Trade Secret Laws: Illinois

1y ago
31 Views
2 Downloads
540.96 KB
7 Pages
Last View : 1m ago
Last Download : 1y ago
Upload by : Aiyana Dorn
Transcription

Resource ID: 3-506-3335Trade Secret Laws: IllinoisDAVID J. CLARK, EPSTEIN BECKER & GREEN, P.C., WITH PRACTICAL LAW LABOR & EMPLOYMENTSearch the Resource ID numbers in blue on Westlaw for more.A Q&A guide to state law on trade secrets andconfidentiality for private employers in Illinois.This Q&A addresses the state-specific definitionof trade secrets and the legal requirementsrelating to protecting them. Federal, local, ormunicipal law may impose additional or differentrequirements. Answers to questions can becompared across a number of jurisdictions(see Trade Secret Laws: State Q&A Tool).see Practice Note, Protection of Employers’ Trade Secrets andConfidential Information: Trade Secrets (5-501-1473).SIGNIFICANT DIFFERENCES BETWEEN ADOPTED VERSIONAND MODEL UTSAITSA Provides Broader ProtectionThe ITSA differs from the UTSA because it expands the UTSA’sdefinition of a trade secret to include: Drawings. Financial data. Technical or non-technical data. Lists of actual or potential customers or suppliers.(765 ILCS 1065/2(d); UTSA § 1(4).)OVERVIEW OF STATE TRADE SECRET LAW1. List the laws (statutes and regulations) by name and codenumber, both criminal and civil, that your state has adoptedgoverning trade secrets.Illinois has adopted the Illinois Trade Secrets Act (765 ILCS 1065/1to 1065/9), referred to as the ITSA, to distinguish it from the modelUniform Trade Secrets Act.Illinois does not have a criminal statute specifically regarding tradesecrets.2. Has your state adopted the model Uniform Trade Secrets Act(UTSA)? If so, please: Identify which among the statutes listed in response toQuestion 1 is your state’s adopted version of the UTSA. Describe any significant differences between your state’sadopted version and the model UTSA.Under the ITSA, acquisition of trade secrets by improper means doesnot include: Reverse engineering. Independent development.(765 ILCS 1065/2(a).)The ITSA does not affect the definition of a trade secret contained inany other Illinois statute (765 ILCS 1065/8(b)(4)).Enforceability of Nondisclosure AgreementsThe ITSA does not affect contractual remedies. The ITSA furtherprovides that a contractual or other duty to maintain secrecy is notvoid or unenforceable solely for lack of durational or geographicallimitation. (765 ILCS 1065/8(b)(1).)Statute of LimitationsThe ITSA imposes a five-year statute of limitations, compared with theUTSA’s three-year statute of limitations (765 ILCS 1065/7; UTSA § 6).Additional DifferencesADOPTED VERSION OF MODEL UTSAThe ITSA omits the UTSA provisions regarding:Illinois has adopted the model Uniform Trade Secrets Act (UTSA),with slight modification. It is referred to as the Illinois Trade SecretsAct (ITSA) (765 ILCS 1065/1 to 1065/9). For an overview of the UTSA, Uniformity of Application and Construction (UTSA § 8). 2020 Thomson Reuters. All rights reserved. Severability (UTSA § 10). Repeal (UTSA § 12).

Trade Secret Laws: Illinois3. List any common law protections afforded to trade secrets. Ifcommon law protections are afforded to trade secrets, are theypreempted by available state statutes?The Illinois Trade Secrets Act preempts the former common lawprotecting trade secrets. However, many of the common law standardsand analyses remain relevant. (765 ILCS 1065/8.) For more informationon the relevance of common law, see Question 4.DEFINITION OF TRADE SECRET4. How does your state define a trade secret under each lawidentified in Question 1 (statute or regulation) and Question 3(common law)?The Illinois Trade Secrets Act defines a trade secret as informationthat: Includes:5. Describe any significant cases in your state creating,modifying, or clarifying the definition of a trade secret.To determine whether information is a trade secret, Illinois courtsfocus on whether the information: Is secret. Has economic value because of its secrecy.(George S. May Int’l Co. v. Int’l Profit Assocs., 256 Ill. App. 3d 779, 788(1993).)The economic value requirement prevents protection of informationnot generally known to the public but clearly understood in aparticular industry (George S. May Int’l Co., 256 Ill. App. 3d at 788).For more information on what Illinois considers a trade secret, seeQuestions 6 and 7.Additionally, an Illinois federal court case refused to dismiss part of aclaim under the Illinois Trade Secrets Act that was based on a socialmedia group membership list (CDM Media USA, Inc. v. Simms, 2015WL 1399050, at *4-5 (N.D. Ill. Mar. 25, 2015)).zztechnical or non-technical data;zza formula;zza pattern;6. What are examples of information that courts in your state:zza compilation;a program; Have found to be trade secrets?zzzza device;zza method;zza technique;TRADE SECRETSzza drawing;zza process;In Illinois, types of information that have been found to be tradesecrets include:zzfinancial data; or Computer software source codes (Computer Assocs. Int’l v. Questzza list of actual or potential customers or suppliers. Is sufficiently secret to derive actual or potential economic valuefrom not being generally known to those who can obtain economicvalue from its disclosure or use. Is the subject of efforts that are reasonable under the circumstancesto maintain its secrecy or confidentiality.(765 ILCS 1065/2(d).)To determine whether information is a trade secret, Illinois courtscontinue to evaluate common law factors, including: The extent to which the information is known:zzoutside of the business; andzzby employees and others involved in the business. The measures taken by the business to guard the secrecy of the Have found not to be trade secrets? Have found not to be trade secrets as a matter of law?Software, Inc., 333 F. Supp. 2d 688, 695-97 (N.D. Ill. 2004)). Financial data on profits (Brostron v. Warmann, 190 Ill. App. 3d87, 90 (1989)). Circuitry schematics (Televation Telecomm. Sys., Inc. v. Saindon,169 Ill. App. 3d 8, 17-18 (1988)). Research, design, and marketing plans, product formulations,production methods, and customer and supplier identities thatare not publicly available (Lucini Italia Co. v. Grappolini, 2003 WL1989605, at *16 (N.D. Ill. Apr. 28, 2003)).NOT TRADE SECRETSTypes of information that have been found not to be trade secretsinclude: Customer identities and lists readily obtainable through:zzphone books; The value of the information to the business and its competitors.zzmailing lists; The amount of effort or money expended by the business inzzthe internet;zztrade publications; orzzassociation memberships and directories.information.developing the information. The ease or difficulty for others to properly acquire or duplicate theinformation.(Delta Med. Sys., Inc. v. Mid-Am. Med. Sys., Inc., 331 Ill. App. 3d 777,789–91 (2002).)2(Sys. Dev. Servs., Inc. v. Haarmann, 389 Ill. App. 3d 561, 575-76(2009); Curtis 1000, Inc. v. Suess, 843 F. Supp. 441, 451-52(C.D. Ill. 1994), aff’d, 24 F.3d 941, 948-49 (7th Cir. 1994).) 2020 Thomson Reuters. All rights reserved.

Trade Secret Laws: Illinois Pricing information freely disclosed to customers (UnisourceWorldwide, Inc. v. Carrara, 244 F. Supp. 2d 977, 987 (C.D. Ill. 2003)).NOT TRADE SECRETS AS A MATTER OF LAWTypes of information that have been found not to be trade secrets asa matter of law include: Information or processes commonly known within the industry (seeChemetall GMBh v. ZR Energy, Inc., 138 F. Supp. 2d 1079, 1082-84(N.D. Ill. 2001); Composite Marine Propellers v. Van Der Woude, 962F.2d 1263, 1265-67 (7th Cir. 1992)). Information developed with little time, money, and effort (WebCommc’ns Grp., Inc. v. Gateway 2000, Inc., 889 F. Supp. 316, 319-20(N.D. Ill. 1995)). Information so outdated that it lacks current economic value(Applied Indus. Materials Corp. v. Brantjes, 891 F. Supp. 432, 438-39(N.D. Ill. 1994)).7. To what extent have: Customer, client, or subscriber lists been given trade secretprotection? Former employees been enjoined from using a formeremployer’s customer information?CUSTOMER LISTS CAN BE PROTECTED AS TRADE SECRETSIllinois courts recognize customer lists and pricing information astrade secrets. However, the determination depends on the facts ofthe case. (Multiut Corp. v. Draiman, 359 Ill. App. 3d 527, 536 (2005).)To be a trade secret, a customer list must include information that is: Sufficiently secret to derive actual or potential economic valuefrom not being generally known to others who can obtaineconomic value from its disclosure or use. The subject of reasonable efforts to maintain its secrecy orconfidentiality.(765 ILCS 1065/2(d).)Customer lists have been held to be trade secrets where: The employer developed the list:zzover a substantial period of time; andzzat great expense. The information is unavailable to other employees, the generalpublic, or competitors.(Elmer Miller, Inc. v. Landis, 253 Ill. App. 3d 129, 134 (1993).)Customer lists have been held not to be trade secrets where: The employer did not treat the information as confidentialand secret. The information was available to other employees. Thebusiness failed to take steps to restrict employee accessto the list. The business did not inform employees the information wasconfidential. The business did not require employees to sign confidentialityagreements. 2020 Thomson Reuters. All rights reserved. Competitors knew the information. The information could be easily duplicated by reference totelephone directories or professional publications. Competitors knew customer identities.(Liebert Corp. v. Mazur, 357 Ill. App. 3d 265, 279 (2005); Office Mates5, N. Shore, Inc. v. Hazen, 234 Ill. App. 3d 557, 575-76 (1992).)SCOPE OF INJUNCTION ENJOINING USE OF FORMER EMPLOYER’SCUSTOMER LISTIn one case, the Appellate Court of Illinois: Reversed the permanent injunction restraining the former employeesfrom contacting any of their former employer’s customers. Modified the injunction to last four years from the date the originaltemporary restraining order was entered. Further modified the injunction so that each former employee isbarred from contacting only the former employer’s customers towhom the particular employee had access.(Stampede Tool Warehouse, Inc. v. May, 272 Ill. App. 3d 580, 591 (1995).)In a separate case, the Appellate Court of Illinois upheld a one-yearinjunction preventing a former operations manager from soliciting hisformer employer’s customers. The former manager misappropriatedcustomer account information before setting up his own competingbusiness. (Burt Dickens & Co. v. Bodi,144 Ill. App. 3d 875, 885 (1986).)REASONABLE EFFORTS TO MAINTAIN SECRECY8. What efforts to maintain secrecy have been deemedreasonable or sufficient for trade secret protection by: Courts in your state? Statutes or regulations in your state?COURTSIllinois courts cite several reasonable steps that an employer can useto protect its customer information, including: Severely restricting employee access to customer expiration lists. Disclosing only relevant account information to each salesman. Using a secret code to access information. Restricting computer printouts of customer information. Shredding and disposing of computer printouts after use. Informingall employees that customer expiration lists wereconfidential property that could not be disclosed or removedfrom the office.(Burt Dickens & Co., 144 Ill. App. 3d at 880.)Illinois courts found another employer took reasonable steps toprotect information as a trade secret where: Employee manuals contained confidentiality policies to:zzprevent outsiders from gaining access to the information; andzzlimit access within the company. The employer reminded the employees of their confidentialityobligations when leaving the company.3

Trade Secret Laws: Illinois Only employees with security key cards could access thecompany’s premises. The information was never released to the general public.(Comput. Assocs. Int’l, 333 F. Supp. 2d at 696.) Before a material change of position, knew or had reason to knowthat:zzzzthe information was a trade secret; andknowledge of the information had been acquired by accident ormistake.Additional reasonable steps to protect customer information mightinclude:(765 ILCS 1065/2(b)(2).) Keeping the trade secret in computerized form with restrictedDEFINITION OF IMPROPER MEANSaccess (Burt Dickens & Co., 144 Ill. App. 3d at 881). Locking up secret documents (Strata Mktg., Inc. v. Murphy, 317 Ill.App. 3d 1054, 1069 (2000)). Limiting access to the information on a need-to-know basis(Televation Telecomm. Sys., Inc., 169 Ill. App. 3d at 17). Asking employees to sign confidentiality agreements (StampedeTool Warehouse, Inc., 272 Ill. App. 3d at 589).Reasonable security efforts may vary with business size. Reasonableefforts to maintain secrecy for a two- or three-person shop may differfrom reasonable steps for a larger company. (Elmer Miller, Inc., 253 Ill.App. 3d at 134.)STATUTES OR REGULATIONSThere are no statutes or regulations addressing what are reasonablesteps to maintain the secrecy of a trade secret.TRADE SECRET MISAPPROPRIATION CLAIMS9. For any law identified in Question 1 (statutes or regulations)or Question 3 (common law), what must a plaintiff show toprove trade secret misappropriation?Improper means under the ITSA includes: Theft. Bribery. Misrepresentation. Breach or inducement of a breach of a duty to maintain secrecy orlimit use. Espionage through electronic or other means.(765 ILCS 1065/2(a).)Improper means does not include: Reverse engineering. Independent development.(765 ILCS 1065/2(a).)10. Can corporations, corporate officers, and employees of acompeting company in possession of the trade secrets of othersbe held liable for misappropriation in your state? If so, underwhat circumstances?Under the Illinois Trade Secrets Act (ITSA), entities that may be liablefor trade secret misappropriation include:The Illinois Trade Secrets Act (ITSA) defines misappropriation toinclude: Individuals. Acquisition. Business trusts. Disclosure. Estates. Use. Trusts.(765 ILCS 1065/2(b).) Partnerships.ACQUISITION AS MISUSEA trade secret can be misappropriated where the acquirer knew orhad reason to know that the trade secret was acquired by impropermeans (see Question 9: Definition of Improper Means) (765 ILCS1065/2(b)(1)).DISCLOSURE OR USE OF TRADE SECRET AS MISUSEDisclosure or use of another’s trade secret without express or impliedconsent can constitute misappropriation where the acquirer: Used improper means to acquire knowledge of the trade secret. When the disclosure or use occured, knew or had reason to knowthat the trade secret was:zzzzzz4derived from a person who used improper means to acquire it;acquired under circumstances giving rise to a duty to maintainits secrecy or limit its use; orderived from a person who owed a duty to maintain its secrecyor limit its use. Corporations. Associations. Joint ventures. Governments. Governmental subdivisions and agencies. Any other legal entity.(765 ILCS 1065/2(c).)The elements in Question 9 are necessary to prove misappropriationof the trade secret by both individuals and legal and commercialentities.Under the ITSA, two businesses successfully stated a trade secretsmisappropriation claim against a restaurant chief executive in hisindividual capacity where he both: Acted as chief executive of a competitor. Misappropriated trade secrets regarding:zzsuppliers;zzsales; 2020 Thomson Reuters. All rights reserved.

Trade Secret Laws: Illinoiszzemployee histories;zzgross profits;zzrevenues;zzexpenses;zzfinancing agreements;zzinvestor lists;zzmarketing plans; andzzspecial customer relationships.(MJ & Partners Rest. Ltd. P’ship v. Zadikoff, 10 F. Supp. 2d 922, 933(N.D. Ill. 1998).)In a 1996 case before the US Court of Appeals for the 7th Circuit, achemical manufacturer successfully sued a competing corporationunder the ITSA for trade secret misappropriation where thecompetitor: Hired one of the manufacturer’s former employees who disclosedhis former employer’s trade secret formula. Developed and sold a product using a similar formula. Ignored the former employee’s warning that using a similarformula would likely cause a misappropriation lawsuit.The Illinois Trade Secrets Act has a five-year statute of limitations.The five-year period begins to run from when the misappropriationeither: Is discovered. With reasonable diligence, should have been discovered.(765 ILCS 1065/7.)A continuing misappropriation is treated as a single claim (765 ILCS1065/7).OTHER RELATED CLAIMS13. What other claims, statutory or common law, can a plaintiffbring in your state against a defendant in the event of wrongfulacquisition, misuse, or disclosure of a trade secret?The Illinois Trade Secrets Act (ITSA) displaces conflicting tort,restitutionary, unfair competition, and other Illinois laws providingcivil remedies for trade secret misappropriation (765 ILCS1065/8(a)).However, a plaintiff may allege: Contractual remedies, whether or not based on misappropriationof a trade secret.(Mangren Research & Dev. Corp. v. Nat’l Chem. Co., Inc., 87 F.3d 937,944-46 (7th Cir. 1996).) Criminal remedies, whether or not based on misappropriation of aDEFENSES Other civil remedies that are not based on misappropriation of atrade secret.11. For any law identified in Question 1 (statutes and regulations)or Question 3 (common law), what defenses are available todefend against claims under the statute or common law?In Illinois, defenses to a misappropriation of trade secrets claiminclude: The information is not a trade secret (see Question 4). There was no misappropriation (see Question 9). The statute of limitations has expired (see Question 12). The trade secret has not been described with the requisitespecificity in the pleading. Lack of standing to sue. The trade secret owner failed to use reasonable efforts to protectits trade secret (Jackson v. Hammer, 274 Ill. App. 3d 59, 66-68(1995)).trade secret.(765 ILCS 1065/8(b).)For more information on claims preempted by the ITSA, seeQuestion 19.REMEDIES14. For any law identified in Question 1 (statutes andregulations) and Question 3 (common law), please describe thepotential relief available to plaintiffs.In Illinois, potential relief for trade secret misappropriation includes: Monetary damages, including:zzzz Equitable defenses, including:zzlaches;zzestoppel;zzwaiver; andzzunclean hands.STATUTE OF LIMITATIONS12. For any law identified in Question 1 (statutes andregulations) or Question 3 (common law), please identify therelevant statute of limitations for bringing a claim. 2020 Thomson Reuters. All rights reserved.the amount of actual loss caused by the misappropriation; andcompensation for any unjust enrichment caused by themisappropriation that is not factored into calculating theamount of actual loss. Exemplary damages. Injunction. Attorney’s fees, only if:zzzza claim of misappropriation or motion to terminate an injunctionwas made or resisted in bad faith; orwillful and malicious misappropriation occurred. A reasonable royalty. A court order compelling affirmative acts to protect a trade secret.(765 ILCS 1065/3, 1065/4, and 1065/5.)5

Trade Secret Laws: IllinoisCONTRACTUAL PROTECTIONS15. What factors do courts in your state consider whenassessing the enforceability of a nondisclosure or confidentialityagreement?Under Illinois law, a post-employment restrictive covenant isenforced if its terms are reasonable (Coady v. Harpo, Inc., 308 Ill.App. 3d 153, 160-61 (1999)).A restrictive covenant’s reasonableness is a fact-intensive inquiryand is based on the totality of the circumstances (Cambridge Eng’g,Inc. v. Mercury Partners 90 BI, Inc., 378 Ill. App. 3d 437, 447 (2007)).Illinois courts hold that a restrictive covenant is reasonable if thecovenant: Is no greater than required to protect a legitimate business interestof the employer. Does not impose undue hardship on the employee. Does not injure the public.(Reliable Fire Equ

OVERVIEW OF STATE TRADE SECRET LAW 1. List the laws (statutes and regulations) by name and code number, both criminal and civil, that your state has adopted governing trade secrets. Illinois has adopted the Illinois Trade Secrets Act (765 ILCS 1065/1 to 1065/9), referred to as the ITSA, to distinguish it from the model Uniform Trade Secrets Act.