Electro-Craft Corp. v. Controlled Motion, Inc.
332 N.W.2d 890 (1983)
Rule of Law:
For information to qualify as a protectable trade secret under the Uniform Trade Secrets Act, the owner must take efforts that are reasonable under the circumstances to maintain its secrecy; a mere intention to keep the information confidential is insufficient.
Facts:
- Electro-Craft Corporation (ECC) was a significant manufacturer of high-performance electric 'servo' motors, including the 1125 moving coil motor.
- John Mahoney, ECC's national sales manager, had key relationships with ECC's major customers, including Storage Technology and IBM.
- While still employed by ECC, Mahoney began organizing a competing company, Controlled Motion, Inc. (CMI), and recruited several key ECC employees to join him.
- The employees Mahoney hired, including a mechanical engineer and a quality assurance manager, had all signed general confidentiality agreements with ECC but did not have non-competition clauses.
- Shortly after forming, CMI developed and began selling the CMI 440 motor, which was almost identical in its dimensions and tolerances to ECC's 1125-03-003 motor.
- ECC's security measures were lax; it had several unlocked entrances, had abandoned its employee badge system, and did not destroy discarded technical drawings.
- ECC did not mark its technical documents as confidential, sent drawings to vendors without confidentiality warnings, allowed unrestricted employee access to documents, and conducted public tours and 'open houses' at its manufacturing plants.
Procedural Posture:
- Electro-Craft Corporation (ECC) sued Controlled Motion, Inc. (CMI) and John Mahoney in Hennepin County District Court (trial court) for misappropriation of trade secrets.
- The trial court issued a temporary restraining order, followed by a temporary injunction, in favor of ECC.
- The trial court subsequently held CMI in civil contempt for violating the temporary injunction.
- Following a bench trial, the trial court found that CMI had misappropriated ECC's trade secrets and issued a permanent injunction against CMI.
- CMI, as appellant, appealed both the contempt order and the final judgment on the misappropriation claim to the Supreme Court of Minnesota.
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Issue:
Does the combination of dimensions, tolerances, and manufacturing processes for an electric motor qualify as a protectable trade secret under the Uniform Trade Secrets Act when the owner fails to take reasonable efforts to maintain its secrecy, such as marking documents 'confidential' or implementing meaningful security measures?
Opinions:
Majority - Coyne, Justice
No. The combination of dimensions, tolerances, and manufacturing processes for an electric motor does not qualify as a protectable trade secret when the owner fails to take reasonable efforts to maintain its secrecy. Under the Uniform Trade Secrets Act, information must meet a two-part test to be a trade secret: (1) it must derive independent economic value from not being generally known or readily ascertainable, and (2) it must be the subject of reasonable efforts to maintain its secrecy. While ECC's motor designs met the first prong because they were unique, not readily ascertainable, and provided a competitive advantage, ECC's claim failed on the second prong. The court found that ECC's efforts to maintain secrecy were not reasonable. A mere subjective intention to keep information secret is insufficient; the owner must take objective steps to protect it. ECC's physical security was lax, and its confidentiality procedures were 'fatally lax.' The company failed to mark technical documents as 'confidential,' sent designs to customers and vendors without restriction, failed to limit employee access to sensitive information, and even held public open houses. The general confidentiality agreements employees signed were too vague, and the last-minute exit interviews were viewed as threats rather than a reasonable effort to maintain secrecy. Because ECC failed to treat its own information as secret, it cannot seek legal protection for it as a trade secret.
Analysis:
This case provides a crucial interpretation of the 'reasonable efforts' requirement under the Uniform Trade Secrets Act. It establishes that a company's subjective intent to keep information secret is irrelevant without objective, demonstrable actions to maintain that secrecy. The decision places a significant burden on employers to implement and enforce concrete confidentiality policies, such as marking documents, restricting access, and using specific non-disclosure agreements, rather than relying on general provisions or after-the-fact measures. This holding protects employee mobility by clarifying that employees are free to use information and skills from a former job if the employer did not consistently treat that information as a protected secret.
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