The Northern District recently discussed the reach of the apparent agency doctrine along with trade secret abandonment in a spat over a photo album device.
The plaintiff in Puroon, Inc. v. Midwest Photographic Resource Center, Inc., 2018 WL 5776334 (N.D.Ill. 2018), invented the Memory Book, a “convertible photo frame, album and scrapbook” whose key features included embedded magnet technology (to keep pictures in place) and an interchangeable outside view.
The plaintiff sued the defendant photo-album seller when plaintiff learned the defendant was selling a product similar to the Memory Book. Defendant opposed the suit, claiming it independently created the analogous album product. Both sides moved for summary judgment motion on multiple claims.
Apparent Agency
The salient agency issue on plaintiff’s breach of contract claim was whether a third-party who performed manufacturing services for the defendant and to whom the plaintiff sent some photo book samples was the defendant’s apparent agent If so, defendant was potentially liable on plaintiff’s breach of contract claim which asserted defendant went back on its promise to build Memory Book prototypes.
In Illinois, a statement by a purported agent alone cannot create apparent authority. Instead, for apparent authority to apply, the court looks to statements or actions of the alleged principal, not the agent. Once a litigant establishes that an agent has authority to bind a principal, the agents’ statements are admissible as an agent’s statement made within the scope of the agency. See Fed. R. Evid. 801(d)(2)(D)(a statement is not hearsay if offered against opposing party and made by party’s agent or employee on a matter within the scope of that relationship while it existed.) [*5]
Here, there was record evidence that a high-ranking employee of defendant referred to both defendant and the manufacturer as “we” in emails. The court viewed this as creating the impression in a reasonable juror that the manufacturer was an agent of defendant.
Because of this fact question – was the manufacturer the defendant’s agent? – both parties’ summary judgment motions were denied on plaintiff’s breach of contract claim.
Trade Secret Misappropriation
The bulk of the opinion focuses on whether the plaintiff sufficiently established that its Memory Book device qualified for trade secret protection and whether there was enough misappropriation evidence to survive summary judgment. The Court answered (a muted) “yes” on both counts.
The court refused to attach trade secret protection to the Memory Book’s embedded magnets feature; the Court noted that magnets had been used extensively in other photo container products.
The Court did, however, afford trade secret protection to plaintiff’s manufacturing specifications. It found the ‘specs’ secret enough to give plaintiff a competitive advantage. The Court also noted that plaintiff supplied the specs to defendant only after it signed an NDA. This was enough for the plaintiff to take its trade secrets claim to a jury and survive summary judgment.
Trade Secret Abandonment
The Court rejected defendant’s argument that plaintiff abandoned its trade secrets by sending samples to retailers and presenting Memory Book at trade shows.
It stated that the trade show attendees could not have identified the Memory Book’s manufacturing specifications merely by looking at the device or handling a sample. The court also credited plaintiff’s evidence that the album retailers weren’t provided with the Memory Book’s specs. The court opined that “reasonable steps for a two or three person shop may be different from reasonable steps for a larger company” and concluded that “[g]iven the fact that [Plaintiff] is a small, one-person company, a reasonable jury could find that [its] efforts . . . were adequate to protect the Memory Book’s secrets.”
Afterwords:
Corporate entities should not too closely align themselves with third party independent contractors if they wish to avoid contractual liability on an agency theory;
Inventors should make liberal use of NDAs when sending prototypes to vendors, partners or retailers;
A smaller company can likely get away with less strenuous efforts to protect trade secrets than its bigger company counterparts. The larger and more sophisticated the company, the more sedulous its efforts must be to protect its confidential data.