# ConFold v. Polaris: When a Design Is Neither a Trade Secret Nor Covered by the NDA

> Judge Posner explained why a container design disclosed in a bid (conceded not to be a trade secret and outside the parties' logistics-only nondisclosure agreement) was free for the recipient to use.

Topic: Trade Secrets  |  Author: Lidiia Levitska  |  Source: Intellectual Property Law (outsideipcounsel.com)
Canonical: https://outsideipcounsel.com/blog/confold-pacific-v-polaris-industries-nda-scope/


*ConFold Pacific, Inc. v. Polaris Industries, Inc.*, 433 F.3d 952 (7th Cir. 2006), No. 05-1285, decided January 10, 2006, is a compact lesson in the negative space of trade-secret law: what happens to valuable information that is neither a trade secret nor protected by any other intellectual-property right. Writing for a panel that included Judges Kenneth Ripple and Ilana Rovner, Judge Richard Posner affirmed summary judgment for Polaris in a diversity suit for breach of contract and unjust enrichment, on appeal from the U.S. District Court for the Eastern District of Wisconsin. The opinion is valuable precisely because ConFold *conceded* its container design was not a trade secret. With that concession, the case became a clean illustration of the default rule: information outside the boundaries of trade-secret, patent, and copyright law is generally free for anyone to use.

The facts are a cautionary tale for vendors who disclose designs in competitive bidding. Polaris, the snowmobile and powersports manufacturer, wanted to switch from disposable to returnable shipping containers. ConFold, a startup, performed a "reverse logistics analysis" of Polaris's shipping needs and the parties signed a "Mutual Non-Disclosure Agreement — Logistics Consulting Version." Two months later, Polaris sent a request for container-design proposals to nine firms, including ConFold, and accepted none of them. A few years after that, Polaris designed a returnable container and began using containers made by a firm to which it had given that design. ConFold claimed Polaris's design was based on the one ConFold had submitted. Polaris denied it, and the point was never resolved: the district judge did not reach it, and Posner wrote that the appellate court did not need to either.

## At a glance

- **Case:** *ConFold Pacific, Inc. v. Polaris Industries, Inc.*, 433 F.3d 952 (7th Cir.), No. 05-1285
- **Decision:** January 10, 2006 (Posner, J., for the panel; Ripple and Rovner, JJ.)
- **Court below:** E.D. Wis. (Adelman, J.; summary judgment for Polaris); diversity jurisdiction, claims for breach of contract and unjust enrichment
- **Concession:** ConFold admitted its container design was not a trade secret
- **NDA holding:** The agreement covered only the logistics analysis (its software, documentation, and consulting), not the later container designs
- **Default rule:** Information that is not a trade secret and not protected by patent or copyright is generally free to use
- **Takeaway:** Disclosing a design in a bid, without trade-secret status or a matching contract, surrenders control of it

## The default rule when nothing else protects the information

The doctrinal heart of the opinion is its statement of the baseline. As Posner put it, "if information is not a trade secret and is not protected by patent, copyright, or some other body of law that creates a broader intellectual property right than trade secrecy does, anyone is free to use the information without liability." That sentence is the reason ConFold lost. Having conceded its design was not a trade secret, ConFold needed some *other* legal hook (a contract, a recognized tort) to restrain Polaris. It had neither that fit.

The opinion is also a precise account of what a trade secret *is*, by way of contrast. Posner described a trade secret as "really just a piece of information … that the holder tries to keep secret by executing confidentiality agreements with employees and others." Crucially, it is not a property right good against the world. In one of the opinion's most-quoted lines, he observed that a trade-secret holder's right "is not [a right good against the whole world], because it is perfectly lawful to 'steal' a firm's trade secret by reverse engineering." Trade-secret protection is relational: it binds those who acquire the information through breach of confidence or improper means, and it evaporates against anyone who obtains the information legitimately, including by independent discovery or reverse engineering.

ConFold's problem was that it had voluntarily disclosed its design to Polaris in a competitive bidding process, without the design qualifying as a secret and without a contract that covered designs. Disclosure in that posture is not misappropriation by anyone; it is publication to the recipient.

## The nondisclosure agreement covered the wrong thing

ConFold's central claim was breach of the nondisclosure agreement. It failed principally on the agreement's own terms. The contract was titled the "Mutual Non-Disclosure Agreement — Logistics Consulting Version," and its preamble referred to "proprietary software systems, documentation, and related consulting services." The court read that language to limit the agreement's protection to ConFold's logistics-analysis work (the software and consulting it had performed) and not to extend to the container *designs* ConFold later submitted in response to Polaris's separate request for proposals.

Two features of the analysis are worth underscoring for transactional lawyers. First, the design proposals came *after* the logistics engagement and were solicited through a different process; the NDA, drafted for the consulting relationship, simply did not reach them. Second, ConFold drafted the agreement. The court placed the consequences of the gap on the drafter: a party that writes a narrowly captioned, narrowly scoped confidentiality agreement, and then discloses other categories of information outside its terms, bears the risk that the disclosure is unprotected. The lesson is that an NDA protects the categories of information it actually describes, not everything the disclosing party would later wish it had covered.

Two details sealed it. The district judge had found the contract ambiguous on its face and so turned to extrinsic evidence, and that evidence ran hard against ConFold: the agreement turned out to have been copied from ConFold's own confidentiality agreement with CAPS, a contract drafted by CAPS and limited to that firm's proprietary software, and CAPS does not design containers. Worse, ConFold had a form confidentiality agreement "specific for design" and never asked Polaris to sign it. Posner thought the contract was "only minimally ambiguous" and that the undisputed extrinsic evidence supported Polaris so strongly that "a trial could have had but one outcome."

## The unfair-competition fallback

ConFold's remaining claim was for unjust enrichment, argued through a cluster of overlapping labels (restitution, quasi-contract, quantum meruit, trade secret, misappropriation) that Posner spent several paragraphs untangling. Applying Wisconsin law, he noted that Wisconsin denies recovery for unjust enrichment where all the defendant has done is profit from an idea of the plaintiff that is not a trade secret.

Notably, it was Posner, not ConFold, who raised the "hot news" line of cases. He observed that a separate version of misappropriation, descended from *International News Service v. Associated Press*, 248 U.S. 215 (1918), has a footing in Wisconsin law but has never been mentioned in a Minnesota case, and was a theory "on which ConFold might have tried to rely, though with dim prospects of success." He then quoted the elements as stated by the Second Circuit in *National Basketball Association v. Motorola, Inc.*, 105 F.3d 841, 852 (2d Cir. 1997): that the plaintiff generates or collects information at some cost, that its value is highly time-sensitive, that the defendant's use is free-riding, that the use is in direct competition with the plaintiff's product or service, and that such free-riding would so reduce the incentive to produce it that its existence or quality could be substantially threatened. The court did not work through those elements against the facts. It said simply that ConFold "has made no effort to establish these elements."

The disposition of what remained was preemption. ConFold's misappropriation claim, Posner wrote, "comes down to a claim of infringement of a design that it did not patent," and such a claim is preempted by patent law under *Bonito Boats*, *Sears*, and *Compco*. The broader INS-type claim "probably is not preempted," but its elements had not been proved. The categories are not accidental gaps to be filled; they reflect a policy choice that some valuable information remains free to use.

## Open questions

The opinion resolves ConFold's case cleanly but leaves the surrounding terrain contested. How broadly should courts read a captioned, subject-limited NDA? Does the "Logistics Consulting Version" label control, or merely inform, the scope when later disclosures are plainly related to the same commercial relationship? The opinion also does not chart the full boundary of the "hot news" misappropriation tort under Wisconsin law, an area where states diverge sharply. And it leaves unsettled how a vendor *should* protect a design disclosed in competitive bidding short of a patent application, whether through a design-specific NDA, an express reservation of rights in the proposal, or staged disclosure. Those are questions the court flags by implication but does not answer.

## Implications

- **Concede nothing about secrecy lightly.** Once a plaintiff admits its information is not a trade secret, it must find another legal hook; the default is that the information is free to use.
- **Scope the NDA to the disclosure.** A confidentiality agreement protects the categories it describes; designs disclosed outside its terms, especially in a later, separate process, may be unprotected.
- **Beware the bidding posture.** Submitting a design in a competitive RFP, without trade-secret status or a matching contract, can surrender control of it to the recipient.
- **Reverse engineering is lawful.** Trade-secret rights bind those who acquire information improperly; they do not prevent legitimate discovery, independent creation, or reverse engineering.
- **Don't expect unfair-competition law to fill the gap.** Courts rarely use general misappropriation doctrine to protect information the IP regimes leave unprotected.

## Frequently asked questions

**Why did ConFold's misappropriation claim fail?**
ConFold conceded its container design was not a trade secret, and no patent or copyright protected it. Under the default rule, information outside those regimes is free to use, so Polaris's adoption of a similar design (disclosed to it in a bid) created no liability.

**Didn't the nondisclosure agreement protect the design?**
No. The court read the "Logistics Consulting Version" NDA to cover only ConFold's logistics-analysis work (its software, documentation, and consulting), not the container designs it submitted later in response to a separate request for proposals.

**What should a vendor do to protect a design disclosed in bidding?**
Secure protection that fits the disclosure: a patent or design-patent application where appropriate, a confidentiality agreement that expressly covers submitted designs, an explicit reservation of rights in the proposal, or staged disclosure. A narrowly scoped NDA written for a different purpose will not do the work.

## Authorities and sources

- *ConFold Pacific, Inc. v. Polaris Industries, Inc.*, 433 F.3d 952 (7th Cir. 2006), No. 05-1285, full text via Public.Resource.Org: https://law.resource.org/pub/us/case/reporter/F3/433/433.F3d.952.05-1285.html
- *National Basketball Association v. Motorola, Inc.*, 105 F.3d 841 (2d Cir. 1997) (elements of the INS-type misappropriation tort), full text via Public.Resource.Org: https://law.resource.org/pub/us/case/reporter/F3/105/105.F3d.841.96-9123.96-7983.96-7975.822.824.html
- *Bonito Boats, Inc. v. Thunder Craft Boats, Inc.*, 489 U.S. 141 (1989) (patent preemption of state protection for unpatented designs), Cornell LII: https://www.law.cornell.edu/supremecourt/text/489/141
- Wisconsin Uniform Trade Secrets Act, Wis. Stat. § 134.90: https://docs.legis.wisconsin.gov/statutes/statutes/134/90