Laser Industries, Ltd. v. Eder Instrument Co., 83 C 3764.

• Decision Date: 28 October 1983
• Docket Number: No. 83 C 3764.,83 C 3764.
• Citation: 573 F. Supp. 987
• Court: U.S. District Court — Northern District of Illinois
• Parties: LASER INDUSTRIES, LTD., a foreign corporation, Plaintiff, v. EDER INSTRUMENT COMPANY, INC., a corporation; Paul Hensler, individually and d/b/a J.J. & M., Defendants.

573 F. Supp. 987

LASER INDUSTRIES, LTD., a foreign corporation, Plaintiff, v. EDER INSTRUMENT COMPANY, INC., a corporation; Paul Hensler, individually and d/b/a J.J. & M., Defendants.

No. 83 C 3764.

United States District Court, N.D. Illinois, E.D.

October 28, 1983.

COPYRIGHT MATERIAL OMITTED

Hogan, McNulty & Meyer, Chicago, Ill., for plaintiff.

Ralph M. Bernstein, Sheryl E. Fuhr, Chicago, Ill., for defendant Eder.

Joel Widman, Andrew Annes, Kozlicki, Widman & Schenk, Chicago, Ill., for defendant Hensler.

MEMORANDUM OPINION AND ORDER

BUA, District Judge.

Plaintiff Laser Industries, Ltd. (Laser) filed a three-count complaint against Eder Instrument Co., Inc. (Eder) and Paul Hensler, individually and d/b/a J.J. & M. (Hensler), alleging misappropriation of trade secrets, unfair competition, conspiracy and interference with a business and contractual relationship. Jurisdiction is based on 28 U.S.C. § 1332(a), diversity of citizenship. Pursuant to Fed.R.Civ.P. 12(b)(6), Eder has moved for dismissal of Counts I and II and Hensler has moved for dismissal of Counts II and III for failure to state a claim upon which relief can be granted. For the reasons stated herein, the motions of Eder and Hensler as to Counts I and II are treated as motions for summary judgment.¹ Hensler's motion for dismissal of Count II and Eder's motion for dismissal of Count I are denied. Count III is dismissed for failure to state a claim upon which relief can be granted.

Laser is an Israeli corporation engaged in the development, manufacture and sale of medical equipment utilizing laser beam technology. Prior to October, 1980, Laser began developing a laser beam compatible bronchoscope and laparoscope. A bronchoscope and a laparoscope (the scopes) are medical instruments consisting of a tube which allow physicians and surgeons to view and perform limited surgery on various internal parts of the human body without an extensive surgical incision. Laser beam compatible scopes facilitate the delivery of laser beams to internal body parts during procedures utilizing the scopes.

Laser also designed and manufactured an optical coupler to be used as an accessory to laser beam compatible scopes. The optical coupler enhances the accuracy and safety of viewing and the delivery of laser beams. Laser contends that the design of the optical coupler is highly secret and is the result of a substantial investment of time and money by Laser.

In approximately October, 1980, Laser contacted Eder, a manufacturer and distributer of laparoscopes. Laser and Eder agreed the latter would produce and assemble laser compatible scopes for Laser. Advanced Surgical Technologies, Inc. (ASTI), a wholly owned subsidiary of Laser, conducted business activities with Eder on behalf of Laser. Hensler, an employee of ASTI until his resignation in approximately August, 1982, conducted and supervised, for Laser, the manufacture of laser beam compatible scopes by Eder.

During 1982, Laser and Eder engaged in negotiations to formalize an agreement wherein Eder would manufacture laser beam compatible scopes on an exclusive basis for Laser. However, the negotiations were terminated by Eder prior to reaching an agreement. Since January, 1983, Eder has been manufacturing and selling laser beam compatible scopes to customers other than Laser.

In its complaint, Laser contends that the laser beam compatible scopes manufactured by Eder were to be based upon the design and specifications of Laser. Laser contends that the design of the optical coupler was disclosed to Eder for strictly manufacturing purposes and that Eder was aware of the confidential nature of the optical coupler design. Laser also contends that Hensler obtained confidential information about the optical coupler during the course of his employment with ASTI. Allegations pertaining to Hensler's and Eder's wrongful use of the optical coupler design are the basis of the three counts in Laser's complaint. The individual counts of the complaint will be dealt with seriatim.

Count I

Count I is brought solely against Eder. Laser alleges that the design of the optical coupler is a trade secret and that the design was disclosed to Eder in confidence, solely for manufacturing purposes. Laser further alleges that following Eder's termination of negotiations regarding an exclusive supply agreement, Eder competed with Laser by manufacturing and selling laser beam compatible scopes equipped with an optical coupler supplied by Hensler. Laser contends that the optical coupler supplied to Eder by Hensler is based upon confidential information obtained by Hensler during the course of his employment with ASTI.

The crux of Laser's allegations in Count I is that Eder misappropriated trade secrets and that by using the trade secrets to compete with Laser, Eder is guilty of unfair competition. The memoranda of Laser and Eder discuss whether a trade secret exists and whether Eder's conduct constitutes unfair competition. Basically, the resolution of the motion for summary judgment regarding Count I depends on a determination of whether the optical coupler design is a trade secret and whether the information was disclosed to Eder in confidence.

A trade secret is defined as "a plan or process, tool, mechanism or compound known only to its owner and those of his employees to whom it is necessary to confide it." Schulenburg v. Signatrol, Inc., 33 Ill.2d 379, 385, 212 N.E.2d 865 (1966). The courts consider numerous factors when determining whether a trade secret exists. Bimba Mfg. Co. v. Starz Cylinder Co., 119 Ill.App.2d 251, 256 N.E.2d 357 (1st Dist.1969); Restatement of Torts, § 757, Comment (b) (1939). Among these are the extent to which the trade secret information is known outside of the business, security measures taken by the owner, the value of the trade secret information to the owner and to his competitor, and the amount of effort or money expended in developing the trade secret information. A trade secret must be a secret in fact. Bimba, 119 Ill.App.2d at 264, 256 N.E.2d 357. The determination of whether information is a trade secret is an issue of fact, depending on the intent of the owner, treatment of the information and the remaining factors listed above. Bryan v. Kershaw, 151 U.S.P.Q. 148 (1966); Callman, Unfair Competition, Trademarks and Monopolies, § 14.11 (4th Ed.).

Eder, as the party moving for summary judgment, has "the burden of clearly establishing the nonexistence of any genuine issue of fact that is material to a judgment" in its favor. Cedillo v. International Association of Bridge and Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 10 (7th Cir.1979). The Court must resolve all doubts as to the existence of material facts against the moving party. Moutoux v. Gulling Auto Electric, 295 F.2d 573, 576 (7th Cir.1961).

In its affidavit, Eder contends that the design of the optical coupler is a matter of general knowledge because the device was exhibited at medical and trade meetings and because drawings were published in medical journals. Eder also asserts that it never received confidential information from Laser. However, in its affidavits and pleadings, Laser asserts that the design information was secret, maintaining that no drawings or articles specifically describing the optical coupler were published or available to the public.

Eder has failed to establish the nonexistence of a genuine issue of material fact. The optical coupler is a complex technical device. Eder has provided general drawings and descriptions of the optical coupler published in medical journals in an attempt to show that the design was not secret but well known to the public. Eder also asserts in its affidavit that any information about the optical coupler was the result of its own investigation. However, the exhibits and affidavit are insufficient to show that no issue of fact exists. The assertions in Eder's affidavit do not address the confidential nature of the optical coupler or lack of security procedures used by Laser to protect the coupler's secrecy. Eder does not sufficiently overcome Laser's claims that the optical coupler was available to physicians only on an experimental basis and that the design was confidential, as indicated by warnings on the design drawings. Clearly, a question of fact remains, thus justifying denial of the motion for summary judgment.

Eder also asserts in its memorandum that Count I is defective because Laser's claim for unfair competition does not allege the necessary element of palming off. Eder contends that passing off or palming off constitutes the whole law of unfair competition in Illinois and must be alleged by Laser. Passing off or palming off refers to the conduct of selling goods as the goods of another or doing business as the business of another such that the public is misled by the conduct and believes it is purchasing the goods of another or doing business with someone other than the actual seller.

Eder's assertions are not legally correct. Palming off is not a necessary requirement of a claim for unfair competition in Illinois. Independent Nail and Packing Co. v. Stronghold Screw Products, Inc., 205 F.2d 921, 926 (7th Cir.1953). Misuse of confidential information alone can constitute unfair competition in Illinois. Goldberg v. Medtronic, Inc., 686 F.2d 1219, 1227 (7th Cir.1982). Laser's claim for unfair competition can be based on its allegation that Eder received and misused confidential information. An issue of fact as to whether Eder received confidential information exists here as well, again justifying denial of the motion for summary judgment.

Count II

Count II is brought solely against Hensler. Laser alleges that Hensler was aware of the confidential nature of the optical coupler design and that Hensler had access to the confidential information while employed by ASTI. Laser also alleges...