Tuesday, December 16, 2008

Illinois Court Further Narrows Trade Secrets Preemption Doctrine (Jano Justice Systems v. Burton)

The trend in recent years - at least in Illinois - has been for courts to strictly construe and apply the so-called preemption doctrine embodied within Section 8(a) of the Illinois Trade Secrets Act. That provision provides that the ITSA is "intended to displace conflicting tort, restitutionary, unfair competition, and other laws of [Illinois] providing civil remedies for misappropriation of a trade secret." Section 8(b) limits the preemption, or displacement, provision by stating that the ITSA does not impact "other civil remedies that are not based upon misappropriation of a trade secret."

Prior to Hecny Transp., Inc. v. Chu, 430 F. 3d 402 (7th Cir. 2005), courts routinely dismissed a wide array of common-law claims often pled along with an ITSA misappropriation claim. These would normally include conversion, deceptive trade practices, civil conspiracy, and breach of fiduciary duty. The Seventh Circuit narrowed the reach of those prior district court decisions to the extent most can no longer be considered even persuasive authority.

Jano Justice Systems, Inc. v. Burton is an example of the very limited application of the preemption defense. In that case, the plaintiff alleged Burton breached his fiduciary duty as an employee and 50% owner of JJS. The claim rested on stealing information, setting up a competitor, and hiring away JJS employees. Each of these theories can support a fiduciary duty claim regardless of whether trade secrets were stolen or not. Importantly, the court cited with approval the language from Hecny that stealing of business information will not necessarily give rise to preemption, because a breach of fiduciary duty can arise even if information taken by a fiduciary - such as a customer list - were a public record.

Prior to Hecny, a court may have dismissed certain aspects of a common-law claim on preemption grounds if it appeared to be based on the taking of proprietary information. We are likely to see the trend contintue where the preemption defense will be considered only if a plaintiff makes a common-law claim for unfair competition, or a statutory deceptive trade practices claim parroting the trade secret allegations. For defense attorneys, the better practice is to raise preemption at summary judgment rather than the initial pleading stage.


Court: United States District Court for the Central District of Illinois
Opinion Date: 12/11/08
Cite: Jano Justice Systems, Inc. v. Burton, 2008 U.S. Dist. LEXIS 100232 (C.D. Ill. Dec. 11, 2008)
Favors: Employer
Law: Illinois

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