Tuesday, June 02, 2009, 6/02/2009 10:43:00 AM

CDI Energy Services Loses Trade Secrets Appeal in the Eighth Circuit

By Todd

Trade secrets misappropriation cases are routinely teed up for a preliminary injunction at the trial court level. Offended parties argue that they should not be forced to sit and watch a trade secret thief use and benefit from the stolen secrets - that an injunction should be issued to stop the thief in their tracks. The alleged offending parties, of course, respond that the data or information wasn't taken or that it doesn't constitute a trade secret at all - AND, regardless, the information shouldn't be considered a trade secret because the owner didn't use reasonable means to keep the information or data secret and thus lost whatever rights they could've had. Well, these are the arguments that the defendants in a case filed by CDI Energy Services made - and the federal district court and the Eight Circuit appellate court agreed wit the defendants.

A federal appeals court has affirmed the lower court’s decision to deny CDI Energy Services Inc. an injunction and to reject allegations that former employees of the oil field servicer stole trade secrets when they formed their own rival company in 2007.

On May 28th, Judges Michael Melloy, Pasco Bowman and Lavenski Smith of the U.S. Court of Appeals for the Eighth Circuit shot down CDI’s appeal, holding that the three former employees did not steal CDI’s proprietary information or otherwise merit an injunction for taking clients with them when they created West River Pumps Inc.

The Eighth Circuit found that CDI took no measures to safeguard or protect certain information related to the company’s marketing strategies and business operations, neutralizing its claim that the defendants made off with trade secrets when they formed their own company.

While the defendants John Martinson, Dale Roller and Kent Heinle admit to taking certain documents, including customer lists as well as repair and purchase histories, the materials, since returned to CDI, are generally known to professionals in the field and cannot be deemed trade secrets, the opinion says.

Information about customers and pricing may in some industries be treated as trade secrets, but CDI failed to show that any of the documents at issue has economic value by virtue of having been kept secret, the opinion says.

“It appears undisputed that the potential customers for CDI and West River ... are a small collection of easily identifiable, locally operating oil field companies. Information about these companies would be easily obtainable, if not already known, by relevant actors in the local oil field service and equipment industry,” Judge Melloy said.

The appeals court also shot down CDI’s claim that it had expended considerable resources training the defendants, noting that CDI initially hired them to form the North Dakota office because of their expertise in the industry, according to the opinion.

The district court ruled that CDI would likely prevail on statutory breach-of-loyalty claims, as the defendants did usurp customers from their former employer but correctly refused to grant CDI a preliminary injunction, the opinion says.

An injunction is only justified if there is a risk of irreparable harm and the public interest is in the employer’s favor, according to the ruling.

There is little evidence that an injunction would assist CDI in any manner because the company’s former clients have already moved to West River and CDI no longer has a North Dakota office that would benefit from injunctive relief, the opinion says.

The public interest tips the balances in the defendants’ favor because an injunction would further limit the public’s access to needed services, the opinion says.

The district court did not err when it refused to order West River’s customers to return to CDI, the opinion says.

After granting CDI a temporary restraining order in 2007, the district court refused to issue an injunction against West River, triggering CDI's appeal.


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