Reviewing a preliminary injunction, the U. S. Court of Appeals for the Seventh Circuit vacated the injunction for failing to specifically identify protected trade secrets. Patriot Homes, Inc. v. Forest River Housing, Inc., 2008 U.S. App. LEXIS 444, Case No. 06-3012 (7th Cir., Jan.10, 2008) (Evans, J.).
The dispute arose between competing modular housing manufacturers. After failing to purchase Patriot, Forest River hired away four employees to form Sterling, a new subsidiary. The departing employees took computer files and other business materials. After Sterling distributed brochures including floor plans for homes identical to those sold by Patriot, Patriot filed suit seeking an injunction and damages for copyright and trade-secret violations. Sterling did not deny that the four employees took the information and used it, but instead asserted that the materials were in the public domain and were not protected trade secrets.
To demonstrate the public availability of the materials, Sterling issued Freedom of Information Act (FOIA) requests to a number of states seeking documents submitted to satisfy approval requirements for Patriot’s products. A substantial amount of materials were produced, none of which had been marked confidential. Subsequent attempts by Patriot to assert the confidentiality of these documents were essentially ignored by the states.
In June 2006, the district court entered a preliminary injunction, enjoining Sterling from “[u]sing, copying, disclosing, converting, appropriating, retaining, selling, transferring, or otherwise exploiting Patriot's copyrights, confidential information, trade secrets, or computer files.” Sterling appealed the order as being too vague.
The Court of Appeals agreed and vacated the injunction. According to the Court, an injunction must “be precise and self-contained, so that a person subject to it who reads it and nothing else has a sufficiently clear and exact knowledge of the duties it imposes,” as violating the injunction can lead to criminal contempt charges. The injunction was not specific, “require[d] a lot of guesswork,” and ultimately it failed to detail what was the prohibited conduct. Sterling’s success in obtaining allegedly confidential information through FOIA requests cast doubt on the information’s trade-secret status. Thus, without clear guidance, Sterling was unable to tell if using FOIA-accessible information violated the injunction.
The Court acknowledged that, especially in the early stages of litigation, it is not easy to determine what is confidential or a trade secret. Nevertheless, injunctions must clearly delineate an enjoined party’s responsibilities, as “trade secret injunctions that are too vague must be set aside.”
Practice Note: The opinion suggests some flexibility in making this delineation, as the Court approved of an injunction which “provided a procedure for interpreting and applying the injunction and distinguishing between plaintiff's trade secrets and information in the public domain.” This case illustrates the potential for public accessibility of confidential documents submitted for regulatory approval, particularly before state agencies without formal procedures for maintaining confidentiality and/or where materials are submitted without confidentiality markings.