54 F.3d 1262 (7th Cir. 1995), 94-3942, PepsiCo, Inc. v. Redmond

Docket Nº:94-3942.
Citation:54 F.3d 1262
Party Name:U.S.P.Q.2d 1010 PEPSICO, INC., a corporation, Plaintiff-Appellee, v. William E. REDMOND, Jr., and The Quaker Oats Company, a corporation, Defendants-Appellants.
Case Date:May 11, 1995
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
FREE EXCERPT

Page 1262

54 F.3d 1262 (7th Cir. 1995)

U.S.P.Q.2d 1010

PEPSICO, INC., a corporation, Plaintiff-Appellee,

v.

William E. REDMOND, Jr., and The Quaker Oats Company, a

corporation, Defendants-Appellants.

No. 94-3942.

United States Court of Appeals, Seventh Circuit

May 11, 1995

Argued April 6, 1995.

[*]

Page 1263

Roger Pascal (argued), Joseph A. Cancila, Jr., James A. Clark, Stuart I. Graff, Schiff, Hardin & Waite, Chicago, IL, for PepsiCo, Inc., a corporation, for Plaintiff-Appellee.

Bradford P. Lyerla, Debbie L. Moeckler, Jenner & Block, Chicago, IL, for William E. Redmond, Jr.

Helene D. Jaffe, Marc Brotman, Weil, Gotshal & Manges, New York City, P. Kevin Connelly (argued), Michael J. Sheehan, James J. Oh, Connelly, Sheehan & Moran, Chicago, IL, for Quaker Oats Company.

Before BAUER, COFFEY, and FLAUM, Circuit Judges.

FLAUM, Circuit Judge.

Plaintiff PepsiCo, Inc., sought a preliminary injunction against defendants William Redmond and the Quaker Oats Company to prevent Redmond, a former PepsiCo employee, from divulging PepsiCo trade secrets and confidential information in his new job with Quaker and from assuming any duties with Quaker relating to beverage pricing, marketing, and distribution. The district court agreed with PepsiCo and granted the injunction. We now affirm that decision.

I.

The facts of this case lay against a backdrop of fierce beverage-industry competition

Page 1264

between Quaker and PepsiCo, especially in "sports drinks" 1 and "new age drinks." 2 Quaker's sports drink, "Gatorade," is the dominant brand in its market niche. PepsiCo introduced its Gatorade rival, "All Sport," in March and April of 1994, but sales of All Sport lag far behind those of Gatorade. Quaker also has the lead in the new-age-drink category. Although PepsiCo has entered the market through joint ventures with the Thomas J. Lipton Company and Ocean Spray Cranberries, Inc., Quaker purchased Snapple Beverage Corp., a large new-age-drink maker, in late 1994. PepsiCo's products have about half of Snapple's market share. Both companies see 1995 as an important year for their products: PepsiCo has developed extensive plans to increase its market presence, while Quaker is trying to solidify its lead by integrating Gatorade and Snapple distribution. Meanwhile, PepsiCo and Quaker each face strong competition from Coca Cola Co., which has its own sports drink, "PowerAde," and which introduced its own Snapple-rival, "Fruitopia," in 1994, as well as from independent beverage producers.

William Redmond, Jr., worked for PepsiCo in its Pepsi-Cola North America division ("PCNA") from 1984 to 1994. Redmond became the General Manager of the Northern California Business Unit in June, 1993, and was promoted one year later to General Manager of the business unit covering all of California, a unit having annual revenues of more than 500 million dollars and representing twenty percent of PCNA's profit for all of the United States.

Redmond's relatively high-level position at PCNA gave him access to inside information and trade secrets. Redmond, like other PepsiCo management employees, had signed a confidentiality agreement with PepsiCo. That agreement stated in relevant part that he

w[ould] not disclose at any time, to anyone other than officers or employees of [PepsiCo], or make use of, confidential information relating to the business of [PepsiCo] ... obtained while in the employ of [PepsiCo], which shall not be generally known or available to the public or recognized as standard practices.

Donald Uzzi, who had left PepsiCo in the beginning of 1994 to become the head of Quaker's Gatorade division, began courting Redmond for Quaker in May, 1994. Redmond met in Chicago with Quaker officers in August, 1994, and on October 20, 1994, Quaker, through Uzzi, offered Redmond the position of Vice President--On Premise Sales for Gatorade. Redmond did not then accept the offer but continued to negotiate for more money. Throughout this time, Redmond kept his dealings with Quaker secret from his employers at PCNA.

On November 8, 1994, Uzzi extended Redmond a written offer for the position of Vice President-Field Operations for Gatorade and Redmond accepted. Later that same day, Redmond called William Bensyl, the Senior Vice President of Human Resources for PCNA, and told him that he had an offer from Quaker to become the Chief Operating Officer of the combined Gatorade and Snapple company but had not yet accepted it. Redmond also asked whether he should, in light of the offer, carry out his plans to make calls upon certain PCNA customers. Bensyl told Redmond to make the visits.

Redmond also misstated his situation to a number of his PCNA colleagues, including Craig Weatherup, PCNA's President and Chief Executive Officer, and Brenda Barnes, PCNA's Chief Operating Officer and Redmond's immediate superior. As with Bensyl, Redmond told them that he had been offered the position of Chief Operating Officer at Gatorade and that he was leaning "60/40" in favor of accepting the new position.

On November 10, 1994, Redmond met with Barnes and told her that he had decided to accept the Quaker offer and was resigning from PCNA. Barnes immediately took Redmond

Page 1265

to Bensyl, who told Redmond that PepsiCo was considering legal action against him.

True to its word, PepsiCo filed this diversity suit on November 16, 1994, seeking a temporary restraining order to enjoin Redmond from assuming his duties at Quaker and to prevent him from disclosing trade secrets or confidential information to his new employer. The district court granted PepsiCo's request that same day but dissolved the order sua sponte two days later, after determining that PepsiCo had failed to meet its burden of establishing that it would suffer irreparable harm. The court found that PepsiCo's fears about Redmond were based upon a mistaken understanding of his new position at Quaker and that the likelihood that Redmond would improperly reveal any confidential information did not "rise above mere speculation."

From November 23, 1994, to December 1, 1994, the district court conducted a preliminary injunction hearing on the same matter. At the hearing, PepsiCo offered evidence of a number of trade secrets and confidential information it desired protected and to which Redmond was privy. First, it identified PCNA's "Strategic Plan," an annually revised document that contains PCNA's plans to compete, its financial goals, and its strategies for manufacturing, production, marketing, packaging, and distribution for the coming three years. Strategic Plans are developed by Weatherup and his staff with input from PCNA's general managers, including Redmond, and are considered highly confidential. The Strategic Plan derives much of its value from the fact that it is secret and competitors cannot anticipate PCNA's next moves. PCNA managers received the most recent Strategic Plan at a meeting in July, 1994, a meeting Redmond attended. PCNA also presented information at the meeting regarding its plans for Lipton ready-to-drink teas and for All Sport for 1995 and beyond, including new flavors and package sizes.

Second, PepsiCo pointed to PCNA's Annual Operating Plan ("AOP") as a trade secret. The AOP is a national plan for a given year and guides PCNA's financial goals, marketing plans, promotional event calendars, growth expectations, and operational changes in that year. The AOP, which is implemented by PCNA unit General Managers, including Redmond, contains specific information regarding all PCNA initiatives for the forthcoming year. The AOP bears a label that reads "Private and Confidential--Do Not Reproduce" and is considered highly confidential by PCNA managers.

In particular, the AOP contains important and sensitive information about "pricing architecture"--how PCNA prices its products in the marketplace. Pricing architecture covers both a national pricing approach and specific price points for given areas. Pricing architecture also encompasses PCNA's objectives for All Sport and its new age drinks with reference to trade channels, package sizes and other characteristics of both the products and the customers at which the products are aimed. Additionally, PCNA's pricing architecture outlines PCNA's customer development agreements. These agreements between PCNA and retailers provide for the retailer's participation in certain merchandising activities for PCNA products. As with other information contained in the AOP, pricing architecture is highly confidential and would be extremely valuable to a competitor. Knowing PCNA's pricing architecture would allow a competitor to anticipate PCNA's pricing moves and underbid PCNA strategically whenever and wherever the competitor so desired. PepsiCo introduced evidence that Redmond had detailed knowledge of PCNA's pricing architecture and that he was aware of and had been involved in preparing PCNA's customer development agreements with PCNA's California and California-based national customers. Indeed, PepsiCo showed that Redmond, as the General Manager for California, would have been responsible for implementing the pricing architecture guidelines for his business unit.

PepsiCo also showed that Redmond had intimate knowledge of PCNA "attack plans" for specific markets. Pursuant to these plans, PCNA dedicates extra funds to supporting its brands against other brands in selected markets. To use a hypothetical example, PCNA might budget an additional $500,000 to spend in Chicago at a particular

Page 1266

time to help All Sport close its market gap with Gatorade. Testimony and documents demonstrated Redmond's awareness of these plans and his participation in drafting some of them.

Finally, PepsiCo offered evidence of PCNA trade secrets...

To continue reading

FREE SIGN UP