Friday, March 09, 2007, 3/09/2007 08:04:00 AM

North Carolina Trade Secrets Injunction Shuts Down Defendant Companies (Pacer Req’d)

A new case from the Middle District of North Carolina demonstrates something of a worst-case scenario for those accused of stealing trade secrets. Judge Beatty's opinion on a motion for preliminary injunction orders that the corporate defendants "are to be officially closed until the final resolution of this case, without any operations continuing at their facilities."

The case, Arminius Schleifmittel GmbH v. Design Industrial, Inc., 2007 WL 534573 (M.D.N.C. Feb. 15, 2007), was filed by a German manufacturer of customized profile sanding tools which smooth out decorative furniture edges in designs based on each individual customer’s specifications.

Defendants are plaintiff's former marketing, sales and distribution agents in the United States for eleven years. When that relationship ended, defendants went into the business for themselves, selling a similar tool made up of a sanding tool body to which rubber base elements and sanding caps are attached.

At issue as trade secrets was plaintiff's electronic library containing precise specifications for how to manufacture those sanding tools for each of its individual customers' designs.

The court found that library to constitute trade secrets since it was created at significant cost over the course of fifty years and was protected by a unique computer login and pass-code. And, even though the designs originated with customers, they were still protectable as customer preferences.

The court found misappropriation based on defendants' knowledge as the former agents, evidence indicating that they had accessed and used the information, and, importantly, one of the defendant's invocation of his fifth amendment rights in lieu of testimony.

The court's harsh decision seems to be in part motivated by the fact that defendants violated the court’s temporary restraining order.

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