In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 06-3412

AMERICAN FAMILY MUTUAL INSURANCE COMPANY,

Plaintiff-Appellee,

v.

BONNIE L. ROTH, et al.,

Defendants-Appellants.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 05 C 3839—Ronald A. Guzmán, Judge.

____________

ARGUED APRIL 6, 2007—DECIDED MAY 7, 2007

____________

Before POSNER, FLAUM, and EVANS, Circuit Judges.

POSNER,Circuit Judge. The defendants—insurance agents

who sold a variety of insurance products on behalf of the

plaintiff, their principal—appeal from the grant, after an

evidentiary hearing conducted by a magistrate judge, of a

preliminary injunction. After being terminated by the

plaintiff, the defendants had begun soliciting its customers,

precipitating this suit, which charges the defendants with

breaking their agency contract and stealing trade secrets.

The appeal challenges so much of the injunction as bars the

defendants “from using for any reason any information
2 No. 06-3412

downloaded from [the plaintiff’s] database, including the

names contained in Exhibit 34,” and “from servicing [the

plaintiff’s] customers.” The issues presented by the appeal

are governed by Wisconsin law.

An addendum to the agency contract required the agent

“to submit all new business and changes through the

system as directed by the Company.” By “system” the

company meant its digitized database of customer information. The addendum provided “that software and

database provided contains confidential, proprietary and

trade secret information and that the agent and its employees will not use nor disclose to third parties such information unless in the ordinary course of the agent’s business

with the Company.” The agent had access only to the

information in the database that concerned the customers

whom he served. It might be customer information originated by the agent or information furnished to it by the

company when another agent resigned and his customers

had therefore to be reassigned. Some 2,000 policies were

reassigned to the defendants in the course of their agency

relationship with the plaintiff.

Exhibit 34 was a customer list that the defendants

maintained separately from the plaintiff’s database and

used as a source of names for customer solicitations that

they conducted after being terminated by the plaintiff. The

list contained 1,847 names, of which the vast majority

were also in the plaintiff’s database. It is highly likely,

though not certain, that most of those were names of

customers in the group of 2,000 customers that the plaintiff had assigned to the defendants. The plaintiff points

out that the contract forbade the defendants to use any

name in the database, whatever the source of the name.
No. 06-3412 3

The contract can’t really mean that agents are forbidden

to solicit anyone whose name happens to appear in the

database. They are not forbidden to solicit customers of the

company’s other agents, for having no access to the names

of customers in the company’s database they would not be

free riding on the company’s resources by soliciting such

customers without having learned their names, or other

information about them, from the database. It would be

sheer coincidence if they happened to solicit a customer whose name was in the database.

But once agents enter customer information in the

database, the information becomes the exclusive property

of the plaintiff, or at least exclusive as against the agent.

The information, insofar as it had been developed by the

agent rather than supplied to him by the plaintiff, would

be his trade secret initially—but only until he uploaded

the information into the plaintiff’s database, at which

point it would become the plaintiff’s trade secret. (This

provision of the contract is a “grantback” clause, common

in patent and other intellectual-property settings.) Trade

secrets can be sold, see, e.g., Minnesota Mining & Mfg. Co.

v. Pribyl, 259 F.3d 587, 609 (7th Cir. 2001) (Wisconsin law);

Ametex Fabrics, Inc. v. Just In Materials, Inc., 140 F.3d 101,

103 (2d Cir. 1998); Painton & Co. v. Bourns, Inc., 442 F.2d

216, 225 (2d Cir. 1971) (Friendly, J.) (“the validity of

agreements for the sale or license of trade secrets has been

upheld for generations”), and once sold (rather than just

licensed) can no longer be used by the seller. Hooker

Chemical & Plastics Corp. v. United States, 591 F.2d 652, 660

(Ct. Cl. 1979) (per curiam); Belmont Laboratories, Inc. v. Heist,

151 Atl. 15, 18 (Pa. 1930).

There is nothing unconscionable, or even one-sided,

about the arrangement that we’ve just sketched. The agents
4 No. 06-3412

benefited from being able to use the plaintiff’s database, as

well as from receiving customers (the 2,000) from the

plaintiff; in exchange they gave the plaintiff the right to

keep, after termination of the agency relationship, any

customer information that they’d acquired in the course

of the relationship. Apparently they had, or at least

think they had, some legal protection against termination

designed to appropriate the customer information that

they uploaded into the database, for they have sued the

plaintiff for wrongful termination in a separate action

pending in the district court.

But we have merely assumed up to now that any customer information in the plaintiff’s database is a trade

secret (originally the defendants’ except for the names

of customers furnished to them by the plaintiff). It

would not be if it “was known outside the [employer’s]

business and the list could be readily reproduced [and] the

information was available to all the employees of the

firm, and much of the information that was available

was far more pertinent to [the business] than the skeletal

customer list.” Gary Van Zeeland Talent, Inc. v. Sandas, 267

N.W.2d 242, 249 (Wis. 1978). But does it matter whether

there was a trade secret? The addendum to the agency

contract forbids the defendants to use the information

“unless in the ordinary course of [their] business with the

[plaintiff],” and a contract forbidding disclosure of customer information is enforceable—but only if the contractual prohibition is reasonable in time and scope and,

specifically, only if its duration is limited. E.g., id. at 249-51;

Nalco Chemical Co. v. Hydro Technologies, Inc., 984 F.2d 801,

803-04 (7th Cir. 1993) (Wisconsin law); AMP, Inc. v.

Fleischhacker, 823 F.2d 1199, 1201-02 (7th Cir. 1987); Howard

Schultz & Associates of the Southeast, Inc. v. Broniec, 236
No. 06-3412 5

S.E.2d 265, 269-70 (Ga. 1977). Because such a prohibition

limits competition, courts view it with some suspicion.

Treating customer information as a trade secret limits

competition as well, but such information is given enhanced legal protection as a trade secret only if there is

some indication that the information has value apart from

its value in limiting competition—that it represents an

investment on the part of the firm seeking to protect it. B.C.

Ziegler & Co. v. Ehren, 414 N.W.2d 48, 51-53 (Wis. App.

1987); Robinson Electronic Supervisory Co. v. Johnson, 154

A.2d 494, 496 (Pa. 1959); Readylink Healthcare v. Cotton, 24

Cal. Rptr. 3d 720, 729-30 (App. 2005); Thompson v. Impaxx,

Inc., 7 Cal. Rptr. 3d 427, 432 n. 3 (App. 2003); Cincinnati Tool

Steel Co. v. Breed, 482 N.E.2d 170, 176-78 (Ill. App. 1985).

The nondisclosure provision contains no limitation of

time; although it says it will continue in force only until

the agency is terminated, the defendants do not argue that

it terminates then, and it would not be a good argument;

the agency contract is terminable by either party at will,

and the plaintiff would hardly have agreed that the

defendants could terminate it whenever they wanted to

walk off with the confidential information in the plaintiff’s database. But the omission of a limitation on the

duration of the nondisclosure provision is not fatal to the

plaintiff’s claim. The customer information in the plaintiff’s

database is a trade secret, defined in the Uniform Trade

Secrets Act, in force in Wisconsin, as information that

both “derives independent economic value, actual or

potential, from not being generally known to, and not

being readily ascertainable by proper means by, other

persons who can obtain economic value from its disclosure

or use” and “is the subject of efforts to maintain its secrecy

that are reasonable under the circumstances.” Wis. Stat.
6 No. 06-3412

§ 134.90(1)(c). Both conditions are satisfied. See Minuteman,

Inc. v. Alexander, 434 N.W.2d 773, 779-80 (Wis. 1989); ECT

Int’l, Inc. v. Zwerlein, 597 N.W.2d 479, 484 (Wis. App. 1999).

The names in the plaintiff’s database are filtered for their

suitability to buy insurance, resulting, as the magistrate

judge remarked, in “a defined, manageable and economically viable universe of uniquely receptive potential

customers.”

Besides, the defendants have abandoned the argument,

which they made in the district court, that the customer

information in the plaintiff’s database is not a trade

secret. The reason we didn’t just note the forfeiture and

eschew any discussion of whether the information is a

trade secret is that a court is supposed on its own initiative

to refuse to enter an injunction that disserves the public

interest. Weinberger v. Romero-Barcelo, 456 U.S. 305, 311-13

(1982). An unlimited prohibition against the use of a

former principal’s customer information that is not a

trade secret might be viewed in that light, though the

insurance industry is competitive and it is unlikely that

barring the defendants from soliciting customers listed in

the plaintiff’s database will have more than a negligible

effect on competition. In any event, the customer information in the database is a trade secret.

So the plaintiff is entitled to an injunction. But there are

problems with the wording of the injunction that the

district court entered. The first provision we quoted,

forbidding the use by the defendants of any information

“downloaded” from the plaintiff’s database, contains a

potential loophole. “Downloading” could be thought to

refer only to an electronic operation, such as transferring

documents from an electronic database to a computer’s

hard drive. So defined, it would exclude hand-copying
No. 06-3412 7

information from a computer screen. We cannot order the

district court to close the loophole, however, as the plaintiff has not filed a cross-appeal, asking that the injunction

be modified.

Another problem with the first quoted provision—this

one, however, properly raised in this court, by the defendants’ appeal—is the inclusion in the prohibition against

downloading of “the names contained in Exhibit 34.” While

most of the names are in the database, some are not, and

there isn’t any basis for forbidding the defendants to use

those names.

The plaintiff itself acknowledges that the second provision we quoted, enjoining the defendants from “servicing”

the plaintiff’s customers, is overbroad as well as vague

(what does “servicing” a customer for insurance mean?). It

would forbid the defendants to solicit a person who

became a customer of the plaintiff after the defendants

were terminated and whom the defendants had solicited

without any assist from information in the plaintiff’s

database, or who was an existing customer of the plaintiff but sought out the defendants rather than being

solicited by them. Probably this provision should simply

be stricken. But rather than try to work out the details of a

proper injunction, we shall remand the case to the district

court for the entry of a better-drafted injunction, while

affirming so much of that court’s decision as determines

that the plaintiff is indeed entitled to a preliminary injunction.

AFFIRMED IN PART, VACATED IN PART, AND

REMANDED WITH DIRECTIONS.
8 No. 06-3412

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—5-7-07