IP Legal Lounge

Seventh Circuit Rules On Preliminary Injunction Request In A Trade Secret Case

The Seventh Circuit Court of Appeals recently decided a preliminary injunction matter in a case brought by a former employer against its former sales executive who left to go work for one of the employer's competitors.  The employer, Lakeview Technology, Inc., sued its former vice president, Eric Robinson, to enforce an employment contract precluding him from soliciting its customers for one year and requiring him to hold its trade secrets in confidence.

In vacating the district court's denial of Lakeview's request for a preliminary injunction, the Seventh Circuit held that an employer need not show that its former employee had solicited its customers or disclosed its trade secrets in order to obtain a preliminary injunction.  Such relief is issued "to curtail palpable risks of future injury."  This is especially true when, as in this case, the employee had accepted a position with his employer's competitor before leaving his employment and lied about it.

The Court also took issue with the district court's reasoning that the prospect of considerable monetary damages against Robinson - should he breach his contractual obligations - would be an adequate remedy.  The Court concluded that the "[a]bility to calculate damages does not make that remedy adequate . . . if the plaintiff cannot collect the award.  A judgment proof defendant is not deterred by the threat of money damages."  The Court focused on the third preliminary injunction factor regarding irreparable harm and the balance of equities.  It reasoned that if Robinson plans to abide by his obligations, he will lose nothing as he will still be allowed to remain on his new employer's payroll.  However, the injunction will protect Lakeview from the possibility of considerable injury should Robinson "yield to temptation."  In remanding the case, the Court left it up to the district court to determine whether or not a bond or other surety would be a sufficient reason to withhold injunctive relief.

Lakeview Technology, Inc. v. Robinson, 2006 WL 1133147 (7th Cir., May 1, 2006).

Independent Contractor May Still Be Liable For Misappropriation Of Trade Secrets

Defendant, Bartell, worked part-time for approximately seven years as an independent contractor for a manufacturer of automobile and truck transmission testing equipment ("plaintiff").  He never signed a restrictive covenant or a confidentiality agreement.  When Bartell left to begin a competing business, plaintiff filed suit under Wisconsin's Uniform Trade Secrets Act.  The lower court granted summary judgment for Bartell, and plaintiff appealed.

The Seventh Circuit Court of Appeals decided that as an independent contractor, Bartell presumptively owned his work product, and plaintiff failed to offer into evidence any proof that the knowledge Bartell gained during his years working at the company belonged to plaintiff.  However, with respect to any information developed by plaintiff, the issue becomes whether Bartell, as the recipient of the information, knew or should have known that it is a trade secret and that the disclosure by plaintiff to him was made in confidence.  Hence, Bartell did not acquire rights to plaintiff's trade secrets just because he used the information it supplied to him in the performance of his duties.  The Court of Appeals discerned that a reasonable jury could find that Bartell knew plaintiff treated at least some of this data as its trade secrets.  Furthermore, there was still a question as to whether Bartell disclosed or used plaintiff's confidential information improperly.  The Seventh Circuit, therefore, vacated the judgment and remanded the case for further proceedings.

Hicklin Engineering, L.C. v. Bartell, 2006 WL 399165 (7th Cir., February 22, 2006).

Notice Pleading And Preemption Under The Illinois Trade Secrets Act

In a case with multiple parties and a convoluted fact-pattern pending in the Northern District of Illinois, the Court discussed the trade secrets claim and its bearing on other claims in plaintiffs' First Amended Complaint.

Defendant Providential Bancorp, Ltd. ("PBL") filed a Motion to Dismiss numerous counts pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6), including the count based on the Illinois Trade Secrets Act ("ITSA"). This claim revolved around proprietary software created by one of the plaintiffs for use by the defendants. In its motion , PBL argued that the Court should apply the heightened pleading requirements found in Rule 9(b) to the trade secrets count (and other counts) since plaintiffs' entire complaint was "grounded in fraud." The Court rejected this argument, holding that allegations of non-fraudulent conduct, such as the trade secrets claim, simply need to meet the liberal notice pleading standard of Rule 8(a).

To state a claim for relief under the ITSA, 765 ILCS 1065/1 et seq., a plaintiff need only allege that the (1) information at issue was a trade secret, (2) defendant misappropriated it, and (3) used it in defendant's business. The Court found that plaintiffs' allegations met this standard under the liberal pleading requirements of Rule 8(a)(2).

The Court, however, dismissed plaintiffs' conversion count based on preemption under the ITSA. Although it found that plaintiffs' allegations were sufficient under notice pleading standards, the Court ruled that the ITSA preempts other laws providing civil remedies for the misappropriation of trade secrets (with an exception for breach of contract claims). See 765 ILCS 1065/8. Since it found that plaintiffs' conversion claim rested solely on defendants' alleged misappropriation of the software product, the Court dismissed this count with prejudice.

Systems America, Inc., et al. v. Providential Bancorp, Ltd., et al., 2006 WL 463314 (N.D. Ill., February 24, 2006).