AMP Inc. v. Fleischhacker
823 F.2d 1199 (1987)
Rule of Law:
An employer seeking to prevent a former employee from using confidential business information must establish the existence of a genuine trade secret or rely on an enforceable restrictive covenant; absent such a covenant, generalized confidential business information and general skills and knowledge acquired during employment are not protected as trade secrets under Illinois law, and injunctive relief requires a showing of actual or threatened misappropriation and irreparable harm.
Facts:
- AMP Incorporated (AMP) is the world’s leading producer of electrical and electronic connection devices and the largest company in the connector industry.
- Molex is a principal competitor of AMP’s Components & Assemblies Division.
- James Fleischhacker was the Division Manager of AMP’s Components & Assemblies Division from 1982 until he resigned in 1984.
- As Division Manager, Fleischhacker supervised approximately 1200 people, was responsible for the manufacture and sale of 10,000 different component parts, and had access to AMP's business, strategic planning, product development, manufacturing, financial, and marketing information.
- In 1982, Molex decided to create a new position, Director of Marketing for its Commercial Products Division, and identified Fleischhacker as a highly qualified candidate due to his background, education, skill, and knowledge of the connector industry.
- Molex made a written offer of employment to Fleischhacker at the end of 1983, which he accepted in February 1984.
- Fleischhacker signed a confidentiality agreement when he joined AMP, agreeing to keep confidential all information relating to AMP’s business, research, engineering, manufacturing processes, trade secrets, and customer lists 'during and subsequent to the period of said employment.'
- After tendering his resignation, Fleischhacker packed his personal papers and belongings under the surveillance of an AMP employee and did not deliberately take confidential materials, though he inadvertently removed one AMP report containing confidential information related to operations in Japan.
Procedural Posture:
- AMP Incorporated initiated a lawsuit against James Fleischhacker and Molex in federal district court, alleging unfair competition and misappropriation of trade secrets.
- After a bench trial on the merits, the district court entered final judgment in favor of the defendants, denying injunctive relief and damages against Molex for unfair competition, and denying injunctive relief against Molex and Mr. Fleischhacker to prevent trade secret misappropriation.
- The district court initially found that the products manufactured by AMP’s Components & Assemblies Division did not constitute protectible trade secrets, but later clarified its order, holding that AMP had established the existence of 'protectible business information' while also concluding AMP failed to show any likelihood that Fleischhacker would compromise the information.
- AMP appealed the district court’s judgment to the United States Court of Appeals for the Seventh Circuit.
- Defendants cross-appealed from the district court’s refusal to impose sanctions against AMP pursuant to Fed.R.Civ.P. 11.
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Issue:
Does an employer, in the absence of an enforceable restrictive covenant not to compete, have a protectible trade secret interest in an executive employee's independent recollection of generalized business and technical information, thereby warranting injunctive relief against the former employee and their new competitor employer?
Opinions:
Majority - Cummings, Circuit Judge
No, an employer, in the absence of an enforceable restrictive covenant not to compete, does not have a protectible trade secret interest in an executive employee's independent recollection of generalized business and technical information, and injunctive relief is not warranted without a showing of actual or threatened misappropriation and irreparable harm. The Seventh Circuit affirmed the district court's judgment, explaining that Illinois law distinguishes between protection afforded by an enforceable post-employment restrictive covenant and common law trade secret restrictions. A restrictive covenant can protect confidential information that doesn't rise to the level of a trade secret, but without such a covenant, protection extends only to genuine trade secrets or near-permanent customer relationships. The confidentiality agreement signed by Fleischhacker was unenforceable under Illinois law because it lacked limitations on duration and geographical scope, rendering it an unreasonable restraint on trade. Therefore, AMP was required to establish the existence of genuine trade secrets. The court clarified that while an employee may not take confidential, particularized plans or processes, they are free to use general skills and knowledge acquired during their employment. AMP failed to identify any particularized trade secrets, instead relying on generalized categories of business, planning, and financial information which Illinois courts do not protect as trade secrets in the absence of an enforceable restrictive covenant. The court found no evidence that Fleischhacker deliberately took, purposefully memorized, or used any specific trade secret information to AMP’s detriment, or that Molex benefited from the inadvertently removed report. The court emphasized that Illinois law does not authorize restraining a former high-level executive from using independent recollections of generalized business and technical information, as such a restriction would severely impede employee mobility and competition. Furthermore, even if protectible trade secrets existed, AMP failed to show irreparable harm or a likelihood of misappropriation, which is a requisite showing for injunctive relief when no restrictive covenant is present. The court also declined to impose Rule 11 sanctions on AMP, finding that the defendants' arguments for sanctions were not properly presented to the district court and were thus waived.
Analysis:
This case significantly clarifies the distinction under Illinois law between protecting confidential information through enforceable restrictive covenants and through common law trade secret misappropriation. It establishes a high bar for employers seeking to prevent former employees from working for competitors based on general knowledge, promoting employee mobility and a competitive economy. Employers must either implement carefully crafted, enforceable restrictive covenants or be prepared to specifically identify genuine trade secrets and demonstrate actual or imminent misappropriation and irreparable harm. Generalized business information or an employee's acquired skills and experience, absent contractual protection, are generally not considered protectible trade secrets, impacting how companies must secure their intellectual property and manage employee transitions.
