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Smith Oil Corp. v. Viking Chemical Co.

OPINION FILED AUGUST 30, 1984.

SMITH OIL CORPORATION ET AL., PLAINTIFFS-APPELLANTS AND CROSS-APPELLEES,

v.

VIKING CHEMICAL COMPANY ET AL., DEFENDANTS-APPELLEES, CROSS-APPELLANTS.



Appeal from the Circuit Court of Winnebago County; the Hon. David A. Englund, Judge, presiding.

PRESIDING JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

On September 12, 1983, Rock Valley Oil & Chemical Company (Rock Valley) purchased the industrial lubricant business of Smith Oil Corporation (Smith), operating in Rockford. Three Smith employees, defendants Frank Giovingo, Richard Fedeli and Dennis Rinaldi, immediately left and were employed by a competitor, Viking Chemical Company (Viking). Rock Valley and Smith sought and were granted a temporary restraining order, without a hearing, which was later dissolved. Subsequently, after a hearing, the trial court entered a preliminary injunction granting some of the relief requested by Rock Valley and Smith but denying other requested relief. The trial court also awarded the individual defendants damages of $3,402 and Viking damages of $2,889, for damages resulting from what it found to be a wrongfully issued temporary restraining order and its dissolution. Smith and Rock Valley appeal; Viking and the individual defendants cross-appeal.

I

The complaint for injunction alleged that the defendants possessed customer lists, customer orders, pricing information, cost information, sample formulas, product formulas, customer correspondence and other special customer information and that the material was taken from Smith without authorization. Rock Valley and Smith requested that defendants be restrained from calling upon or soliciting the sale of any product sold by Giovingo and Fedeli or worked on by Rinaldi, while employed by Smith; from calling upon any customer or former customer on Smith's customer list; from disclosing or using any information concerning Smith's customers; from disclosing or using any information concerning the cost, pricing, formula or any other information concerning any Smith product; and from producing any product using Smith's formulas.

We first consider the plaintiffs' contention that it was error to deny any part of the relief requested. The order granting the preliminary injunction first provided that Smith had failed to demonstrate any irreparable harm, since it had gone out of business, and denied it injunctive relief. There is no challenge to this portion of the order.

The order further provides that the defendants may use their general blending or chemistry skills or sales skills, "even if obtained or developed at Smith," and may develop formulas for blending industrial oil "from a source independent of the knowledge of the defendants, Giovingo, Fedeli, or Rinaldi, which knowledge was obtained on or before September 9, 1983"; and that the defendants may use individual items of information contained in Smith's supplier book or monthly sales report which they might happen independently to recall. Rock Valley and Smith question this part of the order, contending that information regarding customers, suppliers' prices, and costs collected over many years and at great expense and effort on the part of the employer is protectable as a trade secret without the distinction made by the court between information memorized and recalled.

At the outset it is important to distinguish between the protection afforded an employer who has entered an enforceable restrictive covenant with his employees, and that afforded in its absence. While an enforceable restrictive covenant may protect material not properly characterized as a trade secret (see Tower Oil & Technology Co. v. Buckley (1981), 99 Ill. App.3d 637 (customer lists and generalized knowledge protected)), absent a restrictive covenant, an employer's protection is narrower and, in this context, extends only to trade secrets.

• 1, 2 There is no real dispute between the parties as to what may be entitled to protection under the law as a "trade secret." Generally, an employee whose employment has terminated may not take "confidential particularized plans or processes developed by his employer," but may take "general skills and knowledge acquired during his tenure with the former employer." (Schulenburg v. Signatrol, Inc. (1965), 33 Ill.2d 379, 387; Packard Instrument Co. v. Reich (1980), 89 Ill. App.3d 908, 916-17.) A trade secret must be defined in terms of the facts of a particular case, with the following factors to be considered: (1) the extent to which the information is known outside of the employer's business; (2) the extent to which information is known by employees and others involved in the business; (3) the extent of the measures taken by the employer to guard the secrecy of the information; (4) the value of the information to the employer and his competitors; (5) the effort or money expended by the employer in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. (ILG Industries, Inc. v. Scott (1971), 49 Ill.2d 88, 93; Midwest Micro Media, Inc. v. Machotka (1979), 76 Ill. App.3d 698, 702-03.) It is recognized, as a general rule, that the right of an individual to follow and pursue a particular occupation for which he is best trained is a fundamental right and that one who has worked in a particular field cannot be compelled to erase from his mind all of the general skills, knowledge and expertise acquired through his experience. ILG Industries, Inc. v. Scott (1971), 49 Ill.2d 88, 93.

• 3 First, we decide whether any of the disputed material is entitled to receive protection as a trade secret. Plaintiffs asserted a proprietary interest in the customers and sought to enjoin defendants from soliciting the sale of any product sold or worked on by defendants while employed by Smith, and from calling on any customer or former customer on Smith's customer list. The trial court found that the defendants Giovingo and Fedeli, through their employment with Smith, learned the names of many industrial oil or lubricant customers and became familiar with many people to contact and with the names of those customers, but that the prior knowledge of customer needs, in and of itself, was not entitled to protection. We agree. An employer ordinarily has no proprietary interest in his customers, although he can protect confidential information by a reasonable restrictive covenant. (Compare The Packaging House, Inc. v. Hoffman (1983), 114 Ill. App.3d 284, 286-87 (confidential information protected by restrictive covenant), with Kalnitz v. Ion Exchange Products, Inc. (1971), 2 Ill. App.3d 158, 161 (no restrictive covenant to protect confidential information).) We note that in this case no restrictive covenant is involved.

• 4 The manifest weight of the evidence adduced at the hearing supports the conclusion that the customer sales reports were not trade secrets. There was evidence that the defendants did not need the plaintiffs' sales report because the customer would give the salesman the price he was paying previously in order to get a competitive price; that product and pricing information was routinely given out by Smith order clerks to customers over the phone; that the customer lists were not under lock and key and were available to any clerk or employee; that computer sales reports were not restricted as to access nor locked up; that the defendants knew who the major customers in the industry were from general experience and merely had to ask the customer to give him a copy of the blanket orders, price structure and names of the products he was buying in order to compete; and that customers commonly dealt with more than one supplier, depending on who made the best bid. While it is undisputed that knowing who the customers are and what their needs are is valuable business information, the trial court's conclusion that the salesman's knowledge comes under the category of general knowledge and not under the category of a protectable trade secret is supported by the manifest weight of the evidence. See Hayden's Sport Center, Inc. v. Johnson (1982), 109 Ill. App.3d 1140, 1148-49.

Tower Oil & Technology Co. v. Buckley (1981), 99 Ill. App.3d 637, relied upon by the plaintiffs, is distinguishable. In Tower an industrial lubricants manufacturer successfully enforced its restrictive covenant against ex-employees who left to work for a competitor. The court protected the employer's customer list and confidential customer information, not because they were trade secrets, but because they were covered by a reasonable, enforceable restrictive covenant. (99 Ill. App.3d 637, 643-44.) That court also noted that the covenant restricted defendants from soliciting approximately 2.4% of the customers in the Chicago area, whereas here, the trial court found defendants would be prevented from soliciting the entire Rockford area market. Furthermore, in Tower the market was shown to be stable, with low customer turnover, whereas here, the evidence showed customers dealt with more than one supplier.

• 5 Next, plaintiffs assert a proprietary interest in defendants' general knowledge and skills acquired at Smith and seek to enjoin their use in other employment. The manifest weight of the evidence adduced at the hearing supports the trial court's holding that the defendants cannot be prevented from using their general blending or chemistry skills or sales skills even if obtained or developed at Smith; nor prohibited from making use of individual items of sales information contained in customer lists or reports which they may happen to recall from their independent recollection. See Schulenburg v. Signatrol, Inc. (1965), 33 Ill.2d 379, 387; Midwest Micro Media, Inc. v. Machotka (1979), 76 Ill. App.3d 698, 703.

• 6 Finally, plaintiffs assert a proprietary interest in formulas, to protect both exact duplications of Smith products and comparable or equivalent products. That portion of the trial court's judgment order which provides that the defendants are not enjoined from developing a comparable or equivalent product to that sold by Smith or from developing a formula from a source independent of their knowledge acquired at Smith, although from skills developed there, is also supported by the manifest weight of the evidence.

The "formulas" which the plaintiffs sought to protect were presumably contained in a book used at Smith and referred to as "Exhibit 13." While generally referred to in the evidence, the exhibit is not made a part of the record, to protect what the plaintiffs claimed were trade ...


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