Cases from Illinois

U.S. District Court for the Northern District of Illinois
Attempted Theft of Trade Secrets Upheld Even if Not Trade Secrets Stolen

At issue here is whether Defendant Robert O’Rourke's post-conviction motion for a new trial should be granted in a case involving attempted and actual trade secret theft. O’Rourke argued that he could only be convicted of attempted trade secret theft if the information at issue actually constituted a trade secret. However, the Northern District Court of Illinois denied the motion and upheld the conviction, affirming that one can be convicted of attempted trade secret theft if one believed the information to be a trade secret, regardless of whether the information actually constituted a trade secret; it is the intent of the alleged theft that is judged.

Background: O'Rourke was an engineer at Dura-Bar, a cast-iron manufacturer. He accepted a position as vice president of Hualong, a competing cast-iron manufacturer, without Dura-Bar's knowledge. On a Sunday prior to his last day at Dura-Bar, O'Rourke entered Dura-Bar with his key and downloaded over 1,900 documents onto his personal hard drive. After his last day of at Dura-Bar, O'Rourke went to drinks with coworkers and informed them for the first time he was going to work at Hualong. The coworkers informed Dura-Bar management which contacted law enforcement for emergency search warrants. About 5 days later, O'Rourke was boarding a flight where he was stopped and searched by the U.S. Customs and Border Patrol. They found the hard drive with all of Dura-Bar's documents in his checked baggage. In July 2017, a grand jury returned a 13-count Indictment against O’Rourke, charging him with stealing, downloading, and possessing trade secrets (and attempting to do the same) in violation of 18 U.S.C. § 1832.

The charges against O’Rourke proceeded to trial in February 2019. At trial, O’Rourke did not contest that he took materials without Dura-Bar’s permission. But his counsel contended that the documents in question were not trade secrets and that he did not believe them to be so when he took them. Following a three week trial, the jury found O'Rourke guilty of attempting to steal, stealing, downloading, and possessing certain, but not all of the documents. The mixed verdict suggests that the jury questioned whether some of the documents constituted trade secrets and if O’Rourke considered them to be trade secrets. O’Rourke appealed for this new trial based on, among other reasons, the Government's requirement to prove whether or not the documents were trade secrets.

Analysis: O’Rourke took issue with the Court’s decision to allow the Government to pursue an “attempt” theory of criminal liability at trial, arguing that § 1832 only allows for an attempt violation when a defendant tries and fails to misappropriate actual trade secrets, so he could only be held responsible for committing the substantive offense and not for attempting to commit that offense. The Court looked to U.S. v. Hsu, 155 F.3d 189, 198 (3d Cir. 1998) and reasoned that the attempt violations for which O’Rourke was charged do not require proof that a trade secret exists; instead, they require proof that O'Rourke believed that information to be a trade secret.

The Court held "an attempt charge allows the Government to charge not only individuals who are unsuccessful in stealing actual trade secrets, but also those who successfully steal information that they believe to contain trade secrets but in fact do not." Judge Wood analogized the situation to one involving attempted distribution of illegal drugs, explaining that “a would-be cocaine buyer cannot avoid criminal responsibility even if the only substances he managed to purchase were fakes planted by police officers.” Therefore, if the jury concluded that O’Rourke believed a document was a trade secret when he took it, he is guilty for attempted theft even if the document ultimately was not a trade secret.

As a note, it was undisputed that O’Rourke went to Dura-Bar’s facility, placed copies of Dura-Bar’s documents on his personal hard drive, and attempted to take that hard drive with him overseas. The issue at trial was whether the documents that O’Rourke took were actually trade secrets and whether he also believed them to be so. O'Rourke also appealed the conviction order based off of alleged errors in the jury instructions, which we do not mention in this summary as it is outside the scope of our forum. However, the Northern District Court of Illinois ultimately denied O'Rourke's motion for a new trial, including his allegedly erred jury instruction claims.

For Judge Wood's entire Memorandum Opinion and Order, please see below.

Illinois Appellate Court
Illinois Court Addresses “bad faith” Under Illinois Trade Secret Act

In Conxall Corp v. ICONN Systems, LLC, at al. the Illinois Appellate Court determined what constitutes “bad faith” under §5 of the Illinois Trade Secret Act for purposes of awarding attorneys’ fees. In a divided decision, the court proposed two standards for defining “bad faith” under the statute.

Section 5 of the Illinois Trade Secret Act states that if “a claim of trade secret misappropriation is made in bad faith . . . the court may award reasonable attorneys’ fees to the prevailing party.” The majority held that Illinois courts should determine the meaning of “bad faith” by examining if the pleadings were frivolous or in some way abuse the judicial process. The concurring judge followed California’s approach, which held that a claim is made in “bad faith” under California’s Trade Secret Act if it consists of “(1) objective speciousness and (2) subjective bad faith." The majority noted that the California approach has been adopted in a number of federal courts.

Despite taking different approaches to defining “bad faith,” the judges all agreed to remand the issue to the lower court for consideration.

A copy of the opinion can be found here: http://www.tradesecretsnoncompetelaw.com/files/2016/09/Conxall-Corp-v-ICONN-Systems-LLC_-Illinois-App-Court-1st-Dist_opinion-from-court-site.pdf

CIRCUIT COURT OF COOK COUNTY, Circuit Court of Cook County, Chancery Division, ILLINOIS COUNTY DEPARTMENT
Illinois Attorney General Cracks Down On Overbroad Non-Competes

The Attorney General of the State of Illinois, Lisa Madigan, has filed a complaint on behalf of the People against Jimmy John’s Enterprises, LLC and Jimmy John’s Franchise, LLC (collectively, “Defendants”) for the use of overly restrictive non-compete clauses as used against low-wage, at-will employees. The state seeks declaratory and injunctive relief, as well as civil damages, for Defendants’ alleged restraint of free trade and employee mobility.

Defendants operate a national sandwich chain, incorporated in Delaware and headquartered in Illinois. They own eight Jimmy John's Sandwich Shops in Illinois, including all intellectual property associated with the stores and franchises. From approximately September 2007-April 2015, low-level employees signed a non-compete clause as a prerequisite to employment. Although the clause itself went through several iterations, it remained substantially the same. The non-compete clause applied to assistant store managers, delivery personnel, sandwich-makers, and other store employees, prohibiting them from working with an employer situated within two miles of any Jimmy John’s store, if that employer derived at least ten per cent of their revenue from certain categories of products (including “deli” sandwiches). This prohibition stretched for a period of two years after ending employment with Defendants.

The state believes Defendants’ actions were unreasonable and harmful, as these particular employees had limited access to trade secrets or other confidential information. Illinois alleges that Defendants’ conduct has resulted in a restraint of trade in the state, affecting not only Jimmy John’s employees but other Illinois businesses and the public at large. Illinois brings this action because Defendants have made no attempt to modify or rescind the non-compete.

The state requests that the Court declare the non-competes void as a matter of public policy and without adequate consideration as a matter of law. It also seeks an injunction to prevent Defendants from continuing with the non-compete clause. Finally, the state seeks restitution on behalf of Illinois consumers and businesses, a disgorgement of profits received by Defendants as a result of the alleged conduct, and a penalty of $50,000 per violation.

The complaint can be found here: https://will.illinois.edu/nfs/JimmyJohnsComplaintFILED.pdf

Chancery Division, Cook County, Illinois Circuit Court
Jimmy John's Ditches Overbroad Non-Compete Agreements

Jimmy John's, a sandwich shop chain incorporated in Delaware, has included broad non-compete agreements in employment contracts with low-income employees. The agreements at issue prevent employees from working at competing companies if they were (1) located within 2 miles of a Jimmy John's Shop, and (2) made more than 10% of their profit selling sandwiches. The agreements last for a period of two years after the employee leaves the company.

On June 8, 2016, Illinois Attorney General Lisa Madigan sued Jimmy John’s Illinois franchisees for forcing low-income workers to sign these non-compete agreements. The company announced that it told Madigan it would no longer use or enforce the non-compete agreements. Madigan’s case, People v. Jimmy John’s Enterprises, LLC, remains open.

Relatedly, Jimmy John's New York franchisees have agreed to stop enforcing the non-compete agreements, and told New York Attorney General Eric Schneiderman that they would void past agreements with their employees.

For more information about People v. Jimmy John’s Enterprises, LLC, see http://tsi.brooklaw.edu/cases/people-v-jimmy-john%E2%80%99s-enterprises-llc.

N.D. Ill.
Common Law Misappropriation of Confidential Information Preempted Under ITSA Even if Information is Not A Statutory "Trade Secret"

The Northern District of Illinois held on November 7 that the Illinois Trade Secrets Act (ITSA) preempted the common law claims of misappropriation of confidential information, unfair competition, and unjust enrichment. The court additionally noted that such claims are preempted even if the information in question would not qualify as trade secrets under the Act.

Defendant Keywell Metals, LLC ("Keywell Metals") acquired the assets of Keywell, LLC ("Keywell"). Prior to the sale, Keywell had approached Plaintiff Cronimet Holdings Inc. ("Cronimet") with Cronimet as a potential purchaser of Keywell. Keywell and Cronimet entered into a Non-Disclosure Agreement ("NDA"), terms of which restricted Cronimet from hiring any Keywell employees it met during the negotiations for a period of 24 months.

Cronimet initiated this action against Keywell Metals, seeking a declaratory relief against enforcement of the employment restrictions and arguing that the acquisition extinguished the terms of the NDA. Keywell Metals responded with ten counterclaims including violation of the ITSA, misappropriation of confidential information, unfair competition and unjust enrichment. Cronimet moved for dismissal of the common law claims, arguing that the claims were preempted by the ITSA. Keywell Metals contended that the ITSA's preemption provision is inapplicable since the confidential information at issue does not rise to the level of a statutory trade secret. After reviewing its case law, the Court decided that common law claims that are "dependent on the existence of confidential information" are preempted by ITSA, even if such information does not meet the statutory definition of a trade secret.

United States District Court for the Northern District of Illinois - Chicago
Television producers allege court proceeding spoiled outcome of reality show

Contestants on a women's mixed martial arts reality show called "Ultimate Women's Challenge" were sued by the show's owners and investors for willful misappropriation of trade secrets and tortuous interference with prospective economic advantage. Each of the sixteen female contestants on the show signed a “Participant Agreement and Release from Liability” before filming commenced. However, seven of the contestants filed a lawsuit against the show's producer in Wisconsin circuit court and, in doing so, revealed the outcome of multiple matches and the ultimate winner of the series. The plaintiffs Sean Morrison Entertainment (SME) claimed that the lawsuit should have been filed under seal in order to prevent the events and outcome of the reality show from being revealed. Plaintiffs also claim that the contestants and their attorneys leaked details about "Ultimate Women's Challenge" to the media and various websites. The lawyers who represented the contestants in the Wisconsin lawsuit were also been joined as defendants.

On December 28, 2011, the Northern Illinois District court dismissed the owner-investor claims against the MMA contestants for lack of personal or specific jurisdiction. The court asserted that SME's alleged contacts were too attenuated for Illinois to be the proper forum for their claims. Further, citing only an "impact theory of minimal contacts," the court concludes that SME failed to allege activities by Thompson et al "that create a substantial connection with the forum state." (See Also Burger King v. 471 US at 475-476). Furthermore, the court found none of the individuals joined the action had any substantive connection to Illinois that would warrant personal jurisdiction for the court. Thus the Illinois court never reached the substantive issue of the trade secret misappropriation by the athletes in filing their separate Wisconsin matter, as the SME claim was dismissed for want of personal or specific jurisdiction.

Circuit Court of Cook County, Chancery Division
Three employees sued by Groupon for breach of a non-compete agreement counter Groupon's lawsuit is a "sham litigation"

The three employees whom Groupon, Inc. (“Groupon”) sued on October 21, 2011 filed a counterclaim against Groupon on January 25, 2012. The three former employees, Nikki Dorough, Brian Hanna and Michael Nolan, countered that the coupon company pursued a "sham litigation" and requested the Illinois state court to void the noncompete provisions in their Groupon employment contracts.

The employees now work Google Offers, a directly competing discount service started by Google, Inc. (“Google”) after Groupon rejected Google’s buy-out. Groupon alleged in its complaint that the employees, were provided with proprietary and confidential information relating to Groupon’s business practices and strategies, such as Groupon’s price structures and deals with merchants, its timing of the deals and its list of current and potential merchants.

Dorough, Hanna and Nolan began work for Google Offers allegedly in breach of their non-compete agreement with Groupon which bars them from working with a direct competitor for 24 months after leaving the company. Groupon does not claim that Hanna and Nolan already disclosed the above trade secrets to Google or stole any trade secrets, in violation of the Illinois Trade Secrets Act. Rather, it alleges that Hanna and Nolan would inevitably disclose the trade secrets to Google because Google Offers directly competes with Groupon. According to Groupon, the “ongoing and/or threatened” disclosure by Hanna and Nolan would cause the company irreparable harm if the two employees are not enjoined from continuing their activities at Google Offers.

The inevitable disclosure doctrine is preemptively used by a court to prevent disclosure of a trade secret where a former employee’s “new employment will inevitably lead him to rely on [a former employer’s] trade secrets.” PepsiCo, Inc. v. Redmont, 54 F.3d 1262, 1269 (7th Cir. 1995). The doctrine is not universally adopted and even limited in some jurisdictions. See , e.g., EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299 (S.D.N.Y. 1999). The doctrine may prevent a former employee from working with a direct competitor even if the employee was never subject to a non-compete agreement and attempts in good faith to prevent using his knowledge of a former employer’s trade secrets. See PepsiCo, 54 F.3d at 1270 (finding that even though no trade secrets were stolen or misappropriated, defendant, PepsiCo, Inc.’s former employee, could not help but rely on Pepsi’s confidential and proprietary information on how to price, distribute and market sports drinks in his work for Quaker Oats Company’s competing GATORADE branded sports drinks).

United States District Court for the Northern District of Illinois
Rash of EEA Prosecutions Continues with Indictment of Boeing Engineer Accused of Transmitting Trade Secrets to China

In yet another indictment in the continuing trend of prosecution of trade secret theft under the Economic Espionage Act, the government has indicted Chunlai Yang with two counts of trade secrets theft in the United States District Court for the Northern District of Illinois (Chicago). The government asserts that Yang stole proprietary source code from his employer, CME Group Inc., in order to start his own futures exchange software company. Yang pled not guilty to both counts.

CME brought the case to the U.S. Attorney with evidence that Yang had downloaded over 1,000 source code files from the secure company computer system to his unsecure work computer. Yang then moved the files to his own personal computer. His apparent intent was to use the source code of CME’s own Globex trading system as the backbone for his own company’s system. His company was to be entitled Tongmei Futures Exchange Software Technology Co.

The potential repercussions for Yang are up to 10 years in prison and a $250,000 for each count. In addition, the government seeks to take control over Yang’s computers and other equipment and any proceeds from his actions.

The fact that CME brought the case directly to the U.S. Attorney has been touted by the U.S. Attorney’s office as a good example of corporate and law enforcement cooperation on the protection of trade secrets.

Northern District of Illinois
In Fire 'Em Up's suit for patent infringement and trade secrets misappropriation, both parties seek to dismiss the other's claims

Fire 'Em Up (FEU) brought a suit including claims of patent infringement and trade secret misappropriation against multiple defendants. The trade secret misappropriation claims pertain to misappropriation of customer lists, supplier lists, as well as materials necessary to create FEU's product, and software technology which is known to only one of FEU’s employees, software developer Jeffrey Bach.

FEU voluntarily dismissed claims against Intigreen Technologies, Inc. on February 24, 2011 and against David Shea, Peter Gordon, and Jeffrey Buecheler on March 16, 2011. The remaining defendants, Technocarb Equipment (2004) Ltd. and Aurora Electronics, Ltd. filed an answer on April 11, 2011 containing affirmative defenses and counterclaims, as well as a motion to dismiss FEU’s claims of trade secret misappropriation, conversion, fraud and accounting. FEU, in turn, filed on May 16, 2011 a motion to dismiss the defendants’ counterclaims for deficiencies.

Appellate Court of Illinois, First District, First Division
Illinois Court Finds Lack of Consideration to Support Non-Compete Agreement

Plaintiff Eric Fifield, an insurance administrator, began working for Defendant Premier Services, Inc. (Premier) after Premier acquired Fifield’s former employer in 2009 and offered Fifield employment. As a condition of employment with Premier, Fifield was required to sign a nonsolicitiation/noncompetition agreement that prevented him from soliciting Premier’s customers anywhere in the US for a period of two years following employment. In February 2010, Fifield resigned from Premier and began working for Enterprise Financial Group (EFG). Fifield and EFG filed this action seeking a declaratory judgment invalidating certain provisions of the contract, and Premier filed an answer, as well as a counterclaim for injunctive relief. The lower court ruled in favor of Fifield, holding that the non-solicitation portions of the contract were void for lack of consideration.

On June 24, 2013, the Appellate Court of Illinois confirmed the lower court’s decision, explaining that under Illinois case law, an employee must be continuously employed pursuant to a noncompetition/nonsolicitation agreement for a period of two years before the court will recognize adequate consideration in exchange for a non-compete agreement. Because Fifield left Premier after only 3 months, there was not adequate consideration and the contract was unenforceable.

On September 25, 2013, the Supreme Court of Illinois denied appeal in the case.