involves many issues, the present discussion is limited to the issues involving the NDA.
Salim Kara is the sole inventor on two related patents, US Patent Nos 6,505,179 (the '179 patent) and 6,735,575 (the '575 patent), directed toward apparatuses and methods that allow a customer to print a secured document (such as a stamp or an airline ticket) at home using preprinted label sheets.
offers internet-based shipping and postage services.
In May 2000, Stamps.com
to collaborate on Kara's Personal Computer-based (PC-based) stamp technology.
The two entered into an NDA that provided in pertinent part that:
'keep secret and not disclose ... and not use for its own use in any capacity whatsoever any Confidential Information for any purpose other than for the purpose for which such information was disclosed' (ie to facilitate 'business discussions').
was not permitted to 'make written, electronic, or photostatic copies or excerpts of or summaries of Confidential Information' without prior written consent from Kara
'Confidential information shall not include ... [i]nformation which becomes part of the public knowledge through no breach of this Agreement or any similar obligations known by [Stamps.com]'.
Texas law governed the NDA.
subsequently indicated it was no longer interested in pursuing a business relationship with Kara
However, in October 2001, Stamps.com
announced that the US Postal Service
had approved beta testing of its PC-based postage product.
launched the Pre-V5 product commercially in July 2002, and the V5 line 3 years later.
brought suit against Stamps.com
in the US District Court for the Southern District of New York for patent infringement, breach of contract, and other claims not relevant to the appeal.
The case was eventually transferred to the US District Court for the Central District of California, where Stamps.com
counterclaimed for, inter alia, patent invalidity and unenforceability and moved for summary judgment on Kara's breach of contract claim.
As pertinent to the breach of contract claim, Kara
asserted two alleged breaches of the NDA:
alleged that the first breach occurred on 15 May 2000, but did not first bring suit until 22 October 2004, more than 4 years later.
The district court found that this breach of contract claim was barred by the 4-year statute of limitation under Texas law.
Since this note-taking was done in front of Kara
employees at the meeting, the Federal Circuit agreed with the district court that the statute of limitations barred Kara from asserting this breach.
However, with respect to the second alleged breach (ie Stamps.com
's alleged misuse of Kara's confidential information to make its own systems), the Federal Circuit noted that the district court did not address whether this claim was barred by statute of limitations.
Based on disputes between the parties as to when Kara
first learned or should have learned of facts identifying this alleged breach, the Federal Circuit found that there were material facts in dispute that precluded summary judgment on that point.
The Federal Circuit found that there were material facts in dispute as to the timing and content of other alleged public disclosures by Kara of the confidential information, which was the subject of the second alleged breach.
The Federal Circuit also noted that, even if Kara subsequently disclosed 8 days after the meeting with Stamps.com the confidential information to another party in Finland and later openly at the World Stemp Expo, thus relieving Stamps.com of its obligation not to use the confidential information, 'Stamps.com still could be liable for a breach of contract claim based on the eight days before the May 23 presentation'.
With respect to the content of disclosures by Kara
at subsequent presentations, the Federal Circuit explained:
Furthermore, material factual disputes exist concerning what was disclosed at the Finland presentation and what one skilled in the art would have understood from Kara's exhibit at the World Stamp Expo.
It is unclear from Kara's slides from its Finland presentation whether the public would understand how to create a secure document, or how those documents are later validated.
Further, although there was testimony Kara
's exhibit at the World Stamp Expo included a full demonstration, there was also testimony that Kara struggled to get its demonstration to work.
reminds us that while NDAs are important protection that should be entered into before disclosing confidential information with respect to a potential business relationship, an NDA by itself may not be sufficient protection against misappropriation by the prospective business partner.