Recently, a jury in the Northern District of Illinois sent a strong message to corporate America that abiding by non-disclosure agreements is not only important, but essential to avoid liability for trade secret misappropriation. The jury awarded $21 million, with $8 million in punitive damages, to Roto Zip Tool Corp. (“Roto Zip”) against Sears, Roebuck and Co., finding that Sears stole a power tool invention in violation of a non-disclosure agreement. RRK Holding Co. v. Sears, Roebuck & Co., No. 04 C 3944 (N.D. Ill. Nov. 19, 2007). The details of the case were set forth in the court’s earlier opinion denying Sears’s motion for summary judgment arguing that no trade secret misappropriation had occurred.

The lawsuit arose when family-owned Roto Zip, now RRK Holding Co., met with Sears to discuss a potential business deal involving a Roto Zip spiral saw converted into a plunge router. Roto Zip disclosed its combination saw design to Sears under the protection of a non-disclosure agreement. Sears ultimately passed on the manufacturing deal for Roto Zip’s saw, and Roto Zip continued its development of the saw independently. However, Sears then worked with a Chinese manufacturer that designed a combined spiral saw/plunge base router similar to the Roto Zip design. Sears began selling this as the Sears Craftsman All-in- One Cutting Tool around the same time that Roto Zip began selling its combination saw. Roto Zip sued in the Northern District of Illinois, alleging trade secret misappropriation, among other claims.

The Illinois Trade Secrets Act requires that the information argued to be a trade secret be sufficiently secret to impart economic value to its owner and competitors because of its relative secrecy, and that reasonable affirmative measures have been taken to maintain the secrecy. Sears argued in its summary judgment motion that the combination saw was not a trade secret since it was within the general knowledge of the power tool industry. However, the court found that a jury could decide that although a spiral saw and a plunge base router were known and marketed as separate products, the combination into a single product was not on the market. The court pointed to the Seventh Circuit’s holding that “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 … is a protectable secret.”

The court also found that there was a genuine issue of material fact regarding whether the saw held economic value because it was not generally known. Both Sears and Roto Zip had success in selling their combination saws, indicating economic value in the design not being public. Roto Zip also had made reasonable efforts to maintain the secrecy of its design (e.g., by the non-disclosure agreement, marking drawings confidential, and using other confidentiality agreements). Further, there was a dispute between the parties about whether Sears had disclosed the design to the Chinese manufacturer. So there was a genuine issue of material fact regarding potential misappropriation.

The court ultimately denied Sears’s summary judgment motion, stating that a reasonable jury could find that trade secret misappropriation occurred; and in fact, the jury did, awarding $21 million to Roto Zip.

Roto Zip also moved for summary judgment for breach of contract for the non-disclosure agreement on the same grounds as the trade secret misappropriation count. The court denied this motion for summary judgment as well, because a genuine issue of material fact existed as to whether the combination tool concept was independently developed.