Northern Elec. Co., Inc. v. Torma
819 N. E. 2d 417, 2004 Ind. App. LEXIS 2463, 76 U.S.P.Q. 2d (BNA) 1823 (2004)
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Rule of Law:
Valuable information collected by an employee as part of their assigned duties is owned by the employer, and this information may qualify as a trade secret if it has economic value from not being readily ascertainable and is subject to reasonable efforts to maintain its secrecy, which can include the protective measures taken by the employee-agent.
Facts:
- Northern Electric Company, Inc. (Northern Electric), a motor repair shop, employed Patrick L. Torma Jr. (Torma) starting in 1990.
- After a failed servo motor repair, Northern Electric's president, Howard Dosmann, consented to Torma's request to continue the service and placed him in charge of the servo motor department.
- Over seven years, Torma gathered extensive data for repairing over 650 servo motors from his work, company manuals, other employees, and external sources.
- Torma initially recorded this data in a spiral notebook but later adopted a practice of entering it into a word processing file on his home computer, which he brought to work daily on a disk.
- Torma protected the data by locking the disk in his toolbox, keeping it with him, or taking it home, and never allowed other employees access to his entire compilation.
- In June 2002, Torma resigned from Northern Electric after a disagreement over compensation and a failed negotiation for a non-compete agreement.
- Upon his departure, Torma refused to return the data compilation to Northern Electric.
- Shortly after leaving, Torma began working at Hy-Tech, a competing servo motor repair company he had founded before his resignation.
Procedural Posture:
- Northern Electric filed a complaint in the trial court against Torma and Hy-Tech, alleging violation of the Indiana Trade Secret Act, statutory conversion, and breach of fiduciary duty.
- Northern Electric also filed a request for a temporary restraining order and injunctions.
- The trial court ordered Torma to return certain prototypes, provide Northern Electric with a copy of the servo motor specifications, and keep records of their use.
- Following a three-day bench trial, the trial court entered judgment in favor of Torma and Hy-Tech.
- The trial court also awarded attorneys' fees to Torma, finding Northern Electric's claim was not justified.
- Northern Electric, as appellant, appealed the trial court's judgment to the Court of Appeals of Indiana.
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Issue:
Does a compilation of data, gathered by an employee during the course of his assigned duties and organized on his own time, constitute a trade secret owned by the employer under the Indiana Uniform Trade Secret Act?
Opinions:
Majority - Riley, Judge.
Yes, a compilation of data gathered by an employee during the course of his assigned duties constitutes a trade secret owned by the employer. Applying principles of agency law, information an employee collects as part of their assigned duties is owned by the employer, regardless of where or when it is compiled. The court found that Torma's data gathering was squarely within his job duties, and but for his employment, he would not have had access to the raw data. The compilation qualifies as a trade secret under the Indiana Uniform Trade Secret Act (IUTSA) because it derives economic value from not being 'readily ascertainable'—requiring substantial time, expense, and effort to duplicate—and it was subject to 'reasonable efforts' to maintain its secrecy. The court determined that in a small, trust-based company, security measures do not need to be extravagant and that Torma's own efforts to protect the data (as the company's agent) could be imputed to the employer. By refusing to return the data upon leaving, Torma misappropriated the trade secret, committed statutory conversion, and breached his fiduciary duty.
Analysis:
This case clarifies the ownership of intellectual property created by employees, establishing that information gathered within the scope of employment belongs to the employer, even if organized by the employee on personal time. It provides a flexible interpretation of 'reasonable efforts' for trade secret protection, particularly for small businesses, by allowing a court to consider the company's size, culture of trust, and the agent's own protective actions. The decision reinforces an employee's fiduciary duty not to expropriate company property for personal gain and sets a precedent that compiling publicly available information can create a protectable trade secret if significant effort is expended.
