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Court: Trade Secrets Were Taken, But Injunction Still Denied


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3/27/2019
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It's been well-documented that just because you call something a "Trade Secret" doesn't make it so; to recover for trade secret misappropriation requires an awful lot more than that - even when the material that was taken was legitimately trade secret material - as an Illinois employer just learned the hard way in  Abrasic 90 Inc., d/b/a CGW Camel Grinding Wheels, USA v. Weldcote Metals, Inc., Joseph O’Mera and Colleen Cervencik.

What Happened in Abrasic 90 Inc.

According to the plaintiff, after approximately 18 years serving as President of Abrasic, a manufacturer of grinding and sanding discs doing business as Camel Grinding Wheels, U.S.A. (“CGW”), defendant Joe O’Mera left to set up a competing abrasives business for Weldcote Metals, Inc. (“Weldcote”), and on his way out the door, Mera took with him a flash drive of some CGW files containing, the company contends, trade secret information about its pricing, customers, and suppliers. Co-defendant Cervencik, another former CGW employee, allegedly undertook similar acts, taking with her information she intended to use to help Weldcote compete for CGW's distributors.

CGW, therefore, took the next logical step, seeking an injunction against Weldcote, O'Mera and Cervencik, and to bar them from using this information to unfairly compete against CGW.

The Court's Reasoning in Denying CGW Injunctive Relief is Telling

As a threshold matter, the Court conceded that there wasn't any particular challenge, nor could it reasonably be disputed, that the defendants had misappropriated CGW's information. The Court went even further, noting that this information probably would qualify as bona fide trade secret material.

But that wasn't enough.

The Court began its analysis with a discussion of the relevant standards under the Federal Defend Trade Secrets Act, and its companion state law equivalent under the Illinois Code, stating as follows:

"To prevail on a misappropriation of trade secrets claim, CGW must show that the information taken by the defendants was “(i) secret (that is, not generally known in the industry), (ii) misappropriated (that is, stolen from it rather than developed independently or obtained from a third source), and (iii) used in the defendants’ business.” Composite Marine Propellers, Inc. v. Ven Der Woude, 962 F.2d 1263, 1265–66 (7th Cir. 1992).

"It cannot be reasonably disputed that the defendants copied information from CGW and used it, at least in some limited fashion, in setting up Weldcote’s business. The relevant question is whether the CGW information at issue was truly secret."

Here's where the Federal court's opinion gets really interesting:

"Although some of the information at issue may have been protectable as a trade secret, CGW did not adequately protect it for it to qualify as a trade secret ...

"CGW took almost no measures to safeguard the information that it now maintains was invaluable to its competitors. The company’s almost total failure to adopt even fundamental and routine safeguards for the information at issue belies its claim that the information has economic value to its competitors and makes it quite unlikely that CGW will ultimately prevail on its trade secret claim ...

"CGW’s data security was so lacking that it is difficult to identify the most significant shortcoming, but the company’s failure to require those with access to its supposed trade secrets to enter into non-disclosure and confidentiality agreements has to be counted among the most fundamental omissions by the company. Failure to enter into nondisclosure or confidentiality agreements often dooms trade secret claims. See, e.g., Arjo, Inc. v. Handicare USA, Inc., No. 18 C 2554, 2018 WL 5298527, at *4 (N.D. Ill. Oct. 25, 2018) (“Pricing information shared freely with customers without confidentiality requirements is insufficiently secret to garner protection.”) (further citations omitted).

The Takeaway

The lesson to be gleaned from this case should be fairly obvious: even if you, as an employer, have legitimately proprietary material that qualifies as a "trade secret," unless you take proper and adequate measures to protect it, you can't in good conscience ask a court to undertake that work for you.

 

 

 



Category: Breach of Fiduciary Duty

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer

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