Wednesday, May 09, 2007, 5/09/2007 09:46:00 AM

Judge Posner On Trade Secrets and Injunctions

By Todd
In a decision issued yesterday (May 7th) Judge Posner wrote the 7th Circuit's opinion in a trade secrets case brought by American Family Mutual Insurance Company against a former agent named Bonnie Roth and other agents unidentified by the caption. Seems Ms. Roth started soliciting her former insurance customers shortly after her employment terminated and American Family subsequently adduced evidence she had downloaded a list containing 1847 names. They sued her and her cohorts, of course, for misappropriation of trade secrets and violation of her employment agreement's restrictive covenants.

Judge Posner, as per his traditional methodology, deconstructs the nature of the property interest in the names thus: "But once agents enter customer information in the database, the information becomes the exclusive property of the plaintiff, or at least exclusive as against the agent. The information, insofar as it had been developed by the agent rather than supplied to him by the plaintiff (employer), would be his trade secret initially - but only until he uploaded the information into the plaintiff's database, at which point it would become the plaintiff's trade secret. (This provision of the contract is a "grantback" clause, common in patent and other intellectual-property settings.) Trade secrets can be sold (citations excluded), and once sold (rather than just licensed) can no longer be used by the seller."

Judge Posner goes on to note "There is nothing unconscionable, or even one-sided, about the arrangement we've just sketched. The agents benefited from being able to use the plaintiff's database, as well as from receiving customers from the plaintiff; in exchange, they gave the plaintiff the right to keep, after termination of the agency relationship, any customer information that they'd acquired in the course of the relationship."

The Court went on to note: "So the plaintiff is entitled to an injunction. But there are problems with the wording of the injunction that the district court entered. The first provision we quoted, forbidding the use by the defendants of any information "downloaded" from the plaintiff's database, contains a potential loophole. "Downloading" could be thought to refer only to an electronic operation, such as transferring documents from an electronic database to a computer's hard drive. So defined, it would exclude hand-copying information from a computer screen. We cannot order the district court to close the loophole, however, as the plaintiff has not filed a cross-appeal, asking that the injunction be modified. Another problem with the first quoted provision - this one, however, properly raised in this court, by the defendants' appeal - is the inclusion of the prohibition against downloading of the "the names contained in exhibit 34." While most of the names are in the database, some are not, and there isn't any basis for forbidding the defendants to use those names."

Judge Posner, having advised the litigants and the district court of some of their oversights, then writes "But rather than try to work out the details of a proper injunction, we shall remand the case to the district court for the entry of a better-drafted injunction, while affirming so much of that court's decision as determines that the plaintiff is indeed entitled to a preliminary injunction."

What to take from this? If you take an appeal to the Seventh Circuit in a trade secrets case and you happen to pull Judge Posner on your panel, your arguments will be examined from all sides as will your record and you will learn that the Seventh Circuit continues to look at legal matters with a unique and novel eye. This opinion is American Family Mutual Insurance Company v. Roth et al., No. 06-3412 (May 7, 2007, 7th Cir.).

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