Service Centers of Chicago, Inc. v. Minogue
11 U.S.P.Q. 2d (BNA) 1062, 535 N.E.2d 1132, 180 Ill. App. 3d 447 (1989)
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Rule of Law:
For information to constitute a protectable trade secret, it must be sufficiently secret to derive economic value from not being generally known to others and be subject to reasonable efforts to maintain its secrecy; general skills and knowledge acquired by an employee during their employment are not considered trade secrets.
Facts:
- Deliverex, owned by Gardner Heidrick, began operating in Chicago in September 1987, providing off-site medical records storage and retrieval services for health-care facilities.
- In October 1987, Deliverex hired Jeffrey Minogue as a salesman and sent him to a one-week training program in San Jose, California.
- Before the training program began, Minogue was required to sign a confidentiality agreement stating that information provided by Deliverex was confidential and trade secrets, and agreeing not to disclose or use them if he left employment, assuming the burden of proving non-use if he engaged in a similar business within two years.
- During his five-month employment, Minogue made sales calls upon area hospitals, including Lutheran General Hospital, where he met with director of radiology Judy Koptik, presented services, conducted a survey, and submitted a pricing proposal.
- On March 8, 1988, Koptik visited Deliverex's storage facility, found it essentially inoperable, and later suggested to Minogue that he start his own company.
- Minogue tendered his resignation from Deliverex on March 17, 1988.
- One week later, Minogue contacted Koptik and informed her that he had formed Filefax, Inc.
- On March 31, 1988, Filefax submitted a proposal to Lutheran General offering the same services as Deliverex, and in May 1988, Lutheran General awarded the contract to Filefax, Inc.
Procedural Posture:
- Service Centers of Chicago, Inc., d/b/a Deliverex of Chicago (Deliverex) filed a lawsuit against Jeffrey M. Minogue and Filefax, Inc. in the trial court, alleging breach of a confidentiality agreement and misuse of trade secrets.
- Deliverex sought and obtained a preliminary injunction from the trial court, enjoining Minogue and Filefax, Inc. from using alleged trade secrets and confidential information, and from providing services to Lutheran General Hospital.
- Minogue appealed the preliminary injunction order to the Illinois Appellate Court, First District.
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Issue:
Does a company's pricing formula, consisting of a customer survey, 'rules of thumb,' and a linear foot measurement, qualify as a protectable trade secret or confidential information under Illinois law, thereby justifying an injunction against a former employee, when the company fails to establish that these components are not generally known in the industry or that reasonable efforts were made to maintain their secrecy?
Opinions:
Majority - Presiding Justice Jiganti
No, Deliverex's pricing formula does not qualify as a protectable trade secret or confidential information because Deliverex failed to provide sufficient evidence that its components (customer survey, 'rules of thumb,' linear foot measurement) were not generally known in the industry or that reasonable efforts were made to maintain their secrecy. The court's decision balances the protection of an employer's developed secret advantages against an employee's right to utilize general knowledge and skills acquired through experience. To establish a trade secret, the claimant must demonstrate that the information is sufficiently secret to derive economic value from not being generally known and that reasonable efforts were undertaken to maintain its secrecy, consistent with both common law principles and the Illinois Trade Secrets Act. Deliverex failed to meet this burden as to its pricing formula, which it claimed consisted of a customer survey, 'rules of thumb,' and the use of a linear foot measurement. The customer survey was not introduced into evidence, and Deliverex provided no proof that its contents or compilation involved information not generally known in the industry or significant time, money, or effort. The 'rules of thumb' appeared to be within the realm of general skills and knowledge an employee would acquire and were not shown to be uniquely confidential. Merely being the first or only company to use a linear foot measurement does not, by itself, transform otherwise general knowledge into a trade secret. Deliverex did not establish that its ability to offer a fixed monthly fee was due to information or processes not generally known to others, only that it was a pioneering and attractive business method. Furthermore, the confidentiality agreement signed by Minogue was overbroad, purporting to make all information 'concerning or in any way relating' to Deliverex's services confidential, effectively acting as an unlimited post-employment covenant not to compete, which is unreasonable and unenforceable under Illinois law.
Analysis:
This case establishes a high evidentiary threshold for plaintiffs seeking to protect alleged trade secrets, particularly when those secrets are closely tied to general business practices or employee skills. It reinforces that proprietary business methods, even if innovative or successful, do not automatically qualify for trade secret protection without clear proof of secrecy and diligent protective measures. The ruling also serves as a crucial reminder for employers regarding the enforceability of confidentiality agreements, emphasizing that overly broad restrictions that function as unlimited non-compete clauses will likely be deemed unreasonable and unenforceable, regardless of any underlying trade secret claims. Future cases will cite this decision for the principles governing the definition and proof of trade secrets under Illinois law and the limitations on restrictive covenants.
