Kozuch v. CRA-MAR Video Center, Inc.

• Decision Date: 22 May 1985
• Docket Number: No. 3-1284A337,CRA-MAR,3-1284A337
• Citation: 478 N.E.2d 110
• Parties: Gerald KOZUCH, Koach's Sales Corporation, et al., Defendants-Appellants, v.VIDEO CENTER, INC., d/b/a Video Movie Center, Plaintiff-Appellee.
• Court: Indiana Appellate Court

Page 110

478 N.E.2d 110

Gerald KOZUCH, Koach's Sales Corporation, et al Defendants-Appellants, v. CRA-MAR VIDEO CENTER, INC., d/b/a Video Movie Center Plaintiff-Appellee.

No. 3-1284A337.

Court of Appeals of Indiana,

Third District.

May 22, 1985.

Rehearing Denied June 27, 1985.

Thomas S. Botkin, Thomas F. Grabb, Hahn, Knepp, Botkin, Roberts & Dvorak, South Bend, for defendants-appellants.

Anthony J. Iemma, Jane E. Barker, Iemma & Hughes, Elkhart, for plaintiff-appellee.

HOFFMAN, Judge.

The facts relevant to this appeal are as follows. Appellants herein are Koach's Sales Corporation (Koach's) and Gerald Kozuch its owner, president, and director. Koach's sells electronic equipment and video cassettes as does appellee CRA-MAR Video Center, Inc. (CRA-MAR herein). CRA-MAR and Koach's are direct competitors.

Koach's purchased a computer and floppy disks from Radio Shack. Sometime after Koach's had purchased its computer, CRA-MAR found that it needed to update its computer system as well, so it also purchased a similar computer and floppy disks from Radio Shack. CRA-MAR used the computer to store customer lists, movie lists, personnel files, and financial material.

As the computer was new to CRA-MAR, Randall Youts, Radio Shack's salesman and programmer, would modify its programs when needed. One of the programs, as stated above, was a customer list, containing the names of all those people who had purchased either video hardware or memberships in CRA-MAR's video rental club. At one point, CRA-MAR decided to make a mailing to everyone on the customer list, but the computer was unable to perform the function. Youts offered the services of Radio Shack's computer so he took the disks containing the customer list, or copies thereof, to the store.

It is uncontested that Koach's somehow came into possession of the disks containing CRA-MAR's customer list. Toward the end of September 1984, Koach's did a promotional mass mailing for which it mailed postcards to people listed in telephone directories as well as those listed on CRA-MAR's customer list. Shortly after the mailing, CRA-MAR sought and obtained a temporary restraining order which enjoined Koach's from making additional mailings from CRA-MAR's list and from redeeming any of the promotional cards already mailed. After a hearing, the trial court issued a preliminary injunction on November 13, 1984, which read as follows:

"IT IS ORDERED:

That the defendants and their agents and employees be and they hereby are enjoined:

1. From continuing the mailing of post cards to persons whose names have been derived from the plaintiff's customer list and from advertising free membership in defendants' 'Show Stoppers Tape Club' and twenty free movie rentals.

2. Redeeming post cards already mailed to persons whose names were derived from plaintiff's customer list for free membership in defendants' Show Stoppers Tape Club and twenty free movie rentals.

3. Duplicating or preserving plaintiff's customer list for any purpose.

4. Destroying or disposing of any post cards not yet mailed.

5. Destroying or disposing of any post cards received from individuals responding to the mailing.

6. Destroying or disposing of the master list from which the mailing addresses were obtained and further disseminating the list either manually, mechanically, or electronically."

Appellants Koach's and Kozuch appeal the order granting the preliminary injunction and raise six issues for review:

(1) whether the trial court erred in finding that CRA-MAR's customer list is a trade secret;

(2) whether the trial court erred in issuing the preliminary injunction;

(3) whether the trial court erred in enjoining Koach's from redeeming the promotional postcards mailed to persons named on CRA-MAR's customer list;

(4) whether the terms of the preliminary injunction are conflicting thus rendering Koach's unable to obey it;

(5) whether the trial court erred in enjoining Koach's from distributing CRA-MAR's customer list to its other stores; and

(6) whether the trial court erred in enjoining Koach's from advertising free membership in its "Show Stoppers Tape Club" and twenty free movies.

The first issue which this Court must address is whether the customer list in question is a trade secret within the definition of IND.CODE Sec. 24-2-3-2. That section provides:

" 'Trade secret' means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) 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

(2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

The trial court determined that CRA-MAR's customer list is a trade secret. The court found:

"12. The plaintiff's customer list of about five thousand customers comprises information that 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 that are reasonable under the circumstances to maintain its secrecy and is, therefore, a trade secret."

This finding specifically addresses each element required by the statutory definition of trade secret. It will not be disturbed on appeal unless it is unsupported by the evidence. This Court will not weigh the evidence but will view only that evidence most favorable to the appellee. Licocci v. Cardinal Associates, Inc. (1982), Ind.App., 432 N.E.2d 446.

There was evidence presented at trial that CRA-MAR's customer list included only the names of owners of video hardware purchased at CRA-MAR and those who had purchased memberships in CRA-MAR's video rental club, and were therefore either customers or prospective customers for video movies. There was also evidence that the customer list could not have been created by any means other than through CRA-MAR's business operations. In addition, there was evidence that the list derived its independent economic value from not being generally known or ascertainable by CRA-MAR's competitors. Finally, there was evidence that CRA-MAR took reasonable efforts to maintain the secrecy of the customer list through strict instructions to the computer programmers and operators, as well as locking up the disks containing the customer list. Based upon this evidence, the trial court did not err in finding that CRA-MAR's customer list was a trade secret.

Koach's next contention is that the trial court erred in issuing the preliminary injunction. IND.CODE Sec. 24-2-3-3(a) provides that an actual misappropriation of a trade secret may be enjoined. Here, it is undisputed that Koach's acquired and used CRA-MAR's trade secret, knowing that the acquisition and use was occasioned by a third-party's breach of duty to keep the customer list a secret. This is clearly a misappropriation under the definition in IND.CODE Sec. 24-2-3-2, and therefore, an injunction is proper if the standard for issuing a preliminary injunction is met.

The scope of this Court's review of a preliminary injunction, the granting or denial of which rests in the sound discretion of the trial court, is limited to the determination of whether the trial court's action constituted a clear abuse of that discretion. Discretion to grant or deny a preliminary injunction is measured by several factors: 1) whether the plaintiff's remedies at law are inadequate thus causing irreparable harm pending the resolution of the substantive action if the injunction does not issue; 2) whether the plaintiff has demonstrated at least a reasonable likelihood of success at trial by establishing a prima facie case; 3) whether the threatened injury to the plaintiff outweighs the threatened harm the grant of the injunction may inflict on the defendant; and 4) whether, by the granting of the preliminary injunction, the public interest would be disserved. College Life Ins. Co. of America v. Austin (1984), Ind.App., 466 N.E.2d 738.

In determining whether an...