Illinois Court Upholds Sanctions for Pursuing Trade Secrets Claims in Bad Faith

Statutory fee-shifting is usually meant to incentivize plaintiffs to bring claims involving important rights but relatively low monetary damages. Some statutes provide for fee-shifting not only to successful plaintiffs but also to successful defendants. As the recent decision in the case of Multimedia Sales & Marketing, Inc. v. Marzullo illustrates, plaintiffs considering bringing trade secret misappropriation claims in Illinois courts would be wise to review their claims before filing so to ensure that their claims are not meritless.

The plaintiff in the lawsuit, Multimedia Sales & Marketing, Inc., is a radio advertiser who sued a competitor, Radio Advertising, Inc., along with three former employees who left Multimedia to work for Radio Advertising. Multimedia alleged that the former employees misappropriated Multimedia’s potential customer lead lists or renewal lead lists, which these individuals allegedly used to attempt to woo away Multimedia’s existing and potential customers. Multimedia claimed the lists were protectable trade secrets under the Illinois Trade Secrets Act (ITSA), 765 ILCS 1065/1 et seq.

The trial court disagreed and granted the defendants summary judgment finding that the lists (1) did not qualify as a trade secret under ITSA, and (2) were not “secret” because Multimedia widely shared them with numerous parties including radio stations. Following the grant of summary judgment, the defendants filed a motion for attorney’s fees as permitted by Section 5 of the ITSA. The trial court granted the defendants’ motion and awarded them $71,688 in attorney’s fees. Multimedia then appealed the ruling that the lists did not qualify as trade secrets as well as the award of attorney’s fees.

As the Court explained, the ITSA, like the federal Defend Trade Secrets Act, allows successful defendants to recover attorneys’ fees incurred defending “bad faith” misappropriation claims. In the context of ITSA claims, Illinois courts interpret the term “bad faith” by looking to case law interpreting Illinois Supreme Court Rule 137. Illinois Rule 137 is the state analog to Federal Rule 11 and provides that attorneys may only assert claims “well-grounded in fact… warranted by existing law or a good-faith argument for the extension, modification, or reversal of existing law” and that are not brought “for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.” Both Rule 137 and Section 5 of the ITSA are intended to “to penalize claimants who bring vexatious and harassing actions and to prevent false and frivolous filings.”

In turning to Multimedia’s specific claims of trade secret misappropriation, the Court first considered whether the lists could constitute trade secrets as a matter of law. As the Court explained, a “trade secret” comprises information, including a program, process, or list of actual or potential customers (i) sufficiently secret to derive economic value from not being generally known to other persons who can obtain economic value from its disclosure (ii) for which reasonable efforts are taken to maintain secrecy or confidentiality. The Court rejected the defendants’ arguments that Multimedia’s lists could not be considered trade secrets under that definition.

After finding that the customer lists could constitute trade secrets, the Court turned to the question of whether the lists actually did. In this, the Court sided with the trial court finding that the lists did not constitute trade secrets. The misappropriation claim failed, the Court concluded, because Multimedia could not show that it kept the information in the lists sufficiently secret. Multimedia admitted providing customer names to radio stations and once this information had been disclosed, the information Multimedia was attempting to keep secret was publicly known. Further, the Court found that Multimedia failed to use enforceable covenants not to compete to protect the confidentiality of its information. Given these facts, the Court found that Multimedia’s claims were not well-grounded in fact or law, but made in bad faith under the ITSA.

The Court’s full opinion is available here.

If you are an employer seeking to protect your confidential or proprietary information or you are an employee being asked to sign a non-disclosure agreement, it is always advisable to seek the assistance of experienced trade secrets and intellectual property attorney.

Super Lawyers named Illinois commercial law trial attorney Peter Lubin a Super Lawyer and Illinois business dispute attorney Patrick Austermuehle a Rising Star in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Illinois business trial lawyers have over thirty years of experience in litigating complex class action, copyright, noncompete agreement, trademark and libel suits, consumer rights, and many different types of business and commercial litigation disputes. Our Evanston and Elgin business dispute lawyers, civil litigation lawyers, and copyright attorneys handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits, and many different kinds of business disputes involving shareholders, partnerships, closely-held businesses and employee breaches of fiduciary duty. We also assist Chicago and Wheaton area businesses and business owners who are victims of fraud. You can contact us by calling at 630-333-0333.  You can also contact us online here.

Contact Information