Saturday, May 13, 2006, 5/13/2006 02:46:00 PM

Can a Company Misappropriate a Trade Secret without Knowing the Trade Secret?

The answer is "yes," according to Judge Castillo of the Northern District of Illinois. Cognis Corp. v. CHEMCENTRAL Corp., 2006 WL 1274744 (N.D. Ill. May 5, 2006), concerned what amounts to a "derivative" claim of misappropriation of trade secrets. Cognis had developed CAPCURE, a curing agent for epoxy resin adhesive, and kept it as a trade secret. It used a company called GabePro to manufacture CAPCURE and CHEMCENTRAL distributed it.

After GabePro ceased to manufacture CAPCURE, it developed its own equivalent, GPM-800, allegedly using Cognis's trade secrets. CHEMCENTRAL then began to market GPM-800 for GabePro using its old customer lists and pricing information from its time as a Cognis distributor.

The crux of CHEMCENTRAL's motion to dismiss was that distribution of a product manufactured by another's use of a trade secret does not constitute "use" of that trade secret. In other words, a defendant cannot accomplish use without actually knowing what the trade secret is. GabePro -- the first-line misappropriator and the subject of another action -- was the trade secrets violator, not CHEMCENTRAL.

The court said no, at least for the purposes of the motion to dismiss. Although the term "use" is not defined in either the Illinois Trade Secrets Act or the uniform act, the court looked to the Restatement 3d of Unfair Competition, sec. 40, for a broad definition of "use" that includes "marketing goods that embody the trade secret, employing the trade secret in manufacturing and production, [or] relying on the trade secret to assist or accelerate research or development."

The court held that CHEMCENTRAL knew from its prior dealings with Cognis that Cognis protected the CAPCURE technology as a trade secret and, at least according to the allegations of the complaint, "still accepted GabePro's baseless claim that it had the right to use the CAPCURE technology without verification."

Motion to dismiss denied (and interesting questioned answered).


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