Practice Series UNDERSTANDING AND LITIGATING TRADE SECRETS An Outline For Analyzing The Statutory And Common Law Of Trade Secrets In Illinois DEBBIE L. BERMAN APRIL A. OTTERBERG JUSTIN A. MALESON ABRAHAM M. SALANDER AARON J. HERSH © 2017 Jenner & Block LLP All Rights Reserved JENNER & BLOCK LLP OFFICES ▪ 353 North Clark Street Chicago, Illinois 60654-3456 Firm: 312 222-9350 Fax: 312 527-0484 ▪ 919 Third Avenue, 37th Floor New York, New York 10022-3908 Firm: 212 891-1600 Fax: 212 891-1699 ▪ 633 West 5th Street Suite 3600 Los Angeles, California 90071-2054 Firm: 213 239-5100 Fax: 213 239-5199 ▪ 1099 New York Avenue, NW Suite 900 Washington, D.C. 20001-4412 Firm: 202 639-6000 Fax: 202 639-6066 ▪ 25 Old Broad Street London EC2N 1HQ United Kingdom Firm: +44 (0) 330 060 5400 Fax: +44 (0) 330 060 5499 WEBSITE ▪ www.jenner.com AUTHOR INFORMATION ▪ DEBBIE L. BERMAN ▪ APRIL A. OTTERBERG Partner Partner Tel: 312 923-2764 Tel: 312 840-8646 Fax: 312 840-7764 Fax: 312 840-8746 E-Mail: [email protected] E-Mail: [email protected] ▪ JUSTIN A. MALESON ▪ ABRAHAM M. SALANDER Partner Associate Tel: 312 840-8620 Tel: 312 840-7569 Fax: 312 840-8720 Fax: 312 840-7669 E-Mail: [email protected] E-Mail: [email protected] ▪ AARON J. HERSH Associate Tel: 312 840-7412 Fax: 312 527 0484 E-Mail: [email protected] INTRODUCTION TO 2017 EDITION Since the first edition of this outline was published in 2009, Illinois case law addressing the protection of confidential and trade secret information has continued to develop, particularly in the area of restrictive covenants. In addition to addressing that area of the law, this third edition contains updated case law references throughout the outline and adds new information, including about the 2016 federal Defend Trade Secrets Act, the evolving jurisprudence concerning restrictive covenants in employment relationships in Illinois, the varied approaches of different states toward the doctrine of inevitable disclosure of trade secrets, the intersection between claims for misappropriation of trade secrets and other common law and statutory causes of action, and the protection of social media content. We wish to thank former Jenner & Block attorneys Dan Winters, James A. McKenna, David K. Haase, and Matt T. Albaugh for their substantial assistance in developing and creating this outline. We also thank the other attorneys and summer associates, including William T. Wall and Jennifer K. Mindrum, who assisted in researching and drafting this outline. Debbie L. Berman April A. Otterberg Justin A. Maleson Abraham M. Salander Aaron J. Hersh JENNER & BLOCK LLP June 2017 PREFACE In today’s sophisticated business world, managing and protecting confidential information can be critical to remaining competitive in the marketplace. Although companies have a number of statutory and common-law protections for their proprietary information, those protections have limits. For example, a company can protect against use of information by obtaining a patent, but patents are limited in duration, and the idea must meet certain novelty standards. Similarly, a company may require its key employees to sign restrictive covenants that prevent the employees from working for its competitors and thereby disclosing confidential information, but courts will not enforce such agreements indefinitely. By contrast, trade secret protection—the subject of this outline—is available so long as the information is secret and the subject of reasonable steps to maintain secrecy. Thus, trade secret laws may be able to protect a business’s most valuable information, long after other protections have become unavailable. The Illinois Trade Secrets Act (“ITSA”), modeled on the Uniform Trade Secrets Act, governs trade secrets in Illinois. Trade secret owners have brought claims under the Act under numerous fact patterns, including: an employee who stole confidential files before leaving the company to start his own business, an employee who memorized data from a customer list and then provided the data to a competitor, or an entity that breached a non-disclosure agreement and used the plaintiff’s ideas to develop its own product. In this outline, we analyze the complex body of Illinois statutory and decisional case law addressing the protection of confidential and trade secret information. We also provide practical suggestions for counseling clients and defending or prosecuting trade secret misappropriation claims. In Section I, we address what information can be protected as a trade secret and the reasonable steps a plaintiff must take to protect the secrecy of its information if it hopes to obtain trade secret protection. In Section II, we discuss the various acts that constitute misappropriation of a trade secret. Section III concerns the use of trade secrets giving rise to liability, including the concepts of threatened use and inevitable disclosure of trade secrets. Section IV considers the remedies available under ITSA. Section V addresses practice and procedure issues, focusing on those unique to trade secrets claims. Section VI identifies causes of action that plaintiffs often bring in addition to ITSA claims, and discusses the relationship between ITSA and those other claims, including the extent to which ITSA preempts other claims. Finally, Section VII highlights issues involved in obtaining insurance coverage in relation to trade secrets. TABLE OF CONTENTS I. WHAT IS A TRADE SECRET UNDER ILLINOIS LAW? ..............................................1 A. Definition of a Trade Secret. ....................................................................................1 1. Statutory definition. .................................................................................... 1 a) The information must be sufficiently secret. ...................................1 b) The owner must derive value from the information’s secrecy. .......2 c) The owner must take reasonable steps to maintain the information’s secrecy. ......................................................................2 d) ITSA’s variances from the Uniform Trade Secrets Act. ..................2 2. Trade secrets under the Illinois common law. ............................................ 3 a) The Restatement’s six-factor analysis. ............................................4 b) Illinois courts retain the common law six-factor analysis. ..............4 3. The existence of a trade secret is a question of fact. ................................... 5 4. Use by the owner is not required. ............................................................... 5 5. Being the first or only one to use the information is not sufficient. ........... 5 6. The time, effort, and money expended may be relevant. ............................ 6 7. Whether a trade secret exists involves a balancing of interests. ................. 7 B. Specific Categories of Trade Secrets. ......................................................................7 1. Customer lists.............................................................................................. 8 a) Public availability and the cost of compilation of the customer list information frequently determine trade secret status. ................8 b) The size and nature of the plaintiff’s business may affect whether the customer list is protected. ...........................................12 c) The nature of the goods the plaintiff sells may affect trade secret protection. ............................................................................13 d) The size and content of a customer list may affect whether the list is subject to trade secret protection. .........................................13 e) Whether the former employee had a prior relationship with customers on the list may affect trade secret protection. ...............13 f) Whether a purchased customer list is protected is fact-specific. ...14 2. Pricing information, pricing formula, and profit margin. ......................... 14 a) Prices charged are generally denied trade secret protection. .........14 b) Pricing formula unknown to the public may qualify as a trade secret. .............................................................................................15 c) Price differentials and net profits. ..................................................17 3. Computer software. ................................................................................... 17 a) Trade secret misappropriation is not an exclusive claim. ..............18 b) The unique nature of the software may be relevant. ......................18 c) Programmers may not use software from a former employer to write source code. ..........................................................................19 4. Product drawings, schematics, specifications, and blueprints. ................. 19 a) The ease or difficulty of reverse engineering is a factor. ...............20 b) Reverse engineering may not be a defense, if the defendant actually used the drawing or blueprint. ..........................................21 c) Artists’ concepts are generally not protectible. ..............................21 5. Process – method of combining various elements. ................................... 21 6. Product models.......................................................................................... 24 7. Product designs. ........................................................................................ 26 a) Implementation of an original design does not guarantee trade secret protection. ............................................................................27