Trade Secret Related Claims Over Tablet Cases Properly Rejected; But Fee Denial OK

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By Anandashankar Mazumdar

Oct. 27 — There was no basis to reverse summary judgment rejecting claims by a designer of tablet computer casings against the manufacturer it hired to build the product, when the defendant manufacturer instead put out a competing product, the U.S. Court of Appeals for the Seventh Circuit ruled Oct. 22.

Affirming summary judgment in favor of the manufacturer, the court also affirmed the lower court's rejection of a motion for attorneys' fees by the defendant. There was no basis for a finding that the lower court had abused its discretion in finding no bad faith in the plaintiff's complaint.

Manufacturer Decides to Compete

NClosures Inc. of Traverse City, Mich., which was founded in 2011, designs metal cases for Apple iPads and other tablet computers for use in business settings.

Block & Co. of Wheeling, Ill., was founded in 1934, and makes products related to the handling of money, fraud prevention and security, such as cash drawers, safes, vaults and counterfeit detectors.

In 2011, NClosures engaged Block to manufacture tablet computer enclosures. In October 2011, Block began producing the NClosures Rhino Elite enclosure device.

The parties also executed a confidentiality agreement. A few months later, however, Block began making its own tablet enclosure, under the name Atrio.

(Click on image to enlarge.)

PTCD graphic 10/30/2014

In August 2012, Block terminated its relationship with NClosures and soon afterward, NClosures sued Block, alleging misappropriation of trade secrets and other claims.

Judge Samuel Der-Yeghiayan of the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of Block. NClosures appealed.

Lower Court's Rulings Affirmed

On appeal, the court first affirmed summary judgment in favor of Block on NClosures' claim of breach of the confidentiality agreement.

The appeals court agreed with the findings that NClosures had failed to take reasonable steps to label and otherwise take steps to identify and protect information or documents that it was asserting was protected by the agreement.

The court also rejected NClosures' claim of breach of a fiduciary duty, after affirming the trial court's finding that there was no partnership between NClosures and Block that would give rise to any such duty under Illinois state law.

The court then turned to Block's motion for an award of attorneys' fees pursuant to the Illinois Trade Secrets Act, 765 Ill. Comp. Stat. §1065/5(i), as well as under federal law, 28 U.S.C. §1927.

The trade secrets law provides for recovery of reasonable attorneys' fees upon a finding that a claim was made in bad faith. The federal statute provides for an imposition upon counsel to pay the opposing party's legal costs if he or she has “multiplie[d] the proceedings … unreasonably and vexatiously.”

The trial court found no basis for a finding of bad faith. But Block cited IDS Life Ins. Co. v. Royals Alliance Assocs., Inc., 266 F.3d 645 (7th Cir. 2001), which found an abuse of discretion on the part of a district court that had failed to issue sanctions when a party's argument was “dubious and disingenuous.” The district court in that case had also expressed a “personal hostility to sanctions.”

However, the court distinguished the facts in IDS from the instant facts. There was no personal hostility at issue and there was a simple finding that there was no evidence of bad faith and thus no evidence of abuse of discretion on the part of the lower court.

The appeals court thus affirmed the grant of summary judgment and denial of Block's motion for attorneys' fees.

The court's opinion was authored by Judge Joel M. Flaum and joined by Judges Michael S. Kanne and Diane S. Sykes. NClosures was represented by the Law Office of Matthew M. Wawrzyn, Chicago. Block & Co. was represented by Husch Blackwell LLP, Chicago.

To contact the reporter on this story: Anandashankar Mazumdar in Washington at amazumdar@bna.com

To contact the editor responsible for this story: Tom Taylor at ttaylor@bna.com

Full text at http://www.bloomberglaw.com/public/document/nClosures_Inc_v_Block__Co_No_133906__141097_2014_BL_297023_7th_Ci.