Cases from 7th Circuit

United States Court of Appeals for the Seventh Circuit
7th Circuit Overturns Trade Secret Theft Damages Calculation

The 7th circuit vacated a $760,000 restitution penalty and three-year prison sentence against Yihao Pu. Pu allegedly used two employers’ proprietary stock trading programs for personal trading and lost $40,000.The U.S. Sentencing Commission’s guidelines permit district courts to determine the “intended loss” to the victim of trade secret theft when no “actual loss” occurs. However, on February 24, 2016, the 7th Circuit held that if a district court holds that the “intended loss” holds the same value as the cost of development of the trade secret, the court must have evidence that the defendant “intended to cause a loss to the victims that equaled the cost of development. On remand, the district court will have to reconsider Pu’s evidence that the loss to his employers was at most, $2,000. The 7th Circuit also held that the district court could consider Pu’s gains in determining an “intended loss” figure, but here it appeared that Pu did not have any financial gains from the use of the software.

Part of the original $760,000 included costs incurred to conduct an internal investigation to uncover Pu’s theft, including attorney’s fees for over 300 hours of work by lawyers, paralegals and legal assistance, 1,818 hours of forensic analyst work, as well as divers to retrieve hard drives from a canal. The Circuit court also held that plaintiff Citadel failed to give a complete accounting to support these figures used to calculate the $760,000 restitution. Without giving a further explanation through evidence “of how each professional’s time was spent investigating the data breach,” Citadel will not be awarded the full $760,000 restitution. For more details, read the full decision below.

confidentiality agreements, trade secrets
7th Circuit Case Serves as a Reminder of Trade Secrets Best Practices

The 7th Circuit ruled in favor of Defendants Block and Company, Inc. on October 22, 2014 on the issue of breach of confidentiality agreement. The Court cited a previous 7th Circuit case which stated that in the 7th Circuit, courts "will enforce [confidentiality] agreements only when the information sought to be protect is actually confidential and reasonable efforts were made to keep it confidential." See Tax Track Sys. Corp. v. New Investor World, Inc., 478 F.3d 783, 787 (7th Cir.2007).

Since the Plaintiff nClosures Inc. did not make additional efforts to have individuals who access the designs at issue sign confidentiality agreements, keep the designs under lock and key, or store the designs on a limited-access computer, the Court found that nClosures did not engage in "reasonable steps" to protect the confidentiality of its designs. Therefore, the Court concluded that confidentiality agreement between nClosures and Block and Company is unenforceable as a matter of law.

7th Cir.
Judge Posner Upholds Trade Secret Conviction for Theft from Motorola

Hanjuan Jin lost the appeal of her conviction under the Economic Espionage Act for theft of trade secrets. She worked for Motorola from 1998 to 2007, when she was apprehended by customs with $31,000 in her luggage, a one-way ticket to China, and thousands of Motorola documents that she had downloaded. The documents described Motorola’s dated iDEN mobile communications system, which Judge Posner said is still used by “law enforcement, emergency responders, taxicab dispatchers, and the like” as well as “the Israeli and South Korean armed forces.”

Posner upheld her sentence of 48 months and said that she was lucky that the lower court gave her a “surprising break” for “acceptance of responsibility” even though she pled not guilty and went to trial. Posner believes in trade secret protection. He once said, “trade secret protection is an important part of intellectual property, a form of property that is of growing importance to the competitiveness of American industry.” Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991).

Posner criticized the definition of “trade secret” in the Economic Espionage Act (at 18 U.S.C. § 1839(3)(B)) as being an “elaborate” definition that permitted the defendant to challenge whether the documents that she had stolen were in fact trade secrets. He implied that the common law definition (Restatement (Third) of Unfair Competition § 39), which is a single sentence, is better.

In affirming Hanjuan Jin’s conviction, Posner emphasized that “potential value” is sufficient to a finding of trade secrets and that actual value is not a requirement, providing an analogy that may be useful to practitioners: if “a company in New Orleans had stolen the iDEN technology and was about to sell its first subscription to its brand-new iDEN network when Hurricane Katrina destroyed the company,” Motorola would still have experienced harm because Motorola would have had to upgrade its security and its reputation would have been harmed.

Court of Appeals for the Seventh Circuit
Seventh Circuit Allows Attorney's Fees under UTSA for Suits Maintained in Bad Faith

§ 4 of the UTSA provides that “[i]f a claim of misappropriation is made in bad faith . . . the court may award reasonable attorney’s fees to the prevailing party.” A recent decision by the Seventh Circuit suggests that this provision applies to suits maintained in bad faith, even when the initial claim may have been meritorious.

In Tradesman, International, Inc. v. Black, a Seventh Circuit panel reversed and remanded a decision of the District Court for the Central District of Illinois denying a request of attorney's fees. The district court found that while the plaintiff had not initiated the suit in bad faith, bad faith had developed over the course of the litigation, as it became clear that the plaintiff’s claims were without merit. Nonetheless, the district court found that the phrase “made in bad faith” in UTSA § 4 applied only to the initial filing of a lawsuit, and denied the request accordingly

In reversing, the Seventh Circuit took a broader “common sense” reading of § 4, holding that “[a] claim is made in bad faith [under UTSA § 4] when it is initiated in bad faith, maintained in bad faith, or both.” The Seventh Circuit's decision suggests a new avenue for collecting attorneys' fees in trade secret cases.

U.S. District Court for the Northern District of Illinois
Illinois district court rules that unjust enrichment and fraudulent inducement claims concerning information not rising to level of trade secrets are not preempted by ITSAe

In Miller UK Ltd. v. Caterpillar, Inc., the U.S. District Court for the Northern District of Illinois held on April 26, 2012 that the Illinois Trade Secrets Act, 765 ILCS §1065/1 et seq., preempted only common law claims of misappropriation of trade secrets and did not preempt unjust enrichment and fraudulent inducement claims involving misappropriated information that did not constitute trade secrets. In its ruling, the district court refused to follow an Illinois Appeals Court decision in Pope v. Alberto-Culver Co., 26 Ill. App. 3d 512 (1st Dist. 1998), which held that the Act preempted both common law claims for misappropriation of trade secrets and confidential information that did not rise to the level of trade secrets. The district court found that the Appeals Court in Pope failed to address §1065/8(b)(2), which provided that the Act would not affect “other civil remedies that are not based upon misappropriation of a trade secret.” The Illinois Supreme Court had not ruled yet on whether the Act preempted claims involving misappropriated confidential information that did not constitute trade secrets. But the district court was confident that the State’s highest court would have also, at least, declined to follow Pope.

Miller UK, Ltd. (“Miller”), a supplier of parts for construction and mining equipment, filed its claims for misappropriation against Caterpillar, Inc. (“Caterpillar”) on June 17, 2010. Miller’s claims arise from a 1999 supply agreement to supply parts to Caterpillar for its machines. During this relationship, Miller disclosed to Caterpillar its trade secrets and confidential information about the design, manufacture, and testing of Miller’s coupler technology. Miller asserted that the disclosed information was subject to confidentiality requirements in the supply agreement. Caterpillar, however, allegedly took the information and used it to design its own parts.

U.S. District Court for the Northern District of Illinois.
Court Imposes Four-Year Prison Sentence on Ex-Motorola Employee Caught with Trade Secrets and a One-Way Ticket to China

In 2008, Jin was indicted on charges relating to the alleged theft of Motorola’s Trade Secrets. She was recently found guilty, and on August 29, 2012, sentenced to four-years imprisonment.

Jin began working as a software engineer at Motorola beginning in 1998. In February 2006, Jin took medical leave, during which time she accepted employment with Chinese competitor Sun Kaisens. After accepting employment, Jin allegedly returned to work to Motorola under false pretenses: She planned to take her former employer’s technical documents and other confidential, proprietary information on a one-way ticket to her new employer in China. However, Jin was searched at the airport and arrested before she could board her flight. Police recovered over 1,000 electronic and paper documents for her person.

Although U.S. District Judge Ruben Castillo acquitted Jin on espionage charges, she was found guilty of stealing Motorola’s Trade Secrets pursuant to the EEA. Jin’s lawyers argued in favor of a probationary sentence; however, prosecutors recommended a sentence of 70 to 96 months, arguing that Jin’s conduct justified a substantial sentence of imprisonment report. This was actually below the 121-151 month sentencing range set forth in the Pre-Sentence Investigative Report, as it accounted for Jin’s allegedly failing health. The four-year prison sentence -- although less than the government’s recommendation – nonetheless evidences courts’ increasing awareness of the importance of trade secrets to modern companies, and the devastating consequences of their theft.