At Lawrence G. Townsend, Intellectual Property Lawyer, in San Francisco, we represent a variety of clients in trade secret matters. We regularly talk about trade secret issues in this space and today we take note of a recent Illinois case that provides an interesting analysis of the requirement that to be a trade secret, the company or entrepreneur who owns it must take concrete steps to protect it.
Or — put simply — for a secret to be a secret, it must be kept secret.
We have blogged about the ways a business can take precautions to protect its trade secrets. For example, it should make employees and contractors sign nondisclosure agreements. It should label and limit access to real and virtual files as confidential and secret. Management should conduct trainings about what is secret and communicate expectations that trade secrets remain within the company. When an employee leaves, there should be an exit interview in which the nondisclosure agreement is reviewed, equipment is turned in and the employee should be asked about compliance.
These are only some of the steps that a business can take to secure important trade secrets.
Illinois trade secret case
On March 4, the U.S. District Court for the Northern District of Illinois released its opinion in Abrasic 90 Inc. v. Weldcote Metals, Inc.
CGW (an affiliate of Abrasic 90) makes abrasives (discs used in sanding and grinding). Long-time CGW President Joe O’Mera (and others) left CGW to join Weldcote, a company setting up an abrasives business, taking with him CGW files with data about prices, customer lists and suppliers. No one at CGW asked him to delete any company information he might have.
CGW sued O’Mera, another former employee and Weldcote for misappropriation of trade secrets under federal and Illinois state law (and other claims). CGW asked the court for a preliminary injunction — a court order that Weldcote not use CGW’s trade secrets as well as not do business in the abrasives industry.
The court denied the injunction request because CGW did not show an “adequate likelihood of success on the merits nor that it would suffer irreparable harm without injunctive relief.” CGW would only have had to show a chance of success that is “better than negligible.”
The judge wrote that success was unlikely because CGW did not take reasonable steps to keep the information secret. CGW stored it in a large drive — mixed with information that was not secret — that virtually everyone in the company could have access to without limitation or monitoring. The company “took almost no measures to safeguard the information … it … maintains was invaluable to its competitors … even fundamental and routine safeguards …”
For example, the information at issue was not labeled as secret or confidential.
The court also emphasized the significance of CGW’s failure to make employees sign nondisclosure and confidentiality agreements to access the information. In addition, there was no clear confidentiality policy and no training about what information should remain secret.
CGW’s failure to take reasonable steps to keep the information secret made success on the merit unlikely, so the court refused to issue the injunction.
The case is available on Westlaw at 2019 WL 1044322.