The Honorable Tanya Walton Pratt, District Judge for the 

Southern District of Indiana, is sitting by designation.

In the

United States Court of Appeals

For the Seventh Circuit

No. 11-1354

FAIL-SAFE, LLC,

Plaintiff-Appellant,

v.

A.O. SMITH CORPORATION,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 2:08-cv-00310-JPS—J.P. Stadtmueller, Judge.

ARGUED DECEMBER 1, 2011—DECIDED MARCH 29, 2012

Before EASTERBROOK, Chief Judge, CUDAHY, Circuit

Judge, and PRATT, District Judge.



CUDAHY, Circuit Judge. This case is about whether a

plaintiff can sustain a trade secret or unjust enrichment

claim when that plaintiff fails to take any protective measures to safeguard its proprietary information.
2 No. 11-1354

Business relationships do not always develop under

formulaic circumstances. But where one company fails

to take any protective steps to shield its proprietary

information, it cannot then expect the law to protect it

when the relationship sours. For this reason, we affirm.

This case involves two companies, Fail-Safe, LLC (FS)

and A.O. Smith, Corp. (AOS) and their efforts to

develop a pump motor for pool suction entrapment

prevention technology. Pool suction entrapment occurs

when the suction created by a pool drain traps swimmers.

This problem has prompted an industry-wide effort to

develop drain entrapment release devices.

FS manufactures anti-entrapment devices for artificial

pool drains. AOS manufactures motors for pool and

spa pumps, and has also been developing anti-entrapment technology since late 2000. In November 2000, one

of AOS’s engineers, William Mehlhorn, attended a trade

show where he first saw FS’s suction entrapment technology. Also during this time, Mike Metzler, AOS’s

marketing director, became aware of FS’s products

through an advertisement in a trade magazine. Intrigued

by FS’s Suction-Safe Pump, he and FS’s founder,

Joseph Cohen, soon began initial conversations about

entering into a development project whereby AOS

would develop a pump motor for FS’s pool suction entrapment prevention technology. The exact nature of

these talks is unclear, but it is undisputed that no

formal agreement materialized, nor did the parties

discuss confidentiality.

Cohen and Metzler continued to have a series of conversations through the fall of 2002. In November 2002,
No. 11-1354 3

Cohen wrote a formal letter to AOS expressing

interest in having AOS develop a pump motor for

FS with various specific features. The letter did not mention confidentiality. In response, Metzler suggested a

meeting date to begin development and stated that

he “look[ed] forward to setting a meeting date and beginning the process.” After months of correspondence, in

early March 2003, Cohen sent a letter broadly describing

the project along with the test results from a previous

unsuccessful design by FS and FS’s desired features for

the motor. Neither the letter nor any correspondence

during that time mentioned confidentiality.

Later that month, Cohen traveled to Milwaukee to

meet with Metzler and several AOS engineers. During

their meeting, Cohen signed AOS’s standard one-way

confidentiality agreement, which stated that FS was a

supplier of research consulting services. FS did not similarly require AOS to enter into a confidentiality agreement despite having demanded such confidentiality

agreements in various other prior business relationships. After signing the agreement with AOS, Cohen

proceeded to share what features he thought would

be important in the proposed device and details about

how to test the device. Not once during the meeting

with AOS did Cohen identify the information he provided as confidential.

Following the meeting, Cohen and Mehlhorn communicated periodically to discuss technical standards and

deadlines for the project. Cohen shared test results from

a previous pump design and details on how to properly
4 No. 11-1354

test the developing AOS motor with a special test stand.

During these conversations, confidentiality was never

discussed.

In September 2003, almost one year after beginning

working with AOS, Cohen wrote to AOS executive

Steve O’Brien summarizing his view of the relationship

between the two companies up until that point. The

letter stated that if AOS were interested in marketing

the pump as a life-saving device, FS would support

that decision. Cohen concluded with a proposal for a

formal agreement to move forward and commercialize

the motor, recognizing that no formal agreement

relating to the motor currently existed between the

two companies.

Cohen’s proposal produced no practical results and

no agreement was ever reached between the two companies. In January 2004, however, Cohen sent a letter to

seventeen different pump manufacturers claiming to

have solved the suction entrapment problem in a joint

effort with AOS. O’Brien responded by letter to the

same pump manufacturers to correct FS’s inaccurate

reference to a joint relationship between the two companies. O’Brien also sent a letter to Cohen restating the

position taken in his letter to the industry and accusing

Cohen of breaching AOS’s confidentiality agreement.

The dialogue became contentious, but the two companies continued to correspond through the spring of

2004. No resolution was made of their relationship by a

formal agreement or by acknowledging intellectual property rights, and correspondence eventually stopped by
No. 11-1354 5

October 2004. Later, AOS introduced two pump motors

that FS claims incorporated its trade secrets: the “eMod”

and the “Guardian,” both offered for sale in May 2006.

Nearly two years later, in April 2008, FS filed this suit

for misappropriation of trade secrets and unjust enrichment under Wisconsin law.

The district court granted summary judgment in

favor of AOS on both claims. The district court found

that the misappropriation of trade secrets claim was

barred under the three-year statute of limitations. It

further found, in the alternative, that FS failed to take

reasonable steps to protect the secrecy of its claimed

trade secret, and thus failed on the merits. FS’s voluntary

disclosure of its information, the court found, also

defeated its unjust enrichment claim. FS timely appealed. As a final judgment from the district court,

we note jurisdiction under 28 U.S.C. § 1291.

We review the district court’s judgment on the

pleadings and its grant of summary judgment de novo.

Moss v. Martin, 473 F.3d 694, 698 (7th Cir. 2007) (“We

review a district court’s ruling on a Rule 12(c) motion

de novo.”); O’Rourke v. Palisades Acquisition XVI, LLC,

635 F.3d 938, 941 (7th Cir. 2011) (grant of summary judgment reviewed de novo). We construe facts favorably

to the nonmoving party and grant the nonmoving party

“all reasonable inferences” in its favor. Ogden v. Atterholt,

606 F.3d 355, 358 (7th Cir. 2010).

FS makes four arguments on appeal. Primarily, FS

argues that the district court erred in granting summary judgment on its misappropriation of trade secret
6 No. 11-1354

Nor must we decide on whether the information was in 1

the public domain. As we explain below, FS failed to take

any steps to protect its trade secrets.

claim because there was ample evidence to find that a

confidential relationship existed and its disclosure of

secret information in that relationship was reasonable.

Secondly, FS claims that the district court erroneously

added a “wrongfulness” element to the requirements

for Wisconsin unjust enrichment claims. Finally, FS

contends that the district court abused its discretion in

applying quantum meruit to FS’s unjust enrichment

claims and excluding FS’s damages experts.

We agree with the district court that FS failed to take

reasonable precautions to protect its trade secrets. This

failure vitiates FS’s claim of misappropriation. Further,

because the material FS conveyed to AOS was without

any intellectual property protection or contractual agreement for confidentiality, AOS could not profit unjustly

from the use of that voluntarily disclosed information.

For this reason, FS’s unjust enrichment claim must also

fail. The district court initially found, however, that

the misappropriation suit was barred by laches, since

FS knew or should have discovered AOS’s initial alleged

misappropriation more than three years before filing

suit. Because we affirm on the merits, we need not

address the district court’s analysis of laches. For the

same reason, the related issues of correct damages

model and exclusion of FS’s expert witnesses are mooted.1
No. 11-1354 7

1.

FS failed to take reasonable protective measures for

its claimed trade secret under the circumstances, and

thus cannot claim trade secret protection. To qualify as a

trade secret under Wisconsin law, the claimed trade

secret—that is, the proprietary information—must be

the “subject of efforts to maintain its secrecy that are

reasonable under the circumstances.” Wis. Stat. § 134.90

(2011). “[F]ailure to take reasonable steps to prevent

gratuitous disclosure” of the alleged trade secret forfeits

any protection. Bondpro Corp. v. Siemens Power Generation,

Inc., 463 F.3d 702, 708 (7th Cir. 2006). Though absolute

secrecy is not required, see Rockwell Graphics Sys., Inc. v.

DEV Indus., Inc., 925 F.2d 174, 177 (7th Cir. 1991), “one

who claims a trade secret must exercise eternal vigilance

in protecting its confidentiality.” RTE Corp. v. Coatings,

Inc., 267 N.W.2d 226, 233 (Wis. 1978). Even “[t]he

existence of a confidentiality agreement is not always

enough.” ECT Int’l, Inc. v. Zwerlein, 597 N.W.2d 479, 484

(Wis. Ct. App. 1999).

We agree with the district court that FS failed to

take reasonable steps under the circumstances to

maintain the secrecy required for trade secret protection. Indeed, FS failed to take any steps to protect its

information. None of the information provided by FS

to AOS was marked confidential, nor did FS make it

known that it expected this information to remain confidential. Rather, FS volunteered information and willingly

cooperated with AOS. Indeed, FS signed AOS’s one-way

confidentiality agreement, yet failed to obtain similar
8 No. 11-1354

protection despite having protected itself with similar

confidentiality agreements in the past. If the information

FS provided was confidential, then FS should have requested reciprocal confidentiality in its communications and exchanges with AOS. FS failed to make a modicum of effort to protect the confidentiality of its information, a failure that was not reasonable under these

circumstances.

On appeal, FS relies on this court’s decision in

Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d

714 (7th Cir. 2003), to claim that summary judgment,

based on the reasonableness of FS’s belief that it was in

a confidential relationship, was inappropriate. FS maintains that it reasonably believed it had entered into a

joint venture with AOS and, as a result, AOS was under

a duty of confidentiality. If such a relationship existed,

FS maintains, its lack of independent precautionary

measures was reasonable because the duty of confidentiality protected the information shared in the relationship. Learning Curve, however, is readily distinguishable

from the present case because Learning Curve centered

on the existence of an oral confidentiality agreement

between unsophisticated parties that was adopted

before any information was exchanged. Id. at 717.

Moreover, in Learning Curve we noted that the plaintiffs were a small business, consisting of only two people.

Id. at 724. There, we found that Illinois courts have “recognized on several occasions that the expectations for ensuring secrecy are different for small companies than

for large companies.” Id. (citing Jackson v. Hammer, 653
No. 11-1354 9

N.E.2d 809, 815 (Ill. App. Ct. 1995) (“The determination

of what steps are reasonably necessary to protect information is different for a large company than for a small

one.”)). The reasonableness of the plaintiff’s steps in

Learning Curve to protect its trade secrets was held to

a looser standard, yet even there, that unsophisticated

business used a confidentiality agreement (even though

oral). Id.

Here, there is no evidence that a confidential relationship existed. The parties never concluded a binding

agreement before disclosing information. FS’s mere

subjective belief that it had entered into a joint venture

does not warrant protection. Even if this court were

to agree with FS that cooperation alone may impose a

duty of confidentiality between two sophisticated

parties, the degree of cooperation in this case is not so

great as to indicate the parties could reasonably

believe they were in a joint venture with reciprocal confidentiality. AOS and FS discussed potentially creating

a product and FS, perhaps wary of alienating AOS,

did not press the issue of confidentiality or inquire as

to reciprocal duties. Moreover, when FS attempted to

formalize the agreement more than one year after they

first began working together, the working relationship

fell apart. When FS unilaterally announced in a letter

to members of its industry that it was in a development relationship with AOS, AOS immediately repudiated FS’s claim. Indeed, perhaps in an effort to

motivate AOS to come to the bargaining table, FS reminded AOS that the two companies had no formal

relationship.
10 No. 11-1354

Even assuming some sort of informal relationship

existed that hinted at confidentiality, FS still failed to

take any steps to maintain its secrecy, which was unreasonable under these circumstances. No information

was ever marked confidential. Nor did FS take any

steps to protect its claimed proprietary information, contractually or otherwise. FS volunteered its information to AOS. And, unlike in Learning Curve, the topic of

confidentiality was never even broached by FS, a sophisticated party familiar with such agreements. AOS, with

its one-way confidentiality agreement, was the

only party that took any protective steps. Under these

circumstances, FS’s efforts (or lack thereof) to maintain

secrecy of its claimed trade secrets were not reasonable.

We agree with the district court that this is an “extreme

case.” FS failed to take any precautionary measures

to protect its claimed trade secrets. Therefore, FS’s

actions were not reasonable under these circumstances

and cannot sustain FS’s misappropriation of trade

secrets claim.

II.

Because we find that FS’s trade secret claim fails, it

follows that FS’s unjust enrichment claim must also fail.

FS willingly volunteered information to AOS, and thus

there is nothing unjust about AOS’s later use of, and

benefit from, that information.

Under Wisconsin law, an unjust enrichment claim

requires a plaintiff prove that: (1) a benefit was “conferred
No. 11-1354 11

upon the defendant by the plaintiff”; (2) there was an

“appreciation by the defendant of the fact of such a benefit”; and (3) there was “acceptance and retention of

the benefit by the defendant under circumstances such

that it would be inequitable to retain the benefit without

payment of the value thereof.” Seegers v. Sprague, 236

N.W.2d 227, 230 (Wis. 1975). In the context of trade

secrets, “Wisconsin law denies recovery for unjust enrichment if all the defendant has done is use (to his profit)

an idea of the plaintiff that is not a trade secret.” Confold

Pac., Inc. v. Polaris Indus., 433 F.3d 952, 957 (7th Cir.

2006) (citing Abbott Labs v. Norse Chemical Corp., 147

N.W.2d 529, 541 (Wis. 1967) (“[If] no trade secrets were

appropriated by the defendants, there was no unjust

enrichment . . .”)). Simply put, one cannot steal free advice.

On appeal, FS argues that the district court erred by

adding a “wrongfulness” or fault element to Wisconsin

unjust enrichment law. True, fault is not an element.

But the district court did not add a fault element;

the district was merely looking for some independent

protection that was violated to make AOS’s enrichment

unjust or inequitable under the third element. The district

court made clear in its analysis that “fault indeed does

not need to exist in order for a plaintiff to assert an

unjust enrichment claim.” Instead, the court’s discussion

of cases, some of which involved wrongfulness, focused

on the inequitable retention of a benefit by a defendant.

Wrongfulness is not a necessary condition, but it is sufficient to show that circumstances warrant that, because of defendant’s conduct, she must compensate the

plaintiff for the value of the benefit conferred. See Abbott
12 No. 11-1354

Labs, 147 N.W.2d at 541 (“Unjust enrichment . . . requires

a wrongful taking or appropriation of others’ property

to one’s own use.”).

Far from creating a new wrongfulness requirement, the

district court correctly noted that inequitable retention

must come from an independent violation of FS’s rights

under some “body of law.” Confold Pac., Inc., 433 F.3d

at 959. Such a violation may arise from a defendant’s

use of information protected by an intellectual property

right, a confidential relationship or a contract. But none

of those protections are present in this case. Because FS

and AOS were not in a confidential relationship, because

FS never sought to safeguard its information through

contract and because AOS did not misappropriate any

of FS’s trade secrets, this court cannot, in equity, grant

relief based on AOS’s conduct.

We agree with the district court that FS “courted

[its] own disaster” by failing to take any protective measures. RTE Corp., 267 N.W.2d at 233. Because AOS’s use

of FS’s information did not violate some independent

protection, AOS could not profit unjustly from the information FS disclosed.

For the foregoing reasons, the judgment is AFFIRMED.

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