Wednesday, May 2, 2012

The Illinois Trade Secrets Act Is for Trade Secrets

A recent decision by an Illinois federal court provides useful guidance on the scope and preemptive effect of the Illinois Trade Secrets Act.  The case involves a claim by a supplier that Caterpillar misappropriated both trade secret and non-trade secret confidential information as a result of the transaction between the supplier and Caterpillar. Specifically, the supplier alleges that Caterpillar used its proprietary information to design its own versions of the supplier’s product in order to avoid dealing with the supplier in the future.

The supplier brought suit, alleging a breach of the Illinois Trade Secrets Act, unjust enrichment, and fraudulent inducement, resulting from Caterpillar’s supposed promises to provide significant business to the supplier in the future, in exchange for proprietary information today.

Caterpillar attempted to refine the issues in dispute by alleging that fraudulent inducement and unjust enrichment as causes of action were preempted by the Illinois Trade Secrets Act, which prohibits the wrongful appropriation of certain types of information. A quick refresher:  “trade secrets” are pieces of information that have economic value as result of their not being generally known to the public, and that are subject to reasonable efforts to maintain their secrecy / confidentiality.  Caterpillar was arguing that these other legal theories, which in some cases are more difficult to defend than a Trade Secrets Act claim, were improperly before the court because the Trade Secrets Act covers all that conduct.

There are other types of confidential corporate information that can be protected from disclosure, even though they do not technically comprise a trade secret. Certain business practices, processes, forms, etc., can be considered proprietary, even though their economic value, by themselves, is virtually nil.  The supplier in this case attempted to hedge its bet slightly with respect to whether certain information was a formal “trade secret” by alleging unjust enrichment and fraudulent inducement, which the supplier argued was not covered by the Trade Secrets Act at all.

After some gratuitous beating of the participants about the head and shoulders for not properly characterizing their filings before the Court (I consider the judge in this particular case to be a true expert on the federal Rules of Civil Procedure; his opinions ought to be mandatory reading in every law school in the country), the judge determined that the preemptive scope of the Trade Secrets Act was limited to trade secrets. While the Illinois Supreme Court had not opined on this state law issue, the federal judge looked directly to the language of the statute and determined that there was no preemption for claims based on information that did not qualify as a trade secret.

The decision here is quite useful (it’s also highly entertaining reading, for an intellectual property decision). Companies seeking to protect their intellectual property are not foreclosed from using the full range of business torts available to them, even if the information involved does not fit the formal definition of a trade secret.

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