Seventh Circuit Upholds Preliminary Injunction in Trade Secret Misappropriation Suit

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the imposition of a preliminary injunction obtained by Illinois-based medical device maker, Life Spine Inc., against a former business partner who allegedly misappropriated Life Spine’s trade secrets and gave them to its parent company, a competitor of Life Spine. The outcome affirms that injunctive relief is available to plaintiffs when irreparable harm is plausibly alleged, but also highlights that a company need not personally use the trade secrets to be found liable under the Defend Trade Secrets Act (DTSA), 18 U.S.C. §1836 et seq., and the Illinois Trade Secrets Act (ITSA), 765 ILCS 1065/1 et seq.

This trade secret misappropriation case arises from a short-lived business relationship between two companies that sell spinal implant devices. Life Spine makes and sells a spinal implant device known as the ProLift Expandable Spacer System. Life Spine partnered with Aegis Spine, Inc. to distribute the ProLift to hospitals and surgeons. In the distribution agreement, Aegis promised to protect Life Spine’s confidential information, act as a fiduciary for Life Spine’s property, and refrain from reverse engineering the ProLift. Unbeknownst to Life Spine, Aegis allegedly funneled information about the ProLift to its parent company, L&K Biomed, Inc., to help L&K develop a competing spinal implant device.

Shortly after L&K’s competing device hit the market, Life Spine filed suit against Aegis alleging claims of trade secret misappropriation and breach of contract. Following a nine-day evidentiary hearing, the district court ruled in favor of Life Spine and entered a preliminary injunction against Aegis and its business partners, preventing them from marketing the competing product. Aegis appealed arguing that a company cannot have trade secret protection in a device that it publicly discloses through patents, displays, and sales. The Seventh Circuit disagreed.

While the Court acknowledged that there can be no trade secret protection in information available in the public domain, it disagreed with Aegis that this was the basis of Life Spine’s suit or the preliminary injunction. Instead, the Court explained that Life Spine’s suit concerned the alleged misappropriation of non-public information about the ProLift product provided to Aegis. As the Court explained, Life Spine identified three distinct trade secrets: “(1) the combination, dimensions, and interconnectivity of the ProLift’s components and subcomponents; (2) static shear compression testing data; and (3) information about how Life Spine prices the ProLift.”

The Court spent the majority of its opinion analyzing the first trade secret. Concerning “the precise dimensions and measurements of the ProLift components and subcomponents and their interconnectivity,” the Court found that this information was not publicly available. Neither marketing materials nor the patent application contained the precise dimensions for the product. Third parties could only learn this information by actually obtaining one of the devices, which were not sold to the general public. Life Spine only sold the devices directly to hospitals and surgeons and always required them to first sign a nondisclosure agreement.

Tackling Aegis’s primary argument that no trade secrets existed in the ProLift device because all trade secrets had been publicly disclosed in marketing materials, the patent application for the device, and when it displayed the device at industry conventions, the Seventh Circuit agreed that information that is “readily ascertainable” upon examination of a publicly sold or displayed product cannot qualify as a trade secret. However, it also noted that “a limited disclosure” does not destroy all trade secret protection on a product. Just because a product itself is disclosed or patented, it does not follow, the Court explained, that a company loses trade secret protection on undisclosed “concrete secrets” of its product. The Court faulted Aegis’s argument as being critically flawed in taking “an all‐or‐nothing” approach to trade secret protection. Thus, the correct inquiry was not whether Life Spine ever disclosed the product in any way but rather whether Life Spine ever disclosed the specific information it sought to protect as a trade secret. Because Aegis failed to demonstrate that it had, the Court found no basis for overturning the determination of the district court.

Oral arguments in the appeal can be found here.

The Court’s full opinion can be found online here.

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