NORTH ATLANTIC INSTRUMENTS INC Plaintiff Counter Defendant Appellee v FRED HABER and APEX SIGNAL CORP Defendants Counter Claimants Appellants Docket No 98 9423 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 188 F 3d 38 1999 U S App LEXIS 18462 51 U S P Q 2D BNA 1742 139 Lab Cas CCH P58 738 15 I E R Cas BNA 731 May 26 1999 Argued August 9 1999 Decided PRIOR HISTORY 1 Appeal from an order of the United States District Court for the Eastern District of New York Arthur D Spatt Judge adopting a Magistrate Judge s Report and Recommendation Michael L Orenstein Magistrate Judge to preliminarily enjoin defendants appellants from inter alia using a list of client contacts alleged to be misappropriated from plaintiff appellee We hold that the District Court did not clearly err in determining that the list of client contacts at issue was a protectable trade secret and that the defendants appellants were bound not to use that trade secret Accordingly the District Court did not exceed its allowable discretion in granting the preliminary injunction DISPOSITION Affirmed CASE SUMMARY PROCEDURAL POSTURE Appellants challenged an order of the United States District Court for the Eastern District of New York affirming an order preliminarily enjoining appellants from using a list of client contacts alleged to be misappropriated from appellee OVERVIEW Appellee designed and manufactured specialized industrial equipment used on ships and aircraft Appellee acquired another company that was in the same industry Individual appellant was the chief executive and part owner of the stocks of the company The asset purchase agreement between appellee and the company transferred all of the properties of the company including all customer and vendor databases to appellee and employed appellant Appellant also covenanted to keep and retain all confidential matters of appellee When individual appellant left the employ of appellee and joined corporate appellant appellee s customer base was targeted Appellee alleged unfair competition and misappropriation of confidential business information and successfully moved for preliminary injunction On appeal the court determined that appellee s client list constituted a protectable trade secret The court held that appellee would suffer irreparable harm in the absence of an injunction Therefore it affirmed the order granting appellee s preliminary injunction OUTCOME The order granting preliminary injunction was affirmed because the list was a protectable trade secret and appellants were not entitled to use the trade secret CORE TERMS trade secret customer employment agreement customer lists injunction confidential confidentiality preliminary injunction confidence confidential information protectable confidential matters soliciting strictest engineers confidentiality agreements former employer s competitor goodwill database secret customized technology inter alia irreparable injury irreparable harm likelihood of success misappropriation solicitation specialized LexisNexis Headnotes Hide Headnotes Civil Procedure Remedies Injunctions Preliminary Temporary Injunctions HN1 A party seeking a preliminary injunction must establish that 1 absent injunctive relief it will suffer irreparable harm and 2 either a that it is likely to succeed on the merits or b that there are sufficiently serious questions going to the merits to make them a fair ground for litigation and that the balance of hardships tips decidedly in favor of the moving party Civil Procedure Jurisdiction General Overview Civil Procedure Appeals Standards of Review Abuse of Discretion Civil Procedure Appeals Standards of Review Clearly Erroneous Review HN2 A district court s issuance of an injunction is reviewed for an abuse of discretion Such an abuse of discretion typically consists of either applying incorrect legal standards or relying on clearly erroneous findings of fact Trade Secrets Law Misappropriation Actions Elements Confidentiality Trade Secrets Law Misappropriation Actions Elements Existence Ownership Trade Secrets Law Misappropriation Actions Elements Use HN3 To succeed on a claim for the misappropriation of trade secrets a party must demonstrate 1 that it possessed a trade secret and 2 that the defendants used that trade secret in breach of an agreement confidential relationship or duty or as a result of discovery by improper means Antitrust Trade Law Trade Practices Unfair Competition General Overview Trade Secrets Law Factors Business Use HN4 A trade secret is any formula pattern device or compilation of information which is used in one s business and which gives the owner an opportunity to obtain an advantage over competitors who do not know or use it Antitrust Trade Law Trade Practices Unfair Competition General Overview Torts Business Torts General Overview Trade Secrets Law Factors General Overview HN5 In determining whether information constitutes a trade secret courts have considered the following factors 1 the extent to which the information is known outside of the business 2 the extent to which it is known by employees and others involved in the business 3 the extent of measures taken by the business to guard the secrecy of the information 4 the value of the information to the business and its competitors 5 the amount of effort or money expended by the business in developing the information 6 the ease or difficulty with which the information could be properly acquired or duplicated by others Antitrust Trade Law Trade Practices Unfair Competition General Overview Trade Secrets Law Protected Information Customer Lists HN6 A customer list developed by a business through substantial effort and kept in confidence may be treated as a trade secret and protected at the owner s instance against disclosure to a competitor provided the information it contains is not otherwise readily ascertainable Antitrust Trade Law Trade Practices Unfair Competition General Overview Trade Secrets Law Civil Actions Questions of Fact Trade Secrets Law Protected Information Customer Lists HN7 The question of whether or not a customer list is a trade secret is generally a question of fact Antitrust Trade Law Trade Practices Unfair Competition General Overview Trade Secrets Law Protected Information Customer Lists HN8 Where it will be difficult to duplicate a customer list because it reflected individual customer preferences trade secret protection should apply Antitrust Trade Law Price Fixing Restraints of Trade
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