In October 2006 the Intellectual Property Section presented an ISBA LawEd seminar entitled, “To Disclose or Not to Disclose—The Benefits and Limitations of Non-Disclosure Agreements.” A few pages from the course materials by Baron and Lingren and by Kegan are reprinted in this issue for those who were unable to attend. Attendees benefited from receiving the full course materials, which presented much more information than these few pages of newsletter selection, hearing the full presentations, broader discussion, questions, and answers.
The following is a compilation of significant and/or factually interesting cases addressing issues that directly or indirectly affect the enforceability of nondisclosure agreements in Illinois. It is not intended to be an exhaustive list. All cases apply Illinois law unless otherwise noted.
Employer non-disclosure agreements
The Agency, Inc. v. Grove, 362 Ill. App. 3d 206, 839 N.E.2d 606 (2005)
• The non-disclosure agreement of a worker in the temporary workforce placement business is enforceable to prohibit disclosure of client contract expiration dates, business cycles, worker placement history, and client personnel preferences.
Quixote Transp. Safety, Inc. v. Cooper, No. 03C1401, 2004 WL 528011 (N.D. Ill. March 12, 2004)
• Where a company attempts to establish the violation of a non-disclosure provision on grounds that a former employee inevitably will use confidential information in his next employment position, such a provision will be unenforceable if it also bars disclosure in perpetuity worldwide.
RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001)
• A non-disclosure agreement will be enforceable to protect substantial proprietary information about a company’s customers and prospects that: (a) was not known outside of the employer’s business; (b) had been safeguarded by the employer in a reasonable manner; (c) was developed at substantial expense; (d) would have great value if disclosed to competitors; and (e) would be extremely difficult to duplicate without the expenditure of years of time and millions of dollars of resources.
Trailer Leasing Co. v. Associates Commercial Corp., No. 96C2305, 1996 WL 392135 (N.D. Ill. July 10, 1996)
• A confidentiality provision prohibiting disclosure of “any methods and manners by which Employer leases, rents, sells, finances, or deals with its products and its customers” was found unenforceable because it sought to prevent such information regardless of whether the method or manner was confidential, and thus the provision impermissibly extended beyond protecting the legitimate business interests of the employer.
Coady v. Harpo, Inc., 308 Ill. App. 3d 153, 719 N.E.2d 244 (1999)
• An employment agreement forbidding a senior producer of the Oprah Winfrey Show from disclosing information concerning Ms. Winfrey and her private life and the business activities of the employer was reasonable and enforceable even though the provision lacked durational or geographic limitations, since it did not seek to restrain the producer’s exercise of her profession temporally, geographically or by career type.
Siegel v. The Holson Co., No. 91C1739, 1991 WL 198765 (S.D.N.Y. Sept. 23, 1991)
• A non-disclosure provision prohibiting the employee from disclosing “any information, design, business practice, or plans relating to [the company] to any authorized person” was unenforceable as “unreasonably broad” because there was “no limitation at all on its scope.”
Disher v. Fulgoni, 124 Ill. App. 3d 257, 464 N.E.2d 639 (1984)
• An employee raised a “fair question” as to the validity of a confidentiality agreement when: (a) in order to begin working for the company, the employee liquidated his business in another state, sold his home, and moved to Illinois; (b) in order to continue working for the company, he was required to sign a non-disclosure agreement as a non-negotiable condition of his employment; (c) his non-disclosure obligations were unrestricted in time or geographical location; (d) his non-disclosure obligations extended to “any third party”; (e) and the subject matter of his duty of confidentiality was left open-ended.
Oral agreements
Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714 (2003)
• An oral agreement of confidentiality was found to be a “reasonable measure” to protect the secrecy of the concept at issue due to the size and sophistication of the parties and the relevant industry.
Nature of protectable information
Bondpro Corp. v. Siemens Power Generation, Inc., No. 05-3077, 2006 WL 2597860 (7th Cir. Sept. 12, 2006) (slip op.) (applying Wisconsin law)
• A plaintiff’s failure to describe with particularity the trade secret it alleges has been disclosed in breach of an agreement will be fatal to any attempt to establish liability for breach because the court will be unable to accurately assess whether the concept merits protection.
Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003)
• Factors significant in determining whether a trade secret exists include the following: (1) the extent to which the information is known outside the plaintiff’s business; (2) the extent to which the information is known by the employees and others involved in plaintiff’s business; (3) the extent of measures taken by plaintiff to guard the secrecy of the information; (4) the value of the information to plaintiff and to his competitors; (5) the amount of effort or money expended by plaintiff in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
Pope v. Alberto-Culver Co., 296 Ill. App. 3d 512, 694 N.E.2d 615 (1998)
• A confidentiality and nondisclosure agreement between a hair products company and an inventor who submitted a product proposal, under which the company agreed not to disclose any trade secrets or misappropriate the proposal, could not provide a basis for liability by the company where the proposal was within the realm of the industry’s skills and knowledge and could be readily duplicated without considerable time, effort or expense, and the language of the agreement expressly excluded information “generally available to the public.”
Nillsen v. Motorola, Inc., 963 F. Supp 664 (N.D. Ill. 1997)
• A trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.
Label Printers v. Pflug, 206 Ill. App. 3d 483, 564 N.E.2d 1382 (1991)
• The salesman of a label manufacturing company had not acquired any trade secret or confidential information concerning manufacturing processes, customer names and requirements, and pricing information that was not already known to plaintiff’s competitors or that could not be easily ascertained by them, and therefore the company had no protectable interests under its non-disclosure agreement for purposes of its motion for preliminary injunction.
Lucini Italia Co. v. Grappolini, No. 01C6405, 2003 WL 1989605 (N.D. Ill. April 28, 2003)
• The plaintiff’s research, design and marketing plans, product formulations and production methods, and customer and supplier identities all met the secrecy requirement of the Illinois Trade Secret Act. The information was not readily ascertainable from any source of public information, was developed through great expense and effort, and plaintiff had taken reasonable steps to safeguard the confidential information—it was not shared with anyone outside of senior management, except for select individuals assisting with product development who had signed non-disclosure agreements. Moreover, the trade secrets derived a substantial part of their value from being known to plaintiff and not its competitor.
Secrecy
Tax Track Sys. Corp. v. New Investor World, Inc., No. 01C6217, 2005 WL 936638 (N.D. Ill. March 24, 2005)
• A plaintiff seeking to enforce restrictions on the disclosure of confidential information need not establish that the information rises to the level of a trade secret, but must still demonstrate that it made an “effort to keep such information confidential.”
Liebert Corp. v. Mazur, 357 Ill. App. 3d 265, 827 N.E.2d 909 (2005)
• A manufacturing company did not institute sufficient measures to protect the security of its customer lists and pricing information because, although it restricted access to list and prevented workers from taking customer information when they left the company, it did not require employees to sign confidentiality agreements, inform employees that records were confidential verbally or in writing, or label the information as confidential.
Arcor, Inc. v. Haas, 363 Ill. App. 3d 396, 842 N.E.2d 265 (2005)
• The limited security measure of a confidentiality agreement is insufficient to satisfy the second element of a trade secret—that the plaintiff took reasonable steps to maintain the secrecy of the information—without additional steps such as limiting access to information by computer password or keeping track of hard copies of the information.
Nillsen v. Motorola, Inc., 963 F. Supp 664 (N.D. Ill. 1997)
• A general implied duty of confidentiality for an inventor’s disclosures to a company cannot be found if the confidentiality agreement between the parties limits the duty of confidentiality to disclosures made in writing and marked “confidential.”
Misappropriation/Use of trade secrets
Lucini Italia Co. v. Grappolini, No. 01C6405, 2003 WL 1989605 (N.D. Ill. April 28, 2003)
• Liability for use of another’s trade secret will be found even if the wrongdoer made modifications or improvements, so long as the substance of the information used is substantially derived from another’s trade secret information.
Liebert Corp. v. Mazur, 827 N.E.2d 909 (Ill. App. 2005)
• A plaintiff my prove a claim of trade secret misappropriation by demonstrating that defendants’ new employment will inevitably lead him to rely on the plaintiff’s trade secrets.
Injunctive relief
RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001)
• If a plaintiff can show that a former employee inevitably will use confidential information at a new employer, absent an injunction, and such use would provide a substantial unfair competitive advantage, then injunctive relief is appropriate. Factors in determining whether disclosure is inevitable include: (1) the level of competition between the former employer and the new employer; (2) whether the employee’s position with the new employer is comparable to the position held with the former employer; and (3) actions the new employer has taken to prevent the former employee from using or disclosing the trade secrets of the former employer.
Damages
RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001)
• Punitive damages may be awarded for intentional breach of a non-disclosure agreement and misappropriation of trade secrets.
Lucini Italia Co. v. Grappolini, No. 01C6405, 2003 WL 1989605 (N.D. Ill. April 28, 2003)
• Willful and malicious misappropriation includes intentional misappropriation as well as “misappropriation resulting from the conscious disregard of the rights of another.”
Recent activity in the UK and USA have highlighted a celebrity’s use of name or nickname as a trademark. Whether it’s Jennifer Lopez’s “J.Lo” (clothing, perfume, sunglasses, footwear) or Mary-KateAndAshley for anything a tween could want, celebrities have recognized the value of their name as a brand. Even in years past celebrities (or their estates, in the case of Elvis Presley and Frank Sinatra) recognized the value of their names as trademarks: Mary Quant for cosmetics and clothing in the 1960s, Jack Nicklaus for men’s clothing and golf course design or “Farrah” for jewelry in the 1970s.
Three recent cases in the news show that others have begun to value names as well. In England, music producer Richard “Diddy” Dearlove prevailed over Sean “Diddy” Combs in an out-of-court settlement. The rapper and entertainment mogul, who in the past has nicknamed himself “Puff Daddy,” “Puffy,” and “P. Diddy”, agreed to stop using the “Diddy” nickname in the U.K. Dearlove initiated the unfair competition case, arguing that the rapper’s use of “Diddy” was causing confusion, after he started receiving e-mails from girls asking to be in his videos.
In the settlement, Combs agreed to pay Dearlove’s costs and £100,000 for damages, reported the Guardian (http://arts.guardian.co.uk/news/story/0,,1868448,00.html) on September 9, 2006. Dearlove has used “Diddy” since 1992, while Combs began using it only last year, after dropping the initial from the “P. Diddy” nickname he selected in 2001. There is no indication yet whether Combs will switch to yet another nickname worldwide.
In the United States, the family of Ron Goldman asked to be granted the publicity rights to O.J. Simpson’s name, likeness, and persona as the only way, they claimed, to receive anything from the $33.5 million they were awarded as compensation for his death in a civil suit in 1997. (Simpson was acquitted of murdering his estranged wife, Nicole, and Goldman in an earlier criminal suit). The Goldmans claim that Simpson has made money from personal appearances and other activities, and that since the pension of $4 million per year he receives from his NFL career cannot be used to satisfy the civil suit award under California’s Code of Civil Procedure, Sections 704.110 and 704.115, they should receive the money from the personal appearances.
Simpson’s attorney responded that the amounts in question are “only a few thousand dollars” and that Simpson has no money to pay the civil award. In a side note, Simpson applied to register his name and nicknames as trademarks in the USA for clothing and other items (Serial Nos. 74/670836 and 74/551770 for “O.J. Simpson”, No. 74/551768 for “O.J.’, and No. 74/670837 for “The Juice”), but after a New Hampshire lawyer opposed the application on the grounds that the events of 1994-1997 had made his name immoral and scandalous, and the Lanham Act bars registration of marks that include immoral or scandalous material, Simpson allowed the applications to lapse. A fifth one, for simply “Juice” (Serial No.74/551769) was abandoned for failure to respond to an office action.
Even tainted by the accusations of murder, Simpson remains well-known for his football exploits, including winning the Heisman Trophy and as a pro football running back primarily with the Buffalo Bills, which led to his admission to the Pro Football Hall of Fame in 1985, nine years before the murders. It is this person whose autograph fans seek, and whose value the Goldmans hope to claim.
At a hearing on October 17, 2006, the judge tentatively rejected the Goldmans’ claims, on the ground that Simpson would have to voluntarily relinquish his right to publicity. However, she gave the Goldmans time to submit additional briefs on the subject, with Simpson’s attorneys to respond. Simpson had previously asked that the suit be dismissed on the grounds that granting the Goldmans’ request would require him to enter into “involuntary servitude.” In a different action, on January 4, 2007, U.S. District Judge Manuel Real barred Simpson from spending any of his advance on the aborted publication of “If I Did It” and related interview deal. Goldman sued to recover the money, alleging that Simpson set up a straw corporation called Lorraine Brooke Associates to collect the book advance to avoid paying the money against the judgment.
And immediately following the midterm elections, another case arose that showed the value of a name in a different light. Actor Andy Samuel Griffith filed a lawsuit against an unsuccessful candidate for Grant County (WI) sheriff alleging that the candidate changed his name from William Harold Fenrick to Andrew Jackson Griffith solely to capitalize on the actor’s fame as former “sheriff” Andy Taylor of television town Mayberry. As reported widely by the Associated Press, the claims include trademark infringement, copyright infringement, and invasion of the actor’s privacy.
Griffith the candidate argued that “I never sold or profited even one nickel from the use of the name Andy Griffith”, pointing out that it was used only on promotional items that were given away for free. He didn’t mention that he also came in third in the race for sheriff, and thereby was unable to profit by winning his campaign.
Griffith the actor is asking the court to order Griffith the candidate to return to his previous name. Griffith the candidate replied that he didn’t think people actually thought he was the famed actor—possibly proven by his failure in the campaign.
__________
Also see “Rosa Parks Won a Fight, but Left a Licensing Rift,” Jeremy W Peters and Julie Bosman, New York Times, 8 Oct 2006.]
A Secret told Ceases to be a Secret-then
A Secret-kept- That-can appal but One-
Better of it-continual be afraid-
Than it- And Whom you told it-beside-
—Emily Dickinson (1862)
“They’re on double secret probation,”
—Dean Vernon Wormer.
<http://www.victoriassecret.com>
Moseley dba Victor’s Little Secret v. V Secret Catalogue, Inc., 537 US 418 (2003).
Questions
• Does a party want an NDA?
• Does a party need an NDA?
• Alternatives to an NDA
• Patent,: issued/ pending
• Trademark: intent-to-use, registered, common law, related goods/services
• Copyright: expression, not idea. 17 USC §102(b).
In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.
• Trade Secret.
• Fiduciary
A person having a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with the undertaking. —Gifis
• Contract
• Behavior; Custom and practice
• Government Interest
Negotiation
• How important is the NDA compared to the underlying deal; Negotiating time,
• Are real secrets, valuable involved?
Complexities
• Litigation. Protective Order for Confidential Information. Layers of Protection Trademark Trial and Appeal Board.
<http://www.uspto.gov/web/offices/dcom/ttab/tbmp/stndagmnt.htm>
• National Security Letter,. Washington Post: FBI issues 30,000 NSLs a year (6Nov05)
*KKL Confidentiality and Nondisclosure Agreement
*KKL Protective Order and Confidentiality Agreement
*Tight Confidentiality Agreement for Software Developer (not consummated)
*TTAB Acknowledgment of Agreement or Order Protecting Confidentiality