A recent decision from the Seventh Circuit is a reminder that if a business wants trade secret protection for certain information, it must actually implement reasonable measures to protect the secrecy of that information.  While what is “reasonable” depends on the facts of each case, a business should take basic steps such using confidentiality agreements with employees and third parties, marking of documents with “confidential” stamps and restricting access to and securing documents that are or contain confidential information.  While these steps may seem obvious, the failure of the plaintiff in this case to take these steps allowed the defendant to design a product similar to plaintiff’s product and freely compete against the plaintiff.

The plaintiff was an industrial design firm that designed, among other things, metal enclosures for electronic tablets, such as iPads.  One of its designers, an independent contractor, designed a metal enclosure known as the Rhino Elite.  The defendant, a manufacturer of metal devices, approached the plaintiff about a potential business relationship.

The plaintiff and defendant entered into a confidentiality agreement under which the plaintiff agreed to disclose confidential information to the defendant that would be used by the defendant solely for evaluating a potential business relationship with respect to iPad enclosures.  After the defendant signed the confidentiality agreement, plaintiff provided it with the design files for the Rhino products.  The plaintiff and defendant subsequently attempted to negotiate a written manufacturing and sale agreement, but were unsuccessful.  Instead, plaintiff and defendant reached an oral agreement under which defendant would manufacture the Rhino Elite and sell units to plaintiff.

After the defendant began manufacturing the Rhino Elite, various design problems were discovered and defendant’s engineers designed improvements for the Rhino Elite.  At the same time, defendant developed a design for its own tablet enclosure.  Thereafter, defendant terminated its business relationship with plaintiff and proceeded to sell its own tablet enclosure.  Plaintiff, in turn, filed suit against defendant for trade secret misappropriation, among other things.  

The court recognized that in order to enforce a confidentiality agreement, the information that plaintiff sought to protect must actually be confidential and the plaintiff must have taken reasonable efforts to maintain the confidentiality of that information.  However, the court found that the efforts that the plaintiff took to protect the confidentiality of design files of the Rhino Elite or its predecessor were inadequate.

Among other things, the plaintiff did not have the defendant sign a subsequent confidentiality agreement when it began to manufacture the Rhino Elite; did not require defendant’s other employees to sign additional confidentiality agreements to access the Rhino Elite design files; did not require its independent contractor designer, who designed the Rhino Elite; to sign a confidentiality agreement; did not require the manufacturer of the Rhino Elite’s predecessors to sign confidentiality agreements; did not mark the design drawings with the words “confidential” or “contains proprietary information”; did not keep the design drawings under lock and key; and did not store the design drawings on a computer with limited access.   The failure to insist on these common sense steps proved very costly for the plaintiff.

At a minimum, businesses should have two different confidentiality agreements.  One drafted for use with employees and independent contractors and the other drafted for use with third parties.  In addition, a business should have a “confidential” stamp to use to mark documents and should store those documents in locked file cabinets or on password protected computers.  By taking these steps, a business will be on its way to protecting its confidential information.