Court Opinion

ID: 3000519
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:05:49.965188+00
Date Added: 2024-06-11T11:45:41.717405
License: Public Domain

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 infor-
mation. The addendum provided “that software and
database provided contains confidential, proprietary and
trade secret information and that the agent and its employ-
ees will not use nor disclose to third parties such informa-
tion 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 origi-
nated 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 plain-
tiff 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 cus-
tomer 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 cus-
tomer 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 cus-
tomer information is enforceable—but only if the contrac-
tual 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 en-
hanced 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 plain-
tiff’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 economi-
cally 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 informa-
tion 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 plain-
tiff 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 defen-
dants’ 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 provi-
sion 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 plain-
tiff 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 in-
junction.
                  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