Strata Marketing, Inc. v. Murphy
317 Ill. App. 3d 1054, 251 Ill. Dec. 595, 740 N.E.2d 1166 (2000)
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Rule of Law:
A non-compete covenant lacking reasonable geographical or activity restrictions is unenforceable as overbroad, but a claim for trade secret misappropriation under the Illinois Trade Secrets Act can proceed under the inevitable disclosure doctrine if a plaintiff alleges facts demonstrating that a former employee's new position with a direct competitor will necessarily lead to the reliance upon and disclosure of the former employer's trade secrets.
Facts:
- Strata Marketing, Inc. (Strata) develops and leases specialized software for analyzing market data for radio and television advertising, primarily serving advertising agencies and corporate in-house advertising departments.
- Identifying customers and prospective customers for this niche software is difficult, requiring Strata's three full-time sales coordinators to invest extensive time and money compiling lists through market research.
- Gail Murphy was employed by Strata as a sales representative, and her duties included servicing existing customers and soliciting new ones, for which she received customer lists, sales leads, and appointments from the sales coordinators.
- As a condition of her employment, Murphy signed an employment agreement that included a confidentiality agreement and a non-compete clause, prohibiting her from disclosing Strata's confidential information and from working for any competitor, including Marketing Resources Plus (MRP), for one year after termination.
- Strata implemented various security measures to maintain the confidentiality of its information, such as limited computer network access, a 'need to know' basis for information sharing, logging computer access, keeping customer contracts under lock and key, shredding drafts, and requiring confidentiality agreements.
- Marketing Resources Plus (MRP), a division of VNU Marketing Information Services, Inc., is Strata's principal competitor, developing and leasing the same type of software.
- Murphy resigned from Strata, effective May 28, 1999, and accepted employment with MRP as a sales representative, scheduled to begin on July 19, 1999.
- A prospective customer of Strata's reportedly told a Strata representative that an MRP sales representative had disclosed 'problems' in Strata's software, claiming the information came from 'a former Strata representative,' whom Strata believed to be Murphy.
Procedural Posture:
- On July 12, 1999, Strata Marketing, Inc. (Strata) filed a verified complaint for injunctive relief and damages against Gail Murphy and VNU Marketing Information Services, Inc. (VNU) in the circuit court of Cook County (trial court), alleging breach of an employment agreement (Count I) and violation of the Illinois Trade Secrets Act (Count II).
- Strata also filed a motion for a temporary restraining order (TRO), seeking to prevent Murphy from starting employment with VNU's division, Marketing Resources Plus (MRP).
- On July 16, 1999, defendants filed a motion to dismiss Strata's complaint.
- Strata was granted leave to file, and subsequently filed, an amended complaint and an amended motion for a TRO on July 19, 1999.
- On July 22, 1999, defendants filed a motion to dismiss Strata's amended complaint, arguing the non-compete covenant was overbroad and that Strata failed to state a cause of action under the Act.
- The trial court granted defendants' motion to dismiss Strata's amended complaint, finding the non-compete covenant unenforceable, and denied Strata's request for a TRO.
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Issue:
1. Is a non-compete covenant in an employment agreement unenforceable as overbroad if it lacks reasonable geographical and activity restrictions? 2. Does a plaintiff sufficiently state a cause of action under the Illinois Trade Secrets Act by alleging that a former employee's new position with a direct competitor will inevitably lead to the disclosure and use of the former employer's trade secrets?
Opinions:
Majority - Justice Burke
1. Yes, the trial court correctly dismissed Count I concerning the breach of the employment agreement because the non-compete covenant was 'totally unenforceable' due to its lack of reasonable geographical or activity limitations. The court found this issue to be res judicata (already decided) because Strata failed to appeal the denial of the temporary restraining order (TRO), which was based on the unenforceability of the covenant. The trial court's ruling on the TRO became the law of the case, binding on this appeal regarding the enforceability of the employment agreement itself, and the court affirmed it would not rewrite an overbroad contract. 2. Yes, Strata's complaint sufficiently stated a cause of action under the Illinois Trade Secrets Act for threatened or inevitable disclosure. The court explicitly adopted the 'inevitable disclosure doctrine' as a viable theory under Illinois law, as articulated in PepsiCo, Inc. v. Redmond. To proceed under this doctrine, a plaintiff must allege facts demonstrating that the defendant's new employment will necessarily lead them to rely on the plaintiff's trade secrets. Strata's complaint made specific allegations that Murphy, as a salesperson for a direct competitor, could not effectively perform her duties without utilizing her knowledge of Strata's pricing structures, customer needs, product problems, planned upgrades, and contract expiration dates. These allegations were sufficient to withstand a motion to dismiss, distinguishing them from mere fears of misuse, and the court found Strata adequately alleged the information constituted trade secrets and reasonable efforts were made to maintain secrecy.
Analysis:
This case significantly clarifies the application of the "inevitable disclosure doctrine" in Illinois, allowing employers to pursue trade secret misappropriation claims even without proof of actual disclosure, based on the nature of an employee's new role with a direct competitor. Simultaneously, it reinforces the strict judicial scrutiny of non-compete clauses, emphasizing that courts will not reformulate overly broad agreements. This outcome provides a strong statutory avenue for protecting trade secrets where contractual non-compete provisions are deficient, while also underscoring the necessity of carefully drafted and reasonable non-compete agreements. Future cases will likely focus on the specificity of allegations required to demonstrate that an employee's new role necessarily compels reliance on a former employer's trade secrets, moving beyond generalized fears of misuse.
