IP Law Daily, TRADE SECRETS—N.D. Ill.: Former employee enjoined against use of misappropriated trade secrets, (Aug 9, 2017)

By Peter Reap, J.D., LL.M.

MG Laser and its current employee Doug Marlette, a former employee of Mazak Optonics Corporation were enjoined from continuing to use the trade secrets of Mazak that Marlette brought with him to MG upon switching jobs, the federal district court in Chicago has ruled. Mazak demonstrated a very strong likelihood of success on its remaining claims, including violations of the Defend Trade Secrets Act (DTSA) and Illinois Trade Secrets Act (ITSA), and breach of contract. Further, Mazak would suffer irreparable harm and had no adequate remedy at law if the requested injunction were denied. Finally, the potential harm to Marlette from an injunction was minimal and the public interest favored the granting of the relief (Mazak Optonics Corporation v. Marlette, August 8, 2017, Der-Yeghiayan, S.).

After Mazak allegedly discovered that its employee Marlette had, for years, been engaging in a covert scheme to provide a competitor MG Laser, (MG) with highly confidential and proprietary information from Mazak, it terminated Marlette and filed this suit. Mazak contended that Marlette violated the terms of the parties’ Non-Compete Agreement, Confidentiality Agreement, and Trade Secret Agreement (collectively, the Agreements), and violated both the DTSA and ITSA.

A party seeking a preliminary injunction must initially establish: (1) that absent a preliminary injunction, it will suffer irreparable harm in the interim period prior to final resolution of its claims, (2) that traditional legal remedies would be inadequate, and (3) that its claim has some likelihood of succeeding on the merits, the court noted.

Irreparable harm and inadequate remedy at law. Mazak provided sufficient evidence to show that important confidential and proprietary information was misappropriated by Marlette without authorization, and is being used by Marlette and MG. Mazak also showed that Marlette has been purloining such information for MG’s benefit for an extensive amount of time and that there continued to be a risk of irreparable harm to Mazak’s goodwill and customer base due to Marlette’s conduct. It would also be extremely difficult to quantify the precise monetary losses that might continue to be suffered by Mazak due to loss of goodwill, the loss of sales relating to the defendants’ misconduct, and the unfair economic advantages that MG has gained through unlawful use of Mazak’s secret information.

Although MG contended that it has now destroyed some of the confidential information gained from Mazak, Mazak provided sufficient evidence to show that MG still possesses confidential information. Mazak thus showed that it will suffer irreparable harm and will be without an adequate legal remedy if the injunction is not granted, according to the court.

Likelihood of success. Mazak put forth sufficient evidence to show that it was likely to prevail in this matter, the court reasoned. The evidence provided by Mazak indicated that Marlette misappropriated confidential and proprietary information and gave it to MG for its unauthorized use. At his deposition, Marlette admitted he downloaded numerous confidential documents from Mazak’s internal server that were not available to third parties and sent them to MG. There was also evidence showing that Marlette understood that what he was doing was wrong and violated the Agreements.

Mazak also provided sufficient evidence showing that the information in question includes trade secrets that would be protected by the DTSA and the ITSA. Mazak also produced evidence showing that the defendants diverted existing customers away from Mazak.

Mazak put forth sufficient evidence to show that certain information in question in this case constituted trade secrets that have been properly protected by Mazak, and that Mazak has ownership of such trade secrets, the court explained. Mazak also sufficiently identified the trade secrets in question at this preliminary stage of the proceedings. In regard to the statute of frauds, MG did not point to sufficient evidence of any pertinent oral agreement that could not be performed within one year. In regard to the statute of limitations defense, MG showed that at best only a portion of Mazak’s claims could be excluded.

Moreover, the evidence showed that Marlette knowingly and voluntarily signed the Agreements. The scope and period for the noncompete provisions were properly limited and there was no showing that Mazak waived enforcement of the Agreements. At this preliminary stage, Mazak showed a very strong likelihood of success on the merits in regard to the remaining claims in this case.

Balancing phase. During the balancing phase, the court should balance: (1) the potential harm to the parties, (2) the likelihood of success on the merits, and (3) the public interest, the court observed.

Mazak showed that it could face significant irreparable harm if Marlette and MG were allowed to continue their ongoing use of Mazak’s secretes unabated. On the other hand, the evidence showed that Marlette would suffer only minimal hardships as a result of temporary injunctive relief. Thus, the balancing of harms favored the entry of the preliminary injunction.

Public interest. The public interest was supported by upholding the sanctity of confidential information such as trade secrets and was also supported by requiring parties to honor their promises in agreements rather than later avoiding such obligations based on perceived technicalities, the court stated.

The case is No. 1:17-cv-01023.

Attorneys: Edward Joseph Underhill (Masuda, Funai, Eifert & Mitchell, Ltd.) for Mazak Optonics Corp. Daryl M. Schumacher (Kopecky Schumacher Rosenburg PC) for Doug Marlette.

Companies: Mazak Optonics Corp.

Cases: TradeSecrets IllinoisNews