Sigma Chemical Company v. Foster Harris, Sigma Chemical Company v. Foster Harris
794 F.2d 371, 1986 U.S. App. LEXIS 26498, 230 U.S.P.Q. (BNA) 322 (1986)
Rule of Law:
Under Missouri law, an employer's compilation of commercially valuable data, developed through significant effort and kept secret, can constitute a protectable trade secret, and non-competition agreements may be partially enforced even if they lack an explicit geographic restriction; however, injunctions against trade secret disclosure must be limited in duration to the time it would take a legitimate competitor to independently and lawfully reproduce the information.
Facts:
- Sigma Chemical Company (Sigma) sells 16,000 esoteric chemicals, sourcing 10,000 of them from approximately 2,300 suppliers.
- Sigma expends significant time and effort to determine which suppliers are capable of producing chemicals of the requisite quality for scientific research.
- Over 40 years, Sigma developed and maintained product and vendor files containing critical information such as product sources, quality control data, price, purchasing history, and customer complaints.
- Foster Harris was an experienced purchasing agent employed by Sigma.
- Harris signed a restrictive covenant agreeing not to work for a competitor for two years post-termination and not to use or disclose Sigma’s trade secrets.
- Within two years of leaving Sigma, Harris began working as a purchasing agent for ICN Pharmaceuticals, Inc. (ICN), a top competitor of Sigma.
Procedural Posture:
- Sigma Chemical Company sued Foster Harris in the U.S. District Court for the Eastern District of Missouri.
- The District Court found that the information in Sigma's product and vendor files constituted trade secrets.
- The District Court found Harris's restrictive covenant to be reasonable as to time and geographic location.
- The District Court issued an injunction prohibiting Harris from working as a purchasing agent for ICN for two years and from using or disclosing Sigma's trade secrets.
- Harris appealed the District Court's judgment to the U.S. Court of Appeals for the Eighth Circuit, as appellant.
- Sigma Chemical Company cross-appealed the District Court's judgment to the U.S. Court of Appeals for the Eighth Circuit, as cross-appellant (and appellee to Harris's appeal).
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Issue:
Does Missouri law permit a court to (1) enforce a non-competition covenant lacking an explicit geographic restriction if the enforcement is reasonably limited to the defendant's new employment, (2) find that a compilation of commercially valuable information, even if partly derived from public sources, constitutes a trade secret, and (3) issue a temporally unlimited injunction prohibiting the disclosure of trade secrets?
Opinions:
Majority - McMILLIAN, Circuit Judge
Yes, Missouri law permits enforcement of a non-competition covenant despite lacking a specific geographic restriction if the enforcement is reasonably limited; it also permits finding a compilation of commercially valuable information as a trade secret; however, it does not permit a temporally unlimited injunction against trade secret disclosure. The court affirmed the district court's finding that Sigma's product and vendor files constituted protectable trade secrets. It reasoned that although some individual pieces of information might be in the public domain, Sigma’s specific knowledge of which suppliers provided the requisite quality and price, and the compilation of this data, developed over 40 years with significant effort and protected by extensive security measures, provided a substantial competitive advantage not easily duplicated. The court referenced Syntex Opthalmics, Inc. v. Novicky for the principle that a trade secret can exist in a combination of public components forming a unique, protectable secret. The court also affirmed the enforcement of the non-competition covenant, despite its lack of an express geographical restriction. It relied on the Missouri principle that courts 'have decreed enforcement as against a defendant whose breach occurred within an area in which restriction would clearly be reasonable, even though the terms of the agreement imposed a larger and unreasonable restraint,' citing R.E. Harrington, Inc. v. Frick. Thus, prohibiting Harris from working for ICN, a direct competitor, was deemed a reasonable restriction. However, the court reversed the district court's injunction against trade secret disclosure, holding that under Missouri law, such injunctions must be limited in duration to the time it would take a legitimate competitor to independently reproduce the trade secrets by lawful means, citing National Rejectors, Inc. v. Trieman and Carboline Co. v. Jarboe. The court emphasized that an unlimited injunction would give the employer 'a windfall protection and would subvert the public interest in fostering competition and and in allowing employees to make full use of their knowledge and ability.'
Analysis:
This case is significant for clarifying the scope of trade secret protection and restrictive covenant enforcement under Missouri law. It establishes that sophisticated compilations of information, even if some components are publicly available, can be recognized as trade secrets if the compilation itself provides a competitive edge and required substantial effort. It also provides judicial flexibility for courts to partially enforce non-competition agreements that may be technically deficient in their geographic scope, provided the actual enforcement is reasonable. Most importantly, it definitively limits the duration of trade secret injunctions to the period required for independent duplication, preventing indefinite protection and promoting competition.
