Delta Medical Systems v. Mid-America Medical Systems, Inc.
772 N.E.2d 768, 331 Ill. App. 3d 777, 265 Ill. Dec. 397 (2002)
Rule of Law:
For information to be protected as a trade secret under the Illinois Trade Secrets Act, it must be sufficiently secret to derive economic value from not being generally known, and the owner must have made reasonable efforts to maintain its secrecy, distinguishing it from general knowledge or easily obtainable information.
Facts:
- Delta Medical Systems (Delta), a Wisconsin corporation selling and servicing medical diagnostic equipment, opened a Schaumburg, Illinois, office in 1995, employing Michael Donati as service manager and John Ottum as a service engineer.
- In February 2001, Delta terminated its dealership with Lorad (a mammography equipment manufacturer) to become a dealer for a competitor, Siemens, anticipating some loss of Lorad service business.
- In February or March 2001, Robert Ottum (John Ottum's father) began discussing forming a new company with Donati and John Ottum, and also began discussions with Lorad about securing a dealership.
- On May 9, 2001, Mid-America Medical Systems, Inc. (Mid-America) was incorporated with Robert Ottum, Allan Pozdol, Michael Donati, and John Ottum as shareholders, and Lorad granted Mid-America a dealership.
- On June 1, 2001, Lorad formally executed a dealership agreement with Mid-America for northern Illinois.
- Michael Donati and John Ottum resigned from their employment with Delta on June 15, 2001.
- Soon after Mid-America began operations, several Delta customers with Lorad equipment terminated their relationship with Delta in favor of doing business with Mid-America.
- Donati admitted taking a Delta contract and service form when he left, using them to create identical forms for Mid-America; John Ottum used an address book he had maintained since 1992 (before Delta employment) to contact customers for Mid-America.
Procedural Posture:
- Plaintiff Delta Medical Systems filed a multi-count complaint in the circuit court of Cook County seeking injunctive relief to prevent defendants Mid-America Medical Systems, Inc., Michael Donati, and John Ottum from using Delta’s alleged trade secret information and from soliciting and servicing its customers.
- On August 3, 2001, the circuit court entered a temporary restraining order (TRO) prohibiting Mid-America from soliciting Delta’s customers and from using or disclosing its customer data.
- Following an evidentiary hearing on Delta’s petition for a preliminary injunction, the circuit court issued a preliminary injunction restraining Mid-America from soliciting and servicing certain Delta customers and ordered Mid-America to remove its service tags from certain Delta customer equipment.
- Defendants Mid-America appealed from this interlocutory ruling to the Appellate Court of Illinois, First District, pursuant to Supreme Court Rule 307(a)(1).
- Plaintiff Delta Medical Systems cross-appealed, contending it was entitled to broader relief than the trial court afforded.
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Issue:
Does a company's customer list, pricing information, service history, and key customer contacts constitute protectable trade secrets under the Illinois Trade Secrets Act, such that a preliminary injunction preventing former employees from using this information is warranted, when much of the information is publicly available or readily obtainable, and the company's efforts to maintain its secrecy are limited?
Opinions:
Majority - Justice Theis
No, Delta's customer list, pricing information, service history, and key customer contacts, as presented, do not qualify as protectable trade secrets under the Illinois Trade Secrets Act, and therefore the preliminary injunction was improperly granted. The court found that Delta failed to demonstrate a clearly ascertainable right requiring protection. Information that can be readily duplicated without considerable time, effort, or expense, or that constitutes general knowledge, is not a trade secret (Hamer Holding Group, Inc. v. Elmore). Delta’s customer list was easily reproducible from public sources like the yellow pages, FOIA requests, or manufacturer lists, and Delta did not show significant effort in its compilation. Pricing information was largely dependent on publicly available equipment details (type, age) or employee experience (customer preferences), which employees are entitled to utilize. Customer preferences were considered personal skills and experience, not proprietary data (Midwest Micro Media, Inc. v. Machotka). Service history was not secret, as Delta would provide it to customers if requested, and customers themselves would share it with preferred vendors (distinguishing Elmer Miller, Inc. v. Landis). Service contract terms, while copied by Donati, contained common concepts not novel enough to be trade secrets, and the specific choices of service level belonged to the customer, who was not obligated to keep them confidential (George S. May International Co. v. International Profit Associates). Knowledge of key customer contacts primarily stemmed from the service engineers' relationships and experience, not extraordinary employer efforts, and Delta did not employ restrictive covenants to protect these contacts (Fleming Sales Co. v. Bailey). Furthermore, Delta's efforts to maintain the secrecy of this data were insufficient, with a vague employee handbook, lack of specific procedures, and general employee access, weighing against trade secret status. The court also rejected Delta's cross-appeal claims for tortious interference with contract or economic advantage, finding no evidence of a breach or that the claims were preempted by the Act, and no breach of duty of loyalty for planning to compete without improper actions.
Analysis:
This case significantly clarifies the high bar for information to be considered a 'trade secret' under the Illinois Trade Secrets Act. It emphasizes that general business information, customer lists readily compiled from public sources, or knowledge gained through an employee's professional experience and relationships are typically not protectable. Employers seeking trade secret protection must demonstrate concrete, reasonable efforts to maintain secrecy and that the information provides a unique economic advantage precisely because of its non-public nature. The ruling balances the need to protect proprietary business information with an employee's right to pursue their chosen occupation and utilize their general skills and knowledge, making it harder for companies to prevent former employees from competing without specific contractual covenants or genuine trade secret misappropriation.
