Public Systems, Inc. v. Towry

• Decision Date: 06 September 1991
• Citation: 587 So.2d 969
• Parties: PUBLIC SYSTEMS, INC. v. Herman Kenneth TOWRY and Susan Dawn Adams. 1900746.
• Court: Alabama Supreme Court

Page 969

587 So.2d 969

21 U.S.P.Q.2d 1220

PUBLIC SYSTEMS, INC. v. Herman Kenneth TOWRY and Susan Dawn Adams.

1900746.

Supreme Court of Alabama.

Sept. 6, 1991.

Douglas C. Martinson and Douglas C. Martinson II of Martinson, Beason & Hooper, P.C., Huntsville, for appellant.

David C. Craddock, Huntsville, for appellees.

MADDOX, Justice.

The parties present us with several issues concerning the Alabama Trade Secrets Act, Ala.Code 1975, § 8-27-1 et seq.: (1) whether the customer lists and spreadsheet software data program developed by the plaintiff were trade secrets as defined by the Trade Secrets Act; (2) whether the defendants could be restricted by the Trade Secrets Act or otherwise from interfering with existing contract relationships of the plaintiff because the two parties did not enter into a covenant not to compete; (3) whether the defendants could be restricted by the Trade Secrets Act from contacting clients targeted by the plaintiff; and (4) whether the defendants could be restricted by the Trade Secrets Act or otherwise from interfering with the prospective advantage of the plaintiff in the eight grant applications that were produced by the plaintiff.

The essential facts of the case are as follows. The plaintiff, Public Systems, Inc., is a private, closely held corporation that specializes in providing financial and technical assistance to public and private agencies in Alabama and Tennessee to obtain financing for projects for public purposes, including water systems, sewer systems, and government housing. After the clients obtain financing, PSI assists them in administering and carrying out the projects in accordance with the various state and federal regulations.

The defendants, Herman Kenneth Towry and Susan Dawn Adams, are former employees of PSI. Towry worked as a consultant at PSI for approximately nine years. When he voluntarily terminated his employment, Towry was serving as vice-president of operations. Adams worked at PSI as a staff consultant for approximately one year, at which point she was terminated by PSI. As part of their duties, both Towry and Adams helped prepare grant applications for PSI, and when those grants were funded, they helped to supervise and administer the grant projects. Upon the cessation of their employment with PSI, Towry and Adams formed a company that would directly compete with PSI.

PSI brought this action against the defendants under the provisions of § 8-27-1, alleging that after their termination from PSI, Towry and Adams misappropriated the confidential information and trade secrets of PSI by using customer lists, confidential pricing information, techniques, and processes. PSI also alleged that Towry and Adams had tortiously interfered with the business contracts of PSI and its clients. The complaint specifically alleged:

"Towry and Adams, by improper means, illegally, without authority and without the privilege to do so, performed the following acts:

"a. Misappropriated trade secrets of PSI;

"b. The misappropriated trade secrets of PSI were used and intended for use in the trade or business of PSI;

"c. Made or retained copies of lists of clients of PSI;

"d. Made or retained copies of grant applications of PSI "e. Made or retained copies of forms developed and used by PSI;

"f. Made or retained copies of computer printouts of information developed by PSI;

"g. Made or retained copies of project financial records."

PSI also requested that the trial court issue a temporary restraining order and a preliminary injunction, seeking to enjoin the defendants from contacting certain clients of PSI, from disseminating the alleged trade secrets, from hiring PSI's employees, and from retaining documents that allegedly belonged to PSI.

The trial court denied the motion, noting the following:

"[T]he plaintiff and defendants did not have a contract containing any restriction on the defendants' right to compete. In the absence of such an agreement, this Court cannot restrict the defendants in competing with the plaintiff.... With respect to the dissemination of information which the plaintiff claims is a 'trade secret,' this claim is based on the plaintiff's contention that information which it gathers from public sources and programs into a commercially available software program constitutes a 'trade secret.' This Court cannot agree. The information and the software program are readily available to the public."

This is an interlocutory appeal from the trial court's denial of PSI's motion for a temporary restraining order and preliminary injunction. Initially, we define our scope of review in an appeal from an order denying a preliminary injunction. As stated in Alabama Educ. Ass'n v. Board of Trustees, 374 So.2d 258, 260 (Ala.1979):

"Wide discretion is accorded the trial judge hearing the application and deciding whether to grant a temporary injunction and his action will not be disturbed on appeal unless he abuses his discretion.... His discretion is a legal or judicial one subject to review for abuse or improper exercise, as where there has been a violation of some established rule of law or principle of equity, or a clear misapprehension of the controlling law."

SPREADSHEET SOFTWARE DATA PROGRAM

PSI contends that its spreadsheet software data program is a "trade secret" as defined in the Trade Secrets Act. That Act defines a "trade secret" to mean information that:

"(a) Is used or intended for use in a trade or business;

"(b) Is included or embodied in a formula, pattern, compilation, computer software, drawing, device, method, technique, or process;

"(c) Is not publicly known and is not generally known in the trade or business of the person asserting that it is a trade secret;

"(d) Cannot be readily ascertained or derived from publicly available information;

"(e) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and

"(f) Has significant economic value."

See Ala.Code 1975, § 8-27-2(1).

The burden is on the one asserting the trade secret, here PSI, to show that it is included or embodied in the categories listed in § 8-27-2(1). Towry and Adams concede that the program is included in the first two categories; clearly the plaintiff uses the information contained in the spreadsheet in its business, and the information is embodied in a spreadsheet software data program. They argue, however, that none of the last four categories applies; thus, they argue, the information cannot be afforded the protection of a trade secret.

The third requirement for trade secret protection is that the information "[i]s not publicly known and is not generally known in the trade or business of the person asserting that it is a trade secret." An examination of PSI's spreadsheet software data program reveals that the information the plaintiff seeks to protect is readily ascertainable or derivable from information that is publicly available. According to trial testimony, the spreadsheet began as an off-the-shelf computer program "available to anybody who wants to go down to the software store and buy it." The program produces a screen of rows and columns and contains various command keystrokes to allow the user to modify the spreadsheet to insert blocks of information. The program also has the capability to perform mathematical calculations. There is no evidence in the record, and apparently no claim, that PSI made any changes to the technical aspects of the program; therefore, there is no trade secret protection in the program itself. ¹ As stated in the comments to § 8-27-2, "the trade secret is not the object, process, etc., in which a trade secret is embodied, but is specific information."

All of the information compiled and embodied in PSI's spreadsheet data program is available to the public. The spreadsheet consists of a cover sheet, a key to the legends, a map and a multipage graph. The map is a reprint of an Alabama Department of Economic and Community Affairs ("ADECA") map that shows the counties of Alabama and the location of the regional planning and development commissions. PSI admits that the map is a state document with general dissemination.

The succeeding pages are in graph form. The first two columns contain the names of the cities and counties of Alabama. The third column, headed "REG.PLNCOM" shows the regional planning commission under whose jurisdiction each city and each county operates. The next columns, "1980 populations," "percent minority population," and "percent LMI [low and moderate income]," all contain information taken from the 1980 census.

The next two columns include a "community need factor" and a "DISCTYSTA" (distress county status), both figures were obtained from ADECA, are periodically published by ADECA, and are available to anyone who requests the information. The next column shows the "Fiscal Year 1989 Waste Water Treatment System Priority" as established by the Alabama Department of Environmental Management. This information is also generally available to the public.

The final columns contain a complete history of grant applications submitted by local governments. According to PSI, this information is obtained from ADECA and is information that one could obtain "if they knew what they were asking for."

Closely aligned with the requirements of (c), above, is the requirement of § 8-27-2(1)(d),...