There are many ways to gain trade secret protection, but also many ways to lose it. As the recent motion to dismiss ruling in Fleetwood Packaging v. Hein from the Northern District of Illinois illustrates, how a company vacuum packs its confidential information can make all the difference between preserving it and watching it get spoiled by a competitor.
In Fleetwood Packaging, a division of the packaging materials company Signode Industrial Group alleged a former employee misappropriated its trade secrets and stole away several key clients. The ex-employee had worked for Signode as a salesman and a territory manager, and his responsibilities included managing and expanding existing customer relationships, developing new customers, and overseeing pricing strategies. Notably, the employee was subject to a confidentiality agreement stating he would not disclose or use "any confidential information" relating to the business either during or after his employment. The confidentiality agreement specifically referenced confidential information as "price lists, customer lists, [and] vendor lists," among other types of information.
The employee gave notice in 2014 he was leaving Signode for one of the company's direct competitors. Soon thereafter, Signode became aware the individual was soliciting his former Signode clients on behalf of his new employer. Signode retained a computer forensic expert and determined that on multiple occasions, the former employee connected unauthorized removable storage devices to his Signode laptop and copied confidential information to them, including customer contact information, contribution reports, and product matrices. Signode alleged the employee had misappropriated these pieces of information because they constituted "trade secrets" under Illinois law.
In analyzing whether Signode's information was a trade secret, District Judge John J. Starp, Jr. initially stated, "[T]here is no question that customer lists can warrant protection as trade secrets." However, although Signode alleged it had invested significant time and expense in developing its relationships with its customers around the country, Signode failed to demonstrate "how it built the customer lists and, more importantly, what steps it t[ook] to keep its customer contacts secret." Furthermore, the Court reasoned, "In a niche industry that Signode describes as highly competitive, Signode provides no factual allegations rendering it plausible that the limited universe of potential customers could somehow be secret as between the firms competing for the exact same business." Consequently, the Court determined the customer lists were not protectable trade secrets.
The contribution reports—which were shared with customers—described discounts, pricing terms, services, and additional benefits. The Court recognized Signode had implemented some procedures to maintain the confidentiality of these reports, such as allowing limited dissemination, having a corporate policy to mark documents containing confidential information as "Confidential," having employees sign confidentiality agreements, and having an annual requirement that employees certify that they have read and received Signode's Principles of Conduct which precluded the disclosure of Signode's confidential information. However, the Court found Signode's sharing of the contribution reports with the public dispositive. That is, because the contribution reports were shared with customers, Signode negated any trade secret protection over the information contained in them.
Similarly, the product matrices contained information about the product at issue, vendors, product costs, and relevant delivery information. However, none of the matrices were shared with customers. Further, in addition to the confidentiality measures it attempted with the contribution reports, Signode uploaded its matrices to a database that was restricted to a limited group of employees. Thus, the Court found the company took reasonable efforts to maintain the secrecy of that information. Consequently, the product matrices constituted trade secrets, and the ex-employee had misappropriated them when he used the information to steal away Signode's clients.
Overall, the Fleetwood Packaging decision reminds employers of the need to maintain secrecy over confidential information. If not, they could see information they have invested significant resources into creating stolen right out from under them. As Signode recently learned, once corporate trade secrets are unwrapped, it's hard to box them up again.
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