The Seventh Circuit Court of Appeals, applying Illinois law, recently held that a confidentiality agreement signed before disclosing information to a subcontractor may not be sufficient to avoid summary judgment in favor of the subcontractor accused of violating the agreement by using the trade secret.   

The plaintiff and appellant in nClosures, Inc. v. Block & Co., (Oct. 22, 2014), was a design firm with rights to a design for a metal case for electronic tablets that had been designed by an independent contractor, LeBlanc.  nClosures entered into a confidentiality agreement with Block for the purposes of engaging in discussions and evaluating a potential business relationship with respect to iPad Enclosures.  nClosures thereafter provided Block the design files for its Rhino products and Block began producing a product called the “Rhino Elite.”  At about the same time that the Rhino Elite entered the market, Block developed a design for its own table enclosure.  The relationship was later terminated and nClosures sued, alleging fraud, trade secret misappropriation, breach of fiduciary duty and breach of contract.  The district court granted Block summary judgment dismissing all claims.

nClosures appealed the grant of summary judgment on its breach of contract claim.  The Seventh Circuit held that when the breach is of a confidentiality agreement, Illinois law requires that the information protected must actually be confidential and that reasonable efforts be made to keep it confidential.  The Court of Appeals agreed that on the facts, no reasonable jury could find that nClosures took reasonable steps to preserve the confidentiality of the Rhino design.  While it entered the agreement with Block, nClosures had no such agreements with the designer LeBlanc, with employees of Block who had access to the designs nor with manufacturers of prior versions of the Rhino Elite.  The drawings themselves contained no markings suggesting confidentiality.  Accordingly, the grant of summary judgment was affirmed.

The lesson of nClosures is that a confidentiality agreement must be viewed as but one part of an overall strategy of protecting and preserving the confidentiality of information shared with others.