Forensicon Testifies Regarding The Misappropriation By Departing Employee – Appellate Court Upholds Forensicon’s Findings

Forensicon’s Lee Neubecker Provides Expert Testimony that Shows Misappropriation of Trade Secrets

2005 WL 762954 (Ill. App. 2005)

Liebert Corporation, a network protection equipment company, and Zonatherm, its exclusive sales representative, brought an action to enjoin a former employee of Zonatherm from using trade secrets in a competing business. The trial court denied the plaintiff’s motion for a preliminary injunction on the basis that the plaintiff had not established that the price books, which had been established as trade secrets, were actually misappropriated. The trial court found that business cards and customer lists taken from the plaintiff were not trade secrets. In the case of the price books, the trial court found these to be trade secrets, but since the information was destroyed, there was no way of knowing whether it had been used by the defendant, or if it had been disclosed to any other parties.

On appeal, the plaintiffs contended that the trial court abused its discretion when: (1) it found the customer lists were not trade secrets; (2) it failed to decide whether the sales quotations were trade secrets; (3) it found plaintiffs did not present a fair question on the likelihood of success on their trade secret misappropriation claims because defendants no longer had the information; (4) it found no fair question that defendants would inevitably use the trade secrets; and (5) it found plaintiffs’ allegations of irreparable harm were speculative.

The court said that in order for something to be considered a trade secret under Illinois statute, it must have two characteristics; (1) it must be sufficiently secret to give the plaintiff a competitive advantage, and (2) the plaintiff must take affirmative measures to keep others from acquiring the information. The reviewing court found that although the price lists were secret, the plaintiff did not take affirmative steps to keep others from acquiring the customer lists. The court found the same to be true in the case of the sales quotations. The plaintiff neither made its employees aware of the fact that the bids and sales quotations were confidential, nor did the plaintiff make employees sign a confidentiality agreement.
In terms of the price books, the court agreed with the trial court that the price books were a trade secret, and turned its attention to whether the plaintiff presented a fair question as to the likelihood of the success of its misappropriation claim. The court states that misappropriation can be found in one of three ways; (1) improper acquisition, (2) unauthorized disclosure, or (3) unauthorized use.

To determine whether there had been misappropriation, the court examined the testimony of both the defendant, and plaintiff’s computer forensics expert Lee Neubecker from Forensicon. Neubecker was hired by the plaintiffs to examine the hard drive of the defendant’s laptop computer. Neubecker created an image of the laptop’s hard drive and performed extensive searches for the plaintiff’s files. After performing these searches, Neubecker compared files he found on the laptop’s hard drive with those he had been provided with by the plaintiffs. Neubecker testified that he had found files, which contained plaintiff’s price books on the defendant’s hard drive. Neubecker said that these files had been compressed on the defendant’s hard drive, and then put into a folder containing the plaintiff’s price books documents. At this point, the files were transferred into a CD burning folder on the defendant’s laptop.

According to Neubecker, most users are not aware of the CD burning file folder. Neubecker said that the fact that the folder of compressed files from the defendant’s hard drive went into the CD burning folder 3 minutes after the additional price book files were added to it made it more likely than not that the defendant had successfully burned the CD. Neubecker also testified that on the same day the files went into the CD burning folder, the defendant began a “mass wave of deletion.” Neubecker also found that the defendant had purged his application log, which would have been able to establish when the CD burning program was used, and how many CDs were successfully burned.

In the defendant’s testimony, he provided two explanations for his downloading and deletions of the plaintiff’s files onto and off of his laptop. First, he says that he wanted to preserve a record for his outstanding commissions. The court found that this would explain his need for the price quotations, but not for the price books. His second explanation was that he was trying to create a “closeout” document for his team. He said that he wasn’t sure that his colleagues would know which price quotes he had used for which bids. The court was not persuaded by this explanation for two reasons – first, if the defendant could get this information then his team members with the same access could as well, the second and even more telling reason was the fact that the defendant never handed off the information to his team. The defendant said that the reason for his deletion was that the files were no longer needed. The court did not believe this because the defendant had testified that his efforts to burn a CD were unsuccessful, but he had also testified that the files were necessary for his team.

The reviewing court found that the plaintiffs had presented a fair question on misappropriation against the defendant. The next part of the inquiry was to determine whether preliminary injunctive relief was an appropriate remedy. In this case, the plaintiff used the theory of inevitable disclosure.
Using the theory of inevitable disclosure, the plaintiff may prove trade secret misappropriation by showing that the defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.

The trial court found no fair question on inevitable disclosure based on the defendant’ s testimony that he had destroyed his copies of the plaintiff’s price books, and he therefore could not disclose the plaintiff’s pricing structure. The reviewing court examined Neubecker’s testimony, which stated that it was likely that the defendant had successfully created a CD with the price books, and noted that the only evidence to refute this was the defendant’s questionable testimony. The court found it even more suspicious that evidence that would definitively show whether the defendant had successfully burned a CD was not available because the defendant had purged the application log on his hard drive a day after attempting to burn the CD. The court went further and said that since the defendant had erased the crucial piece of evidence, the court presumed that the application log would have shown that the defendant had successfully created the CD in question. Based on this, the court rejected the trial court’s finding on inevitable use.

The court affirmed the trial court’s finding that Zonatherm’s customer list was not a trade secret. Although the trial court abused its discretion in failing to consider the bids and sales quotation records, the court found that the plaintiff failed to make a fair showing that the information was a trade secret under section 2(d)(2) of the ITSA (765 ILCS 1065/2(d)(2) (West 2002)). The court also found that the trial court abused its discretion when it found that the plaintiffs did not show a likelihood of success on their trade secret misappropriation claim against Mazur or irreparable harm concerning the price books. The court remanded the case and directed the trial court to grant plaintiffs a preliminary injunction against the defendant Mazur, reasonable in scope and duration, to prevent any actual or threatened misappropriation of the price books.