Cases from Northern District of Illinois

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.

Northern District of Illinois
Despite a modest damages award, plaintiffs win more than a million dollars in attorneys' fees

SKF USA Inc. v. Bjerkness et. al.

Docket Number: 1:08-cv-04709
Case Filing Date: Tue, 2008-08-19
Jurisdiction: Federal Court
Location: Illinois
Court Name: Northern District of Illinois
Summary

SKF USA Inc. successfully brought an action against former employees for willful and malicious misappropriation of trade secrets, consisting of thousands of computer files. A 2010 bench trial resulting in an award of $41,000 in actual damages and $40,000 in exemplary damages. SKF then requested more than $1.25 million in attorneys’ fees and costs. Defendants objected, arguing that such fees failed to take into account prior settlement offers that could have saved costs, were grossly disproportionate to actual damages, and that plaintiff’s billing was excessive. Nonetheless, the court awarded almost the entire requested amount of fees.

Case Report
Relevant Facts and Procedural History

Dale Bjerkness, Kevin Koch, Joseph Sever, and Walter Remick were all employees of Preventive Maintenance Company, Inc. when, in January 2007, it was acquired by SKF USA. Bjerkness had worked his way up through the company from Sales Engineer, eventually becoming a Director for SKF Reliability Systems. Similarly, at the time of their departures, Koch was working as a Reliability Engineer Manager, while both Sever and Remick were working as Reliability Engineers. Defendants continued to work for SKF until May 2008, when Bjerkness departed and opened his own competing enterprise, Equipment Reliability Services, Inc. (“ERSI”). The other defendants soon followed, and it was shortly thereafter determined that ERSI had come into possession of thousands of computer files belonging to SKF. SKF filed suit against the employees and ERSI for violation of the Illinois Trade Secrets Act (“ITSA”). Their 2008 Complaint marked the beginning of what Judge Rebecca Pallmeyer described as “dismayingly contentious litigation.”

In 2009, SKF won a preliminary injunction. In a 2010 bench trial, SKF received damages totaling $81,068 (actual damages in the amount of $41,068 and exemplary damages in the amount of $40,000). Given a finding a willful and malicious misappropriation, the court also awarded reasonable attorney’s fees and costs. When SKF filed a Bill of Costs for $44,852.84, defendants objected that the amount was excessive by $16,495.14. SKF then proceeded to petition the court for an award of attorneys’ fees and non-taxable costs totaling $1,299,579.60. Defendants objected.

Lodestar Calculation

The court first calculated a lodestar figure, a standard method for determining attorney’s fees that entails multiplying SKF’s reasonable billable hours times the reasonable hourly billing rate. Under 7th Circuit law, this calculation is presumed reasonable. In arguing that the figure should be reduced, defendants cited (A) the history of settlement offers between the parties and (B) the proportionality of fees to damages. Also, while defendants did not challenge the hourly billing rates of SKF’s lawyers, it challenged the number of hours billed as unreasonable.

A. Settlement History

Defendants argued that based on the damages awarded by the court, SKF’s rejection of offers to settle constituted bad faith, and therefore justified reducing the Lodestar amount. Defendants showed that they had offered settlements of $173,247 in November 2008, $75,000 in January 2010, and $250,000 in September 2010. They claimed that SKF had been unwilling to negotiate, and that after January 6, 2009 (the date by which Defs. argued SKF had had sufficient time to contemplate and accept the 2008 settlement offer) all efforts to continue litigation were solely directed at eliminating ERSI as competition. Using the damages ruling’s calculation that, as of January 6, 2009, SKF had only suffered $31,494 in damages, Defendants argued that the choice to continue litigation after the November 2008 offer was made in bad faith.

SKF objected to consideration of the parties’ settlement discussions on the grounds that the discussions were supposed to remain confidential. Citing Fed. R. Civ. P. 68, however, the Court found that such confidentiality did not bar consideration of settlement history. In the alternative, SKF put forth evidence that the Defendants’ own Exhibits indicated SKF’s willingness to negotiate, and that it had offered to settle for $455,000 in November 2008. SKF claimed that, even at that figure, it would have taken a loss for attorney’s fees then incurred, and noted that the damages plus requested attorney’s fees that Defendants were not challenging still exceeded the November 2008 offer.

The Court sided unequivocally with SKF, finding no evidence of that the decision to reject Defendants’ offers constituted bad faith. The court put particular weight on the fact that Defendants’ offer did not include attorneys’ fees, when the ITSA makes it likely that such fees will be awarded. The fact that the November 2008 offer also preceded SKF’s win on the motion for the preliminary injunction was also noted.

B. Proportionality

The Court grappled most with the issue of proportionality, clearly concerned by a request for attorneys’ fees totaling more than fifteen times the actual damages awarded. In upholding the fees, however, the Court noted that the Seventh Circuit has declined to set specific limits on the multiples of attorneys’ fees that may be awarded.

More importantly, the Court made clear that a small damage award does not alone demonstrate the unreasonableness of pursing the claim at great expense. The Court cited the Seventh Circuit’s decision in Anderson v. AB Painting and Sandblasting Inc., which states that the existence of a fee-shifting statute precludes the court’s consideration of the reasonableness of the claim. A party who prevails with more than nominal damages, has thereby demonstrated the claim’s validity. The Seventh Circuit therefore directs courts to, “…assume the absolute necessity of achieving that particular result and limit itself to determining whether the hours spent were a reasonable means to that necessary end.” Moreover, the Court cited other cases allowing similar, if not quite as high, proportions of fees-to-damages awards.

C. Excessive Billing

Finally the Court examined whether SKF’s billing was reasonable. In assessing Defendants’ characterization that the total hours billed was “outrageous,” the Court found that Defendants failed to demonstrate adequately that SKF’s billing records were unreasonable. The Court noted that Defendants had not adequately spent time to break down the attorney’s fees, devoting only two pages of their response memo to the issue.

Moreover, to the extent that the hours were extreme, the Court found that activities of both sides were to blame. In the process, the Court criticized both sides’ attorneys for appearing “to fan the flames” of “extraordinarily contentious” litigation, while singling out the defendants for refusing at multiple points to streamline the process. The Court therefore concluded that some portion of the sizable legal bills were in fact directly due to Defendants’ actions. It also agreed with Plaintiff’s assertion that that “the most straightforward evidence that counsels’ fees are reasonable is the fact that the client paid them,” and stated that it would also not second guess SKF’s decision to spend more than $1 million for attorneys to protect trade secrets that it had recently purchased at the time the litigation commenced.

Conclusion

The court granted SKF’s fee request, except for the fee paid to SKF’s damages expert, whose testimony the court mostly disregarded. Given Defendants’ failure to adequately address the removal of such a fee and associated attorney’s fees, the Court subtracted $107,991 from the fee award.

No appeal has been filed. In the wake of the fee award, at least one defendant, Joseph Sever, has filed for Chapter 7 Bankruptcy protection.

Significance

This case demonstrates that Illinois courts will presume validity of attorney’s fees upon the success of a claim, even for an extreme proportion of fees to damages awarded. The existence of the fee-shifting statute supports an award of fees of even more than fifteen times total damages, so long as there is no significant evidence of bad faith or unreasonable fees. There is also the suggestion that any settlement offer might need to demonstrate consideration of attorney’s fees in order to demonstrate a party’s bad faith in continuing litigation. Note that the award here is granted because the 7th Circuit has chosen not to set defined barriers on proportionate awards of attorneys’ fees to damages. Also underlying this case was the particularly contentious nature of the litigation, which the Court addresses at multiple points. General displeasure at the manner in which the case unfolded seems to have helped the Court to justify such a high award.

While the equitable underpinnings of trade secret law might suggest that some limits should be placed on fee awards, such limits remain unarticulated, at least in the Seventh Circuit. For cases of willful and malicious misappropriation, the Defendant still has the opportunity to demonstrate that Plaintiff’s requested fee amount is the result of bad faith. In this case, Defendants failed to do so. Yet it does seem somewhat unusual that SKF should bear none of the burden for the length of the litigation, given that the Court noted poor conduct on both sides. Defendants bore greater weight here, but the Court could still, it seems, have reduced some of Plaintiff’s award.

Eastern Division, Northern District of Illinois
Social Media Group Membership Lists May Be Trade Secrets

In CDM Media, the Defendant, former employee Robert Simms, was granted in part and denied in part a motion to dismiss the multiple claims filed in CDM’s complaint. CDM sued its former employee, Simms, for refusing to transfer control of a LinkedIn group allegedly owned by CDM and allegedly wrongfully retaining CDM’s confidential information after Simms left CDM and using it in competition with CDM. The court denied the motion with regard to one claim, but granted the motion regarding the remaining two claims.
CDM asserted Trade Secret protection under the Illinois Trade Secret Act over three separate aspects of CDM’s business. First, CDM asserts Trade Secret protection over a LinkedIn group called “the CIO Speaker Bureau,” a private online community of chief information officers and senior Information Technology executives interested in participating in or speaking at CDM events. Second, CDM asserts Trade Secret protection over the confidential information contained in this LinkedIn group. Lastly, CDM asserts Trade Secret protection over information from CDM’s Event Logistic Management database (“ELM”), which included CDM’s sensitive information including CDM vendor and customer lists, pricing and cost data regarding its products and services and profit or loss information. The court also denied Defendant’s motion to dismiss based on common law misappropriation.
The Northern District of Illinois denied the motion to dismiss, holding that there was a question of fact which a jury must decide regarding the Speaker Bureau membership list. The court denied the Defendant’s motion to dismiss regarding the confidential information contained in the LinkedIn group, holding that “[w]hile a private communication can contain a trade secret, it is not itself a trade secret. It is therefore insufficient for plaintiff to allege that the LinkedIn group’s private communications were trade secrets under the Illinois Act.” The court also denied the motion to dismiss regarding the ELM database, holding that the Plaintiff failed to allege that the defendant actually used the data from the ELM database after he left CDM, and therefore this claim was not viable.
Moving forward, cases that involve business development though social media will continue to mold the landscape of trade secret jurisprudence. Here, the Nothern District of Illinois court is willing to extend trade secret protections to cover social media business development and holds the defendant to a high bar to have the claims dismissed. The court is willing to consider the confidential nature of communications via social media and recognizes that a jury can find that business development through social media may have required a significant investment of time and money. It will be interesting to see in the future how other states interpret its own trade secret statutes as it applies to social media.