Televation Telecommunication Systems, Inc. v. Saindon

Citations: 522 N.E.2d 1359; 169 Ill. App. 3d 8; 119 Ill. Dec. 500; 1988 Ill. App. LEXIS 555Docket: 2-87-0953

Court: Appellate Court of Illinois; April 28, 1988; Illinois; State Appellate Court

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Televation Telecommunication Systems, Inc. filed a lawsuit against William Saindon, Timothy Rex, and Digital Systems Research, Inc. for misappropriating its trade secrets. The complaint, filed on April 2, 1987, included three counts seeking injunctive relief, damages, and an accounting. The trial court expedited the case, issuing a three-year injunction on September 9, 1987, preventing the defendants from manufacturing, selling, or disclosing Televation's trade secrets. The defendants appealed this interlocutory order.

Televation, founded by John Regan and Robert Groetzenbach in 1978, developed electronic products to enhance existing PBX phone systems. Its notable products include the PEP 100, an automatic wake-up system for hotels, and the Reveille, a cost-effective version that places calls on two lines. The Echodyne system, capable of handling 192 calls simultaneously with recorded messages, was also developed, utilizing circuitry originally designed for earlier products.

Saindon, who served as Televation's production and quality control manager from March 1983 to April 1984, had full access to the company's circuitry schematics. After leaving, he co-founded Digital Systems Research, Inc. in October 1984, which developed the Prelude automatic wake-up system. The Prelude's analog circuitry closely resembled that of Televation's products, differing only due to modifications made after Saindon's departure. Prelude's digital circuitry, developed by Janusz Dobrowolski, was significantly different and enabled functions not present in Televation's systems.

Regan and Groetzenbach became aware of Prelude in early 1987 when a supplier informed them about Digital's attempt to order a specific transformer designed for Televation. Following this, Televation ordered and analyzed a Prelude unit, leading to the filing of this lawsuit. The unit examined was the only one sold by Digital.

Following a comprehensive evidentiary hearing, the trial court found that Televation's analog circuitry schematics and their integration with digital circuitry qualify as trade secrets. The court determined that the defendants appropriated these trade secrets for their own product, leading to the issuance of a "preliminary and permanent injunction." This injunction prohibits the defendants from manufacturing, marketing, constructing, or selling the Prelude or similar products for three years. Additionally, it bars the use of certain analog circuitry and mandates the return of Televation's schematics and any taken components.

Defendants contest the trial court's ruling, arguing that the information utilized by Saindon in creating the Prelude was merely knowledge acquired during his employment, which they believe he had the right to use. They assert that Televation's schematics do not meet the criteria for trade secrets due to insufficient confidentiality protections and the general knowledge of the circuitry within the industry.

Illinois case law stipulates that injunctive relief for an employer against a former employee necessitates a demonstration of a protectable business interest. Employers can safeguard trade secrets shared confidentially with employees, even without a formal restrictive covenant. Essential criteria include establishing the information as a trade secret providing a competitive edge, confirming its confidential disclosure to the employee, and proving that allowing the employee to disclose or use the information would be unjust.

The courts balance the need to protect an employer's investment in developing trade secrets against the individual's right to pursue their career and utilize their acquired knowledge. A trade secret is defined broadly, encompassing any plans, processes, tools, mechanisms, or data used in business operations known only to the owner and a limited number of confidants. The determination of what constitutes a trade secret involves multiple factors, including the extent of the information's knowledge outside the employer's business.

Key points regarding the legal considerations of trade secrets include the following criteria: the awareness of employees and others about the information, the employer's measures to maintain secrecy, the value of the information to both the employer and competitors, the resources spent in developing the information, and the ease with which others could acquire or replicate it. In the case involving Saindon, his testimony about designing Prelude's analog circuitry was inconsistent and contradictory. Although he referred to textbooks and data sheets, he admitted to recalling schematics from memory that closely resembled those from his previous employer, Televation, even after seven months of separation. His design incorporated specific details from Televation’s schematics, such as precise numerical values for components and part numbers. The defendants contended that this information was general knowledge from Saindon’s experience at Televation, but it was legally irrelevant whether he copied or memorized the schematics, as confidential employer-developed plans must not be taken by employees. The trial court found substantial evidence that Saindon misappropriated Televation’s information, suggesting he physically took copies of schematics. Expert testimony indicated that Televation's analog circuitry was unique, and while components were available, their specific arrangement made duplication without access to schematics or reverse engineering impossible. However, the expert's assessment was limited due to the absence of confidential exhibits in the record.

Thomas estimated that reverse engineering the circuits in the exhibit would require one to two years for someone with his engineering experience, while less experienced individuals might take much longer. He asserted that Regan's custom transformer, essential for these circuits, could not be reverse engineered at all. Thomas characterized the reverse engineering process as tedious and error-prone, suggesting that many engineers would prefer to create their own comparable circuits instead of reverse engineering existing ones. He noted that specification sheets are commonly shared with component manufacturers, who treat them as confidential and do not supply parts without the designer's consent.

During cross-examination, Thomas acknowledged the existence of larger standard transformers that could perform similar functions as Regan's custom transformer and stated that Televation's designs might not necessarily be superior to other comparable circuits. He estimated that he could independently design the circuits from exhibit No. 5 or create similar circuits in 9 to 13 months.

Howard Jirka, the defendants' expert, contended that the plaintiff's analog circuits were not novel and could be designed using standard references. He described Televation's custom transformer as simple and easy to construct. Although the court sustained an objection regarding Jirka's opinion on reverse engineering the transformer, it permitted an offer of proof indicating that Jirka believed it could be reverse engineered. He estimated that designing one of the plaintiff's analog circuits would take around two weeks but did not provide a timeframe for designing all the analog circuits.

It was established that Televation kept its schematics in an unlocked cabinet within an employee area and did not require nondisclosure agreements from employees or track schematic copies. The office was locked when not in use. Regan and Groetzenbach testified that they occasionally provided specification sheets to component manufacturers but never detailed schematics. They allowed draftsmen to see portions of schematics but maintained that whole schematics were never permitted to leave the premises. Regan emphasized Televation's policy on schematic confidentiality to new employees and delegated to Saindon the responsibility for organizing schematics, providing him with a proprietary stamp for marking any documents leaving the building. Saindon, however, denied receiving the stamp or being informed of security policies but admitted knowing the materials were confidential and could not be shown to outsiders.

The trial court's determination that Televation's schematics and circuitry qualify as trade secrets is upheld, supported by substantial evidence. Regan dedicated around five years to the design and development of the necessary analog circuitry for Televation's products, which was not generally known outside the company. Although the individual components were available, they could not be easily assembled in the specific combinations and values that Televation utilized. Testimony indicated that replicating Televation's functional circuitry would require a new competitor significant time—estimated between nine months to two years. Trade secret protection is not negated by the possibility of reverse engineering, particularly when such a process is time-intensive. The existence of alternative methods to achieve similar results also does not invalidate a trade secret claim. Partial disclosure of confidential information to third parties does not negate its status as a trade secret, especially when those parties recognize the information's confidentiality. While Televation's security measures were not stringent, access to complete schematics was limited to a few employees, who were instructed on confidentiality. The case of Junkunc v. S.J. Advanced Technology Manufacturing Corp. is distinguished, as that case involved a defendant with closer ties to the proprietary information. Overall, the evidence firmly supports that Televation's schematics were unique, valuable, and not easily replicable.

Televation must demonstrate a confidential agreement with the defendant to warrant an injunction since the defendant's knowledge of Televation's business was not purely from their employer-employee relationship. The court affirmed that Televation's analog circuitry schematics are protectable trade secrets. The defendant challenged the three-year injunction imposed by the court, citing precedent that injunctions should not extend beyond the time necessary for lawful reproduction of the product, as established in Schulenburg v. Signatrol and further clarified in Brunswick Corp. v. Outboard Marine Corp. Expert testimony indicated that a skilled competitor could take nine months to two years to legally duplicate Televation's analog circuitry, while developing a complete product could take up to five years. The court emphasized that the injunction should reflect the time required for lawful production rather than just the contested elements, as the misappropriated analog circuitry is essential to the Prelude machine.

The trial court's three-year injunction is upheld as it aligns with the evidence presented. Although defendants claimed over two years of part-time development on the Prelude since the misappropriation of trade secrets, the evidence supported a potential injunction of up to five years. The court likely shortened the injunction to account for the legitimate development time the defendants had already invested. Importantly, the injunction allows defendants to use digital circuitry they developed and any analog circuitry they create independently in the future.

Defendants challenged the specificity of the injunction, arguing it inadequately defined the plaintiff's trade secrets and imposed restrictions on their use of certain circuits. However, the court found the injunction sufficiently precise, protecting only the plaintiff's analog circuitry and its interfacing circuitry. The order does not restrict the defendants from using standard electronic components.

The court referenced prior case law affirming that broad injunctions are acceptable when they serve the interest of protecting trade secrets effectively. It concluded that the injunction clearly delineates the rights it protects and the prohibited conduct, thereby meeting legal standards. Consequently, the judgment of the circuit court is affirmed.