Fire 'Em Up, Inc. v. Technocarb Equipment (2004) Ltd.

Citations: 799 F. Supp. 2d 846; 2011 U.S. Dist. LEXIS 71054; 2011 WL 2582396Docket: 10 C 8050

Court: District Court, N.D. Illinois; June 27, 2011; Federal District Court

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Defendants Technocarb Equipment (2004) Ltd. and Aurora Electronics, Ltd. filed a motion to dismiss certain counts of Fire 'Em Up, Inc.'s amended complaint under Rule 12(b)(6). The court granted the motion in part and denied it in part, dismissing Counts V and VII without prejudice, while Counts VI and VIII were dismissed with prejudice.

The case involves a patent infringement claim concerning the Diesel Magnum™ Propane Injection System for Diesel Engines, patented under U.S. Patent Number 7,100,582 B1, which was originally invented by Jeffrey Bach and licensed to Fire 'Em Up, Inc. (FEU). In February 2008, FEU entered into a Master Distributorship Agreement with Technocarb, granting them distribution rights for five years and sharing proprietary information essential for the product's promotion and sale. FEU alleges that Technocarb misused this information to develop and promote a competing product, the EcoDiesel System, in collaboration with Aurora, constituting fraud and trade secret misappropriation.

Initially filed on December 20, 2010, the complaint included multiple claims, including breach of contract and patent infringement. Subsequent voluntary dismissals reduced the number of defendants. The court's analysis for the motion to dismiss focused on whether the complaint provided sufficient factual basis to support the claims, adhering to the standards set forth in relevant case law.

Determining the plausibility of claims requires a context-specific evaluation by the court, utilizing judicial experience and common sense. Dismissal is appropriate when it is clear that the plaintiff cannot prove any facts supporting their claim for relief. A complaint must present facts related to all material elements necessary for recovery under a viable legal theory. 

Count V alleges trade secret misappropriation against Technocarb under the Illinois Trade Secrets Act (ITSA). Defendants argue that the plaintiff, FEU, has not sufficiently alleged misappropriation, claiming the allegations consist of mere legal conclusions without the required elements. To establish a claim for trade secret misappropriation, a plaintiff must demonstrate: 1) the existence of a trade secret, 2) misappropriation of that secret, and 3) its use in the defendants' business. The elements may also include improper acquisition, disclosure, or use, with a requirement that the owner suffered damages as a result.

A trade secret is defined as information that derives economic value from its secrecy and is subject to reasonable efforts to maintain its confidentiality. Defendants contend that FEU has not adequately specified what constitutes its trade secrets. While some specificity is necessary, details need not be exhaustive for a complaint to survive a motion to dismiss, as courts typically reserve dismissal for extreme cases. FEU claims its trade secrets encompass customer and supplier lists, business partner information, methods and techniques for creating services, financial data, and marketing strategies, among other proprietary information. Similar allegations have previously been deemed sufficient to withstand dismissal motions in this jurisdiction.

In Lincoln Park Sav. Bank v. Binetti, the court denied a motion to dismiss based on a complaint alleging misappropriation of confidential customer information from a loan origination system. The court recognized that customer lists could be considered trade secrets under Illinois law, affirming that the factual details provided in the complaint were sufficient to notify defendants of the claims. However, the defendants contended that FEU did not adequately allege efforts to maintain the secrecy of the trade secrets, as required by Illinois law. Although FEU cited a Master Distributorship Agreement as evidence of reasonable measures to protect its trade secrets, the court found that mere reference to the agreement did not demonstrate sufficient efforts to maintain confidentiality. Consequently, the court determined that the allegations did not meet the statutory definition of a trade secret, leading to the dismissal of Count V without prejudice, allowing for potential amendment.

In Count VI, FEU's claim of conversion against Technocarb was analyzed under Illinois law, which requires proof of unauthorized assumption of control over personal property, the plaintiff's right to that property, an unconditional right to immediate possession, and a demand for possession. The court noted that conversion claims must involve tangible property. Defendants argued that the claim failed since no tangible property was alleged to have been taken. FEU countered that Technocarb had converted its patent and the patented product, the Diesel Magnum.

FEU claims that the technology of the Diesel Magnum, which it argues is covered by its patent, has been converted. However, the court finds that FEU's claim fails as there are no relevant allegations in the amended complaint to support this argument. Defendants assert that intellectual property, including patents, cannot be the subject of a common law conversion claim, citing Richmond ex rel. v. National Institute of Certified Estate Planners, where a similar claim regarding a federal trademark was dismissed. The court agrees with this reasoning, concluding that a patent exists as a result of federal law and cannot be converted; rather, the rights derived from the patent are the focus of FEU's patent infringement claims under 35 U.S.C. 271. Consequently, Count VI, which attempts to present patent infringement claims as a conversion claim, is dismissed with prejudice.

In Count VII, FEU alleges that Defendants defrauded it by using its trade secret and confidential information to create a competing product, EcoDiesel. Defendants contend this claim should be dismissed as it is deficient and preempted by the Illinois Trade Secrets Act (ITSA). The ITSA aims to replace conflicting laws on trade secret misappropriation with its own provisions. The court references Hecny Transp. Inc. v. Chu, stating that claims are preempted only if they directly relate to misappropriated trade secrets. Notably, FEU's fraud claim is based on contractual obligations in the Master Distributor Agreement, suggesting it may not be preempted by the ITSA.

The fraud claim is not contingent on the existence of the alleged trade secrets underlying the Illinois Trade Secrets Act (ITSA) claim. The court recognizes that while there may be significant overlap between confidential information and trade secrets, a valid restrictive covenant can protect non-trade secret materials, providing broader protection than trade secret law. Consequently, even if the information in question does not qualify as trade secrets, a fraud action remains viable, and Count VII is not preempted by the ITSA.

Defendants contend that FEU's fraud claim does not meet the heightened pleading requirements of Rule 9(b), which necessitates specific details about the fraud, including the "who, what, when, where, and how." To establish common law fraud in Illinois, a plaintiff must allege: (1) a false statement of material fact, (2) the defendants' knowledge of its falsity, (3) intent to induce action, (4) reliance on the statement, and (5) resulting damages. Defendants identify several deficiencies in FEU's claim, such as the failure to allege that the statements were false, that they were intended to induce action, and that FEU relied on them to its detriment.

The court agrees with the defendants, noting that the amended complaint lacks essential elements to support a fraud claim. Specifically, it must be shown that the statements were made to induce action and that reliance led to injury. FEU's attempt to introduce additional allegations in its response, including claims about the non-compete agreement and Technocarb's intentions, do not suffice as they are not part of the amended complaint, and procedural rules must be followed. Although FEU has failed to adequately plead its case, the deficiencies are deemed curable, leading to Count VII being dismissed without prejudice.

Count VIII seeks an accounting from the Defendants for various financial details related to their marketing and use of technology or patent owned by FEU. The Defendants argue that FEU's amended complaint fails to meet the requirements for an accounting claim under Illinois law, which necessitates showing the absence of an adequate legal remedy and at least one of several specified conditions, such as a breach of fiduciary duty or the complexity of mutual accounts. FEU's complaint does not allege the absence of an adequate remedy nor a breach of fiduciary duty, focusing instead on a breach of contract in Count I. FEU contends that its breach of contract claim does not suffice as a complete remedy due to the 'special nature' of the contract, but fails to cite relevant case law to support this assertion. The Court finds Count I to be a standard contract dispute, and notes that the information sought in the accounting claim can be acquired through discovery. Consequently, Count VIII is dismissed with prejudice. The Court allows FEU to file a second amended complaint regarding its fraud and trade secret misappropriation claims by July 15, 2011. Additionally, the excerpt includes details about a non-disclosure covenant and a non-competition covenant related to the Master Distributor's obligations.