Tag: Misappropriation

Illinois Lawyer’s Practice Management Software Qualifies for Trade Secret Protection

Geraci v. Amidon, 2013 IL App (2d) 120023-U, exhaustively analyzes Illinois trade secrets law in the context of a pitched battle between two competing law firms and their respective practice management software programs. 

The plaintiff, a bankruptcy attorney whose ubiquitous television presence is likely familiar to most Chicagoland viewers, sued a former employee and competing bankruptcy firm under the Illinois Trade Secrets Act, 765 ILCS 1065/1 (ITSA) claiming the former employee pilfered the plaintiff’s secret  practice management software and used it while working for the competing firm. 

Defendants argued that the software was an independent creation of the former employee’s and wasn’t a trade secret.  The trial court granted summary judgment for defendants.

Result: Trial court reversed.

Reasoning:

The Second District held that plaintiff raised a genuine issue of fact on his trade secrets claim sufficient to defeat summary judgment.

An Illinois trade secrets plaintiff must show (1) the existence of a trade secret, and (2) use of that secret by the defendant in the defendant’s business. 

To establish that information is a trade secret, a plaintiff must demonstrate that the information is sufficiently secret to provide economic value to the trade secret’s holder, is not within the realm of general knowledge and skills of a given industry, and that the information can’t be readily duplicated without major time, effort and monetary expense.   ¶ 76; 765 ILCS 1065/2(d). 

A claimed trade secret doesn’t have to rise the level of a protected patent and computer software can qualify as a trade secret under Illinois law. ¶ 77.

The Court held that plaintiff produced sufficient evidence that the software was a trade secret and that defendants used that program in their competing business.

On the “sufficiently secret” trade secrets prong, the Court pointed to plaintiff’s evidence that the software was the first of its kind in the industry and there were no comparable programs when plaintiff developed it in the late 1980s. 

The Court also found that plaintiff’s software had economic value based on plaintiff’s affidavit testimony that the program was the “single most important aspect” of running his law firm and that he developed the software over two decades and at an expense of several million dollars.  Geraci ¶¶ 80, 83.

The Second District also found that plaintiff offered enough evidence that he tried to keep the software secret; citing as examples plaintiff requiring employees to sign confidentiality agreements, preventing employees from taking the software code off-site, password-protecting firm computers and sequestering the firm server in a locked room.  ¶¶ 5-51, 79.  Taken together, these efforts adequately demonstrated plaintiff’s efforts to maintain the software’s secrecy to survive defendants’ summary judgment motion. 

Plaintiff also offered enough evidence that defendants misappropriated the software. program under trade secrets law.  

Misappropriation means disclosure or use of another’s trade secret without express or implied consent.  ¶ 85, 765 ILCS 1065/2(b)(2)(B)(ii).  Plaintiff’s expert witness testified that there were too many similarities between the competing software programs to be a mere coincidence.   The defendant also admitted that he regularly took copies of plaintiff’s program home with him while employed by plaintiff.  This was at least circumstantial evidence of misappropriation to raise a contested fact question for a later trial.  ¶ 96.

Take-aways:  Tedious (at times) technical analysis aside, Geraci provides a thorough synopsis of the key elements and factors which govern the prosecution and defense of a trade secrets case.  The case illustrates the quantum of evidence needed to establish the existence of a trade secret and that it was impermissibly used by a defendant. 

The case also shows how expensive it is to state a colorable trade secrets case and that, at least in the context of warring software programs, how crucial it is to have a computer expert’s testimony to support a trade secrets claim.  Without detailed expert testimony on the similarities between the two competing software programs, it’s clear that plaintiff would have lost his trade secrets claim.

Illinois Trade Secrets and Customer Lists

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Garon Foods v. Montieth, 2013 WL 3338292 (S.D.Ill. 2013), analyzes the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. (ITSA) and the governing preliminary injunctive relief standards in a diversity dispute over the distribution of pepper jack cheese products.

The plaintiff peppers distributor sued a former employee after she resigned and went to work for one of plaintiff’s suppliers.  The distributor sued for breach of contract and violation of the ITSA and claimed the defendant was violating a confidentiality agreement by soliciting business from plaintiff’s customers. After filing its complaint, plaintiff requested a preliminary injunction barring defendant from using plaintiff’s confidential information or trade secrets in connection with soliciting business from various cheese manufacturers.

Held: Preliminary injunction granted in part.

Rules/Reasoning:

A preliminary injunction claimant must show: (1) a likelihood of success on the merits; (2) no adequate remedy at law; and (3) irreparable harm if injunction is not granted.  Once plaintiff establishes elements (1)-(3), the court balances the harms to both parties.  If the court finds that plaintiff has a greater chance of winning on the merits, the less the balance of harms must weigh in his favor.  *1

– Illinois courts will enforce a confidentiality agreement where the information is truly confidential and the subject of reasonable efforts to keep the information secret;

– Customer lists are treated as confidential only where the list’s contents are developed by an employer at great time and expense and kept under tight security;

– Where the customer list is generally accessible by third parties or can be easily reconstructed or duplicated, it’s not confidential. 

Here, since the defendant offered evidence that the manufacturers she contacted in her new position were through her internet research efforts and memory (and not by resorting to plaintiff’s physical customer list), the court found that it wasn’t likely that the plaintiff could show that its customer list was sufficiently confidential.  *4-5. 

The Court did find though that the defendant violated the confidentiality agreement by divulging the plaintiff’s key supplier’s identity (by providing unique product specs information in sales pitches) and by using plaintiff’s customers’ past purchasing history in soliciting business from those customers.  *5. 

On the ITSA claim, the court found that  plaintiff established two trade secrets: (1) the supplier’s identity (to third parties) and (2) its customers’ purchasing needs and sales histories.  

The Court also found that defendant misappropriated (used) plaintiff’s trade secrets by revealing plaintiff’s supplier’s identity and secret product data by sending plaintiff’s product specs to plaintiff’s customers in efforts to induce them to do business with the new employee. 

The Court crafted an 8 month preliminary injunction during which time the defendant was forbidden to contact certain customers of the plaintiff.  *7-8. 

Conclusion.  Garon provide a good synopsis of preliminary injunction standards and some Illinois trade secrets law basics. The case reaffirms how difficult it is for an employer to enforce a restrictive covenant in the context of an employee confidentiality agreement and to show that its customer list merits trade secret protection. 

The case also serves as a good example of a court balancing the harms and considering public interest factors in connection with drafting an injunction that gives equal voice to the countervailing interests of an employer (protecting its confidential business data), a former employee (the ability to make a living) and the general public (free and open business competition).