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ALPHA OPTICAL, INC.’S TRIAL
BRIEF I. INTRODUCTION PLAINTIFF, ALPHA Optical, Inc. (ALPHA) asks this court to award
damages because, ALPHA claims, DEFENDENTS, BETA Technology Corp. et al
(BETA) misappropriated its trade secrets, thereby violating the Illinois
Trade Secret Act (ITSA). 765 ILCS 1065/1 et seq. (2000). II. STATEMENT OF FACTS ALPHA is an Illinois
corporation that develops and manufactures thin film optical interference
filters. R. at 3 - 4. ALPHA filters are used for florescence
microscopy, astronomy, Raman spectroscopy, measuring moisture in grain,
absorption spectroscopy, body fat reading, forensic analysis and other “high
tech” uses. R. at 12. ALPHA’S motto is “There is no end in
light.” R. at 4. ALPHA applies thin layers of
materials onto a glass or glass-like substrate. R. at 11. The layers are
made of chemicals that have divergent refractive indices. R. at 11.
With an arrangement of layers on the substrate, the resulting filter has
distinct properties. R. at 11. High performance interference filters
transmit a high percentage of the desired light within a narrow bandwidth of
frequencies, and, at the same time, reflects away the light of unwanted
frequencies. R. at 13. The more layers applied to the substrate,
the higher the performance of the filter.
R. at 13. In 1991 industry literature
described filter designs with up to 50 layers.
R. at 14. ALPHA was making
filters with as many as 120 layers. R.
at 14. No other manufacturer in the
industry knew how ALPHA was able to make its filters. R. at 315 Because ALPHA’S
filters were the highest performing filters on the market, the company carved
out a niche market that was extremely profitable. R. at 14. Dr. John Q. Starlight
Jr. (Dr. Starlight) is the founder of the
company, and he is the chief architect of ALPHA’S success. R. at 4.
He started ALPHA in 1968, after a long time interest and some very
practical experience in the thin film optical filter industry. R. at 4.
Through a long (more than 30
years) and arduous process, ALPHA developed complex procedures in research,
development, formulation, design, manufacturing processes, manufacturing
equipment, pricing information, quality control, customer development, designs,
supplier and raw materials information and other proprietary business
information. R. at 21. These pieces of information, combined,
provided ALPHA a competitive advantage because they were unknown to others in
the industry. R. at 15. BETA is an Illinois
corporation that develops and manufactures thin film optical interference
filters. R. at 4. Six of the ten individual defendants in this
action own BETA, and each of the ten defendants is a former employee of
ALPHA. R. at 5 - 9. Not one of these former employees had ANY
experience with or knowledge about thin film optical interference filters prior
to their employment with ALPHA. R. at 5
-9. The defendants performed a variety
of functions at ALPHA. R. at 5 -
9. Together, their experience
encompassed all of tasks necessary for ALPHA to function. R. at 5 – 9. Individually, it was
impossible for each defendant to put ALPHA’S technology puzzle together. In forming BETA, the defendants combined
their knowledge and information about ALPHA’S technology, processes and
procedures to replicate ALPHA’S success in the thin film optical interference
filters industry. III. LEGAL ARGUMENT A.
BETA’S USE OF ALPHA’S PROPRIETORY INFORMATION VIOLATES THE ILLINOIS
TRADE SRCRET ACT BECAUSE THE INFORMATION QUALIFIES AS A TRADE SERECT AND BETA
ACQUIRED THE INFORMATION UNDER CIRCUMSTANCES THAT GAVE RISE TO A DUTY TO
MAINTAIN ITS SECRECY OR LIMIT ITS USE. “[I]t is not enough to point
to broad areas of technology and assert that something there must have been
secret and misappropriated." Thermodyne
Food Serv. Prods. v. McDonald's Corp., 940 F. Supp. 1300, n.4 (N.D. Ill.
1996) (quoting Composite Marine Propellers, Inc. v. Van
Der Woude, 962 F.2d 1263, 1265 (7th Cir. 1992)). However, a trade secret may consist of a “specific area of
technology” composed of a unique process design and operation which together
result in a competitive advantage. Id.
at 1305 & n.4. In Thermodyne, the
plaintiff manufactured food service ovens designed “to cook and hold food items
at lower temperatures through conduction processes.” Id. at 1302. The ovens were made of component parts, each
of which was generally known in the industry.
The Thermodyne Court, however, held that the plaintiff’s “trade
secret is the interrelationship of component parts and technologies which
comprise the broader [plaintiff] technology.”
Id. at 1305. Similarly, ALPHA has identified about one hundred-fifty (150)
pieces of information, in eight (8) different categories: (1)
Research
and development, (2)
Formula
and Design, (3)
Manufacturing
Process, (4)
Pricing
Information, (5)
Quality
Control, (6)
Customer
Development Cycle, (7)
Proprietary
Supplier and Raw Materials Information, (8)
Proprietary
Business Information. See, Plaintiff’s Exhibit
545. Some of this information is known
in the industry, most of the information is NOT known. R. at 33.
Collectively, these pieces of information fit together to complete
ALPHA’S proprietary technologies, processes and procedures. The Illinois Trade Secret
Act (ITSA) defines a trade secret as "information, including but not
limited to, technical or non-technical data, a formula, pattern, compilation,
program, device, method, technique, drawing, process, financial data, or list
of actual or potential customers or suppliers, that:"
(1)
is
sufficiently secret to derive economic value, actual or potential, from not
being generally known to other persons who can obtain economic value from its
disclosure or use; and (2)
is
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy. 765 ILCS 1065/2(d). Additionally, in order to
prove that BETA violated the ITSA, once ALPHA establishes that they have a
protected trade secret, they must show that BETA “misappropriated” it. 765 ILCS 1065/2(b). Under the ITSA misappropriation means:
(2)
disclosure or use of a trade secret of a person
without express or implied consent by another person who: (B)
at the time of disclosure or use, knew or had
reason to know that knowledge of the trade secret was:
(I)
derived from or through a person who utilized
improper means to acquire it;
(II)
acquired under circumstances giving rise to a
duty to maintain its secrecy or limit its use; or
(III)
derived from or through a person who owed a duty
to the person seeking relief to maintain its secrecy or limit its use; 765
ILCS 1065/2(b)(2)(B)(I)(II)(III). ALPHA
will address each statutory requirement individually. First, ALPHA will establish that its information is sufficiently
secret to derive economic value from not being generally known. Second, ALPHA will establish that it took
reasonable measures to maintain the information’s secrecy. Finally, ALPHA will establish that BETA
misappropriated its protected trade secrets. (1)
THE INFORMATION COMPRISING ALPHA’S TECHNOLOGY IS SUFFICIENTLY SECRET TO
DERIVE ECONOMIC VALUE FROM NOT BEING GENERALLY KNOWN. “The key to secrecy is the
ease with which information can be readily duplicated without involving
considerable time, effort or expense.” Stampede
Tool Warehouse v. May, 272 Ill. App. 3d 580, 587(1st Dist.
1995). The analysis focuses on whether
information is generally known within an industry, rather than known to the
general public. See, Mangren
Research and Development Corp. v. National Chemical Co., 87 F.3d 937, 942
(7th Cir. 1996); ILG Indus., Inc. v. Scott, 49 Ill. 2d 88, 93 (Ill.
1971); In Stampede the
plaintiff was “a national distributor of automotive tools and equipment.” Id.
at 581. The plaintiff sold tools to
“jobbers,” who, in turn, sold the tools to end-users. Id. A list of
jobbers was not available through any one source. Id. at 587. In
order to locate the jobbers, the plaintiff spent “a substantial amount of time,
effort, and expense.” Id. at 589. Because the information could not be easily
ascertained, the court concluded that the customer list afforded the plaintiff
economic value from not being generally known.
Id. Therefore, the
customer list at issue was “sufficiently secret” as required by the ITSA. Id. Here, the information at
issue was the cumulative knowledge of more than 30 years. R. at 4.
ALPHA is a pioneer in developing and manufacturing thin film optical
interference filters. R. at 11. Prior to 1991, at least one of ALPHA’S primary
competitors spent considerable amounts of time and money trying to duplicate
ALPHA’S products, to no avail. R. at
15. Furthermore, ALPHA’S products are
not susceptible to reverse engineering, even should a competitor wish to spend
the time and energy attempting to do so.
R. at 15. Finally, ALPHA is a highly
profitable company, as is BETA once they instituted ALPHA’S technologies,
processes and procedures. R. at 70-2.
Clearly, parties processing the information at issue have a competitive
advantage. Accordingly, ALPHA satisfies
the first prong of the ITSA requirements. (2)
ALPHA’S EFFORTS TO MAINTAIN THE SECRECY OF ITS TECHNOLOGY WERE
REASONABLE UNDER THE CIRCUMSTANCES. “The law of Trade Secrets
requires a plaintiff to show that he took reasonable precautions to keep the
secret a secret.” Rockwell Graphic
Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179 (7th Cir. 1991). The ITSA requires “efforts to maintain
secrecy” that are “reasonable under the circumstances.” 765 ILCS
1065/2(d)(2). BETA will point to two
areas that it says should disqualify ALPHA’S proprietary information from trade
secret status. First, BETA will
assert that ALPHA’S security policies were inadequate. Next, BETA will assert that ALPHA shared
its information among its employees, therefore ALPHA forfeited the
information’s trade secret status. ALPHA will address each assertion
separately. (A)
ALPHA’S SECURITY POLICIES When the trade secret at
issue is a customer list or a specific document (See, Televation Telecommunication
Systems, Inc. v. Saindon, 169 Ill. App. 3d 8, (2d Dist. 1988)(where the
document at issue was a schematic drawing of the electronic circuitry for an
automatic wake up system used primarily in the hotel and motel business.)),
determining the “reasonableness” is a straightforward exercise. For example, in Gillis
Associated Indus., Inc. v. Cari-All, Inc. the court reviewed the security
measures the plaintiff took to keep its customer list secret. Gillis Associated Indus., Inc. v.
Cari-All, Inc., 206 Ill. App. 3d 184,190 (1st Dist. 1990). The plaintiff maintained its customer list on a single computer
and “only three key employees had access to this computer.” Id.
The plaintiff, however, failed to place ANY restrictions on the
computer-generated hard copies. Id.
The Gillis Court found that the customer list was not the
“subject of reasonable efforts designed to protect its secrecy.” Id. at 192. Therefore, the court held that the customer list did not qualify
as a trade secret under the ITSA. Id. Another case involving a
customer list is Stampede Tool Warehouse v. May. Stampede, 272 Ill. App. 3d. In Stampede, the plaintiff took steps
to protect the secrecy of its customer list.
Id. at 589. For instance,
the plaintiff locked their offices, checked their garbage daily, used special
computer access codes, supplied customer information only on a need-to-know
basis, kept hard copies of customer lists and salesmen’s call books locked up
or out of the office, and used security cameras. Id. Moreover, the
plaintiff required employees to sign confidentiality agreements that stated
that the customer’s names could not be used or disclosed. Id.
Because of these measures, the court concluded that the customer list
was the subject of reasonable efforts to maintain its secrecy. Id.
When, however, the trade
secrets at issue involve a technology as a whole or a compilation of
information, courts have used a fact intensive analysis to determine if the
measures taken to protect the information were “reasonable.” See, Rockwell Graphic Sys., Inc.
v. DEV Indus., Inc., 925 F.2d 174, 179 (7th Cir. 1991); Thermodyne Food
Serv. Prods. v. McDonald's Corp., 940 F. Supp. 1300, n.4 (N.D. Ill. 1996); Roton
Barrier, Inc. v. Stanley Works, 79 F.3d 1112 (Fed. Cir. 1996). Here, ALPHA took a multitude
of measures to maintain its proprietary information’s secrecy. For example, ALPHA:
(1)
Built
its facilities away from high-tech corridors; (2)
uses
cryptic classifications, which are meaningless without explanation, to record
data concerning its filter designs; (3)
intentionally
hired employees without existing or previous experience working with
interference filters; (4)
operated
as an “isolated island” without significant interaction with other filter
manufacturers; (5)
maintained
low profile facilities which do not suggest that they contain high-tech
manufacturing operations; (6)
divided
its operations into different departments, located on different floors in
different buildings; (7)
concentrated
employee training in specific areas of technology; (8)
stored
its technical records in a secure room, and limited access to that room; (9)
insisted
that employees lock office and department doors after hours; (10)
did
not permit visitors to view its documents; (11)
required
that visitors be escorted throughout the facilities, in order to control what
each visitor saw; (12)
required
employees to sign keys in and out; (13)
required
all employees to sign Confidentiality, Disclosure, and Noncompetition
Agreements (after 1991); (14)
held
weekly employee meetings at which the propriety nature of its Intellectual
Property was discussed. (15)
barred
employees from revealing any information about the company’s technologies,
processes or procedures beyond which was revealed in ALPHA’S product catalog. R.
at 25, 28. In addition to the measures
listed here, ALPHA used another, more counterintuitive method of maintaining
its proprietary information secret. R.
at 24. ALPHA intentionally
de-emphasized security concerns. R. at
24. Because ALPHA was located out of
the high-tech corridors and hired only inexperienced workers, it was beneficial
not to point out the economic value of the technology to others. R. at 24.
From ALPHA’S inception until at least 1990 that policy was extremely
successful. ALPHA’S competitors did not
uncover its secrets. R. at 24. In about 1990, however,
ALPHA, perhaps anticipating the coming “information superhighway” which would
destroy its self-created “island,” decided to begin emphasizing security. R. at 28-9.
In that year ALPHA hired Mr. James McStructure to help restructure the
company. R. at 29. One of Mr. McStructure’s early recommendations
was for ALPHA to require all employees to sign nondisclosure, noncompetition
agreements. R. at 29. ALPHA’S previous policy of not emphasizing
security must have been effective, because soon after changing that policy the
individual defendants in this case left ALPHA and set up BETA, using ALPHA’S
valuable technologies, processes and procedures. R. at 29-31. (B)
SHARING INFORMATION AMONG EMPLOYEES The question that the ITSA
definition of “trade secret” raises is, “secret from whom?” Colson Co. v. Wittel, 210 Ill. App.
3d 1030, 1040 (4th Dist. 1991).
An employer need not keep its proprietary information secret from its
own employees, if sharing that information is for a legitimate business
reason. See, ILG
Industries, Inc. v. Scott, 49 Ill. 2d 88, 94 (1971); See also, Quality Lighting, Inc.
v. Benjamin, 227 Ill. App. 3d 880, 890 (1st Dist. 1992);
But see, Colson Co. v. Wittel,
210 Ill. App. 3d 1030, 1040 (4th Dist. 1991). In Quality Lighting,
the defendants were granted summary judgment on a complaint alleging trade
secret misappropriation. Quality
Lighting, 210 Ill. App. 3d at 882.
On appeal, the defendants alleged that the “information plaintiff
claim[ed] to be confidential was widely known by plaintiff's employees.” Id. at 890. Therefore, the defendant said, the
plaintiff abandoned its trade secrets. Id. The Quality Lighting Court, however,
held that an owner of a trade secret may share that information with its employees
if there were legitimate “business reasons.”
Id. Here, ALPHA does not contest
the fact that there was a free flow of information among its employees. R. at 26.
The free flow of information fostered a creative atmosphere within the
company, which, in turn, led to the trade secrets they are now seeking to
protect. R. at 26. Remove the sharing of information among
ALPHA’S employees, and you remove the ideas that led ALPHA to its revolutionary
innovations. Fostering this creative
process certainly qualifies as a “legitimate business reason.” In every case, a plaintiff
could use additional precautions to guard the information’s secrecy. See, Rockwell, 925 F.2d at
180. “If trade secrets are protected
only if their owners take extravagant, productivity-impairing measures to
maintain their secrecy, the incentive to invest resources in discovering more
efficient methods of production will be reduced, and with it the amount of
invention.” Id. The question, then, is
whether the precautions are adequate to guard the information from its
competitors in order for the plaintiff to maintain its economic advantage. Here, at all times, ALPHA used reasonable
efforts to maintain the secrecy of its technology. If, however, ALPHA had implemented more stringent security
measures before it became necessary in 1991, it would have hurt productivity,
stifled the creative process and increased costs. Additional measures were not necessary, AND NOT REQUIRED. (3)
BETA ACQUIRED ALPHA’S PROPIATORY INFORMATION UNDER CIRCUMSTANCES THAT
GAVE RISE TO A DUTY TO MAINTAIN ITS SECRECY OR LIMIT ITS USE. “[A]n employee may take
general knowledge or information he or she has developed during their
employment.” Stampede, 272 Ill. App. 3d. at 590. However, an employee may not take “confidential
particularized plans or processes developed by his employer and disclosed to
him while the employer-employee relationship exists, which are unknown to
others in the industry and which give the employer advantage over his
competitors.” Schulenburg v.
Signatrol, Inc., 33 Ill. 2d 379, 387 (1965). The defendants in this case
will assert three reasons why they did not misappropriate ALPHA’S trade
secrets. First, the individual
defendants will claim that they took only their general skills and knowledge
and, therefore, they had every right to use their general skills and knowledge
to recreate ALPHA’S products. Next,
BETA Technology Corp. will claim that, because the individual defendants did
not have a duty to keep ALPHA’S trade secrets secret, they too did not “derive”
a trade secret as required under the ITSA.
Finally, BETA will contend that their products are not identical to
ALPHA’S, therefore they did not misappropriate ALPHA’S technologies, processes
or procedures. ALPHA will address each
claim in turn. “A trade secret can be
misappropriated by physical copying or by memorization.” Stampede, 272 Ill. App. 3d. at
590. In Stampede, former
employees contacted the plaintiff’s customers from a list they remembered from
their employment. Id. The former employees maintained that the did
not misappropriate the customer list because “there was no physical taking of
the list.” Id. The plaintiff’s
customer list, the former employees claimed, was part of their general
knowledge and skills learned while employed with plaintiff. Id. The Stampede court
held that “[u]sing memorization to rebuild a trade secret does not transform
that trade secret from confidential information into non-confidential
information.” Id. The court said, “[T]he general knowledge in
this case is the method defendants used in finding prospective customers, not
the actual customer information.” Id.
at 589 Similarly here, each
individual defendant acquired general knowledge and skills concerning their
respective jobs. R. at 5 – 9. This general knowledge, however, does not
extend to the complete process. The
individual defendants memorized where each piece of the puzzle fit in ALPHA’S
overall technology, processes and procedures.
Then, through their collective memories, they combined each piece of the
puzzle. R. 48. The result was a near perfect copy of
ALPHA’S technology, processes and procedures.
R. at 48. For instance the
similarities include the:
(1)
use
of computer programs to design the filters, (2)
classification
of the formulas, (3)
information
contained in the part numbers, (4)
forms
for recording design information, (5)
the
sources of supplies, (6)
preparation
of the optical surfaces, and (7)
quality
control procedures R. at 48.
Taken together, these similarities amount to misappropriation of ALPHA’S
trade secrets. Because BETA Technology
Corp. is a creation of the individual defendants, if the individual defendants
have a duty to keep ALPHA’S technologies, processes and procedures secret, then
BETA Technology Corp. derived these trade secrets through persons who owed a
duty to ALPHA to maintain its secrecy and limit its use and, therefore, BETA
Technology Corp. violated the ITSA. Finally, BETA may claim
that their products are different than ALPHA’S and, therefore, are not derived
from ALPHA’S trade secrets. It is black
letter law that "the user of another's trade secret is liable even if he
uses it with modifications or improvements upon it effected by his own efforts,
so long as the substance of the process used by the actor is derived from the
other's secret." Mangren
Research and Development Corp. v. National Chemical Co., 87 F.3d 937, 944
(7th Cir. 1996). In Mangren, the
plaintiff manufactured a release agent used to prevent plastic and rubber
products from sticking to molds. Id. at 939.
The formula used one especially critical chemical not generally known in
the industry. Id. The defendants were former employees of the
plaintiff and knew the critical chemical used in the formula. Id. at 940. After leaving the plaintiff’s employ, the defendants went to work
for a competitor of the plaintiff and set about producing a release agent to be
used in the rubber industry. Id. The release agent they produced improved
upon plaintiff’s product, but essentially used the same critical chemical
compound. Id. at 941. The Mangren Court
held that, although the defendants did not copy plaintiff’s product
identically, “[o]nce the [plaintiff] let defendants in on the secret and
defendants then used that secret to develop their own product, there plainly
was a misappropriation even if defendants' product was not identical to
[plaintiff's].” Id. at 945. The court said that because the defendant
developed its product using the plaintiff’s trade secret, and not through
independent research and testing, “there was a misappropriation for which the
law provides a remedy.” Id. at 945,
n.4. Here, it is uncontested that
the defendant’s learned everything they know about developing and manufacturing
thin film optical interference filters from ALPHA. R. at 5 – 9. In addition,
there are substantial similarities between every aspect of BETA’S technology,
processes and procedures and ALPHA’s.
R. at 48. BETA incorporated
its business in May of 1991. R. at
38. By the fall of 1991, BETA had
already produced filters that were comparable to ALPHA’S, something it to ALPHA
30 years to produce. R. 53. BETA admitted that its
early designs were derived from ALPHA’S designs. R. at 50. Just because
later improvements of BETA’S filters deviated from those designs and are not
“exact duplicates” does not relieve BETA of liability for misappropriating
ALPHA’S trade secrets. IV. CONCLUSION As Judge Posner said in Rockwell,
“The future of the nation depends in no small part on the efficiency of
industry, and the efficiency of industry depends in no small part on the
protection of intellectual property.”
ALPHA asks this court to find that BETA misappropriated ALPHA’S trade
secrets and award the appropriate remedy. This court should award
ALPHA damages as provided in the Illinois Trade Secret Act 765 ILCS
1065/4(a):
1)
Lost
profits in the amount of $19,468,324.00.
2)
Unjust
Enrichment in the amount of $14,217,175.00, or 3)
Alternatively,
A “reasonable royalty” in the amount of $5,294,765.00 In addition, because
BETA’S misappropriation was willful and malicious, this court should double
any damages awarded to ALPHA as exemplary damages, as provided for in the
Illinois Trade Secret Act 765 ILCS 1065/4(b) Dated
this 13th day of April, 2001 Steven
A. Leahy Attorney for ALPHA
Optical, Inc., Plaintiff Steven
A. Leahy 57
West Erie Street, Suite 100 Chicago,
Illinois 60610 312-000-0000 Attorney
No: 000000
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