Trade Secrets

What Are Trade Secrets?

Under the Defend Trade Secrets Act (DTSA) of 2016, a trade secret is defined in a way that is consistent with the definition given in the Uniform Trade Secrets Act (UTSA) adopted by many states. According to the DTSA, a trade secret is information that:

• Is not generally known to the public. If the information is easily ascertainable or generally known within an industry, it cannot be considered a trade secret.
• Derives economic value from being secret. The information must give the owner a competitive advantage or potential for economic gain that it would not have if the information were generally known.
• Is the subject of reasonable efforts to maintain its secrecy. The owner must take reasonable steps to protect the information, such as requiring confidentiality agreements with employees or others who have access to it.

The type of information that can qualify as a trade secret under the DTSA is broad and includes financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes. This can include information whether it is stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.

Overall, the DTSA provides robust protections for trade secrets and allows businesses to sue in federal court for trade secret misappropriation. This makes the DTSA a powerful tool for businesses to protect their valuable proprietary information.

What Is The Uniform Trade Secrets Act (UTSA)

The Uniform Trade Secrets Act (UTSA) is a piece of legislation developed by the Uniform Law Commission in the United States in 1979 to provide a legal framework for the protection of trade secrets, such as formulas, patterns, compilations, programs, devices, methods, techniques, or processes. The main aim of the UTSA was to harmonize the various state laws concerning trade secrets, as laws varied widely from state to state before its adoption.

The UTSA provides for legal remedies in the event of misappropriation of a trade secret, including injunctions and damages. Misappropriation generally involves the acquisition of a trade secret by someone who knows or has reason to know that the trade secret was acquired by improper means (such as theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means), or the disclosure or use of a trade secret without consent by a person who used improper means to acquire knowledge of the trade secret.

Illinois Trade Secrets Act – 765 ILCS 1065

The Illinois Trade Secrets Act (ITSA), like other states’ trade secrets acts, is modeled after the Uniform Trade Secrets Act (UTSA), which provides a generally accepted framework for understanding what constitutes a trade secret.

Under the Illinois Trade Secrets Act, a trade secret is defined as information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that:

• Is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and
• Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.

This definition is purposefully broad and flexible, allowing for a wide array of information to potentially be protected as trade secrets. It’s important to note that the value of the information comes from its secrecy, and the owner must take reasonable measures to maintain its secrecy. Courts evaluate the secret’s economic value, the efforts to protect it, and its accessibility by competitors. Notable cases, such as Delta Med. Sys., Inc. v. Mid-Am. Med. Sys., Inc., 331 Ill. App. 3d 777 (2002), emphasize these factors.

Economic value can include various forms of information such as business plans, customer lists, manufacturing processes, research and development information, marketing strategies, and many others, provided they meet the above criteria.

It is also important to mention that a violation of the ITSA can lead to various remedies including injunctions, compensatory damages, punitive damages, and attorney’s fees under certain circumstances.

Summary of Trade Secret Laws In Illinois

As noted above, Illinois trade secret law is primarily governed by the Illinois Trade Secrets Act (ITSA) (765 ILCS 1065/1 to 1065/9), which closely follows the Uniform Trade Secrets Act (UTSA) with notable differences. This following discussion outlines key aspects of Illinois trade secret laws, including, protections, defenses, and relevant case law.

Misappropriation and Protections

The ITSA defines misappropriation as the improper acquisition, disclosure, or use of a trade secret. Improper means include theft, fraud, bribery, misrepresentation, or espionage but exclude reverse engineering and independent development (765 ILCS 1065/2(a)). Case law, such as Mangren Research & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937 (7th Cir. 1996), highlights instances of misappropriation and employer protections.

Statutory Enhancements and Limitations

• Broader Definition: ITSA includes drawings, financial data, and customer lists, extending beyond the UTSA.; and
• Statute of Limitations: ITSA allows five years for claims, compared to the UTSA’s three years (765 ILCS 1065/7)

Remedies for Misappropriation

Victims of trade secret misappropriation can seek:

• Actual damages or unjust enrichment.
• Injunctive relief to prevent further misuse.
• Attorney’s fees in cases of bad faith or willful misconduct.
• Exemplary damages for malicious actions (765 ILCS 1065/3–5).

Preemption and Common Law

The ITSA preempts other civil claims related to trade secrets, except for contractual remedies. However, non-preempted claims, like breach of fiduciary duty, may proceed if they are distinct from misappropriation allegations (Hecny Transp., Inc. v. Chu, 430 F.3d 402 (7th Cir. 2005)).

Reasonable Efforts to Maintain Secrecy

Illinois courts expect businesses to implement robust measures such as restricting access, confidentiality agreements, and physical or electronic security measures (Burt Dickens & Co. v. Bodi, 144 Ill. App. 3d 875 (1986)).

Examples of Trade Secrets and Non-Secrets

• Trade Secrets: Customer lists developed at great expense, proprietary software, and confidential financial data (Lucini Italia Co. v. Grappolini, 2003 WL 1989605 (N.D. Ill.)).
• Not Trade Secrets: Information easily obtainable from public sources or outdated processes (Chemetall GMBh v. ZR Energy, Inc., 138 F. Supp. 2d 1079 (N.D. Ill. 2001)).

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Defenses Against Claims

Defendants may argue that:

• The information is not a trade secret.
• There was no misappropriation.
• The owner failed to protect the information.
• The claim is barred by the statute of limitations (Jackson v. Hammer, 274 Ill. App. 3d 59 (1995)).

Significance of Case Law

Key cases like Stampede Tool Warehouse, Inc. v. May, 272 Ill. App. 3d 580 (1995), demonstrate the nuanced enforcement of trade secret protections, including the scope and duration of injunctions against former employees.

Remedies for Trade Secret Misappropriation

The Illinois Trade Secrets Act (ITSA) provides several remedies for trade secret misappropriation, aimed at compensating the owner and preventing further misuse. These include:

• Monetary Damages: Compensation for the economic harm directly caused by the misappropriation (actual losses); Recovery of any additional profits gained by the defendant that are not accounted for in actual losses (unjust enrichment).
• Exemplary Damages: Courts may award up to twice the amount of actual damages if the misappropriation is proven to be willful and malicious (765 ILCS 1065/4).
• Injunctive Relief: Courts can issue injunctions to prevent ongoing or future misuse of trade secrets. Injunctions may also compel defendants to take affirmative actions to protect the trade secret, such as returning confidential documents (765 ILCS 1065/3).
• Reasonable Royalty: In cases where an injunction is deemed inappropriate, a court may impose a reasonable royalty for the use of the trade secret.
• Attorney’s Fees: Attorney’s fees may be awarded if a claim of misappropriation or a defense against it was made in bad faith, or if the misappropriation was willful and malicious (765 ILCS 1065/5).

Contractual Protections

Contractual business agreements, including restrictive covenant agreements, are a key tool for businesses to safeguard their trade secrets. Illinois courts recognize the enforceability of contracts such as nondisclosure agreements (NDAs) and confidentiality clauses, provided they meet specific requirements:

• Reasonableness: To be enforceable, the terms must be reasonable in scope, duration, and geography. Courts consider the totality of circumstances, including the employer’s legitimate business interests and the agreement’s impact on employees (Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871, ¶ 17)..
• Consideration: Adequate consideration is necessary to enforce restrictive covenants. For employment-related agreements, continued employment for a significant period may suffice as consideration (Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, ¶ 19).
• Specificity: Agreements must clearly define the information protected as confidential to ensure enforceability. Broad, vague terms may result in a court refusing to enforce the agreement.
• “Blue-Penciling” by Courts:  Illinois courts may modify (or “blue-pencil”) overbroad contractual terms to align them with reasonable standards (Gillespie v. Carbondale & Marion Eye Ctrs., Ltd., 251 Ill. App. 3d 625 (1993))..
• Examples of Protective Measures: Requiring employees to sign NDAs or confidentiality agreements. Implementing policies that remind employees of their confidentiality obligations upon departure (Comput. Assocs. Int’l, Inc. v. Quest Software, Inc., 333 F. Supp. 2d 688 (N.D. Ill. 2004)).

This legal framework highlights Illinois’ commitment to safeguarding intellectual property while balancing fair competition and innovation. By leveraging remedies under the ITSA and strategically employing contractual protections, Illinois businesses can effectively safeguard their valuable trade secrets against misappropriation and unauthorized use.

Brief Overview of Trade Secret Litigation in the United States

Trade secret litigation in the United States often arises when a business believes that its trade secrets, such as formulas, patterns, compilations, programs, devices, methods, techniques, or processes, have been misappropriated. This can happen in a variety of ways, including through theft, bribery, misrepresentation, breach of a duty to maintain secrecy, or espionage. Given the significant value that these trade secrets can hold, businesses will often go to great lengths to protect them.

Trade secret disputes can involve a wide range of issues and legal arguments, but they typically hinge on whether the information at issue is actually a trade secret and whether it was improperly acquired or disclosed. Additionally, they may involve issues of whether the defendant had a duty to maintain the secrecy of the trade secret and whether they breached that duty.

At the federal level, trade secret litigation is governed by the Defend Trade Secrets Act (DTSA), which was enacted in 2016. This law provides federal jurisdiction for trade secret theft, allowing parties to sue in federal court regardless of the amount in controversy. The DTSA does not preempt or displace the state laws, but rather it provides an additional layer of potential protection.

Under the DTSA, an owner of a trade secret that is misappropriated may bring a civil action if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. The DTSA allows for injunctions and damages for actual loss and any unjust enrichment caused by the misappropriation of a trade secret. In exceptional circumstances, it may also provide for an ex parte seizure order to prevent the propagation or dissemination of a trade secret.

On the state level, many trade secret actions are governed by the Uniform Trade Secrets Act (UTSA), which has been adopted, with variations, by most states. The UTSA similarly provides for injunctive relief and damages.

Contact Our Chicago Business Attorneys

In today’s competitive business environment, your trade secrets are one of your most valuable assets. They are a key component of your company’s unique value proposition and a critical factor in your long-term success. However, as the digital landscape becomes increasingly complex, ensuring the confidentiality and security of these secrets can present significant challenges. If you’re facing a trade secret issue or simply wish to take proactive steps to secure your proprietary information, we strongly encourage you to reach out to us. The stakes are high, and prompt action can often make the difference in maintaining the competitive edge your business enjoys.

In a trade secret lawsuit, it is often crucial to act quickly and decisively, as the value of a trade secret can be quickly lost if it becomes widely known. For this reason, businesses are often well-advised to consult with experienced legal counsel as soon as they suspect that a trade secret has been misappropriated.  If you or your business has a trade secret matter you would like to discuss, please contact our law firm by completing our online contact form or giving us a call.  We make every effort to respond to all inquiries within one business day.