No Disparagement Or Non-Compete Means No Injunction – IL Court

In Xylem Dewatering Solutions, Inc. v. Szablewski, 2014 IL App (5th) 140080-U,  the plaintiff corporation sued some of its ex-employees after they joined a competitor and started raiding plaintiff’s office staff.

The trial court denied plaintiff’s request for an injunction and then it appealed.

Result: Trial court’s order upheld. Plaintiff loses.

Reasons: To get a preliminary injunction, a plaintiff must establish (1) a clearly ascertained right in need of protection; (2) irreparable injury; (3) no adequate remedy at law; and (4) a likelihood of success on the merits.

The plaintiff must establish a “fair question” on each of the four elements. A preliminary injunction is an extraordinary remedy that is only granted in extreme, emergency settings. (¶¶ 20-21).

Irreparable harm can result from commercial disparagement of a plaintiff’s product but the plaintiff must show the defendant repeatedly made false or misleading statements of fact regarding the plaintiff’s goods and services to establish irreparable harm.  Statements of opinion (“their services suck!”, e.g.) don’t qualify as commercial disparagement. 

Here, the Court found that there were no repeated factual statements made by the defendants.  In addition, all statements that were attributed to the defendants were purely interpretive: they weren’t factual enough to be actionable.  (¶¶ 23-24).

In finding that the plaintiff lacked a protectable interest in its employees or customers, the court pointed out that neither individual defendant signed a non-compete and didn’t violate any fiduciary duties to the employer.

In Illinois, absent a non-compete, an employee is free both to compete with a former employer and to outfit a competing business so long as he doesn’t do so before his employment terminates.  And while a corporate officer owes heightened fiduciary duties not to exploit his position for personal gain, the ex-employee defendants were not corporate officers. (¶ 26).

Plaintiff also failed to establish a protectable interest in its pricing and bid information.  The Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. (“ITSA”) extends trade secret protection to “information” that is (1) sufficiently secret to derive economic value, from not being generally known to others who can obtain economic value from its use, and (2) that is the subject of reasonable efforts to maintain the information’s secrecy (i.e., “kept under lock and key”)

Information that is generally known in an industry – even if not to the public at large – isn’t a trade secret. Also, information that can be readily copied without a significant outlay of time, effort or expense is not a trade secret. 

The pricing data the plaintiff was trying to protect was several years old and the defendants testified that the bidding information was well known (and therefore not secret) in the pumping industry.  In combination, these factors weighed against a finding of trade secret protection for the pricing and bidding information. (¶¶ 29-31).

Afterwords:

(1) Stale data likely won’t qualify for trade secret status – no matter how arcane the information;

(2) If information is well known or can be easily accessed within an industry, it won’t be given trade secret protection;

(3) Noncompete agreements can serve vital purposes.  If a business fails to have its workers sign them, the business risks having no recourse if an ex-employee joins a competitor and later raids the former employer’s personnel.

Illinois Defamation Law: The Quick and Dirty

Defamation is a false, factual statement published to a third party reader or listener.  Illinois recognizes two types of defamation – libel (written) and slander (oral) and the same rules apply to both.

A defamation plaintiff must present sufficient facts establishing (1) a false statement about the plaintiff, (2) that’s not privileged, (3) to a third party; and (4) that caused damages.

A defamatory statement is per se (meaning no proof of specific damages are required)  defamatory when it’s harmful on its face.  Defamatory per se statements are those that (1) impute that a plaintiff committed a crime; (2) impute a plaintiff is unable to perform or lacks integrity in his employment; or (3) statements that plaintiff lacks ability or that otherwise prejudices the plaintiff in her profession.

Only statements that are factual (“he stole $1,000 from me”) – capable of being proven true or false – are actionable; opinions are not (“I think he’s a nut job!”).  Calling someone a crook, a traitor, trashy, a rip-off artist are examples of non-defamatory statements of opinion under prior Illinois cases.

Even per se defamatory statements are not actionable if they are reasonably capable of an innocent construction.  Under the innocent-construction rule, a court considers a statement in context and gives words their natural and ordinary meaning.  If a statement in context is reasonably susceptible to a nondefamatory meaning, it should be given that meaning.

Truth is a defense to defamation.  The challenged statement doesn’t have to be completely true; it’s enough that it’s ‘substantially true’.  A defamatory statement is also not actionable where it’s subject to a privilege.  Two privileges the law recognizes are absolute and qualified privileges.

Qualified privilege applies where as a matter of law and general policy, the defendant has an interest in or duty to make the communication such that it’s privileged.  A classic example of a qualified privilege statement involves a corporation’s statement made while  investigating an employee’s conduct.

Once a qualified privilege attaches, the plaintiff must prove that the defendant intentionally published the material knowing it was false or displaying a reckless disregard as to it truth.  “Reckless disregard” means the speaker made a statement aware that it’s probably false with serious doubts as to its truth.

Source: Coghlan v. Beck (http://www.state.il.us/court/opinions/AppellateCourt/2013/1stDistrict/1120891.pdf

Greeting Card Giant Wins $30M-Plus Jury Verdict in Trade Secrets Case (8th Cir.)

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In Hallmark Cards, Inc. v. Monitor Clipper Partners, LLC, 2014 WL 3408853 (8th Cir. 2014), the Eighth Circuit affirmed a $31.3M dollar jury verdict in favor of the greeting card giant against a private equity firm that used Hallmark’s confidential market research.

Hallmark hired a consultant to research consumer behavior as it relates to greeting cards.  Hallmark had the consultant sign non-disclosure agreements that strictly prohibited it from sharing the research findings.  The contracts also contained broad consequential damages disclaimers.

Hallmark sued under trade secrets law when it learned the consultant surreptitiously disclosed Hallmark’s data to the defendant who used the data to try to buy a Hallmark competitor.

 The jury awarded Hallmark a more than $30M judgment against the defendant equity firm including $10M in punitive damages.

Held: Verdict affirmed.

Reasons:

Missouri’s trade secrets statute (Mo.Rev.Stat. s. 417.450, 454) broadly defines a trade secret as (1) information, including (2) non-technical data, that’s (3) sufficiently secret to derive monetary value from not being known to competitors and (4) that’s subject to efforts to maintain the information’s secrecy. 

Misappropriation covers both acquisition of and subsequent use of a trade secret and occurs where a defendant (1) acquires a trade secret that defendant knows or has reason to know was obtained by improper means or (2) discloses or uses the trade secret without the secret’s owner’s express or implied consent. (*5).  

The court held that the PowerPoint slides qualified as trade secrets under the statute in view of the lack of market research available in the greeting cards market.  The scarcity of data on the subject led the appeals court to affirm the jury’s finding that the research data compiled for Hallmark met the elements of a protectable trade secret under Missouri law. 

The court also found there was evidence of the defendant’s misappropriation of the trade secrets. (**3-5). 

Upholding the damage award, the court rejected defendant’s argument that Hallmark obtained improper double recovery.  In Missouri, a party can’t recover twice for the same injury.  

Here, the Court found there were two separate injuries: (1) the consultant’s transmission of the secret data to the defendant; and (2) defendant’s (own) use of the market data. (*4).  Since the injuries were separate, Hallmark could recover separate damage amounts for each injury.

Finally, the Court affirmed the $10M punitive damage award.  Punitive damages under Missouri law are allowed where conduct is outrageous, reprehensible and shows an evil motive or reckless indifference to others’ rights. 

Defendant exhibited reckless indifference by its stealthy campaign of document destruction to cover its tracks once Hallmark learned of the defendant’s plan to buy Hallmark’s rival. 

The court found the defendant’s conduct reckless and sufficiently reprehensible to support the punitive damage award.  The Court also noted that the punitive damage award was “only” one-half of the compensatory award and that this damage ratio met due process standards. (*8).

Afterwords:

Even something as nebulous and innocuous as consumer buying trends research in the greeting card market can qualify for trade secret protection (at least in Missouri). 

Hallmark Cards also shows that a trade secrets plaintiff can recover separately for both (1) disclosure of a trade secret and (2) subsequent use by a third party without violating contract law double-recovery restrictions.