ("Medeco") are in the high security lock industry. They
design, develop, manufacture and sell security related mechanisms,
software and systems. They are competitors.
In this action, SPI contends that Medeco's products infringe one of
SPI's patents, and were developed from confidential information that SPI
provided to Medeco under a confidentiality and non-disclosure agreement in
1989. The causes of action alleged in the complaint are: (1)
misappropriation of trade secrets; (2) breach of
contract, the 1989 agreement; (3) unfair competition under the California
Business and Professions Code; and (4) infringement of SPI's 043 patent.
Medeco denies the allegations, and filed a counter claim which is not at
issue in the pending motion.
Medeco has brought a motion for summary judgment on all four causes of
action. Medeco contends that SPI's state law claims (causes of action 1,
2, and 3) are barred by a 1995 settlement agreement between the parties.
Medeco also contends that the fourth cause of action, patent
infringement, is barred by collateral estoppel, because the same issues
were litigated and determined in Medeco's favor in a prior lawsuit
between the parties; Gokcebay v. Medeco Security Locks, C-93-0627-EFL, in
SPI opposes the motion. It was briefed, argued, and submitted for
decision. The court has reviewed the moving and opposing papers, the
record of the case, the arguments of the parties, and the applicable
authorities. The court concludes that there are no genuine issues of
material fact which preclude summary judgment under Rule 56 of the
Federal Rules of Civil Procedure, and that Medeco's motion should be
In the first action, SPI sued Medeco for misappropriation of trade
secrets, breach of contract, unfair competition, and patent
infringement. The state law claims were based upon the alleged breach of
the 1989 confidentiality agreement.
Medeco moved for a summary judgment that its so-called VLS product did
not infringe plaintiffs patents. The court granted Medeco's motion. In a
sixteen page order, the court construed SPI's patent claims, and then
found that Medeco's VLS device did not infringe those claims.
The parties then settled the suit in 1995, including the patent claim
and the state law claims. As a part of the settlement, Medeco paid SPI a
sum of money, and SPI gave Medeco a release of all claims and a covenant
not to sue for patent infringement. The parties also stipulated to
request vacation of the summary judgment order, but the settlement
agreement specifically stated that it was not contingent upon vacation of
that order. The order was not vacated by the court.
The present action is quite similar to the first. The state law claims
for misappropriation of trade secrets, breach of contract, and unfair
competition are again based upon the 1989 agreement. Both the present and
the prior patent infringement claims concern SPI's 043 patent. And both
infringement cases involve the same product of Medeco. The first suit
involved defendant's VLS, while the present suit alleges infringement by
defendant's PMLS product. However, at oral argument the parties agreed
that the VLS and PMLS are the same for purposes of patent infringement
As stated, Medeco's motion for summary judgment on the state law claims
(causes of action 1, 2, and 3) is on the ground that they are barred by
the 1995 settlement agreement. The settlement agreement contained a
release clause, which provided in relevant part as follows:
In consideration of the settlement amount and other
consideration described in this agreement, and the
mutual promises and covenants contained herein, SPI
and its predecessors . . . release and forever
discharge Medeco of and from any and all claims,
damages, actions which were or could have been alleged
by SPI in the suit, including any claims of actual
damages, enhanced damages, attorneys' fees, injunctive
relief, expenses and costs . . . (emphasis added).
Medeco contends that the release bars the state law claims because they
have the same genesis as the state law claims in the first action; that
is, a breach
of the 1989 confidentiality agreement. SPI contends that the release only
covered claims involving the products at issue in the prior suit, and
that this action is for acts of defendant subsequent to the release.
Therefore the issue is whether the release was limited to the products
then at issue, or whether the release bars all claims and causes of
action based upon the confidentiality agreement that was at issue between
the parties in the first case.
The settlement agreement appears to refer to settling claims and causes
of action, and not to settling disputes with respect to specific
The settlement agreement states on page one that:
SPI and Medeco mutually and reciprocally desire to
terminate the suit by entering into a settlement
agreement with respect to all claims and causes of
action in the suit.
The release provisions of the agreement state:
. . . SPI and its predecessors . . . release and forever discharge
Medeco . . . of and from any and all claims, damages, actions which
were or could have been alleged by SPI in the suit, . . . . . . Medeco
and its predecessors . . . release and forever discharge SPI . . . of
and from any and all claims, damage, actions which were or could have
been alleged by Medeco in this suit,. . . (emphasis added)
In fact, the settlement agreement, in referring to Medeco's products,
makes the settlement applicable to future products and processes that are
substantially the same:
1.4 "Medeco Product" shall mean the products and/or
processes which have been marketed by Medeco prior to
the effective date of this Agreement, as shown in
Attachment "B" hereto, as well as future products
and/or processes which are substantially the same as
these products and/or processes, even though such
future products and/or processes may include different
computers, readers, software or processors. (emphasis
And SPI covenanted not to sue Medeco for patent infringement with
respect to the future use and sale of those Medeco products. Settlement
Agreement, ¶ 5.4.*fn1
It therefore appears from the language of the settlement agreement that
SPI released all claims against Medeco which were or could have been
alleged in the first case. The issue therefore is whether the state law
claims asserted in this case are claims that were or could have been
alleged in the first case.
Medeco contends that all three of the state law claims (trade secret
misappropriation, breach of contract and unfair competition) asserted in
this case were alleged, settled and released in the prior litigation.
As to claim one, the trade secret misappropriation claim, Medeco argues
that it is an alleged breach of the 1989 confidentiality agreement that
was alleged in the first case; and that once the confidential
relationship was breached, subsequent uses of the allegedly
misappropriated information, whether in the same or different products,
constitutes the same claim. That is, Medeco argues that its alleged
subsequent use of the same information in its PMLS product constitutes
the same claim as a matter of law. Medeco relies on Monolith Portland
Midwest Co. v. Kaiser Aluminum & Chemical Corp., 407 F.2d 288 (9th Cir.
1969) and Intermedics, Inc. v. Ventritex, Inc., 822 F. Supp. 634
(N.D.Cal. 1993). Medeco also argues that SPI's breach of contract and
unfair competition claims (counts 2 and 3) are barred for the same
reason. That is, they are based on the same alleged misappropriation of
trade secrets. See Intermedics, Inc. 822 F. Supp. at 646.
In Monolith, the Ninth Circuit held that a trade secret
misappropriation claim occurs at the time the defendant makes its first
adverse use of the trade secret in violation of the alleged confidential
relationship. Monolith 407 F.2d at 292. The court explained that
California does not treat trade secrets as if they were property. Id. at
293. Rather, the court said that "it is the relationship between the
parties at the time the secret is disclosed that is protected." Id. "The
fabric of the relationship once rent is not torn anew with each added use
or disclosure, although the damages suffered may be aggravated." Id. The
court concluded that the trade secret claim arose but once.
In Intermedics, Inc., the court held that a misappropriation cause of
action accrues when the confidential relationship between the parties is
initially breached. The court rejected plaintiffs "property" theory of
the protection of trade secrets; that is, that each subsequent
misappropriation of a trade secret constitutes a new claim. Citing
Monolith, the court stated that
California authorities have rejected the theory that
trade secrets should be treated as forms of "property"
and have refused to permit notions imported from the
law of property to drive development of trade secret
statute of limitations doctrine. Instead, California
authorities have insisted that the focus of trade
secret law be on the relationship of trust and
confidence between a party who holds a trade secret
and the parties with whom that secret was shared.
Intermedics, Inc., 822 F. Supp. at 651 (emphasis added).
That court also said that California law treats a continuing
misappropriation claim as a single claim, which accrues when a party
breaches the confidential relationship. Id. at 643, citing Cal.Civ.Code
§ 3426.6. The decision to focus on the relationship, and not to treat
trade secrets as "property," reflects a policy choice by California in
which the interests in promoting the free use of new ideas is elevated
over the interests in rewarding holders of economically significant
secrets. Id. at 652.
The Intermedics court used the same rationale "to find that breach of
contract and unfair competition claims were also barred. The court
it would be "anomalous" to reject the continuing tort
doctrine for purposes of Intermedics' claims of
misappropriation of trade secrets or confidential
information, but to accept an analogous "continuing
breach" doctrine for purposes of the breach of
contract claims that are based on the same alleged
misappropriations . . . Faced with the issue pressed
here by plaintiff, we believe that California courts
would perceive no principled basis for treating
differently, with respect to the statute of
limitations, a confidential relationship that is
implied by law and one that is created by a written
Id. at 646 (emphasis added).
The court notes that both Monolith and Intermedics involved the issue
of when the claims accrued for purposes of statutes of limitation. But
the same rationale should apply in deciding whether a later claim is the
same as an earlier one.
SPI contends that Ruckelshaus v. Monsanto, 467 U.S. 986, 104 S.Ct.
2862, 81 L.Ed.2d 815 (1984) overrides the rationale of Monolith and
Intermedics. That is, plaintiff cites Ruckelshaus for the proposition
that trade secrets are "property," and that each new misappropriation of
a property right constitutes a new cause of action. However, SPI's
reliance on Ruckelshaus is misplaced for two reasons. First, Ruckelshaus
is inapplicable here because it turned on how Missouri law defined a
trade secret. Missouri followed the Restatement of Torts provisions,
while California adopted the Uniform Trade Secrets Act. The Monolith and
Intermedics decisions interpreted California law, and California law
governs the present case. Second,
the Supreme Court's analysis was from the standpoint of a "takings" claim
under the Fifth Amendment, and not a straight-forward trade secret
misappropriation claim. That is, the issue was whether Monsanto had a
property interest protected by the Fifth Amendment's takings clause.
This court therefore concludes that all of SPI's claims for
misappropriation of trade secrets by virtue of Medeco's alleged breach of
the 1989 agreement constitute one claim. That claim' was litigated,
settled, and released in 1995.
With respect to its breach of contract claim, SPI argues that Medeco's
liability under the 1989 agreement continues, in spite of the settlement
agreement. See e.g. Dillon v. Board of Pension, 18 Cal.2d 427, 430,
116 P.2d 37 (1941). SPI relies on cases which involved installment
contracts. But the 1989 non-disclosure & agreement is not analogous to an
installment contract. The agreement involves a unitary contract, not
divisible duties. And SPI does not address the significance of the
relevant holdings in Intermedics, Inc. Nor does SPI address Medeco's
points regarding the unfair competition claim.
All of SPI's state law claims arise out of the same 1989
confidentiality agreement. SPI does not contend, nor has it produced any
evidence, that the confidential information that was allegedly
misappropriated in this case is any different from that alleged to be
misappropriated in the prior litigation. In fact, the declaration of
SPI's president indicates that the confidential information at issue in
both cases is the same. SPI does not acquire a new claim every time
Medeco commits an alleged act of misappropriation with respect to
information covered by the original relationship which was allegedly
breached. Subsequent acts of misappropriating the same information
constitutes the same claim.
The court therefore grants Medeco's motion for summary judgment on the
state law claims for misappropriation of trade secrets, breach of
contract and unfair competition. They are the same claims alleged in the
prior lawsuit, even though regarding earlier products, and were released
by the prior settlement agreement between SPI and Medeco.
Medeco also moves for summary judgment on SPI's patent infringement
claim (claim 4), arguing that the claim is barred by collateral
estoppel. That is, in the first case the court granted Medeco's summary
judgment motion, construing SPI's patent claims and finding that Medeco's
VLS product did not infringe the patent. The same 043 patent is at issue
in the present case. And as stated, at oral argument the parties agreed
that defendant's PMLS product is the same as the VLS for purposes of
Collateral estoppel, or issue preclusion, bars the re-litigation of
issues actually adjudicated in previous litigation between the same
parties. Kamilche Co., v. United States, 53 F.3d 1059, 1062 (9th Cir.
1995). As the party asserting collateral estoppel, Medeco must show: (1)
the same issue of fact or law; (2) was actually litigated and determined
in the former proceeding; (3) the issue was actually decided by a valid
and final judgment; (4) the determination of the issue was necessary to
the judgment; and (5) the party against whom collateral estoppel is
asserted had a full and fair opportunity to litigate the issue. Id.
SPI does not contest that these five factors are present here, except
for number three, whether there was a "valid and final judgment." Before
turning to that issue, the court notes that Medeco has demonstrated the
other four factors.
There is no question that the same issues of claim construction are
present in this action as were present in the prior action. The court
interpreted the 043 patent claims as a matter of law, and expressly
delineated the key terms. And the
court held that Medeco's VLS did not infringe the 043 patent.
It is clear from the record presented to this court that those issues
were actually litigated by parties and conclusively determined by the
court in the first case. The record in that case demonstrates that the
issues were fully briefed, that the parties submitted expert testimony in
support of their arguments, and that the court held a hearing on the
The issues of claims construction and infringement were necessary to
the summary judgment order granted by the court. The record again
demonstrates that both parties had a full and fair opportunity to
litigate the patent issues. It is undisputed that SPI was represented by
counsel in the first case, and SPI's counsel filed extensive briefs and a
record regarding the issues.
This court then turns to the one disputed factor of collateral
estoppel; that is, whether the prior decision was a "valid and final
judgment." A disposition by summary judgment is a decision on the
merits, and it is as final and conclusive as a judgment after trial.
Kamilche Co. v. United States, 809 F. Supp. 763, 767 (N.D.Cal. 1992)
rev'd on other grounds, 53 F.3d 1059 (9th Cir. 1995).
Medeco argues that the subsequent settlement did not remove the
validity or preclusive effect of the court's summary judgment order. In
Bates v. Union Oil Co. of California 944 F.2d 647 (9th Cir. 1991), the
Ninth Circuit rejected the argument that a settlement and agreement to
vacate a decision deprived the judgment of preclusive effect. Id. at
650. The Ninth Circuit reasoned that "to hold otherwise would be to
approve of a rule which would deny preclusive effect to a judgment simply
because it was vacated." Id.
SPI argues that the order was an interlocutory order and not a final
judgment, and that it therefore cannot have preclusive effect. For this
proposition, SPI relies on Fed.R.Civ.P. 54(b). But SPI's reliance on Rule
54(b) is misplaced for purposes of a collateral estoppel analysis. Rule
54(b) defines a judgment for purposes of an appeal. Further, Ninth
Circuit case law holds that "to be final for collateral estoppel
purposes, a decision need not possess finality in the sense of
28 U.S.C. § 1291." See Luben Indus., Inc. v. United States,
707 F.2d 1037, 1040 (9th Cir. 1983). Instead, a final judgment for
purposes of collateral estoppel is any prior adjudication of an issue in
another action that is determined to be "sufficiently firm" to be
accorded preclusive effect. Id.
Further, the Ninth Circuit has set forth a number of factors which
should be considered in determining whether a prior adjudication is
"sufficiently firm" to be accorded conclusive effect: (1) whether the
decision was not avowedly tentative, (2) whether the parties were fully
heard, (3) whether the court supported its decision with a reasoned
opinion, and (4) whether the decision was subject to an appeal. Id at
1040, citing Restatement 2nd of Judgments, § 13.
In considering these factors, it is clear that the prior order here was
sufficiently firm to be considered a final judgment. The language of the
order indicates that the decision was not tentative. Also, the record
demonstrates that both SPI and Medeco were afforded ample opportunity to
be fully heard on the issues. While SPI may disagree with the first
court's ruling, the court supported its decision with a reasoned
opinion, issuing a 16-page order setting forth its reasons.
SPI next contends that the court's summary judgment order lacks
preclusive effect because the parties agreed to vacate it. It was not
vacated by the court. SPI acknowledges the Bates holding that even a
vacatur by the court would not end its effect. But SPI argues that this
court should not follow Bates because "no other circuit ascribes to the
decision of Bates." But this court is bound to follow Ninth Circuit law.
SPI also argues that the Bates holding is inapplicable because Bates
involved a final judgment, not an interlocutory
order. As explained above, to be "final" for collateral estoppel
purposes, a decision need not possess finality in the sense of
28 U.S.C. § 1291.
Finally, SPI argues that if this court applied the Bates balancing test
then the balance favors SPI. SPI argues that it "expressly negotiated"
the vacatur of the summary judgment order as part of the settlement
agreement. But there is no support for this argument. Indeed, SPI's
argument is contradicted by the language of the settlement agreement
Paragraph 8.1 of the settlement. provides
Medeco agrees that it will stipulate to an order to
vacate the ORDER filed April 27, 1995, granting
Medeco's motion for partial summary judgment, by
signing the stipulation of Attachment F hereto for
submission to Judgment Chesney and/or Judge Lynch. All
parties understand that the requested Order vacating
the judgment may or may not be entered by the court
but nonetheless, the terms and obligations of this
Agreement shall remain in effect. (emphasis added).
This court therefore concludes that the five factors for collateral
estoppel defined by Kamilche are present here. SPI is collaterally
estopped from relitigating its infringement claims regarding the same 043
For the reasons stated above, summary judgment is granted in favor of
defendant Medeco and against plaintiff SPI on all four causes of action.