Abrasic 90 Inc. v. Weldcote Metals, Inc.
364 F.Supp.3d 888 (2019)
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Rule of Law:
For business information to qualify for legal protection as a trade secret, its owner must take active and reasonable measures to maintain its secrecy. A company that fails to implement fundamental safeguards, such as confidentiality agreements, data access restrictions, password protection, and employee training, cannot establish that its information is a trade secret.
Facts:
- Joe O'Mera served as President of Abrasic 90, Inc. (CGW), a grinding disc manufacturer, for 18 years, growing its annual sales from $2.8 million to $33 million.
- CGW stored all its sensitive business and financial data—including customer lists, supplier costs, and pricing strategies—on a company-wide shared computer drive.
- CGW's data security was minimal: 39 of 108 employees had unrestricted access to the entire drive, files were not encrypted or password-protected, a single password was shared among employees for logging in, and the files were not marked as 'confidential' or 'proprietary'.
- With the exception of O'Mera's employment agreement that expired years earlier, CGW did not require its employees, suppliers, or distributors to sign confidentiality or non-disclosure agreements.
- While still employed as CGW's President, O'Mera engaged in discussions with Zika Group to launch a competing business, Weldcote Metals, Inc., and secured pricing commitments from a key CGW supplier for his new venture.
- O'Mera resigned from CGW on January 29, 2018, to become President of Weldcote. Upon leaving, he took a flash drive containing CGW's comprehensive 'All Items File,' which detailed its sales, pricing, and supplier data.
- Colleen Cervencik, CGW's former IT Manager, also resigned to join Weldcote. Before she left, at the request of O'Mera and another new Weldcote employee, she accessed the CGW shared drive and downloaded additional company data for them.
Procedural Posture:
- Camel Grinding Wheels, U.S.A. (CGW) filed a lawsuit against Weldcote Metals, Inc., Joe O'Mera, and Colleen Cervencik in the U.S. District Court for the Northern District of Illinois.
- The district court entered a temporary restraining order (TRO) by agreement of the parties, preventing the defendants from using the information they obtained from CGW.
- CGW filed an amended motion for a preliminary injunction, seeking to bar the defendants from competing in the abrasives industry and from using the alleged trade secrets.
- The district court held a multi-day evidentiary hearing on the preliminary injunction motion.
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Issue:
Does a company's compiled business data, such as customer lists and pricing information, qualify for trade secret protection under the Defend Trade Secrets Act and Illinois Trade Secrets Act when the company failed to implement reasonable security measures, such as requiring confidentiality agreements, restricting access to the data, and marking the information as confidential?
Opinions:
Majority - Judge John J. Tharp, Jr.
No. To qualify for trade secret protection, the owner must take reasonable measures to maintain the information's secrecy, and a failure to implement even basic safeguards demonstrates that such measures were not taken. The court denied CGW's motion for a preliminary injunction because CGW failed to demonstrate a likelihood of success on its trade secret claim. To be a trade secret, information must not only derive economic value from its secrecy but also be the subject of reasonable efforts to maintain that secrecy. While CGW's compiled information might have been protectable in theory, the company did virtually nothing to protect it. The court pointed to a complete failure to adopt fundamental safeguards: no meaningful confidentiality agreements for employees or third parties; unrestricted access to the data for over one-third of employees; no passwords, encryption, or file-level access controls; and a failure to mark the information as confidential, unlike its research and development files which were marked 'proprietary.' Because CGW did not treat its own information as secret, the court will not afford it legal protection as such. Furthermore, the balance of harms and public interest weigh against the injunction, as it would disproportionately harm Weldcote by shutting down its new business line and would stifle legitimate market competition.
Analysis:
This decision serves as a crucial warning to businesses that the 'reasonable measures' requirement for trade secret protection is not a mere formality. It establishes that courts will meticulously scrutinize a company's actual data security practices, and a pattern of neglect will defeat a trade secret claim. The ruling provides a practical list of security failures that undermine trade secret status, such as the absence of NDAs, poor digital hygiene like shared passwords, and failing to differentiate between confidential and non-confidential data. This precedent reinforces that trade secret law cannot be used as a post-hoc tool to stifle competition from former employees where the company itself was indifferent to protecting its own information.
