A small, Chicago-based magnetic picture frame developer's claims for trade secret misappropriation against a photo album manufacturer will be headed to trial after an Illinois federal district court largely denied the parties' cross-motions for summary judgment. Puroon, Inc.'s ("Puroon") founder and CEO, Hyunju Song, developed the "Memory Book," "an all-in-one convertible photo frame, album, and scrapbook" that included magnetic openings and an "interchangeable outside view." In 2013, Puroon launched a website displaying the Memory Book and Song attended various trade shows where attendees were able to interact with the product. Song also sent samples of the Memory Book to representatives of certain retailers without requiring them to sign a nondisclosure agreement.
In November 2014, Song contacted Midwest Photographic Resource Center, Inc. ("Midwest") for assistance in manufacturing and marketing the Memory Book. Midwest signed an NDA that forbade it from using confidential information related to the Memory Book in the development or production of similar items. Midwest connected Puroon with its manufacturer, Sae Kim, who manufactured a prototype of the Memory Book in March 2015. Puroon was not satisfied with the prototype and later learned that Midwest was marketing a product similar to the Memory Book. Puroon filed suit asserting claims for breach of contract, various common law torts, and trade secret misappropriation in violation of the Illinois Trade Secrets Act ("ITSA") and the Defend Trade Secrets Act ("DTSA").
In denying Midwest's motion for summary judgment on Puroon's ITSA and DTSA claims, the court rejected Midwest's arguments that the Memory Book did not qualify as a trade secret. The court held that although the general concept of embedded magnets in picture frames was common knowledge, the Memory Book's manufacturing specifications were not generally known in the industry and Puroon did not provide the specifications to Midwest until it agreed to sign an NDA. Thus, whether the Memory Book's manufacturing specifications constituted a trade secret was a matter best left to a jury.
The court also rejected Midwest's argument that Puroon had abandoned any trade secret protections when it showed the Memory Book at multiple trade shows and sent prototypes of the Memory Book to retailers without requiring them to sign an NDA. The court stated that the trade show attendees could not have identified the Memory Book's manufacturing specifications merely by looking at it or handling the prototype. The retailers were likewise not provided with manufacturing specifications. The court opined that "reasonable steps for a two or three person shop may be different from reasonable steps for a larger company" and concluded that "[g]iven the fact that Puroon is a small, one-person company, a reasonable jury could find that Song's efforts . . . were adequate to protect the Memory Book's secrets."
The court's ruling is a reminder that companies should exercise caution when sharing specifications of new products with potential business partners and manufacturers. And although the court concluded here that displaying a prototype at trade shows and/or sharing a prototype without first obtaining an NDA did not abandon trade secret protections, the outcome may have been different if the plaintiff were a larger corporation with greater resources and sophistication. Larger companies would be wise to restrict any access to its prototypes without first entering into an NDA. The court's opinion reveals that judges are likely to be less sympathetic to larger companies as opposed to mom-and-pop companies, and may conclude that they abandon trade secret protections when they fail to obtain NDAs before disclosing prototypes.
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