ILNews

Courts must ID trade secrets

Michael W. Hoskins
January 1, 2008
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The 7th Circuit Court of Appeals has overturned a northern Indiana judge's order to protect certain information and trade secrets, holding the District Court judge didn't adequately distinguish what shouldn't be released in a copyright and trade secrets dispute between two competing modular home builders.

A unanimous three-judge panel ruled today in Patriot Homes, Inc. and Patriot Manufacturing, Inc. v. Forest River Housing, Inc., d/b/a Sterling Homes, No. 06-3012.

The case involved Patriot Homes and Forest River Housing, who'd been competing contentiously for years, and what information each manufacturer could use. After Forest River unsuccessfully tried to acquire Patriot in 2004, it hired four Patriot employees. Those workers copied design materials from computers and took them to the new company, Sterling Homes.

In 2005, Sterling distributed brochures containing exact copies of Patriot's floor plans for homes that it was selling for less. Patriot asked Judge Allen Sharp for a preliminary and permanent stop to circulating those materials and that all confidential information and trade secrets be returned. Judge Sharp granted the preliminary injunction, but both parties disagreed on what information could be protected.

Overturning that injunction, Circuit Judge Terry Evans wrote: "The preliminary injunction entered by the District Court uses a collection of verbs to prohibit Sterling from engaging in certain conduct; but ultimately it fails to detail what the conduct is ... the substance of the 'trade secret' or 'confidential information' to which the verbs refer."

The Circuit Court disagreed with Patriot that no requirement exists for a court to identify each and every element of copyright originality or trade secret. As a result of the injunction, neither Sterling nor the Circuit Court could determine using certain information gathered through the Freedom of Information Act could be used, the court wrote.

"While it is not always easy to ascertain what information is a trade secret or confidential at this stage of the proceedings, the District Court still must make this determination in order to clearly delineate Sterling's responsibilities pursuant to the injunction," Judge Evans wrote, noting that Patriot mentioned during arguments in March that Sterling could only know that by looking at the court's preliminary injunction transcripts.

He added, "This requires a lot of guesswork on Sterling's part in order to determine if it is engaging in activities that violate the injunction, since the order itself is a little more than a recitation of the law."
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  5. I'm glad that attorney Carl Hayes, who represented the BMV in this case, is able to say that his client "is pleased to have resolved the issue". Everyone makes mistakes, even bureaucratic behemoths like Indiana's BMV. So to some extent we need to be forgiving of such mistakes. But when those mistakes are going to cost Indiana taxpayers millions of dollars to rectify (because neither plaintiff's counsel nor Mr. Hayes gave freely of their services, and the BMV, being a state-funded agency, relies on taxpayer dollars to pay these attorneys their fees), the agency doesn't have a right to feel "pleased to have resolved the issue". One is left wondering why the BMV feels so pleased with this resolution? The magnitude of the agency's overcharges might suggest to some that, perhaps, these errors were more than mere oversight. Could this be why the agency is so "pleased" with this resolution? Will Indiana motorists ever be assured that the culture of incompetence (if not worse) that the BMV seems to have fostered is no longer the status quo? Or will even more "overcharges" and lawsuits result? It's fairly obvious who is really "pleased to have resolved the issue", and it's not Indiana's taxpayers who are on the hook for the legal fees generated in these cases.

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