RECENT DEVELOPMENTS IN TRADE SECRETS LAW (1994-1996)

PART II

R. Mark Halligan, Esq.

THE TRADE SECRETS HOME PAGE

mhallign@execpc.com Last Revision Date: 12/16/96

COPYRIGHT 1995-1996 R. MARK HALLIGAN, ESQ.

1. Ackerman v. Kimball International, Inc., 1995 Ind. LEXIS 101 (Sup. Ct. Indiana July 12, 1995).Supreme Court of Indiana issues opinion to clarify certain rulings by Indiana Appellate Court in Ackerman v. Kimball Indus., Inc., 634 N.E.2d 778 (Ind. App. 1994).
   Ackerman was employed by Kimball in 1994 and he signed an employment agreement with both non-disclosure and non-compete provisions. Ackerman worked his way up to Executive Vice-President but in 1992 he was demoted to General Manager.
   Ackerman then interviewed for new employment with one on Kimball's direct competitors (Genwove) in the wood veneer market. Ackerman was thereafter terminated by Kimball.
   A few days after his termination, Kimball learned that Ackerman had requested Kimball's customer and supplier lists the day prior to his termination and Kimball sought a temperory restraining order and preliminary injunction to prohibit Ackerman's employment with Genwove. After a hearing, the trial court enjoined Ackerman from accepting direct or indirect employment with Genwove for a period of one year.
   On interlocutory appeal, the Indiana Supreme Court clarified the decision of the Indiana Court of Appeals to make it clear that the absence of a geographical limitation in a non-competition provision is only one factor to be considered in ruling upon the reasonableness of a covenant-not-to-compete provision. The proper test is whether the lack of geographical limitation-together with all the other provisions of the restrictive covenant-are reasonably necessary to protect the employer, not unreasonably restrictive of the employee, and not against public policy.
   The Indiana Supreme Court affirmed the entry of injunctive relief against Ackerman under the Indiana Trade Secrets Act because the trial court specifically found that "Ackerman's pre-departure harvesting of Kimball's proprietary information" constituted "threatened misappropriation" under the Indiana Trade Secrets Act:
   We think on the facts of this case, enjoining Ackerman from working for Kimball's competitors for a year was arguably necessary to meet the threat of disclosure of Kimball's trade secrets. Were the trial court not permitted, on facts such as these, to enjoin Ackerman for a limited period from being employed by any of Kimball's competitors, Kimball might, under the Trade Secrets Act, have a right without a remedy. We cannot believe that this is what the legislature intended, and we cannot say, consequently, that the trial court abused its discretion in issuing its injunction.
   COURT MAY ENJOIN ACCEPTANCE OF EMPLOYMENT WITH COMPETITOR TO PREVENT THE "THREATENED" MISAPPROPRIATION OF TRADE SECRETS.
2. Janex Oil Co., Inc. v. Hector Operating Inc., 1995 U.S. Dist. LEXIS 12982 (USDC E.D. LA. September 6, 1995). Janex sued Defendants alleging misappropriation of Janex's trade secrets disclosed during negotiations involving mineral leases owned by Janex.
   Both sides asserted claims for attorneys fees under the Louisiana [Uniform] Trade Secrets Act. Janex claims attorney's fees because the alleged misappropriation was "wilful." Defendants claim attorney's fees alleging that Janex acted in "bad faith" by bringing this lawsuit for trade secret misappropriation because the evidence on the merits will show that (1) there were no trade secrets and (2) that there was no "misappropriation" as that term is defined by the statute.
   Janex filed a motion for "partial" summary judgment for a Court ruling that Plaintiff's complaint was not brought in "bad faith." The Court refused to rule on this issue as a matter of law finding that there is a genuine issue of material fact, citing International Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1265 (5th Cir. 1991) (cases which turn on the party's "state of mind" are not well-suited for summary judgment).
   "BAD FAITH" CLAIM FOR MISAPPROPRIATION OF TRADE SECRETS IS A QUESTION OF FACT.
3. Moridge Manufacturing, Inc. v. WEC Company, 1995 U.S. Dist. LEXIS 12728 (USDC D. Kansas August 3, 1995). Breach of contract/trade secret misappropriation action. Moridge manufactured "ride-on" turf tractors for sale by Defendant. Thereafter, Defendant entered the market with its own "Mow'n Machine" ride-on turf tractor.
   Defendant moved to dismiss Plaintiff's trade secret misappropriation claims pursuant to Rule 12(b)(6). A complaint may not be dismissed for failure to state a claim upon which relief may be granted unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Applying this standard, the trial court summarily denied Defendant's motion to dismiss Plaintiff's trade secret misappropriation claims and granted Plaintiff's motion to amend the complaint to allege additional facts to support its claims for violation of the Kansas Uniform Trade Secrets Act.
   MOTION TO DISMISS TRADE SECRET MISAPPROPRIATION CLAIM SUMMARILY DENIED.
4. Schinzing v. Stenberg Welding & Fabricating, 1995 Minn. App. LEXIS 1119 (Ct. App. Minn. August 29, 1995). In 1988, Walter Schinzing, the inventor of a wheelchair washer, hired Stenberg Welding to build a prototype. Stenberg signed a confidentiality agreement.
   In June, 1992, Stenberg entered into an agreement with Dakota Laundry Equipment and its subsidiary Wheel-Ease to build a wheelchair washer. Schinzing thereafter sued Stenberg Welding and Wheel-Ease for trade secret misappropriation.
   At trial, the Court granted a direct verdict for Wheel-Ease because there was no evidence that Wheel-Ease knew about the confidentiality agreement. A jury verdict was returned against Stenberg and the jury awarded Schinzing $160,000 in damages.
   Appellate Court affirms in all respects. The Minnesota Court of Appeals rejects the argument that the confidentiality agreement was too vague to be enforceable: "Stenberg signed the confidentiality agreement simultaneously with the discussion about the wheelchair washer invention and had fair notice of what constituted confidential information."
   JURY VERDICT FOR MISAPPROPRIATION OF INVENTOR'S TRADE SECRETS IN WHEELCHAIR WASHER.
5. FMC Corporation v. Cyprus Foote Mineral Company, 899 F.Supp. 1477 (W.D.N.C. September 20, 1995). FMC and Foote are the only two producers of battery-quality lithium products in the United States. They are head-to-head competitors in the marketplace.
   Fickling was a key FMC metallurgical engineer who was "instrumental in inventing or developing many of FMC's current technologies." Fickling began his career with Lithium Corporation which was acquired by FMC in 1985. Between 1990 and 1994, FMC laid off a number of engineers and technical employees. Fickling was the only former employee of Lithian still employed in his department at FMC.
   On July 10, 1995, Fickling resigned his position at FMC and went to work for Foote as a development engineer in the same general areas that
   he worked while he was an employee of FMC. Fickling has signed a non-disclosure agreement while employed by FMC.
   FMC brought an action for breach of contract and for violation of North Carolina's Trade Secret Protection Act seeking to enjoin Fickling from performing any research and development work in seven general areas relating to battery-quality lithium products.
   The Court denied the motion for a preliminary injunction because FMC had not come forward with evidence establishing "the precise nature of its trade secrets." Further, the Court found that FMC has not presented sufficient evidence that it processes are trade secrets.
   "In short FMC asserts that it has trade secrets that implicate about every stage in the production of battery-quality lithium metals. But the evidence offered in support of those assertions is very general, and FMC seeks an injunction that effectively precludes Fickling from doing any work in his general area of expertise."
   The Court refused to apply the "inevitable disclosure" doctrine under these factual circumstances. To hold otherwise, the Court reasoned, no employee could ever work for its former employer's competitor on the theory that disclosure of confidential information is "inevitable."
   The Court noted that Fickling had a great deal of general skill and knowledge as an engineer who had worked for 14 years in the area of lithium production. Reviewing North Carolina case law, the Court noted that an employee will not be enjoined from working for its former employer's competitor under the "inevitable disclosure" doctrine absent some showing of "bad faith, underhanded dealing, or employment by an entity so plainly lacking comparable technology that misappropriation can be inferred."
   INEVITABLE DISCLOSURE DOCTRINE NOT APPLICABLE ABSENT SPECIAL CIRCUMSTANCES
6. Economy Roofing & Insulating Co. v. Zumoris, 538 N.W.2d 641 (September 20, 1995) The former president (son) and his mother terminated their employment with the family business (Economy Roofing) and started a competing business, Roofing Technologies, Inc.
   A lawsuit ensued for (1) breach of fiduciary duties, (2) intentional interference with contractual and business expectancies and (3) violation of the Iowa Trade Secrets Act.
   A motion for preliminary injunction based on the trade secrets claim was denied and the case proceeded to a full trial on the merits. Prior to the jury trial, the Defendant filed a motion in limine to bar the trade secrets claim because the previous motion for a preliminary injunction had been denied. The alleged trade secrets included customer information, pricing lists, bid information, profit margins, supply cost information, and other types of confidential information which the Defendants had access to in the Company's computer. The Court granted the motion in limine.
   The Iowa Supreme Court reversed. Citing its previous decision in US West Communications, Inc. v Office of Consumer Advocate, 498 N.W.2d 711, 714 (Iowa 1993), the Court stated:
   Trade secrets can range from customer information, to financial information, to information about manufacturing processes to the composition of products. There is virtually no category of information that cannot, as long as the information is protected from disclosure to the public, constitute a trade secret. We believe that a broad range of business data and facts which, if kept secret, provide the holder with an economic advantage over competitors or others, qualify as trade secrets.
   The Court reversed the trial court because of the trial court's ruling on the preliminary injunction was not dispositive of whether the information in the computer was a trade secret. A denial of a temporary injunction does not deprive the plaintiff of the right to a trial on the merits or the petition seeking a permanent injunction, nor is it an adjudication against such a right. PlAINTIFF ENTITLED TO A TRIAL BY JURY ON TRADE SECRET CLAIMS.
7. TODD NOAH AND NOAH'S ART, INC. V. ENESCO CORPORATION, 1995 U.S. Dist. Lexis 13965 (ND.Ill. September 25,1995).Todd Noah is an artist who created several hand-made figurines called "[New] Beginnings" based upon his interpretation of the Biblical Noah's Ark story.
   Noah established Noah's Art, Inc. to market the figurines.
   In December, 1991, Noah contacted Enesco, the country's largest marketer of giftware, in an attempt to negotiate a licensing agreement. Enesco signed a nondisclosure agreement and sent Noah a draft license.
   In January of 1992, Noah sent Enesco more detailed figurines. Enesco then shipped the figurines overseas for development of preproduction samples and costing. Pursuant to a written agreement, the parties understood that the final decision to license and produce the figurines was at Enesco's sole discretion.
   After the samples were made, Enesco exhibited them at its fall 1993 "Pre-Show" trade show. At the same time, Enesco Precious Moments line also introduced a new line based on Noah's Ark called the "Two by Two" collection.
   There was only minimal customer orders for Noah's figurines and Enesco decided not to pursue a license. Noah, charging both fraud and trade secret misappropriation, sued Enesco alleging that Enesco incorporated his unique concept into the "Two by Two" collection.
   The district court (Judge Charles P. Kocoras) granted Enesco's Motion for Summary Judgment. The Court rejected Noah's "duty to disclose" fraud count concluding that there was no fiduciary or other special relationship creating such a duty.
   With respect to the trade secret misappropriation claim, the Court found that the Plaintiff had disclosed his theme of Ark animals interacting with each other as they descended the Ark to other giftmarkers before he presented his "New Beginnings" concept to Enesco. Thus, the Court found that "this evidence negates Noah's contention that his concept was new and not generally known to those in the industry." Thus, Noah's concept is not a trade secret and this obviates the need to decide the misappropriation claim.
   PRODUCT IDEA SUBMISSION CASE DISMISSED ON MOTION FOR SUMMARY JUDGMENT; NO TRADE SECRET.
8. Religious Technology Center v. Lerma, 1995 U.S. Dist. Lexis 17833 (E.D. Va. November 28, 1995). The Church of Scientology sued Steven Fishman, a disgruntled former member of the Church of Scientology, in the United States District Court for the Central District of California.
   Fishman filed a 69-page affidavit describing various Advanced Technology ("AT") works that the Religious Technology Center ("RTC") argues are protected from both unauthorized use and unauthorized disclosure under the copyright law of the United States and under the trade secret laws.
   However, the motion to seal the Fishman affidavit was denied and affirmed by the Ninth Circuit in Church of Scientology Int'l v. Fishman, 35 F.3d 570 (9th Cir. 1994).
   Defendant Lerma, another former Scientologist, obtained a copy of the Fishman affidavit and the attached AT documents and on July 31 and August 1, 1995 published the AT documents on the Internet through defendant Digital Gateway Systems. RTC, which regularly scans the Internet, discovered the publication of documents and obtained a TRO prohibiting Lerma from any further publication of the documents and a seizure warrant that authorized the U.S. Marshal to seize Lerma's personal computer, floppy disks and any copies of the copyrighted works of L. Ron Hubbard, the author of the AT documents.
   During the same period, Lerma sent a hard copy of Fishman's affidavit and AT attachments to the Washington Post. RTC discussed this disclosure, approached the Washington Post, and the Post [was] told that the Fishman affidavit might be stolen.
   On August 14, 1995, the Post sent a news aide in California to the Clerk's office to obtain a copy of the Fishman affidavit. The Clerk's office made a copy. The next day, August 15, 1995, the RTC filed a Motion to seal the file and the trial judge ordered the file sealed.
   On August 19, 1995, the Washington Post published a news article: "Church in Cyberspace: Its Sacred Writs is on the Net. Its Lawyers are on the Case."
   The court granted summary judgment in favor of The Washington Post on both the copyright and trade secret claims.
   With respect to the copyright infringement claim, the Court granted attorneys' fees because the context and extent in which The Post copied and quoted from the AT documents was so de minimis that the Court finds that no reasonable copyright holder could have in good faith brought a copyright infringement action.
   With respect to the trade secret misappropriation claim, the Court concluded that the AT documents were no longer trade secrets by the time the Post acquired them. The Fishman affidavit had been in the Clerk's files from April 14, 1993 until August 15, 1995, for a total of 29 months. The Post was able to obtain a copy of the Fishman affidavit without any difficulty by merely asking the Clerk of Courts to copy it. Further, for more than 10 days, the documents were potentially available to millions of Internet users around the world.
   The Court cited Religious Technology Centers v. Netcon On-Line Communications, Inc., No. C-95-20091 (N.D. Calif., September 22, 1995) that "posting works to the Internet makes them 'generally known' at least to the relevant persons interested in the new group." Once a trade secret is posted on the Internet, it is effectively part of the public domain, impossible to retrieve. Although the person who originally posted the trade secret on the Internet may be liable for trade secret misappropriation, the person who merely downloads Internet information cannot be liable for trade secret misappropriation because there is no misconduct involved in interacting with Internet.
   Because there is no evidence that the Post abused any confidence, committed impropriety, violated any court order or committed any other improper act in gathering information from the court file or downloading information from the Internet, there is no possible liability for the Post in its acquisition of the information.
   PUBLICATION OF TRADE SECRET INFORMATION ON THE INTERNET MAY DESTROY TRADE SECRET STATUS.
9. Burlington Industries, Inc. v. Palmetto Spinning Corp., et al., 1996 U.S. App. LEXIS 1284 (4th Cir. January 31, 1996). From 1989-1991, Burlington developed the "Spectra" machine for manufacturing space-dyed yarn for use in rugs. Three former employees of Burlington formed a new corporation (BVA) in 1992 and began selling space-dyed yarn machines. On August 25, 1993, Burlington sued BVA for trade secret misappropriation and thereafter the U.S. District Court for the Eastern District of Kansas on September 22, 1994 held that the Spectra machine was a trade secret, that BVA's machines constituted a misappropriation of Burlington's trade secrets, and enjoined BVA from further use of the trade secret.
   On May 11, 1995, Burlington sued Palmetto and Color-Fi in this action for misappropriation of trade secrets in violation of South Carolina's Uniform Trade Secrets Act. Palmetto had acquired a space-dyed yarn machine from BVA prior to the trade secret misappropriation suit against BVA.
   The Court of Appeals for the Fourth Circuit finds that Palmetto and Color-Fi are not collaterally estopped from litigating whether their machine is a Burlington trade secret. The collateral estoppel doctrine does not apply without "privity". The mere fact that Palmetto "knew" that Burlington was about to sue BVA for trade secret misappropriation when it received its space dyed yarn machine is an insufficient basis for finding that Palmetto was in privity with BVA. PARTY CAN RELITIGATE TRADE SECRET ISSUES; NO COLLATERAL ESTOPPEL WITHOUT PRIVITY.
10. BVA.Buffets, Inc. v. Klinke, 1996 U.S. LEXIS 436 (9th Cir. January 16, 1996) Plaintiff ("Old County Buffets"-OCB) sued Defendant ("Granny's Buffet Restaurant) for trade secret misappropriation of (1) recipes and (2) job manuals.
    Following a bench trial, the trial court found that the recipes and job manuals were not trade secrets. The Ninth Circuit affirms.
    (1) Recipes. The trial court found that the recipes were not trade secrets because they were "readily ascertainable" and very little effort was required to "discover" them. The trial court also found that the recipes had no "independent economic value" because OCB had not proven that its food offerings was "superior in quality to that of its rivals." In other words, there was no demonstrated relationship between the lack of success of OCB's competitors and the unavailability of the recipes, i.e., OCB failed to provide any evidence that it necessarily derived any economic benefit from the recipes being kept secret. Further, the recipes were simplified because of "the limited reading skills of its cooks" which further weighed against any finding of economic value.
    (2) Job Manual. Reasonable measures were not taken to protect the job manuals as trade secrets. Employees were not advised of the manuals' status as secrets, nor of security measures that should be taken to prevent their being obtained by others. "Thus, while it may have been reasonable to conclude that OCB obtained value from the manuals, there is little to suggest that any value was obtained from the manuals being kept secret." TRADE SECRET STATUS REQUIRED A SHOWING OF INDEPENDENT ECONOMIC VALUE DERIVED FROM SECRECY.
11. Inorganic Coatings, Inc. v. Falberg, 1996 U.S. Dist. LEXIS 937 (E.D. Pa. February 1, 1996). Inorganic Coatings, Inc. ("ICI") was formed in 1983 after it obtained a sub-licensing agreement to make zinc-silicate coatings pursuant to a patent owned by NASA. ICI then entered into a "Disclosure Agreement" with Polyset to manufacture the coatings. Between 1983 and 1990, Polyset manufactured 90,000 gallons of coatings for ICI. In 1990, ICI decided to begin manufacturing the coatings itself and the relationship between ICI and Polyset ended. At issue, in this case, is trade secret ownership rights in improvements and/or refinements in the manufacturing process for these coatings. IDI cited Computer Associates International, Inc. v. American Fundware, Inc., 831 F.Supp. 1516 (D. Colo. 1993) for the proposition that "when disclosures of a confidential nature are made to an employee or independent contractor hired to facilitate the development of a product or process, all trade secrets created out of that process are the exclusive property of the employer." Id. at 1524.
    Polyset denies that it was specifically hired by ICI "to facilitate the development of a manufacturing process" for these coatings and therefore Polyset owns the trade secret rights in these improvements and refinements in the manufacturing process.Trial court (upon reconsideration) finds that this is a question of fact for the jury and denies ICI's Motion for Summary Judgment.
    TRADE SECRET OWNERSHIP RIGHTS IN IMPROVEMENTS IN MANUFACTURING PROCESS QUESTION OF FACT FOR JURY.
12. J.H. Chapman Group, Ltd. v. Norman Chapman d/b/a The Chapman Group, 1996 U.S. Dist. LEXIS 899 (N.D. Ill. January 30, 1996).Plaintiff ("J.H. Chapman Group") sued Defendants for trademark infringement and misappropriation of trade secrets ("customer list").
    Upon a motion for preliminary injunction, District Judge Suzanne B. Conlon found that J.H. Chapman Group had failed to demonstrate a likelihood of success on its trade secrets claim because (1) the evidence fails to show other persons can obtain economic value from the disclosure or use of J.H. Chapman Group's customer list; (2) the evidence fails to show J.H. Chapman Group's customer list derived economic value from secrecy; (3) the evidence fails to show J.H. Chapman made reasonable efforts to keep its customer list secret. Evidence that the J.H. Chapman customer list was "not publicly available", -- without more-was held to be insufficient evidence to establish the existence of a trade secret. INSUFFICIENT EVIDENCE TO ESTABLISH THAT A "CUSTOMER LIST' WAS A TRADE SECRET.
13. Flavorchem Corp. v. Mission Flavors and Fragrances, Inc., 1996 U.S. Dist. LEXIS 730 (N.D. Ill. January 23, 1996) Flavorchem (an Illinois corporation) sued ex-employee Patrick Imburgia for misappropriation of certain flavor formulas from Flavorchem. Patrick Imburgia moved to California and formed a company called Mission Flavors and Fragrances, Inc. ("Mission Flavors") which has allegedly used the misappropriated flavor formulas.The Illinois Trade Secrets Act has a 5-year statute of limitations for trade secret misappropriation; the California Trade Secrets Act has a 3-year statute of limitations.The issue was which statute of limitations applies.
    In a diversity suit, the district court applies the choice-of-law rules of the state in which the Court sits. Klaxon v. Stentor Electronic Mfg Co., 313 U.S. 487, 61 S. Ct. 1020 (1941).Illinois follows the "most significant contacts" approach in tort claims. See RESTATEMENT (SECOND) of Conflicts of Law §145: (1) the place where the injury occurred; (2) the place where the conduct causing the injury occurred; (3) the domicile, residence, nationality, place of incorporation and place of business of the parties; and (4) the place where the relationship, if any, between the parties is centered. Analyzing these factors, the Court found that Factors 1, 2 and 4 favor Illinois, Factor 3 is a "split" because Flavorchem is an Illinois corporation and Mission Flavors is a California corporation. Court holds Illinois law applies under "most significant contracts" test. Court distinguishes C&F Packing, Inc. v. IBP, Inc., 1994 U.S. Dist. LEXIS 973 (N.D. Ill. January 26, 1994) because in C&F Packing, "plaintiff voluntarily conveyed its secret sausage making process to defendants pursuant to an arms-length business agreement." Alternatively, since Illinois Courts consider a statute of limitations to be "procedural" (affecting only the remedy available and not the substantive rights), the Illinois statute of limitations should apply to this case brought in an Illinois forum. CHOICE OF LAW/STATUTE OF LIMITATIONS/TRADE SECRETS CASE
14. Geritrex Corporation v. DermaRite Industries, 1996 U.S. Dist. LEXIS 277 (S.D.N.Y. January 10, 1996). Plaintiff (Geritrex) sued two former employees (DermaRite) inter alia for trade secret misappropriation of (1) information relating to Plaintiff's manufacturing process and product formulas for personal hygiene and cleansing products; (2) customer list; (3) pricing information.With respect to plaintiff's manufacturing process and product formulas, the Court found a lack of substantial measures to keep the information secret because Plaintiff had not produced convincing evidence that any of the employees involved in production-from the operations director and the plant manager down to the batch workers who actually mixed the products signed Confidentiality Agreements prior to September, 1995. The batch cards were not stamped confidential and there was no procedure for destroying batch cards or preventing employees from taking batch cards home.
    With respect to the alleged misappropriation of Geritrex's customer list and price information, the trial court found that the evidence was insufficient to establish actual use of any such alleged misappropriated information. The evidence established that only 12 of DermaRite's two largest customers were accounting for 60% of sales; DermaRite's two largest customers were never Geritrex customers. Further, balancing the equities, the effect of a preliminary injunction on DermaRite, a fledgling company with only 35 customers, would be devastating. Motion for preliminary injunction denied. SECURITY MEASURES ARE NECESSARY FOR BATCH CARDS TO PROTECT TRADE SECRETS IN PRODUCT FORMULAS AND MANUFACTURING PROCESSES.
15. Flexible Technologies, Inc. v. World Tubing Corp., 1996 U.S. Dist. LEXIS 283 (January 10, 1996). Flexible sued ex-employees who had set up World Tubing Corp. for trade secret misappropriation. Flexible is a South Carolina corporation which has sold vacuum hoses for 40 years.The injunction proceeding arose because World Tubing Corp. was going to ship its hose-making machine outside the United States to Scotland. The Court found that Flexible had established a likelihood of success on the merits inter alia because of the "striking similarity" between Flexible's and World Tubing's hoses.Further, the balance of hardship weights decidedly in Flexible's favor. World Tubing states that its seeks to move the machine to Scotland to save labor costs. Flexible, on the other hand, argued that the World Tubing machine incorporates its trade secrets and is about to be shipped out of the country resulting in the loss of its trade secrets forever.
    "STRIKING SIMILARITY" BETWEEN PRODUCTS IS EVIDENCE OF TRADE SECRET MISAPPROPRIATION.
16. Slijepcevich v. Caremark, Inc., 1996 U.S. Dist. LEXIS 110 (N.D. Ill. January 8, 1996).Plaintiff Walter Slijepcevich worked as a manager for Caremark, a company that specializes in mail order prescriptions. In September, 1995, he quit Caremark and became general manager of the mail order facility at Caremark's competitor, Eckerd Corporation ("Eckerd").After Caremark threatened to sue Plaintiff for violation of his employment agreement, Slijepcevich brought this declaratory judgment action. Caremark in turn filed a counterclaim for trade secret misappropriation and filed a motion for a temporary restraining order. Motion for temporary restraining order denied.
    Caremark's alleged trade secrets were "specific therapies" characterized as "cost-effective recommendations not generally known in the pharmaceutical industry." Caremark persuades physicians to agree to a less costly generic or alternative form of treatment. Pharmacists review individual prescription profiles to determine whether there is a cheaper form of treatment. At oral argument, it became apparent that comparable information regarding drug interaction and alternative medications can be obtained from the physician dispensing register ("PDR"). "What Caremark cryptically refers to as 'specific therapies' is nothing more than a practical, cost conscious application of basic knowledge of pharmaceuticals." Slijepcevich was a licensed pharmacist with professional training in drug treatment when he was hired by Caremark. The alleged trade secrets fall "within the realm of general skills and knowledge" and are not protectable trade secrets. TRO FOR TRADE SECRET MISAPPROPRIATION DENIED.
17. Smithfield Ham & Products Company, Inc. v. Portion Pac, Inc., 905 F.Supp. 346 (E.D. Va. November 27, 1995).Plaintiff (Smithfield) contracted with Defendant (PPI) to manufacture and package barbecue and horseradish sauces for resale by Smithfield to restaurant chains. Plaintiff sued PPI alleging that PPI misappropriated a proprietary recipe for Smithfield's James River brand barbecue sauce and used that sauce to persuade one of Smithfield's longtime customers ("Flagstar") to contract directly with PPI for its future barbecue and horseradish sauce requirements.Smithfield's Complaint alleged inter alia (1) violations of the Virginia Uniform Trade Secrets Act, (2) tortious interference with contractual relations, and (3) tortious interference with present and prospective contractual relations.
    The issue before the Court was whether the "tortious interference" claims were pre-empted by the Virginia Uniform Trade Secrets Act ("VUTSA").The Court held that the "tortious interference" claims were not preempted by the VUTSA because "Smithfield could lose its misappropriation claim yet still recover for tortious interference." The plain language of the VUTSA preemption language is to prevent inconsistent theories of relief for the same underlying harm by eliminating alternative theories of common law recovery which are premised on the misappropriation of a trade secret. Here, even if the trier of fact believes the sauce was developed independently, given PPI's knowledge of Smithfield's relationship with Flagstar, and Flagstar's interest in the Smithfield sauce, the exploitation of that knowledge through the direct solicitation of Flagstar might still constitute tortious interference with contractual relations."TORTIOUS INTERFERENCE" CLAIMS NOT PREEMPTED BY VIRGINIA UNIFORM TRADE SECRETS ACT.
18. Rowe Oil, Inc. v. McCoy, 1995 Banke LEXIS 1695 (November 6, 1995).Plaintiff Rowe Oil, Inc. sued its ex-employee Harriet E. McCoy for trade secret misappropriation of customer lists and obtained a judgment for $1,226.67 in damages and $31,356.62 in attorney's fees. McCoy (Debtor) thereafter filed bankruptcy under Chapter 7 of the Bankruptcy Code, listing Plaintiff as an unsecured creditor.
    11 USC § 523 of the Bankruptcy Code sets forth the following exceptions to discharge:
    (a) A discharge under section 727, 1141, 1228[a] 1228(b), or 1328(b) of this title does not discharge an individual from any debt-
    (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by-
    (A) false pretense, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition;
    (4) for fraud or defalcation while acting in a fiduciary capacity,embezzlement or larceny; (6) for willful and malicious injury
    by the debtor to another entity or to the property of anotherentity.The Court finds that the trade secrets debt is not dischargeable under both Sections 523(a)(4) and 523(a)(6) above. Trade secret misappropriation falls within the meaning of "larceny" in Section 523(a)(4). Further, misappropriation of trade secrets constitutes willful and malicious injury, as set forth in Section 523(a)(6) where, as here, attorney's fees were awarded to Plaintiff which requires a showing of malice under Ohio law. JUDGMENT FOR TRADE SECRET MISAPPROPRIATION NONDISCHARGEABLE IN BANKRUPTCY.
19. .Thomas v. Alloy Fasteners, Inc., 664 So.2d 59 (Ct. App. Fla. December 8, 1995)Trial court granted temporary injunction for misappropriation of confidential order edit lists and Plaintiff appealed because there was no evidence that Plaintiff "used" the order edit lists to solicit customers.The Florida Court of Appeals held that "actual or threatened misappropriation may be enjoined" and "in appropriate circumstances, affirmative acts to protect a trade secret may be compelled by Court order." Florida Uniform Trade Secrets Act Section 688.03 (1993). There is no requirement that the trade secret first be used before it can be enjoined under the Florida Trade Secrets Act.
    The order edit lists certain confidential information not available in the public domain, i.e., the mark-up on the items ordered and the profit margin thereof." The information would obviously be important for a competitor in deciding how much it could undercut Alley's (?) prices." Injunction affirmed. NO REQUIREMENT OF ACTUAL USE TO ISSUE TRADE SECRET INJUNCTION.
20. White v. Arthur Enterprise, Inc., 219 Ga. App. 124 (Ct. App. Ga. November 8, 1995). Jury returned verdict for trade secret misappropriation in violation of Georgia Trade Secrets Act and John White and White Pharmacy appealed.The jury found that White and White's Pharmacy were each separately liable in the amount of $18,000 for willful and malicious misappropriation of trade secrets.
    Appellants argued that jury's verdict of damages was not supported by evidence.Court of Appeals affirms jury verdict for damages. Under the Georgia Trade Secrets Act, the Plaintiff can recover for unjust enrichment. "The unjust enrichment doctrine provides that a party shall not be allowed to profit or enrich itself inequitably at another's expense."
    In the instant case, the Plaintiff sought damages based on unjust enrichment and presented evidence that the information contained in its corporate files had a value of $90,000. Relying on this evidence, the jury could have determined with reasonable certainty that White and White's Pharmacy each realized a gain of $18,000 for the misappropriation of those files. VALUE OF INFORMATION MISAPPROPRIATED PROPER MEASURE OF UNJUST ENRICHMENT DAMAGES.
21. United Group of National Paper Distributors, Inc. v. Vinson, 1996 La. App. LEXIS 30 (Ct. App. Louisiana January 25, 1996).After a lengthy trial, a jury found that Defendants-Appellants misappropriated trade secrets, breached duties owed, and violated the Louisiana Unfair Trade Secrets Act and awarded $9.5 million in damages to Plaintiff, The United Group of National Paper Distributors, Inc.
    Court of Appeals reverses and renders judgment in favor of Defendants.The Court of Appeals found that the alleged trade secrets-supplier lists, policies and procedures and unspecified financial information-were readily disseminated and available to the membership and, in some instances, to prospective new members. Plaintiff presented no evidence that any precautions were taken to safeguard any of the information's secrecy. Therefore, the Court of Appeals concluded that this readily ascertainable information does not rise to the level of a "trade secret." JURY VERDICT FOR TRADE SECRET MISAPPROPRIATION REVERSED.
22. Vigoro Industries, Inc. v. Kenneth Crisp, 1996 U.S. App. LEXIS 9861 (8th Cir. April, 1996). Kenneth Crisp managed a successful farm store in Marvell, Arkansas for 24 years. Vigoro acquired the store in 1986 and, in late 1992, Crisp approached Cleveland Chemical (a competitor), who wanted to enter the retail market in Marvell. Crisp had detailed discussions with Cleveland Chemical about facilities, estimated salaries and wages, equipment and personnel.
    On July 16, 1993, Crisp sent a letter of resignation to Vigoro management. Shortly before resigning, Crisp invited other Marvell employees to join him at the new Cleveland Chemical store. A dozen employees left with Crisp including three salesmen. On July 28, 1993, Crisp sent a letter to the farmers he considered to be Vigoro's best customers-"our valued customers"-stating "we feel this change will enable us to offer you better services in the future."
    Crisp left on August 7, 1993 and began working at Cleveland Chemical. The other Marvell employees joined him later that month. Vigoro hired a new sales manager and sales force as quickly as possible but Marvell lost 70% of its customers.
    Vigoro sued the former employees, Cleveland Chemical, and Cleveland Chemical's principal officers for misappropriation of trade secrets, breach of fiduciary duties, conspiracy to breach these duties and intentional interference with business expectancies.
    Following a one-week bench trial, the district court awarded Vigoro $75,000 against Crisp for breach of the employee's duty of loyalty. All other claims, including the trade secret misappropriation claim, were dismissed.
    The Court observed: "It is ... a common occurrence for corporate fiduciaries to resign and form a competing enterprise. Unless restricted by contract, this may be done with complete immunity because freedom of employment and encouragement of competition generally dictate that such persons can leave their corporation at any time and go into a competing business. They cannot while still corporate fiduciaries set up a competitive enterprise..or resign and take with them the key personnel of their corporation for the purpose of operating their own competitive enterprise. But they can, while still employed, notify their corporation's customers of their intention to resign and subsequently go into business for themselves, and accept business from them when offered to them."
    Applying this standard, the Eighth Circuit Court of Appeals affirmed the trial court's finding of breach of fiduciary because (1) the July 28 letter to key Vigoro customers "crossed the line from simple notification to an active solicitation at a time when Mr. Crisp was still working for Vigoro" and (2) Crisp "interfered with its other Marvell employees by securing commitments from them to join him at Cleveland Chemical while he was still a Vigoro employee."
    With respect to the trade secret misappropriation claim, the Court of Appeals affirmed the trial court's "fact-intensive" determination that the customer information was readily ascertainable because the identity of Vigoro's two hundred farm store customers could easily be discovered in a small geographic area. Also, the other types of information (each farmer's planting history, types of products purchased, etc.) was not protectable because "interested farmers would readily provide these other types of information because that helps them purchase the most appropriate farm supplies." "Absent an enforceable covenant not to compete, a former employer may not prevent a former employee from exploiting this kind of knowledge with a new employer. The former employer should not be permitted to achieve this anticompetitive objective indirectly through an overly-expansive definition of customer trade secrets." EIGHTH CIRCUIT UPHOLDS BREACH OF FIDUCIARY DUTY CLAIM. DENIES TRADE SECRET MISAPPROPRIATION CLAIM RE FARM SUPPLY STORE.
23. Simply Fresh Fruit, Inc. v. Continental Insurance Co., 1996 U.S. App. LEXIS 5278 (9th Cir. March 8, 1996). Simply Fresh is in the business of processing and selling fresh fruit and fruit segments for use in salads and similar products. P & C was its primary processing facility (collectively "Appellants"). The district court found that Continental did not have a "duty to defend" under the "advertising injury" provisions of Continental's insurance policies. The Ninth Circuit affirms.
    The allegation in the state court action was that Simply Fresh and P & C had misappropriated one of its competitor's [Reddi-Made] secret automated process for slicing fruit. In federal actions, Reddi-Made alleged that Simply Fresh and P & C had infringed certain patents.
    With respect to the trade secret misappropriation claims, Appellant argued that these claims could potentially trigger claims for "false designation of origin" under the Lanham Act therefore implicating "advertising injury" liability. The Ninth Circuit rejected this argument because there was no evidence that Reddi-Made had suffered damages because of Appellant's advertising activities citing Microtec Research, Inc. v. Nationwide Mutual Ins. Co., 40 F.3d 968 (9th Cir. 1994).
    With respect to the patent infringement claims, the Court of Appeals likewise rejected an "advertising injury" claim because Reddi-Made's federal claims "for direct, contributory and inducing infringement all occurred when Simply Fresh and P & C used the patented devices and processes. The injury has no causal connection to advertising activities as a matter of law." NO "ADVERTISING INJURY" LIABILITY FOR TRADE SECRET MISAPPROPRIATION CLAIMS.
24. Roton Barrier, Inc. v. Stanley Works, 79 F.3d 1112 (Fed. Cir. March 4, 1996).Stanley was found liable for trade secret misappropriation and patent infringement and appealed to the Federal Circuit.
    Stanley approached Roton for a possible acquisition. A Confidentiality Agreement was executed and then Stanley's Vice President of Manufacturing, Comptroller and President inspected the Roton manufacturing facility. Thereafter, Stanley made an offer to purchase Roton. Roton rejected the offer, and negotiations were terminated. Later, Stanley introduced its own continuous pinless hinge similar to the unique Roton hinges.
    Illinois law applied to the trade secret misappropriation claims. The trial court found nine areas of trade secrets: (1) Roton's gross margins, (2) sales data, (3) market analysis information, (4) hinge profile sales data, (5) customer lists, (6) milling process, (7) lubrication information, (8) machine and hinge fixturing methods, and (9) capitalization requirements.
    On appeal, Stanley contended that Roton was "unable directly to prove misappropriation of any specific trade secret" and Roton had improperly relied on a "head start" theory in which unspecified trade secret information was given to Stanley affording Stanley with a head start in developing a continuous pinless hinge.
    The Federal Circuit rejected Stanley's argument. The Court found that Roton had identified specific trade secret information which was "quite valuable" and the result of "the cumulative knowledge of 30 years in the business as the pioneer of continuous pinless hinges."
    With respect to the evidence of misappropriation, the Federal Circuit observed: "It is abundantly clear from the record that parties at Stanley instrumental in reviewing Roton's manufacturing facilities and financial data were the same people placed in charge of developing the LS500." Based upon the totality of the record, the Federal Circuit affirmed the trial court's finding of trade secret misappropriation.
    The trial court found that Roton had sustained both "lost sales" and "price erosion" from the trade secret misappropriation and "price erosion" included both (1) historical price erosion and (2) future price erosion. The Federal Circuit affirmed this measure of damages.
    With respect to "willful and malicious" misappropriation (entitling the Plaintiff to exemplary damages and attorney's fees) the Federal Circuit noted that Illinois courts have distinguished between "motivation by malice" and "motivation by competition" and have awarded punitive damages in the former but not the latter situation citing Embassy/Main, 508 N.E. 2d 331, 335 (Ill. App. Ct. 1987). In this case, Stanley was "motivated by competition" and therefore exemplary damages were not recoverable.
    The Federal Circuit also reversed the broad injunction enjoining Stanley from "further using, disclosing and/or disseminating any of [Roton's] trade secret business and technical information in any manner whatsoever" because the injunction "does not use specific terms or describe in reasonable detail the acts sought to be restrained" in violation of Rule 65(d) of the Federal Rules of Civil Procedure. EXEMPLARY DAMAGES NOT RECOVERABLE WHERE TRADE SECRET MISAPPROPRIATION "MOTIVATED BY COMPETITION.
25. Petroscan AB v. Mobil Corporation, 1996 U.S. App. LEXIS 7834 (Fed. Cir. March 4, 1996). Count I of Plaintiff's Complaint for Petroscan's "breach of a confidential relationship" claim against Mobil was dismissed as time-barred by the applicable statute of limitations. The trial court also found non-infringement of a patent and Petroscan appealed to the Federal Circuit.
    Virginia has a five-year statute for "injury to property" and a one-year statute which covers claims not falling under a specific statute.
    The Federal Circuit construed Count III of the Complaint as a claim that Mobil misappropriated Petroscan's trade secrets. Trade secret rights are generally recognized as property rights. See Rackleshaus v. Montsato Co., 467 U.S. 986, 1003-04, 81 L. Ed. 815, 104 S.Ct. 2862 (1984). Therefore, since the Complaint alleges an "injury to property" the 5-year statute of limitations applies and the Federal Circuit reversed the trial court's dismissal of Count III. FEDERAL CIRCUIT RECOGNIZES THAT TRADE SECRETS ARE PROPERTY RIGHTS UNDER STATUTE OF LIMITATIONS.
26. McDonnell Douglas Corp. v. United States Equal Employment Opportunity Commission, 1996 U.S. Dist. LEXIS 4960 (E.D. Mo. April 16, 1996). McDonnell Douglas Corporation ("MDC") produced documents pursuant to an EEOC administrative subpoena. Thereafter, an FOIA request was made by a private litigant to obtain the documents. McDonnell Douglas brought this action to enjoin the EEOC from releasing the trade secret documents pursuant to the FOIA request. McDonnell Douglas wins.
    FOIA's exception 4 protects from disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 U.S.C. § 552(b)(4). There was no dispute that the "adverse impact" documents contained commercial and financial information but the dispute was whether this was a voluntary submission (Critical Mass test) or an obligatory submission to the government (National Parks test).
    The Court concluded that the documents were produced voluntarily, were not publicly available, and therefore Exception 4 applies. Further, the Court found that the documents were also protected by the attorney-client privilege because the "adverse impact" analyses were prepared at the request of counsel for the purpose of rendering legal advice. Under the rule of Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (8th Cir. 1978), MDC's disclosure of the documents to the EEOC constituted only a limited waiver and did not destroy the attorney-client privilege. The Court found that Exception 4 applies on this ground as well. TRADE SECRET DOCUMENTS PROTECTED FROM FOIA DISCLOSURE.
27. Uncle B's Bakery, Inc. v. O'Rourke, 1996 U.S. Dist. LEXIS 4754 (C.D. Iowa April 1, 1996). Uncle B's Bakery sued its former manager (Kevin O'Rourke) for trade secret misappropriation and violation of a non-competition agreement in his new employment at Brooklyn Bagel Boys.
    A preliminary injunction hearing was held on March 25-26, 1996.
    Uncle B's Bakery is in the business of producing and distributing its unique line of "fresh, never-frozen" bagels sold in refrigerated cases in supermarkets. Uncle B's "air tight" packaging process eliminates the need to freeze the bagel to preserve the shelf life of the bagel.
    The Court noted that Uncle B's Bakery had invested over seven years and several million dollars in developing its freshness technology and processes. The Court found the existence of protectable trade secrets and that Uncle B's Bakery had "carefully guarded" its trade secrets and confidential information.
    The Non-Disclosure/Non-Compete Agreement was missing from O'Rourke's personnel file. O'Rourke claimed he never signed one. Uncle B's Bakery argued that O'Rourke signed it and that O'Rourke had both the motive and opportunity to remove it from his personnel file.
    O'Rourke was hired as the production manager of Uncle B's Ellsworth, Iowa plant in 1994 (he had been recruited from a supermarket chain in Richmond, Virginia where his responsibilities included managing a bakery and bagel manufacturing plant). Thereafter, O'Rourke quit and became plant manager of one of Brooklyn Bagel Boys' two bagel production plants in Franklin Park in December of 1995.
    The Court found that Uncle B's Bakery has a reasonable likelihood of success that O'Rourke agreed to be bound by the "Non-Disclosure/Non-Compete" Agreement (even though the agreement could not be found). The Court granted an injunction enforcing the non-compete restrictions. However, the Court set a $100,000 bond adequate to cover lost salary. PRELIMINARY INJUNCTION GRANTED BASED UPON MISSING NON-COMPETE AGREEMENT; $100,000 BOND SET.
28. PulseCard, Inc. v. Discover Card Services, Inc., 1996 U.S. Dist. LEXIS 3676 (D. Kansas March 6, 1996). PulseCard and SPS Payment Systems, Inc. ("SPS") entered into a confidential non-disclosure agreement. PulseCard thereafter brought suit against SPS for trade secret misappropriation and against Discover Card because SPS "provided confidential PulseCard client information to Discover Card." Discover Card moved for summary judgment.
    The evidence submitted by PulseCard showed that Discover Card and SPS occupied the same office building and used the same computer system. Further, the Court found that the PulseCard "information" in the possession of Discover Card related only to Discover Card merchants and therefore was not "confidential" via-avis Discover Card.
    The Court rejected PulseCard's generalized argument that Discover Card used PulseCard's purported "secret" information "in their efforts to injure PulseCard by retarding its growth and using it to create a competing venture in the health care transaction industry" because PulseCard had "failed to present affirmative, specific, evidentiary facts" which demonstrate the existence of genuine issues regarding whether Discover Card misappropriated any trade secrets of PulseCard. A general conclusionary statement that "defendants" misappropriated PulseCard's marketing strategy [or other confidential information] is insufficient to avoid summary judgment. SUMMARY JUDGMENT GRANTED; NO EVIDENCE OF MISAPPROPRIATION.
29. Multiform Desiccants v. Sullivan, 1996 U.S. Dist. LEXIS 2802 (W.D. N.Y. March 8, 1996). Multiform manufactures and distributes desiccant products. On March 21, 1991, Sullivan became employed as Director of Sales and Marketing and executed a one-year covenant not to compete agreement. A Sullivan acquaintance (Hauser) formed Classique Packaging in January, 1994 as a distributor of Multiform desiccant products.
    In early 1994, Sullivan requested the 1994 Master Distributor Price List. During the Spring of 1994, Sullivan requested copies of Multiform's product specifications and cost and manufacturing standards. Sullivan was also allegedly seen carrying boxes filled with documents out the back stairway at Multiform. On June 8, 1994, Sullivan met with Houser and others to discuss a machine designed to copy Multiform's machines. Sullivan was terminated on June 24, 1994.
    On July 12, 1994, a company called Dessicare, Inc. was formed. Sullivan became President and a member of the Board of Directors.
    A lawsuit for trade secret misappropriation was thereafter filed by Multiform against Sullivan. Multiform confidential documents were found in Sullivan's possession and the Court found that "there is no doubt that Sullivan absconded with trade secret and confidential information." However, the Court denied preliminary injunctive relief on the trade secret misappropriation claim because Sullivan had already disclosed the trade secrets to Dessicare and therefore there was nothing to enjoin. "Dessicare is making use of [the trade secret] material, but is not a defendant in the case. Furthermore, "it is unlikely that Sullivan will disseminate the purloined information to anyone else, as such would harm Dessicare in which he has a substantial financial interest." The Court likewise would not enforce the restrictive covenant because the one-year period had expired. No preliminary injunction was granted: "The theft and use of the information has already occurred. A preliminary injunction is not appropriate."
    PRELIMINARY INJUNCTION DENIED WHERE THEFT OF TRADE SECRETS HAS ALREADY OCCURRED.
30. J. H. Chapman Group, Ltd. v. Chapman d/b/a The Chapman Group, 1966 U.S. Dist. LEXIS 2256 (N.D. Ill. February 28, 1996).Count VIII of the Complaint alleged that Norman Chapman breached his fiduciary duty to J. H. Chapman Group by (1) not advising J. H. Chapman Group that he was forming a directly competing company during his tenure as Chairman of the Board of J. H. Chapman Group and (2) by misappropriating J. H. Chapman Group's trade secrets and confidential business information.
    Under Illinois law, a fiduciary relationship exists between a corporation and the officers of the corporation. As fiduciaries, corporate officers have an obligation to act with good faith and loyalty and cannot enhance their own personal interests at the expense of their corporation's interests. Thus, a corporate officer must disavow any opportunity that would permit his private interests to clash with those of his corporation. In addition, corporate officers owe a duty to deal honestly and fairly with their corporations. Consequently, a corporation officer must disclose facts of which he is aware that threatens his corporation's existence. Unichem Corp. v. William W. Gurtler, 148 Ill. App. 3d 284, 498 N.E. 2d 724, 728 (1st Dist. 1990). Applying these standards, the Court held that the formation of a rival company clearly threatens a corporation's existence.
    Therefore, the Court denied the motion to dismiss Count VIII to the extent that it was not based upon misappropriation of trade secrets-rejecting the "preemption" argument under the Illinois Trade Secrets Act.
    BREACH OF FIDUCIARY DUTY CLAIM NOT PREEMPTED BY ILLINOIS TRADE SECRETS ACT.
31. Engineering Resources, Inc. v. CRS Steam, Inc., 1996 U.S. Dist. LEXIS 1817 (N.D. Ill. February 16, 1996). Engineering Resources, Inc. (ERI) alleged inter alia that CRS misappropriated trade secrets. CRS moved for summary judgment. CRS claimed that the statute of limitations had run. The Court denied summary judgment on this ground because "whether or not a party should have reasonably known that it had been wronged is a question of fact."
    Similarly, the question of due diligence is a question generally reserved for the trier of fact. Here, plaintiff insists that the material it received in October 1989 was insufficient to confirm suspicions that its trade secret rights had been violated. Citing Sokol Crystal Products v. DSC Communications, 15 F.3d 1427 (7th Cir. 1994), the Court concluded that "suspicion" alone is not sufficient to start the statute of limitations running.
    With respect to the "misappropriation" evidence, the Court held that there were "numerous factual disputes." Plaintiff has represented that it took 5 to 15 years of research to develop its methods; CRS's ability to develop similar methods in only one year raises a material issue of fact regarding misappropriation. Further, the Court held that whether the "customer list" constitutes a trade secret could not be decided on a motion for summary judgment. MOTION FOR SUMMARY JUDGMENT ON STATUTE OF LIMITATIONS DENIED.
32. United Technologies Corp. v. Turbine Kinetics, Inc., 1996 Conn. Super. LEXIS 778 (March 18, 1996). he Pratt & Whitney Division of United Technologies Corp. brought a four-count complaint against Turbine Kinetics for misappropriation of trade secrets (Count I), unfair competition (Count II), interference with financial expectations (Count III) and unfair trade practices (Count IV).
    The Court rejected the argument that Count II, Count III and Count IV was preempted by the Connecticut Unfair Trade Secrets Act. It is difficult to understand what the legislature means by saying "conflicting remedies will be superseded." Does it mean "conflicting" in terms of the type of damages that may be awarded? Is it necessary to throw out the whole cause of action or can any apparent "conflict" be resolved by jury instructions?
    A cause of action based on interference with financial expectations is an intentional tort; a UTSA claim can be based on negligence. UTSA, unlike an unfair competitive claim, does not require a showing of competition. Without a trial record, or at least a summary judgment record, the Court denied the motion to strike the other causes of action on "preemption" grounds.MOTION TO STRIKE ON "PREEMPTION" GROUNDS DENIED.
33. Sethscot Collection, Inc. v. Drbul, 669 So. 2d 1076 (Ct. App. Fla. March 6, 1996).Walter Drbul is a former officer, director and employee of the Plaintiff.
    Sethscot sued Walter Drbul for trade secret misappropriation and moved for a preliminary injunction to enjoin the defendant from utilizing the plaintiff's prospective and active customer lists.
    The prospective customer list contained the names of 9,600 social fraternities and sororities and was compiled from information readily ascertainable to the public and was not a protectable trade secret.
    In contrast, the list of active customers contains "a detailed purchasing history for each sorority and fraternity on the list" and the "active customer list" is not readily ascertainable to the public.
    The Court of Appeals therefore found that the trial court erred in failing to enjoin the defendant from utilizing the "active customer" information list because this information is a protectable trade secret.FORMER EMPLOYEE ENJOINED FROM USING "ACTIVE CUSTOMER" LIST.
34. DeGiorgio v. Megabyte International, Inc., 1996 GA. LEXIS 135 (Sup. Ct. Georgia April 8, 1996).DeGiorgio was a salesman for Megabyte (a distributor of computer hardware products) and then DeGiorgio began working for a newly formed competitor, America Megabyte Distributors.
    The trial court granted a preliminary injunction for enjoining all solicitation and sale to customers that DeGiorgio knew or had reason to know were Megabyte's customers during DeGiorgio's employment with Megabyte. On appeal, the Supreme Court of Georgia held that there was sufficient evidence of misappropriation because (1) customer lists were missing from DeGiorgio's desk and (2) Megabyte received numerous complaints about DeGiorgio's activities from top customers who could not be identified through phone books or commercial lists. Further, during the search, Megabyte found a list of its top vendors in the form of a single-page fax dated May 1, 1995. DeGiorgio admitted preparing the fax but denied sending it.
    The Court, however, held that the injunction was overly broad because "the trial court effectively enjoined appellants from utilizing personal knowledge of customer and vendor information" and "such utilization of personal knowledge may be forbidden through the use of restrictive covenants, but not under the Trade Secrets Act." The case was remanded to the trial court to frame a narrower injunction consistent with the Georgia Supreme Court's decision.CUSTOMER LIST PROTECTED BUT INJUNCTION OVERLY BROAD.
35. Mangren Research and Development Corp. v. National Chemical Co., 1996 U.S. App. LEXIS 16011 (7th Cir. July 3, 1996).Defendants appealed from a jury verdict awarding Mangren $252,684.69 in compensatory damages and $505,369.38 in exemplary damages. The trial court also awarded Mangren its attorney's fees and costs. Defendants appealed asserting (1) Mangren did not establish protectable trade secrets, (2) Mangren did not establish evidence of misappropriation, (3) the jury's compensatory damages award is excessive, (4) there was no evidentiary basis for an award of exemplary damages or an award of attorney's fees. The Seventh Circuit rejected all the Defendants' arguments and affirmed the trial court judgment. The evidence at trial established that Mangren had developed a unique mold release agent. Mangren also alleged that its trade secrets also included its customer list and pricing information. The jury returned a general verdict and the jury was not asked to make findings as to each alleged trade secret. Therefore, the Seventh Circuit held that the jury verdict must be sustained if the evidence supports misappropriation of any of the alleged trade secrets citing Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265 (7th Cir. 1992). The Seventh Circuit then limited its review to whether the formula for Mangren's mold release agent was a trade secret (and misappropriated). With respect to Mangren's mold release agent, the Court of Appeals observed that the evidence in this case presents a "textbook example" of a trade secret. The formula was unique, not generally known or accepted in the industry and secrecy imparted considerable economic value as shown by the high profit margins on the product. The signed confidentiality agreements for the two ex-employees (Venable and Allen) involved in the alleged misappropriation were missing at the time of trial but the Seventh Circuit found "considerable evidence" that the company made "substantial efforts" to protect the secrecy of the formula. Even if Mangren could have taken further protective measures to protect against a devious competitor, whether or not the actions that Mangren actually took were sufficient to satisfy ITSA's reasonableness standard was a question for the jury. See Rockwell Graphic Sys., Inc. v. Dev Indus., Inc., 925 F.2d 174, 179-80 (7th Cir. 1991). With respect to the issue of misappropriation, Defendants argued on appeal that their mold release agent formula was different because they used slightly different ingredients and a slightly smaller volume of the primary ingredient. The Seventh Circuit rejected the Defendants' argument based upon the "traditional trade secret law" jury instruction agreed to below: You [the jury] do not have to find the defendants copied or used each and every element of the trade secret. You may find that defendants misappropriated Mangren's trade secrets even if defendant created a new product if defendants could not have done so without use of Mangren's trade secret. The Seventh Circuit stated: "the user of another's trade secret is liable even if he uses it with modifications or improvements upon it effected by his own efforts, so long as the substance of the process used by the actor is derived for the other's secret." In re Innovative Constr. Sys., Inc., 793 F.2d 875, 887 (7th Cir. 1986). In fact, "if trade secret law were not flexible enough to encompass modified or even new products that are substantially derived from the trade secret of others, the protections that law provides would be hollow indeed." Innovative Constr., 793 F.2d at 887; American Car Co. v. Mansukhani, 742 F.2d 314, 329 (7th Cir. 1984). Under the ITSA, a party proving trade secret misappropriation is entitled to recover the "actual loss caused by [the] misappropriation" as well as any unjust enrichment not taken into account in computing actual loss. 765 ILCS 1065/4(a). Mangren presented evidence of (1) lost profits and (2) reduced prices on account of the misappropriation. The evidence established that the two ex-employees disclosed the formula to two companies: National Chemical (a named defendant) and Bash (a non-party). Both took away sales from Mangren but defendants argued that they did not profit from Bash's sales so the "lost profits" attributable to Bash's sales could not be included in Plaintiff's damages against the Defendants. The Seventh Circuit disagreed: "the fact that defendants may not have personally benefited from Bash's sales is not dispositive under the jury instructions so long as defendants' misappropriation was a "but for" cause of the third party's sales." With respect to "willful and malicious" misappropriation, the Court held: "although we have found no Illinois case interpreting that phrase, "it surely must include an intentional misappropriation as well as a misappropriation resulting from the economic disregard of the rights of another." The evidence at trial shows that the defendants knew that they "might be sued" by Mangren but went ahead anyway only slightly changing the formula. The Seventh Circuit therefore concluded that this was sufficient evidence for the jury to find "willful and malicious" misappropriation under the ITSA. The award of attorney's fees by the trial court was also proper for the same reasons.SEVENTH CIRCUIT AFFIRMS JURY VERDICT FOR TRADE SECRET MISAPPROPRIATION AND THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEY'S FEES.
36. Trailor Leasing Co. v. Associates Commercial Corp., 1996 U.S. Dist. LEXIS 9654 (N.D. Ill. July 10, 1996). The district court (Judge David H. Coar) finds the Trailor Leasing Company (TLA) restrictive covenants with Gary Chase unenforceable. Gary Chase signed an employment agreement with TLC which contained the following post-employment restrictions: (1) a covenant-not-to-compete provision, (2) a non-disclosure provision and (3) a non-solicitation provision. The Court found all three post-employment restrictions unenforceable under Illinois law and Judge Coar declined to "blue-pencil" the post-employment restriction to make them reasonable in order "to encourage employees to write restrictive covenants more narrowly." With respect to the covenant-not-to-compete restriction, the Court found that the activities restriction was too broad and prevented Chase from working for any company, in any manner, in any business "leasing, renting, selling and using all sorts of transportation." The Court stated: "The universe of companies falling within the broad scope of these loosely defined terms is simply too large to be considered reasonable" as a matter of law. The non-solicitation provisions were likewise found to be overbroad. Chase was prohibited from "soliciting, diverting or taking away any of TLC's customers or prospective customers." Defendants argued that this non-solicitation provision was overbroad because Chase was prohibited from (1) soliciting TLC's existing customers with whom he had never had any contact and (2) TLC's prospective customers. The Court agreed citing Coreen, 45 Ill. App. 3d at 155, that a non-solicitation covenant must be reasonably related to the employer's interest in protecting customer relations. Finally, with respect to the nondisclosure provision, the Court found the provision overbroad because it restrained Chase from disclosing inter alia "any methods and manners by which Employer leases, rents, sells, finances or deals with its products and its customers" which-like NAPCO, 172 Ill. App. 3d at 415-16, purported to protect everything that the employee has learned while employed without any regard for whether the information was confidential. RESTRICTIVE COVENANT UNENFORCEABLE UNDER ILLINOIS LAW.
37. Glaxo Inc. v. Novopharm Ltd., 1996 U.S. Dist. LEXIS 9592 (E.D. N.C. July 5, 1996).Novopharm is a generic drug manufacturer of such products. Novopharm filed a counterclaim for attempted monopolization of the ??? hydrochloride market in violation of the Sherman and Clayton Anti-Trust Acts, 15 U.S.C. §§ 2, 15. On July 22, 1994, Glaxo sued Novopharm for patent infringement and trade secret misappropriation (Glaxo II) relating to Glaxo's "Zantac"(ranitidine hydrochloride) products. [Glaxo had prevailed in a previous trial for patent infringement against Novopharm (Glaxo I)].A bench trial was held on Glaxo's claims from April 16-30, 1996. Novopharm wins on all claims. With respect to the trade secret misappropriation claims filed pursuant to the North Carolina Trade Secrets Protection Act, the trial court first noted that "the owner of a valid patent will have disclosed the mode for practicing the invention , and no longer possess a valuable trade secret relating to the practice of the invention unless he later develops some unanticipated alternative practice." The Court found that Glaxo never identified any specific trade secrets-"Glaxo never devised a specific process for the stable continuous production of Form 1" [crystals]. Instead, Glaxo's "trade secrets" case rests on the theory that it was "the general body of its research which provided Novopharm with a platform from which to construct its Form 1 production process." Secrecy is claimed in a "broad competitive advantage, allegedly misappropriated by Novopharm, which facilitated Novopharm's discovery of the precise combination of solvent system, ph, temperature, and seeding constituting the only known stable, reproductible method for obtaining Form 1 crystals. In other words, the Court noted that secrecy is claimed not in the final combination or unfinished design, but in the knowledge that individual elements could be components of a valuable process." With this definition of the alleged trade secret, the Court found that knowledge of these elements were "generally known" and part of the public record (Volume 830 of the Federal Supplement) in the Glaxo I litigation. The Court stated: "As a matter of law, information which a party wishes to maintain as a trade secret may be introduced as evidence only if it is absolutely necessary to do so, and only after asking the court to maintain the trade secret's integrity by sealing the exhibits, conducting an in-camera hearing, or taking other appropriate steps." Glaxo took no steps at the previous trial. Glaxo admitted 135 of its own documents, without seal, which it now claims to contain trade secrets. "If an individual discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret, his property right is extinguished. Ruckelshaus, 467 U.S. at 1002. Failure to object to the admission of documents into evidence, without seal, is a waiver of confidentiality. Littlejohn, 851 F.2d at 680, National Polyman Products v. Borg-Warner Corp., 641 F.2d 418, 421 (6th Cir. 1981). The Court found that the industry closely followed the Glaxo I trial. Numerous persons have examined the Glaxo I trial exhibits. Copies of the trial transcripts have been purchased and various representatives of pharmaceutical companies attended the Glaxo I trial. The trial court therefore concluded that Glaxo has waived any trade secret rights that existed due to publication of the alleged trade secrets, without seal, in Glaxo I. The court also found no evidence of alleged "misappropriation" because, once again, the documents containing the alleged trade secrets were not placed under seal pursuant to the Protective Order entered in Glaxo I. Therefore, there was no "contempt" of the protective order. Further, even if Glaxo established a prima facie case of trade secret misappropriation (which Glaxo did not) at trial, the court found that such a case would be rebutted by the evidence which "clearly established" at trial that Novopharm independently developed its Form 1 production process.DOCUMENTS NOT UNDER SEAL WAIVE ALLEGED TRADE SECRET RIGHTS.
38. Sweetzel, Inc. v. Hawk Hill Cookies, Inc., 1996 U.S. Dist. LEXIS 8562 (E.D. PA. June 20, 1996). Sweetzel brought an action for misappropriation of trade secrets, unfair competition, Lanham Act violations, etc. against ex-employee Kummer and his new employer (Hawk Hill Cookies, Inc.) regarding misappropriation of spiced wafer recipes. The Court found the defendants liable for misappropriation of trade secrets and unfair competition in violation of the Lanham Act and issued injunctive relief. This decision relates to Plaintiff's damages claim. With respect to trade secret damages, the court found that the proper measure of damages was the costs the defendants would have incurred had they independently developed the information in question (instead of misappropriating the information). MEASURE OF DAMAGES IN TRADE SECRETS CASE.
39. RSR Corp. v. Browner, 924 F.Supp. 504 (S.D. N.Y. April 30, 1996). Plaintiff (RSR) operated a secondary lead smelting plant in Wallkill, New York (the "Wallkill Plant"). On March 2, 1994, the EPA received a request under the Freedom of Information ("FOIA"), 5 U.S.C. § 552 for records showing Wallkill Plant's compliance with the Clear Water Act, 33 U.S.C. § 1251 et. seq. RSR objected to the disclosure due to the proprietary nature of the data and that disclosure of the data could harm RSR's competitive position in the secondary lead smelting industry. In a final determination issued by EPA's Regional Counsel pursuant to 40 C.F.R. § 2.205, the EPA rejected plaintiff's claim that the records were exempt for disclosure under exemption 4 of FOIA, 5 U.S.C. § 552(b)(4), because the requested records contained "effluent data" which is necessary to determine the amount of pollutants and such information by law is not eligible for confidential treatment. On appeal, the District Court affirms the EPA determination. The Court rejects the argument that disclosure of the requested records will violate the Trade Secrets Act, 18 U.S.C. § 1905 which prohibits United States officers or employees from disclosing inter alia trade secrets "to any extent not authorized by law." Here, the disclosure of the effluent data is authorized by law and therefore the Trade Secrets Act is inapplicable. FOIA DISCLOSURE OF EPA INFORMATION DOES NOT VIOLATE THE FEDERAL TRADE SECRETS ACT.
40. Aloi Electric Service v. ASAP Fire Equipment, 1996 Conn. Super. LEXIS 1564 (Superior CT. June 18, 1996). The plaintiff (doing business as Fire Defense Centers) sued three ex-employees (Boland, Ryan and Lewandowski) who left and set up ASAP Fire Equipment, Inc. Plaintiff claimed that defendants misappropriated its customer lists, a list of the systems and equipment owned by the customers, plaintiff's pricing schedules, lists of its customers' service inspection and maintenance requirements, a list of scheduled inspection and maintenance dates, and a list of contact persons for each customer. The defendants filed a motion for summary judgment that the alleged information was well known or readily obtainable by all persons working in the fire equipment suppression industry. The plaintiff countered, through the affidavit of its president, Paul Aloi, that the information was not readily obtainable in the industry, especially detailed information about customers' service and inspection schedules, and the information was accumulated over a period of years, by acquisition and servicing of the accounts and the development of goodwill. The Court denied Defendants' motion for summary judgment stating: "where, as here, there is evidence that the information includes not only customer names but sensitive customer service data that has been accumulated over a number of years, is essential to the effective serving of accounts, and has been maintained privately by the plaintiff's president for the plaintiff's exclusive use and benefit, there is-a genuine issue of material fact that such information constitutes trade secrets." CUSTOMER INFORMATION IS A PROTECTABLE TRADE SECRET.
41. Air Support, Inc. v. Acuna, et al., 1996 Conn. Super. LEXIS 1378 (Superior Ct. May 29, 1996). Air Support, Inc. sued former employee for trade secret misappropriation and sought a temporary injunction to restrain the former employee from "soliciting any customers of the plaintiff." The Plaintiff, through its President (Dennis Kameon), claims that the ex-employee had taken its customer list database and customer-programmed computer software. However, in contrast, plaintiff's former office manager testified that she had no idea what "the customer list database" was and the only database that existed was a "leads" database compiled from business directories, college and university directories, telephone books, junk mail, etc. The court found that the "leads" database was compiled from publicly available information and did not contain any detailed information (such as customers' buying habits, requirements, preferences or other difficult to obtain data) and therefore the information in the "leads" database was not a protectable trade secret. MOTION FOR PRELIMINARY INJUNCTION TO PROTECT CUSTOMER "LEADS" DATABASE DENIED.
42. GME, Inc. v. Carter, 917 F.2d 254 (Super. Idaho May 24, 1996). GME, Inc. manufactures and markets hydrocutters which cut potatoes into french fries by using a continuous flow of water to force the potatoes through a stationary array of cutting blades. Scott Carter was employed as an engineer in charge of research and development at GME for 2 ½ years and prior to his departure, Carter took home and retained 76 blueprint drawings belonging to GME. After leaving GME, Carter worked on design modifications to hydrocutters in his spare time. After GME learned of Carter's possession of the blueprints, GME sued Carter inter alia for trade secret misappropriation. The trial court found that Carter misappropriated GME's trade secrets and entered a permanent injunction enjoining Carter from using the misappropriated trade secrets and from designing food-processing hydrocutters for five years. The Idaho Trade Secrets Act does not contain a provision for the recovery of attorney's fees and exemplary damages (unlike the Uniform Trade Secrets Act). Thus, Plaintiff was awarded only $1.00 for the trade secret violations and appealed to the Idaho Supreme Court. GME argued that it should have been awarded its development costs of $100,000 - $150,000 as the measure of Carter's unjust enrichment. The trial court rejected this damages theory (and the Idaho Supreme Court affirms) because the cases awarding development costs apply only where the wrongdoer has gained some advantage that it has exploited or will be able to do so in the future. Because the trial court concluded that Carter had not yet exploited his misappropriation or been unjustly enriched and that the five-year injunction would prevent him from doing so in the future, the trial court properly declined to award GME its development costs. GME argued that its "actual loss" under the Idaho Trade Secrets Act should include the attorney's fees that GME has incurred pursuing its claim against Carter. The Idaho Supreme Court disagreed (affirming the trial court) pointing out that when the Idaho legislature enacted the Idaho Trade Secrets Act, it copied much of the UTSA, but did not include the portion of the UTSA which provides for an award of attorney's fees. GME, however, was entitled to receive a portion of its attorney's fees under another state statute. NO "UNJUST ENRICHMENT" DAMAGES ABSENT EXPLOITATION OF THE TRADE SECRET.
43. Carolina Chemical Equipment Company, Inc. v. Muckenfuss, 1996 S.C. App. LEXIS 65 (Ct. App. S.C. April 22, 1996). Muckenfuss was one of the three shareholders of Carolina Chemical from 1982 to August, 1989 when he was voted out by the other two shareholders. Muckenfuss sold his shares back to Carolina Chemical pursuant to a Stock Redemption Agreement which contained a covenant not to compete and a covenant not to disclose trade secrets. Muckenfuss refrained from selling industrial cleaning supplies from August, 1989 until March, 1991, when he went to work for Energen, a competitor of Carolina Chemical. A trade secret misappropriation was filed, the case was tried to a jury twice, and both times the jury returned a verdict for Carolina Chemical. On appeal, the South Carolina Court of Appeals reversed the judgment, ordering the trial court to enter directed verdicts in favor of Muckenfuss and Energen, vacate the permanent injunction, and vacate the award of attorney's fees. The Court refused to enforce the "trade secret" nondisclosure provision as a matter of law. Noting that the contractual provision does not identify any specific trade secrets; rather, it defines trade secrets so broadly that virtually all of the information Muckenfuss acquired during his employment would fall within its definition. Viewing the evidence in the light went favorable to Carolina Chemical, the Court of Appeals found that Muckenfuss had not done anything wrong. Six months after the expiration of the noncompetition period, Muckenfuss began competing with Carolina Chemical. He contracted some of Carolina Chemical's non-exclusive customers and he made sales to these customers of products similar to Carolina Chemical. One of the products, paint thinner is manufactured by neither Carolina Chemical nor Energen. The remaining three products (sold by Muckenfuss) are "built" by purchasing raw materials, and then mixing, packaging and selling them. Formulas for these three products are readily available from the supplier of raw materials. Applying Illinois law and citing AMP, Inc. v. Fleischhacker, 823 F.2d 1199 (7th Cir. 1987), the Court found no misappropriation of a "trade secret." JURY VERDICT FOR TRADE SECRET MISAPPROPRIATION REVERSED.
44. Bestechnologies, Inc. v. Trident Environmental System, Inc. f/k/a Probac International Corporation, 1996 Fla. App. LEXIS 10474 (CT. App. Fla. October 11, 1996). Third-party competitor (Bestechnologies, Inc.) was served with a Subpoena regarding issues relating to whether Bestechnologies, Inc. uses a certain bacteria process in its grease remediation system. The trade secret misappropriation suit was between two other competitors. Bestechnologies was not a party to the lawsuit. Bestechnologies moved to quash the subpoena and for a protective order that its employees not be required to answer certain questions (which involved Bestechnologies' trade secrets) and the trial court ordered that the deposition go forward with an "attorneys eyes" only protective order. Bestechnologies appealed the trial court ruling and the Florida Court of Appeals (Second District) affirmed noting that a factual issue existed in the underlying trade secret case whether every competitor had discovered the same process and therefore the alleged trade secret process was "generally known" and not protectable as a trade secret. The Court held that the strict "attorneys eyes" only confidentiality order entered by the trial court adequately protected Bestechnologies interests as there was no basis for the Appellate Court to issue a writ of certiorari.THIRD-PARTY DISCOVERY FROM COMPETITORS IS PERMISSIBLE IN A TRADE SECRETS CASE.
45. Enhanced Computer Solutions, Inc. v. Joel Rose, 927 F.Supp. 738 (S.D.N.Y.). Plaintiff (Enhanced Computer Solutions, Inc.) brought a trade secret misappropriation case against Defendant (Joel Rose) in state court. Following receipt of Plaintiff's answers to interrogatories, Defendant removed the action to federal court asserting that Plaintiff's claims of trade secret misappropriation are dependent upon determinations involving federal copyright law. Plaintiff filed a motion to remand the case back to state court because the removal was untimely and the federal court lacks subject matter jurisdiction. The United States District Court for the Southern District of New York favors this issue whether plaintiffs' state law (trade secret misappropriation) claim was preempted by the Copyright Act. This "question is central" because "if there is no preemption, then the disputed claim does not arise under federal law for purposes of removal." Citing Computer Associates International, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992), the Court found no preemption because trade secret misappropriation claims have an "extra element" [breach of trust or confidentiality] in addition to the acts of reproduction, performance, distribution or display protected under Section 301 of the Copyright Act. Finding this "extra element" present in the allegations in the state court complaint, the Court concluded that the claims do not arise under federal law and the federal court recommended the case to the state court.REMOVAL TO FEDERAL COURT DENIED; NO COPYRIGHT PREEMPTION.
46. Anderson, Greenwood & Co. v. Nibisco Supply, Inc. et al., 1996 U.S. Dist. LEXIS 9413 (W.D.N.Y. June 27, 1996). A non-party competitor (Flow Safe, Inc.) brought a motion pursuant to Rule 45(c)(3)(a) of the Federal Rules of Civil Procedure to quash a subpoena duces tecum and for a protective order pursuant to FRCP 26(c) in response to discovery sought by the Plaintiff ("AGCO") in a breach of restrictive covenant/trade secret misappropriation case. AGCO was a manufacturer of safety pressure relief valves and the Defendants ("Nibisco" and "Niabco") were sales and marketing companies for AGCO pursuant to restrictive covenant contracts, which prohibited defendants inter alia from manufacturing and selling other competitive safety valve products. AGCO alleged that defendants, in contravention of the contractual restrictive covenants, stole AGCO's proprietary information and developed and marketed safety valve products through Flow Safe. Flow Safe moved to quash because it is not a party to the litigation between AGCO and defendants and the requested discovery calls for the disclosure of Flow Safe's proprietary business information. Flow Safe had "officers in common" with the defendants. Balancing the interests of the parties, the Court granted a protective order permitting Flow Safe to redact "manufacturing or internal product specifications, tolerances, materials, costs and similar data" but to produce documents relating to the chronology of the development of Flow Safe's competing safety or pressure valves, external specifications and pertinent customer information during the time period only of the alleged breach of the restrictive covenant provisions.DISCOVERY AGAINST THIRD-PARTY COMPETITOR BY PLAINTIFF IN RESTRICTIVE COVENANT/TRADE SECRET MISAPPROPRIATION CASE GRANTED.
47. Radisson Hotels International, Inc. v.Westin Hotel Company, 931 F.Supp. 638 (D.C. Minn. June 28, 1996). Radisson is a Delaware corporation with its principal place of business in Minneapolis, Minnesota. Westin is a Delaware corporation with its principal place of business located in Seattle, Washington. Radisson developed an innovative marketing program called the "Look to Book" program which provides credits to travel agents (redeemable for various "incentive" prizes) if Radisson hotels are booked by the travel agent. Radisson alleged that a :high level employee" [Bartels] left his position with Radisson in May, 1995, joined Westin, and therefore wrongfully used Radisson's proprietary and trade secret information to develop a competing travel counselor incentive program for Westin. Westin moved to transfer the case to Seattle, Washington where the alleged acts of misappropriation occurred. Radisson, of course, wanted the case to stay in its home court in Minneapolis, Minnesota. A motion to transfer venue shall not be freely granted. 28 U.S.C. § 1404(a). In determining whether the transfer venue under § 1404(a), courts consider three factors (1) the convenience of the parties, (2) the convenience of witnesses and (3) the interests of justice. On Factor 1, the Court found (not surprisingly) that Minneapolis is a more convenient forum for Radisson and Seattle Washington is a more convenient forum for Westin. This factor was a wash. On Factor 2, both corporate defendants have material company witnesses in Minnesota (for Radisson) and in Seattle, Washington (for Westin). With respect to third-party witnesses, the Court found that a substantial number of witnesses will suffer hardship if this case is in trial in either Minnesota or Washington. This second factor was therefore a wash. Regarding Factor 3, ("Interest of Justice"), the Court noted that this is the most important § 1404(a) factor. In considering the interests of justice, the courts consider the relative ability of the parties to bear the expenses of litigating in a distant forum and the relative familiarity of the two courts with the law to be applied. Apply these considerations, the Court denied Westin's motion to transfer venue to Seattle, Washington. Westin is a large corporation with multi-national operations and it can adequately defend its interests (financially) in either Minnesota or Washington. Further, this action involves several claims governed by Minnesota law and this Court is more likely to be familiar with applicable Minnesota law rather than the Washington Court.MOTION TO TRANSFER VENUE DENIED IN TRADE SECRET CASE DENIED.
48. Architectronics, Inc. v. Control Systems, Inc. et al., 1996 U.S. Dist. LEXIS 10942 (S.D.N.Y. August 1, 1996). The Plaintiff (Architectronics) was a computer software development company in New York. Plaintiff sued two former joint venturers relating to a 1986-1987 software development project to create a new computer software product designed to "enhance" then-existing computer-aided design (CAD) software [AutoCAD]. The joint venture involved the plaintiff, CSI and CADSource, a distributor of CSI graphics boards used in PCs to run AutoCAD. A software Development and Licensing Agreement ("SDLA") was executed by the parties on September 1, 1987. Thereafter, in June, 1990, CSI released its own product ("GT Flexicon") that Defendant's claim was derived from Plaintiff's software and prototypes. The lawsuit was filed on December 18, 1992 for inter alia trade secret misappropriation and copyright infringement. In resolving statute of limitation issues, the Court conducted that the "predominant" feature of the SDLA related to the transfer of intellectual property rights and therefore the general contract statute of limitations applied (6 years) rather than the UCC four-year statute of goods. With respect to the trade secret misappropriation claims, the Court concluded that "accrual" of the claim occurs in one of two ways: (1) If a defendant misappropriates a trade secret and discloses the trade secret [in the public domain], the defendant becomes liable to the plaintiff upon disclosure; (2) If the defendant keeps the secret confidential yet makes use of it to his own commercial advantage, each successive use constitutes a new actionable tort for purposes of the Statute of Limitations. Defendant argued that any trade secret rights were extinguished when Defendant released GT ICON on January 15, 1989. (Therefore, the three-year statute of limitations had run out). However, the Court denied Defendants' motion for summary judgment noting that "the technology may have been concealed within impenetrable programming codes" or it is possible that "CSI used the misappropriated technology to create GT ICON without actually disclosing the secret know-how in the released product." The copyright infringement claim was likewise not barred because "every act of infringement is a distinct harm giving rise to an independent claim for relief. Stone v. Williams, 970 F.2d 1043, 1049-50 (2d Cir. 1992), cert. denied, 508 U.S. 906 (1993). On the merits, the Court noted that the dispute boils down to whether the allegedly misappropriated technology was "generally known" or "readily ascertainable" under the Minnesota Trade Secrets Act. Protection of trade secret information requires less novelty than federal patent protection. Although "mere violations of widely use processes cannot be trade secrets," (Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 899 (Minn. 1983), "generally knows computer elements may gain trade secret protection from the nature of their unique combination. Imperial Chem. Indus. Ltd. v. National Distillers & Chem Corp., 342 F.2d 737, 742 (2d Cir. 1965); 1 Roger M. Milgrim, Milgrim on Trade Secrets P 1.08[5] (1993) ("Recognition in accorded to a new singular or particularly useful combination of familiar substances or principles, which combination constitutes a new result"). The court denied Defendants' motion for summary judgment on the trade secret misappropriation claim. The Court also rejected defendants' copyright "preemption" argument citing the "extra element" test (breach of some duty of trust or confidentiality). The Court also cited Nimmer on Copyright Section 1.01[B][1][g]. ("Actions for disclosure and exploitation of trade secrets require a status of secrecy, not required for copyright, and hence, are not preempted").WHETHER ELEMENTS (OR COMBINATION OF ELEMENTS) IN A COMPUTER SOFTWARE PROGRAM WERE "GENERALLY KNOWN" IS QUESTION OF FACT FOR THE JURY, NO PREEMPTION OF TRADE SECRET CLAIMS UNDER COPYRIGHT LAW.
49. Sperry Rail, Inc. v. Herzog Services, Inc., 1996 U.S. Dist. LEXIS 13134, (D. Kansas August 5, 1996). Plaintiff (Sperry Rail, Inc.) is engaged in the business of providing rail testing service for commercial railroads and subway lines to detect flaws and defects in the rail lines. Plaintiff has been involved in this business since 1928. Plaintiff utilizes two highly technological detection systems (1) magnetic induction technology and (2) ultrasonic technology. One of Plaintiff;s engineers (Fitzgerald), after 13 years of research and development on new rail testing technology, announced his "retirement" effective January 9, 1996. On a Sunday when the place was closed, Fitzgerald deposited his retirement letter in the Company's mailbox and then he removed several boxes containing books and documents from Plaintiff's Research and Development laboratory. On January 11, 1996, Fitzgerald met with Defendants' representative (Herzog Services, Inc.) and worked out an "Independent Contractor's Agreement" to be paid &75,000 per year in salary and a $54,000 signing bonus. Defendant was also engaged in the rail testing business but defendant only used "ultrasonic technology" not "magnetic induction technology." Defendant had never paid a new employee a "signing bonus." Defendant also executed an indemnification agreement to indemnify, defend and hold Fitzgerald harmless from any claims made by Plaintiff for breach of his employment (confidentiality) agreement with Plaintiff. The first project that Fitzgerald was assigned was "to complete a comprehensive review of Defendant's rail testing technology and to prepare a report detailing his findings and recommendations." Based on these facts, the Court granted Plaintiff's motion for preliminary injunction concluding that Plaintiff had established a likelihood of success on its trade secret misappropriation claim under the Missouri Uniform Trade Secrets Act. The corporate defendant knew about Fitzgerald's obligations under the confidentiality agreement, paid him a $54,000 signing bonus, and agreed to indemnify him. The Court concluded: Defendant knew or had reason to know that it was acquiring trade secrets from Fitzgerald who had a duty to maintain the secrecy of the trade secrets. "Defendant's actions in hiring Fitzgerald were calculated to misappropriate plaintiff's trade secrets concerning its technology, marketing strategies and pricing structure." The Court entered a preliminary injunction enjoining Defendant from "seeking, acquiring, using or disclosing any trade secrets of plaintiff acquired by Fitzgerald int he course of, or arising out of his employment with Plaintiff, and Defendant is enjoined from employing Fitzgerald in any capacity which will call upon him to use or disclose any trade secrets or confidential information of Plaintiff.PRELIMINARY INJUNCTION GRANTED BASED INTER ALIA ON $54,000 SIGNING BONUS.
50. SAFCO Corp. v. Miletic, 1996 U.S. Dist. LEXIS 11685 (N.D. Ill. August 9, 1996). Richard Miletic was employed by Safco Corporation (plaintiff) from October 6, 1991 through June 7, 1996. Until May 19, 1994, Miletic worked in the home office of Safco in Chicago, Ill. From May 19, 1994 to June 7, 1996 Miletic (while still employed by Safco) was located in Hong Kong. Thereafter, Miletic purchased a one-third interest in Z.K Celltest, Inc. ("Celltest"), a California corporation. Celltest is a direct competitor of Safco. Plaintiff sued Miletic for trade secret misappropriation and breach of restrictive covenant in the Circuit Court of Cook County, Chancery Division. Subsequently, the defendants the action to federal court based upon diversity of citizenship. Defendants filed a motion to transfer venue to the Northern District of California pursuant to 28 U.S.C. 1404(a). It was undisputed that venue is proper in either the transferor court (N.D. Illinois) or the transferee court (N.D. California). Applying the 1404(a) standard, the Court noted that the restrictive covenant agreement was executed in Illinois but that much of the evidence relating to Celltest's alleged status as a competitor was in California. On the other hand, much of the information relating to the trade secret misappropriation claim will be located in Illinois. The "convenience of the witness" factor was not given much weight by the Court because testimony can be taken by video depositions. With respect to the convenience of the parties, the Court noted that Plaintiff Safco is a corporation that employs over 200 employees and Celltest is a relatively small corporation that employs only 4 employees. Based on these facts, the Court concluded that the burden would be greater on Celltest to litigate in the Northern District of Illinois rather than vice versa. The Court acknowledged that the Northern District of Illinois would be more familiar with Illinois Law; the Northern District of California with California Law. The final argument was "judicial economy." The Northern District of Illinois had already dismissed the corporate defendant, Celltest, for lack of personal jurisdiction. Therefore, if the case were litigated in the Northern District of California, both of these defendants could be litigated in a single cause of action." Motion to transfer venue to the Northern District of Illinois granted.MOTION TO TRANSFER VENUE IN TRADE SECRET MISAPPROPRIATION CASE GRANTED.
51. La Calhene, Inc. v. Spolyar, 1996 U.S. Dist. LEXIS 12909 (W.D. Wisc. August 23, 1996). Spolyar was the Chief Operating Officer and President of Plaintiff's (La Calhene, Inc.) sales and marketing division. La Calhene, Inc. is a Delaware corporation with its principal place of business in Minnesota. Plaintiff sells isolator products for total containment of hazardous substances or protection of products in a sterile environment. La Calhene (France) has been engaged in this business for 35 years. Plaintiff develops customized products to meet the needs of its customers. The customer identifies La Calhene of its needs (and what it hopes to achieve) and La Calhene then engineers as effective isolator installation for a particular customer to solve specific sterilization problems. Each customer installation raises special challenges often requiring the installer to make design changes as the installation programmer and new problems surface. Over time, La Calhene has gained valuable designs and engineering experience that assists in designing and bidding on future projects. In this regard, learning "what doesn't work" can be extremely valuable in avoiding similar blind alleys in the future. Spolyar had no prior experience with this isolator technology when he was hired by La Calhene in July, 1994. He resigned less than two years later on April 29, 1996. Spolyar signed a restrictive covenant agreement. After Spolyar left La Calhene, he became an "unsalaried, commissional salesperson" for Walker Stainless Equipment Company which had worked as a subcontractor for Plaintiff and had designed isolator installations directly for customers. La Calhene moved for a preliminary injunction against Spolyar. The evidence at the preliminary injunction hearing established that La Calhene did not have a formal program of identifying documents or other items considered to be trade secrets. Further: it does not use a confidentiality stamp on documents or keep records of confidential information or maintain a records retrieval policy or records destruction program. Plaintiff does not have procedures in place to keep confidential documents out of the hands of persons outside the company. It has no policy on leaving documents on desks or photocopying sensitive documents. It does not post security guards, screen visitors or require visitors to wear badges while inside the facility. However, plaintiff does not allow visitors to wander about its facility unaccompanied. Plaintiff does not keep sensitive documents in locked cabinets and it does not have a written exit program under which departing employees are required to account for documents in their possession. As chief operating officer of plaintiff, defendant was responsible for instituting and implementing a confidentiality policy. In defense, La Calhene argued that the dissemination of confidential information was controlled by limiting the disclosure of confidential information on a "need to know" basis to only three persons in upper management (one of whom was a defendant) and each of the three upper management employees had signed confidentiality/restrictive covenant agreements. La Calhene relies on the good sense of its employees not to give customers or competitors sensitive information. It is a common understanding of salespeople that lists of customers and completed projects and drawings of installations should not be circulated outside the company or shown to anyone other than a customer when use of the list or drawings might help secure a sale. After Spolyar left, two of three of the other salespersons left crippling Plaintiff's sale force. In fact, Spolyar assisted one of the salespeople (Bill Friedheim) in drafting a letter announcing Friedheim's new job as salesman for Walker Stainless. The evidence also established that since Spolyar has left his employment with Plaintiff, he has talked with all but one of the customers to whom he had submitted bids on isolator installations on behalf of La Calhene. In one instance, he learned that the customer was going to rebid a project on which plaintiff had bid previously and Spolyar was able to bid the modified project on behalf of Walker Stainless. Upon analysis of the various alleged trade secrets, the Court found that La Calhene's customer list was not protectable because the information contained in those lists is "general in nature and much of it was readily obtainable from other sources." However, the Court found that La Calhene's (1) research and development information, (2) manufacturing and engineering information, and (3) strategic and marketing plans were protectable trade secrets. The Court rejected Defendants' "reverse engineering" defense which was based upon the testimony of "experts in the field." The Court noted that "certainly, many of plaintiff's standard products and installations could be reverse engineered" (albeit not in the short time that defendant postulated), but "it would be considerably more difficult to do it with the customer applications for which the specific requirements cover a wide range of possible configurations, Corporate parts and special designs." With respect to the argument that customers have copies of the drawings for its particular installation, the Court noted: "The fact that different customers have copies of their own project drawings does not render the full set of drawings less valuable." Despite considerable evidence introduced by Defendant regarding the lack of security measures, the Court concluded: "the steps that plaintiff took were reasonable under the circumstances." Primarily, plaintiff restricted the number of people who had access to confidential information and imposed confidential requirements upon those upper management personnel. The Court also noted that there was a visitor escort policy. Since it was the defendant's duty as Chief Operating Officer to protect the Company's intellectual property assets, "it would be ironic, and unfair to plaintiff, if defendant's failure to take proper measures to protect plaintiff's confidential information and knowledge inured to his benefit." Finally, the Defendant argued that no preliminary injunction could be entered because Plaintiff had not shown that defendant had actually misappropriated any of La Calhene's trade secrets. The Court summarily rejected this argument. "Actual or threatened misappropriation may be enjoined" and "it is all but inevitable that he will utilize that knowledge during his work with Walker Stainless or any other competitor so long as he is selling a competing product." SeE PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995); Teradyne, Inc. v. Clear Communications Corp., 707 F.Supp. 353, 356 (N.D. Ill. 1989). The Court entered a 1-year injunction prohibiting employment with a competitor.INEVITABLE DISCLOSURE DOCTRINE APPLIED; "REVERSE ENGINEERING" DEFENSE REJECTED; LACK OF TRADE SECRETS PROGRAM NOT FATAL.
52. Precision Screen Machines, Inc. v. Elexon, Inc., 1996 U.S. Dist. LEXIS 12487 (August 26, 1996). In early 1994, Elexon became interested in purchasing Precision Screen Machines, Inc. During these discussions, Precision provided Elexon with confidential "evaluation materials" containing alleged trade secret information. Elexon retained the "evaluation materials" and did not return the materials after the negotiations broke down. Plaintiff filed a lawsuit for trade secret misappropriation. Elexon filed a Motion to Dismiss the Complaint. The district court (Judge Nordberg) summarily denied Defendant's motion to dismiss the trade secret and breach of contract counts but the Court granted Defendant's motion to dismiss the "tortious breach of confidential relationship" count. Common law claims for trade secret misappropriation are now preempted by the Illinois Trade Secrets Act. 765 ILCS § 1065(8) (1993). COMMON LAW CLAIM FOR TRADE SECRET MISAPPROPRIATION DISMISSED.
53. Harbor Software, Inc. v.Applied Systems, Inc., 1996 U.S. Dist. LEXIS 13224 (SDNY September 9, 1996). Harbor Software, Inc. sued Applied Systems, Inc. for copyright infringement and trade secret misappropriation upon claims that Harbor Software stole and copied its "Sales Center Manager" (SCM) software and incorporated it into an updated version of its "The Agency Manager" (TAM) program. Applied Systems moved for summary judgment on both counts. The motion for summary judgment on the copyright infringement count was denied because the Court found that "the selection and arrangement of the data categories" were protectable copyright expression. With respect to the trade secret misappropriation claim, the Court stated: "the overall design of a software program may be protectable as a trade secret, even if the individual components of that program are common knowledge in the programming industry. Computer Care v. Service Systems Enterprises, Inc., 982 F.2d 1063, 1074 (7th Cir. 1992).COMBINATION ANALYSIS APPLIED TO TRADE SECRET PROTECTION FOR COMPUTER SOFTWARE; MOTION FOR SUMMARY JUDGMENT DENIED.
54. Merck & Co., Inc. ET AL. v. Lyon, et al., 1996 U.S. Dist. LEXIS 14645, (M.D. N.C. September 11, 1996). Lyon was employed by Merck from October, 1990. In November, 1995, Lyon was contacted by an executive recruiter to become Director of Global Marketing for Glaxo Wellcome, PLC, ("GLAXO") a competitor of Merck. The executive search was directed by Mark Weedon, general manager of Glaxo Wellcome who talked with Lyon about the position one week before the executive recruiter called. On December 15, 1995, a Glaxo official offered Lyon the position. Lyon's last day of employment at Merck was March 1, 1996. During this interim period, Lyon attended Glaxo/Warner Lambert planning sessions while still working with plaintiffs. On January 26, 1996, one day after accepting employment with Glaxo, Merck asked Lyon whether he was going to work with a competitor and Lyon said he was not. Several weeks later, he once again denied that he was going to work for a competitor. Lyon said he was considering two options (1) a marketing consultant position in Canada, or (2) a position with a pharmaceutical company in the Far East. At the preliminary injunction hearing, it was established that Lyon had access to Merck's strategic business plans and marketing plans relating to the PEPCID launch in Canada. The Court also found that a certain famotidine supply agreement was a trade secret. The Court noted that Plaintiff's have not shown any evidence of actual misappropriation by Lyon. However, "actual or threatened misappropriation" may be enjoined under the North Carolina Trade Secrets Act. The Court rejected Defendant's argument that courts in Illinois have refused to apply the "inevitable disclosure" doctrine citing FMC Corp. v. Cyprus Foote Mineral Company, 889 F.Supp. 1477 (W.D. N.C. 1995). The federal district court in Cyprus Foote concluded that a North Carolina state court would probably require "some showing of bad faith, underhanded dealing or employment by an entity so plainly lacking comparable technology that misappropriation can be inferred." Id. at 1483. Here, the Plaintiff has not sought a broad injunction preventing Lyon from working in the area of his general expertise. The scope of the requested ruling is to prevent Lyon from working on a particular project [ZANTAC 75]. Further, the plaintiffs have (unlike the plaintiffs in Cyprus Foote) identified the precise nature of the alleged trade secret information. In finding likelihood of disclosure, the courts look to (1) the degree of competition between the former and the new employee, (2) the new employee's efforts to safeguard the former employer's trade secret, and (3) the former employee's "lack of forthrightness both in his activities before accepting the job and in the degree of similarity between the employee's former and current position." Apply these factors, the Court granted a preliminary injunction applying the "inevitable disclosure" doctrine restraining Glaxo and all of its officers, agents, and employees from (1) discussing with Lyon any pricing relating to PEPCID AC or ZANTAC 75 until March 1, 1997, and (2) discussing with Lyon the line extensions of PEPCID or ZANTAC until March 1, 1988.INEVITABLE DISCLOSURE DOCTRINE APPLIED IN NORTH CAROLINA.
55. Thermodyne Food Service Products, Inc. v. AFTEC, Inc., 1996 U.S. Dist. LEXIS 14566 (N.D. Ill. October 1, 1996). Thermodyne is engaged in the manufacture and sale of food service products and ovens. It's claim to fame in the "Thermodyne technology" for transferring heat to food ovens. The "Thermodyne technology uses a combination of precise computer controls and the interrelationship of numerous component parts to cook and hold food items (for a long time) at lower temperatures (by means of convention heat) without water loss and without harmful bacteriological development. Not surprisingly, McDonald's Corporation was interested in this technology. In May, 1987, McDonald's contacted Thermodyne/AFTEC, and there were "joint venture" discussions at McDonald's corporate officers in June of 1989. In June of 1990, McDonald's informed Plaintiffs that the "Thermodyne technology" had been approved for use at McDonald's restaurants. However, Thermodyne/AFTEC did not get the contract to manufacture the cooking ovens for McDonald's. The work went instead to another company and the product was called the "Temperfect Oven." Upon investigation, it was determined that certain former employees of Plaintiff were involved and a lawsuit (with various counts) was thereafter filed. The Defendants moved for summary judgment, inter alia, to dismiss the trade secret misappropriation claim. District Judge Alesia correctly observed that the existence of a trade secret [in Illinois] is now "a creation of state statutory law." Defendants broke down the "Thermodyne" oven into component parts and demonstrated that each component was (somehow) in the public domain or generally known. The Plaintiffs, on the other hand, argued that "the trade secret in the interrelationship of the component parts and technologies which comprise and create the broader Thermodyne technology." The District Court agreed with the Plaintiffs and denied Defendants' Motion for Summary Judgment.COMBINATION ANALYSIS; INTERRELATIONSHIP OF COMPONENT PARTS ESTABLISHES TRADE SECRET.

THE TRADE SECRETS HOME PAGE******R. MARK HALLIGAN, ESQ. *****mhallign@execpc.com****** COPYRIGHT 1995-1996 R. MARK HALLIGAN, ESQ.