Sunday, January 07, 2007, 1/07/2007 01:01:00 PM

University of Delaware's Contract-Contingent Trade Secret Claims Dismissed

By Todd
In March of 1990 the University of Delaware entered into a contract with Research Corporation Technologies ("RCT") to examine, evaluate and ultimately market certain technologies that scientists at the University had developed. The agreement was called the "Disclosure, Evaluation and Commercialization of Inventions Agreement."

In August of 1992, RCT and a company named Phenomenex Inc. entered into a "Materials Treatment Agreement" in which Phenomenex would be permitted access to certain confidential and proprietary information owned by the University of Delaware but controlled and managed, under the above-mentioned agreement, by RCT.

Seems things got complicated, as these things sometimes do, and the University of Delaware felt it was not being treated fairly in the ultimate shake-out of the development and commercialization of this technology. So the University of Delaware's UD Technology Corp. sued Phenomenex and RCT for their alleged misdeeds. Subsequent to the filing of the suit, UD Technology Corp. filed a stipulation of dismissal of its claims against RCT with prejudice. This occurred on July 21, 2006 and, as you shall see, changed the nature of the claims that remained in the case. See - UD Technology Corp. never had a direct contract with Phenomenex, it only had an agreement with RCT. Thus, its claims against Phenomenex that derived from contract were imperiled by their dismissal of RCT. Such was the case with the trade secrets case.

The federal court in Delaware recently opined: "Where the duty to keep a divulged trade secret arises from a contract, it follows that only those parties to the contract have standing to pursue a claim of trade secret misappropriation based on a breach of that contract. For the reasons previously stated, the court concludes that UDTC does not have standing to pursue contract-based claims against Phenomenex. Therefore, UDTC's trade secret misappropriation claim must be dismissed."

Although it isn't clear from the decision, why didn't UDTC just bring a standard "misappropriation of trade secrets" claim against Phenomenex? Presumably UDTC's problem with such a claim is that Phenomenex had a RIGHT to see and use this proprietary technology through its agreement with RTC. Thus, a statutory trade secrets claim - always predicated on the fact that the allegedly infringing party had no right to see or use the confidential information in question - would certainly fail. And, as the Court noted above, the trade secrets claim was essentially a breach of contract claim that only RTC could bring.

Ugh, says the University of Delaware. Its dismissal of RTC from the case rendered its claims against Phenomenex infirm. That smarts. The slip opinion is at UD Technology Corp. v. Phenomenex, Inc., 2007 WL 28295 (Jan. 4, 2007 D. Del.).

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