Illinois Court Examines Trade Secrets Act and Inevitable Disclosure Doctrine In Suit Over Employee Wellness Health Program

The plaintiff workplace wellness program developer sued under the Illinois Trade Secrets Act in Destiny Health, Inc. v. Cigna Corporation, 2015 IL App (1st) 142530, alleging a prospective business partner pilfered its confidential data.

Affirming summary judgment for the defendants, the First District appeals court asked and answered some prevalent trade secrets litigation questions.

The impetus for the suit was the plaintiff’s hoped-for joint venture with Cigna, a global health insurance firm.  After the parties signed a confidentiality agreement, they spent a day together planning their future business partnership.  The plaintiff provided some secret actuarial and marketing data to Cigna to entice the firm to partner with plaintiff.  Cigna ultimately declined plaintiff’s overtures and instead teamed up with IncentOne – one of plaintiff’s competitors.  The plaintiff sued and claimed that Cigna incorporated many of plaintiff’s program elements into Cigna’s current arrangement with IncentOne.  The trial court granted Cigna’s motion for summary judgment and plaintiff appealed.

Held: Affirmed.

Rules/Reasons:

On summary judgment, the “put up or shut up” moment in the lawsuit, the non-moving party must offer more than speculation or conjecture to beat the motion.  He must point to evidence in the record that support each element of the pled cause of action.  In deciding a summary judgment motion, the trial court does not decide a question of fact.  Instead, the court decides whether a question of fact exists for trial.  The court does not make credibility determinations or weigh the evidence in deciding a summary judgment motion.

The Illinois Trade Secrets Act (765 ILCS 1065/1 et seq.) provides dual remedies: injunctive relief and actual (as well as punitive) damages for misappropriation of trade secrets.  To make out a trade secrets violation, a plaintiff must show (1) existence of a trade secret, (2) misappropriation through improper acquisition, disclosure or use, and (3) damage to the trade secrets owner resulting from the misappropriation. (¶ 26)

To show misappropriation, the plaintiff must prove the defendant used the plaintiff’s trade secret.  This can be done by a plaintiff offering direct (e.g., “smoking gun” evidence) or circumstantial (indirect) evidence.  To establish a circumstantial trade secrets case, the plaintiff must show (1) the defendant had access to the trade secret, and (2) the trade secret and the defendant’s competing product share similar features.  (¶ 32)

Another avenue for trade secrets relief is where the plaintiff pursues his claim under the inevitable disclosure doctrine.  Under this theory, the plaintiff claims that because the defendant had such intimate access to plaintiff’s trade secrets, the defendant can’t help but (or “inevitably” will) rely on those trade secrets in its current position.  However, courts have made clear that the mere sharing of exploratory information or “preliminary negotiations” doesn’t go far enough to show inevitable disclosure.

Here, there was no direct or circumstantial evidence that defendant misappropriated plaintiff’s actuarial or financial data.  While the plaintiff proved that defendant had access to its wellness program components, there were simply too many conceptual and operational differences between the competing wellness programs to support a trade secrets violation.  These differences were too stark for the court to find misappropriation. (¶ 35)

Plaintiff also failed to prove misappropriation via inevitable disclosure.  The court held that “[a]bsent some evidence that Cigna [defendant] could not have developed its [own] program without the use of [Plaintiff’s] trade secrets,” defendant’s access to plaintiff’s data alone was not sufficient to demonstrate that defendant’s use of plaintiff’s trade secrets was inevitable.  (¶¶ 40-42).

Afterwords:

A viable trade secrets claim requires direct or indirect evidence of use, disclosure or wrongful acquisition of a plaintiff’s trade secrets;

Access to a trade secret alone isn’t enough to satisfy the inevitable disclosure rule.  It must be impossible for a defendant not to use plaintiff’s trade secrets in his competing position for inevitable disclosure to hold weight;

Preliminary negotiations between two businesses that involve an exchange of sensitive data likely won’t give rise to an inevitable disclosure trade secrets claim where the companies aren’t competitors and there’s no proof of misappropriation.  To hold otherwise would stifle businesses’ attempts to form economically beneficial partnerships.

 

Preliminary Injunctions and The Illinois Trade Secrets Act

Trade secrets cases provide fertile grounds for preliminary injunctions and temporary restraining orders.  Here are the black-letter basics:

– A preliminary injunction plaintiff must show: (1) irreparable harm, (2) likelihood of success on the merits, (3) the harm the plaintiff would suffer if the injunction is denied is greater than the harm inflicted on the defendants and (4) the injunction is in the public interest;

– To win a trade secrets case, the plaintiff must establish (1) that the information at issue is a trade secret, and (2) that the information was misappropriated and used in the defendant’s business;

– A trade secret is broadly defined as “information” that is (a) sufficiently secret to derive monetary value from not being generally known to others (who can obtain monetary value from its use); and (b) subject of efforts to maintain the information’s secrecy or confidentiality. See Illinois Trade Secrets Act, 760 ILCS 1065/2 (the ITSA);

– Six common-law trade secrets factors include

(1) extent to which the information is known outside of plaintiff’s business,

(2) extent to which the information is known by employees and others involved in plaintiff’s business;

(3) extent of measures taken by plaintiff to guard the information’s secrecy;

(4) value of the information to the plaintiff’s business and its competitors;

(5) the amount of time, effort and money expended by the plaintiff in developing the information; and

(6) the ease or difficulty with which the information could be properly acquired or duplicated by others;

– Misappropriation means acquisition or discovery by improper means or use of the secret;

– There is a presumption of irreparable harm in trade secrets misappropriation cases;

– Irreparable injury means harm that is difficult to quantify;

– The purpose of a preliminary injunction (in the trade secrets context) is not to punish; but to eliminate a litigant’s unfair advantage over another.

 

 

 

  

 

 

 

 

 

 

 

 


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.