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SECOND DIVISION
April 5, 2005

No. 1-04-2794

JUSTICE WOLFSON delivered the opinion of the court:

Plaintiffs Liebert Corporation (Liebert) and Zonatherm Products, Incorporated (Zonatherm) sought to enjoin several of Zonatherm's former employees from using alleged trade secrets in their new competing business, Aerico Incorporated (Aerico). Plaintiffs alleged defendants misappropriated confidential customer lists, historical bids, quotations, sales history, and price books. The trial court denied plaintiffs' motion for a preliminary injunction. Plaintiffs appeal. We affirm in part, reverse in part, and reverse and remand in part.

FACTS

I. History of the Parties

Liebert is an Ohio corporation engaged in the manufacture and sale of computer network protection equipment that provides uninterrupted network power and climate control technologies. Ninety percent of Liebert's sales consist of engineered or applied systems for uninterrupted power or network air conditioning systems.

Zonatherm is an Illinois corporation that, among other things, sells products manufactured by Liebert. Zonatherm has been the exclusive Liebert representative in the Chicago area since it was founded in 1969. On October 1, 2003, Liebert and Zonatherm entered into a Representative Agreement providing for the confidential treatment of Liebert's confidential, proprietary, and trade secret information, with restrictions on disclosure, use, and dissemination.

Defendants John Mazur (Mazur), Gregory N. Schwabe (Schwabe), Jerome Mazur (Jerome), and Mario Belluomini (Belluomini) are former Zonatherm employees and sales representatives for Liebert. Mazur was a territory sales manager for Zonatherm and was responsible for 25% of Zonatherm's sales of Liebert's products. Mazur and Schwabe resigned from Zonatherm on January 20, 2004, and began to work at Aerico on January 22, 2004. Belluomini and Jerome resigned from Zonatherm and began work at Aerico on January 26 and 30, 2004, respectively. Defendant Laurence Bergfalk (Bergfalk) became a shareholder in Aerico along with Mazur and Schwabe.

Aerico is in the business of marketing and selling products manufactured by American Power Conversion Corporation (APC), a direct competitor of plaintiffs. Mazur and Schwabe incorporated Aerico on November 12, 2003--two months before they resigned from Zonatherm-and signed a representative agreement with APC on January 19, 2004. APC, a Massachusetts corporation, designs products similar to Liebert's and is one of Liebert's direct competitors.

II. Plaintiffs' Alleged Trade Secrets

The information defendants allegedly misappropriated was stored electronically and could be accessed through two e-commerce websites maintained by Liebert.

A. Liebert's and Zonatherm's electronic storage of the alleged trade secrets

Philip Jan Barnett, Liebert's director of e-commerce, testified regarding the confidential information and how it was stored. Through the "var.liebert.net" website, Liebert's approximately 800 value added resellers could access his or her own electronic work area with price quotes, pricing level, and products information. Each of the 72 offices within Liebert's domestic organization had its own virtual space to store and view customer information, quotations, orders, and other information.

The second website, "rep.liebert.com" (El.net), also known as El.Net or the Electronic Liebert Network, was a "virtual office" for first-channel salespeople, sales representatives, international distributors, and factory direct offices. The El.net site housed confidential customer lists, quote lists, pricing information, customer accounts receivable, order acknowledgments, and shipment information. All of the information was confidential to each exclusive representative office, like Zonatherm, and each representative was assigned a particular sales territory.

Barnett described the organization of the El.net website: (1) the quote and order section, which shows the salesperson's personal quotes and orders as well as those of the sales office; (2) the competition section showing information on the strengths and weaknesses of the competition and what to do in direct bid situations; (3) the lead time reports showing what inventory is available in the factories and warehouses; (4) the price books; (5) the reconditioned equipment and surplus equipment sections; (6) the sales information section containing highly confidential customer information; (7) the sales reporting wizard which inputs sales information into a spreadsheet; (8) the sales development area; (9) sales application tools; (10) leasing information; (11) a freight calculator; (12) industrial tools; (13) sales presentations; and (14) sales quotation information.

B. The types of information allegedly misappropriated

Three of the above-listed items are at issue in this case--customer information, sales quotation information, and the price books.

1. Customer contact lists

Zonatherm's customer list included company names, phone numbers, addresses, customers' e-mail addresses, and the names, telephone numbers, and addresses of individual contacts within each company. Zonatherm maintained separate lists for each sales territory. The sales team assigned to a particular territory would have access to that territory's customer list on Zonatherm's server. Salespersons were not given access to other territories' customer lists. According to Stephen Izzo (Izzo), Zonatherm's president, the contact list was "a valuable reference document for [salespeople] to decide how to spend their valuable time in order to create business for Zonatherm."

Albert Izzo (Albert), who founded Zonatherm in 1969, started his business by making cold calls to engineers, and eventually calling mechanical contractors and owners. He found the names of companies in the telephone book, but had to "dig" for the names of the actual decision-makers for the companies. Only the decision-makers had the authority to purchase Zonatherm's products. Discovering the appropriate buying authority within each customer's company was a time-consuming process. Albert said it required taking many people out to lunch to discover who was the right buyer within each company. When Albert handed the business over to his son Stephen in 1989, Zonatherm had 1,000 "good" repeat customers. That number grew to 2,000 customers by the time of the preliminary injunction hearing. Zonatherm's contact lists were loaded onto the company's computer system sometime between 2000 and 2001.

2. Buyer histories including bid and sales quotations

Zonatherm's website also stored customer orders, invoices, and billing information. The information indicated each customer's order status, shipment, spare parts lists, billing address, the date the account was opened, their last payment, and amount due. Izzo testified the buyer histories recorded how much revenue each customer generated for Zonatherm. The sales quotations, which included outstanding quotes, quotes that needed maintenance, and completed or rejected special feature authorizations, were also part of the buyer history. The data on ongoing activity and proposed bids were important in assessing the value of each customer. Zonatherm's policy required all salespeople who acquired quotes from Liebert's system to upload those quotes from their computer to Zonatherm's server. Izzo admitted once potential customers were quoted a price, Zonatherm could not control who saw the price.

3. Price books

The price books, according to Barnett, are highly confidential and are not available through "liebert.com", the website available to the public. The price books are very complex engineered-to-order solutions that allow salespeople to do a complete price work-up and quotation, complete with factory options. The price books have a tool that allows salespeople to build the information into a proposal they can hand to a customer. The El.net site also contains sales policy and procedure manuals telling salespeople how they can use sales multipliers and discounts when calculating a bid. Before El.net was established, salespeople would spend hours generating a quote manually.

C. The security measures Liebert and Zonatherm used to protect the information

Barnett described the security measures applicable to the customer contact information, sales quotations, and the price books.

In order to access information on Liebert's websites, a salesperson needed a unique identification number and password. The only way a salesperson could be assigned an identification number and password was if a principal from his representative office requested it. Passwords were assigned on a need-to-know basis. Approximately 600 sales associates who are not Liebert employees have access to the El.net site, but all need a password to access its information. A confidentiality statement appeared whenever anyone accessed a price book online.

William Macaluso (Macaluso), Zonatherm's sales manager, testified it was his job to ensure employees did not take any of Zonatherm's proprietary information when they left the company. Before Zonatherm started storing its information on computers, Macaluso would collect any physical copies of contact lists or price books. Since the information is now stored on office computers which typically remain in the office after an employee leaves, Macaluso changes the access codes so the employee leaving cannot access the server. Employees were allowed to take only their personal belongings when they left the company.

Although Macaluso did not delete Zonatherm files from Mazur's laptop when he left, Macaluso did delete Zonatherm documents from Belluomini's desktop computer when he resigned and took the computer with him.

III. The Alleged Misappropriation

Plaintiffs' allegations of trade secret misappropriation are hinged on Mazur's computer activities before and after he resigned his position at Zonatherm. Most of the evidence regarding his activities was presented through the testimony of Mazur and plaintiffs' expert witness, Lee Neubecker (Neubecker).

A. Mazur's testimony

Mazur testified that on January 20, 2004, he was in Zonatherm's offices from 9 a.m. until he resigned at 3:30 p.m. Mazur admitted that on that same day, he downloaded all the price books and from 5 to 20 quotations from Zonatherm's server onto his laptop computer. He also admitted copying quite a bit of information from the system onto his laptop computer on January 19.

According to Mazur, he copied the price books and quotes because he was trying to create a "close-out" document for his team to ensure that the documents and quotations on order had a price reference. He did not ask another team member to collect the information he copied onto his laptop because other team members did not have access to all the information on his computer.

Mazur also copied the information to insure he would receive his proper commission for any sale pending. He received two commission sheets after he left Zonatherm--one in February and one in March. Each commission sheet listed names of Zonatherm's customers and how much money Zonatherm collected from them during the month.

Mazur did not believe the price books were confidential, although he testified he would not share price books with competitors. He did not believe he did anything improper by downloading the books, nor did he intend to use the information improperly. When he resigned, he told Izzo and Macaluso that he would be working for APC. He was not asked for his laptop when he left.

Mazur said he did not use the information from the time he copied the information until the time of the lawsuit. The price books and quotation information were saved in a zip file on his computer. On February 5, 2004, Mazur was served with plaintiffs' complaint and motion for preliminary injunction. Plaintiffs' counsel asked Mazur whether, on February 5, 2004, he put all of the information he had downloaded into a zip file, but Mazur was evasive in his answers, as illustrated in the following excerpt:

"Q. And then that same day in the afternoon or evening you took all the information that you had downloaded on January 20th, and you put it into a zip file; isn't that correct?

A. Actually, I believe that the zip file was created before that.

***

Q. Isn't it true that in the afternoon or evening of February 5, 2004, you downloaded to the Zurich Zip file all the material information that you had taken and downloaded on January 20th at Zonatherm and Liebert? Isn't that true, sir?

A. Again, I believe, to my best knowledge, I created that prior--on or before the 5th. So the answer would be no.

Q. No, that's not true?

A. I believe it was done before that.

Q. It's not a trick question.

A. I'm sorry.

Q. Now, isn't it true, then, sir, that you then downloaded the Zip file to a CD burning file, isn't that true, on February 5th or 6th, 2004, after you were served with the notice of motion? Isn't that true, sir?

A. That's not true.

Q. And isn't it true, sir, that after you were served on February 5, 2004, you proceeded to download all that information to a CD? ***

A. I attempted to create a CD with that information, that is correct.

Q. And isn't it true, sir, that some of the information got on the disks; isn't that true?

A. That is what I'm not aware of."

Plaintiffs' counsel then referred to Mazur's deposition testimony, where when asked if he put any information on disks, Mazur answered, "There was some information on disks."

Mazur said he attempted to save the zip file on a CD and that he intended to give the CD to another Zonatherm employee to give to Steve Izzo, his former boss at Zonatherm. Mazur thought the information might answer any questions that could arise concerning a job he quoted. He did not believe he successfully saved the files on the CD, also known as "burning", because when he put the CD back into the computer, he could not access any information from it. Mazur then deleted anything associated with Zonatherm or Liebert from his laptop computer's memory. He said he deleted the information because it was no longer needed.

B. Neubecker's testimony

The trial court qualified Neubecker to testify as an expert in computer forensics. On February 25, 2004, plaintiffs retained Neubecker to examine the hard drive on Mazur's laptop computer. Neubecker made an exact copy of Mazur's hard drive and then performed extensive searches of the hard drive for any information related to Liebert or Zonatherm. He found evidence that showed Mazur accessed the Liebert website on January 20, 2004, and downloaded files. Plaintiffs provided copies of files from their websites so Neubecker could compare that information with the contents of Mazur's laptop. Neubecker found five files on Mazur's computer exactly matched five price book files provided by plaintiffs.

Neubecker testified Mazur downloaded the files and put them into a zip file entitled "a 12 bypass and distribution.doc." Mazur then moved that file into another zip file called "Zurich zip." The "Zurich zip" file contained most of the price book documents.

On February 5, 2004, at 5:35 p.m., Mazur added "newfolder.zip" to the "Zurich zip" file. "Newfolder.zip" contained a lot of Liebert and Zonatherm documents, including quote histories and budgets. Three minutes later, "Zurich zip" was copied to the "CD burning" folder. Neubecker testified when a computer user chooses to copy files from the hard drive to a compact disk (CD), the computer automatically copies the files, and places them in the "CD burning" folder on the hard drive. That way, the computer only has to access one folder when it copies, or "burns," the information onto the CD. Neubecker said most computer users are not aware of the "CD burning" folder. One file in the CD burning folder contained "somewhere in the realm of 40 banker boxes or more" of information belonging to Liebert. The only place Neubecker found the "Zurich zip" file was in the CD burning folder because Mazur deleted it from its original source. The zip files Neubecker discovered in the CD burning folder "were destroyed and irrecoverable off the computer with the exception of a few files ***."

Neubecker said the fact that the "Zurich zip" file was in the CD burning folder three minutes after the "newfolder.zip" file had been copied into it made it more likely than not that Mazur successfully burned the CD.

On February 6, 2004, the day after the "Zurich zip" file was copied to the CD burning file, a "mass wave of deletion" began. Over the next few days, Mazur deleted approximately 12,000 files from his computer.

On February 8, 2004, Mazur deleted 4,000 files, including the "12 bypass and distribution" zip file which contained price books. That file also had existed in the "Zurich zip" file. The fact that the "12 bypass and distribution" file was deleted on February 8th indicated Mazur was going back to look for and delete any remaining files.

Neubecker discovered Mazur also purged his computer's application log sometime on February 9. The application log tracks when different programs, such as the CD-ROM program, are used. It records when the program to burn a CD starts and finishes. The log records how many CDs were successfully burned. Because Mazur deleted the application log from his computer, Neubecker could not determine with certainty whether Mazur successfully created a CD.

Neubecker said it was possible for a computer to delete information in the "CD burning" folder after a CD was burned successfully. He also described several situations where the information would remain in the "CD burning" folder after a successful burn:

"Within the Windows program, *** you can choose to keep the file there, burn another [CD], leave the session open, or if you just close the program and if your power were lost on a laptop *** [the file in the 'CD burning' folder] would remain."

IV. The Trial Court's Ruling

The trial court denied the plaintiffs' motion for a preliminary injunction. The court found the plaintiffs did not establish a clearly ascertainable right to an injunction or a likelihood of success on the merits. First, the court found the plaintiffs did make a prima facie case that the price books were trade secrets because they contained information that was not readily available. The court found that the customer lists were not trade secrets because they were easily duplicated and available in a competitive industry. Although the plaintiffs showed Mazur downloaded price books onto his computer, the court found that Mazur erased all of the information he took, and there was not a "fair chance from the evidence presented" that the price books still existed or that anyone else took price books. The court further found there was no fair chance of succeeding on the question of whether defendants used the price books before they were destroyed. The court found plaintiffs' allegations of irreparable harm were speculative.

On appeal, plaintiffs contend the trial court abused its discretion when: (1) it found the customer lists were not trade secrets; (2) it failed to decide whether the sales quotations were trade secrets; (3) it found plaintiffs did not present a fair question on the likelihood of success on their trade secret misappropriation claims because defendants no longer had the information; (4) it found no fair question that defendants would inevitably use the trade secrets; and (5) it found plaintiffs' allegations of irreparable harm were speculative.

DECISION

I. Scope of the Appeal

First, we want to clearly identify which categories of information are the subject of this appeal.

In this case, plaintiffs based their motion for a preliminary injunction on their claim that defendants misappropriated their trade secrets in violation of the Illinois Trade Secrets Act (ITSA) (765 ILCS 1065/1 et seq. (West 2002)). The trial court limited its examination of the alleged trade secrets to two types of information: plaintiffs' customer lists and their price books. The trial court found plaintiffs presented a fair question that the price books contained trade secrets. The trial court reached the opposite conclusion with respect to the customer lists.

Plaintiffs contend the trial court abused its discretion when it failed to consider the bids and quotations, while defendants contend plaintiffs waived any claim to protect the bid history and quotations for two reasons: (1) they failed to produce the information during discovery, and (2) they limited their claim to contact information and the price books at a pretrial proceeding.

We agree with plaintiffs and find no reason for the exclusion of the bids and quotation data: defendants knew the issue was included in the motion and, for the most part, did not object when plaintiffs presented evidence and argument concerning the bids and quotations. When defendants' attorney did object, the trial court allowed the evidence to come in as long as plaintiffs' attorney kept on schedule.

We believe the trial court abused its discretion by failing to decide whether the sales quotations and bids are trade secrets. Both parties have addressed this question in their briefs, and we have found sufficient evidence in the record to allow us to decide the issue on review.

Next, we examine whether the customer lists, bids, and sales quotations are trade secrets. We will not review whether plaintiffs' price books are trade secrets because defendants did not cross-appeal the trial court's finding that they are.

II. Standard of Review

A trial court grants a preliminary injunction when it wants to preserve the status quo until it decides the case on its merits. George S. May International Co. v. International Profit Associates, 256 Ill. App. 3d 779, 786, 628 N.E.2d 647 (1993); Dixon Association for Retarded Citizens v. Thompson, 91 Ill. 2d 518, 524, 440 N.E.2d 117 (1982). A party seeking a preliminary injunction must show: (1) it has a "clearly ascertainable right" which must be protected; (2) it is likely to succeed on the merits; (3) no adequate remedy at law exists; and (4) it will suffer irreparable harm absent an injunction. Gillis Associated Industries Inc. v. Cari-All, Inc., 206 Ill. App. 3d 184, 188, 564 N.E.2d 881 (1990).

On appeal, the decision to grant or deny a preliminary injunction will not be disturbed unless the trial court abused its discretion. Gillis, 206 Ill. App. 3d at 189. A trial court abuses its discretion when its findings are against the manifest weight of the evidence. George S. May, 256 Ill. App. 3d at 787. "A finding is against the manifest weight of the evidence only if the opposite conclusion is clearly evident." In re Arthur H., 212 Ill. 2d 441, 464, 819 N.E.2d 734 (2004).

III. Protecting Trade Secrets with Preliminary Injunctions

We must determine whether plaintiffs presented a fair question as to a clearly ascertainable right--specifically that the customer lists, bids, and sales quotations that defendants allegedly misappropriated are trade secrets under the ITSA. See George S. May, 256 Ill. App. 3d at 787 (under Illinois law, an employer's trade secrets are a protectible interest).

The ITSA, in relevant part, provides:

" 'Trade secret' means information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers that:

(1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to 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 or confidentiality." 765 ILCS 1065/2(d) (West 2002).

In other words, plaintiffs must meet two requirements to show their information is a trade secret under the ITSA. First, they must show the information was sufficiently secret to give them a competitive advantage. 765 ILCS 1065/2(d)(1) (West 2002); Gillis, 206 Ill. App. 3d at 191. Second, they must show they took affirmative measures to prevent others from acquiring or using the information. 765 ILCS 1065/2(d)(2) (West 2002); Gillis, 206 Ill. App. 3d at 192.

In addition to the ITSA's requirements, courts often consider six common law factors when deciding whether a trade secret exists. See Stampede Tool Warehouse, Inc. v. May, 272 Ill. App. 3d 580, 588, 651 N.E.2d 209 (1995), citing ILG Industries, Inc. v. Scott, 49 Ill. 2d 88, 273 N.E.2d 393 (1971); Jackson v. Hammer, 274 Ill. App. 3d 59, 68, 653 N.E.2d 809 (1995) ("*** the standards to establish a customer list as a trade secret under the [ITSA] parallel the common law standards"). Those factors are:

" '(1) the extent to which the information is known outside [the plaintiff's] business; (2) the extent to which it is known by employees and others involved in [the plaintiff's] business; (3) the extent of measures taken by [the plaintiff] to guard the secrecy of the information; (4) the value of the information to [the plaintiff] and to [the plaintiff's] competitors; (5) the amount of effort or money expended by [the plaintiff] in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.' " ILG Industries, 49 Ill. 2d at 93, citing Restatement of Torts,