Learning Curve Toys, Inc. v. Playwood Toys, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-1916
LEARNING CURVE TOYS,
INCORPORATED,
Plaintiff-Counter-Defendant-Appellee,
v.
PLAYWOOD TOYS, INCORPORATED,
Defendant-Counter-Plaintiff-Appellant,
v.
ROY WILSON, HARRY ABRAHAM,
and JOHN LEE,
Counter-Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 94 C 6884—Rebecca R. Pallmeyer, Judge.
____________
ARGUED DECEMBER 13, 2002—DECIDED AUGUST 18, 2003
____________
Before RIPPLE, KANNE and ROVNER, Circuit Judges.
RIPPLE, Circuit Judge. PlayWood Toys, Inc. (“PlayWood”)
obtained a jury verdict against Learning Curve Toys,
Inc. and its representatives, Roy Wilson, Harry Abraham
and John Lee (collectively, “Learning Curve”), for misap-
2 No. 02-1916
propriation of a trade secret in a realistic looking and
sounding toy railroad track under the Illinois Trade
Secrets Act, 765 ILCS 1065/1 et seq. The jury awarded
PlayWood a royalty of “8% for a license that would have
been negotiated [absent the misappropriation] to last for
the lifetime of the product.” R.194. Although there was
substantial evidence of misappropriation before the jury, the
district court did not enter judgment on the jury’s verdict.
Instead, it granted judgment as a matter of law in favor of
Learning Curve, holding that PlayWood did not have
a protectable trade secret in the toy railroad track.
PlayWood appealed. For the reasons set forth in the fol-
lowing opinion, we reverse the judgment of the district
court and reinstate the jury’s verdict. We further remand
the case to the district court for a jury trial on exemplary
damages and for consideration of PlayWood’s request
for attorneys’ fees.
I
BACKGROUND
A. Facts
In 1992, Robert Clausi and his brother-in-law, Scott
Moore, began creating prototypes of wooden toys under
the name PlayWood Toys, Inc., a Canadian corporation.
Clausi was the sole toy designer and Moore was the sole
officer and director of PlayWood. Neither Clausi nor Moore
had prior experience in the toy industry, but Clausi had
“always been a bit of a doodler and designer,” Trial Tr. at
58, and the two men desired to “create high-quality hard-
wood maple toys for the independent toy market,” id. at
241. As a newly formed corporation, PlayWood did not own
a facility in which it could produce toys. Instead, it worked
in conjunction with Mario Borsato, who owned a wood-
No. 02-1916 3
working facility. Subject to a written confidentiality agree-
ment with PlayWood, Borsato manufactured prototypes
for PlayWood based on Clausi’s design specifications.
PlayWood’s first attempt to market publicly its toys was
at the Toronto Toy Fair on January 31, 1992. PlayWood
received favorable reviews from many of the toy retailers
in attendance; PlayWood also learned that the best way
to get recognition for its toys was to attend the New York
Toy Fair (“Toy Fair”) the following month. Based on this
information, Clausi and Moore secured a position at the
Toy Fair in order to display PlayWood’s prototypes. It was
during this Toy Fair that Clausi and Moore first encoun-
tered Learning Curve representatives Roy Wilson, Harry
Abraham and John Lee.
On the morning of February 12, 1993, the first day of
the Toy Fair, Roy Wilson stopped at PlayWood’s booth
and engaged Clausi and Moore in conversation. Wilson
identified himself as Learning Curve’s toy designer and
explained that his company had a license from the Britt
Allcroft Company to develop Thomas the Tank Engine &
Friends™ (hereinafter “Thomas”) trains and accessories.
Wilson commented that he was impressed with the look
and quality of PlayWood’s prototypes and raised the pos-
sibility of working together under a custom manufactur-
ing contract to produce Learning Curve’s line of Thomas
products. Clausi and Moore responded that such an ar-
rangement would be of great interest to PlayWood. Later
that same day, Harry Abraham, Learning Curve’s vice
president, and John Lee, Learning Curve’s president, also
stopped by PlayWood’s booth. They too commented on
the quality of PlayWood’s prototypes and indicated that
PlayWood might be a good candidate for a manufactur-
ing contract with Learning Curve.
Clausi and Moore continued to have discussions with
Learning Curve’s representatives over the remaining days
4 No. 02-1916
of the Toy Fair, which ended on February 14. During these
discussions, Lee indicated that he would like two of his
people, Abraham and Wilson, to visit PlayWood in Toronto
the day after the Toy Fair ended in order to determine
whether the two parties could work out a manufacturing
arrangement for some or all of Learning Curve’s wooden
toys. Clausi, feeling a little overwhelmed by the suggestion,
requested that their visit be postponed a few days so that
he could better acquaint himself with Learning Curve’s
products. The parties ultimately agreed that Abraham
and Wilson would visit PlayWood at Borsato’s facility on
February 18, 1993, four days after the conclusion of the
Toy Fair. Clausi spent the next several days after the Toy
Fair researching Learning Curve’s products and consider-
ing how PlayWood could produce Learning Curve’s trains
and track.
On February 18, 1993, Abraham and Wilson visited
PlayWood in Toronto as planned. The meeting began with
a tour of Borsato’s woodworking facility, where the proto-
types on display at the Toy Fair had been made. After the
tour, the parties went to the conference room at Borsato’s
facility. At this point, according to Clausi and Moore, the
parties agreed to make their ensuing discussion confiden-
tial. Clausi testified:
After we sat down in the board room, Harry [Abra-
ham of Learning Curve] immediately said: “Look,
we’re going to disclose confidential information to
you guys, and we’re going to disclose some designs
that Roy [Wilson of Learning Curve] has that are
pretty confidential. If Brio were to get their hands on
them, then we wouldn’t like that. And we’re going to
do it under the basis of a confidential understanding.”
And I said: “I also have some things, some ideas on
how to produce the track and produce the trains now
No. 02-1916 5
that I’ve had a chance to look at them for the last
couple of days, and I think they’re confidential as
well. So if we’re both okay with that, we should con-
tinue.” So we did.
Trial Tr. at 76-77. Moore testified to the existence of a similar
conversation:
It was at this point that Harry Abraham told us that
they were going to disclose some confidential docu-
ments, drawings, pricing, margins, and asked us if we
would keep that information confidential.
* * * *
I believe it was Robert [Clausi] who said that, you
know, absolutely, we would keep it confidential. In
fact, we had some ideas that we felt would be confiden-
tial we would be disclosing to them, and would they
keep it, you know, confidential? Would they recipro-
cate? And Harry [Abraham] said: “Absolutely.” And
then we proceeded to go along with the meeting.
Trial Tr. at 247-48.
Immediately after the parties agreed to keep their discus-
sion confidential, Wilson, at Abraham’s direction, showed
Clausi and Moore drawings of various Thomas characters
and provided information on the projected volume of each
of the products. Clausi testified that he considered the
documents disclosed by Learning Curve during the meet-
ing confidential because they included information on
products not yet released to the public, as well as Learning
Curve’s projected volumes, costs and profit margins for
various products. After viewing Wilson’s various drawings,
the parties discussed PlayWood’s ideas on how to manufac-
ture Learning Curve’s trains. Clausi suggested that they
might use a CNC machine, which he defined as a com-
6 No. 02-1916
puter numerically controlled drill that carves in three
dimensions, to create Learning Curve’s trains out of a single
piece of wood (as opposed to piecing together separate
pieces of wood).
The parties’ discussion eventually moved away from
train production and focused on track design. Wilson
showed Clausi and Moore drawings of Learning Curve’s
track and provided samples of their current product. At
this point, Abraham confided to Clausi and Moore that
track had posed “a bit of a problem for Learning Curve.”
Trial Tr. at 85. Abraham explained that sales were terrific
for Learning Curve’s Thomas trains, but that sales were
abysmal for its track. Abraham attributed the lack of sales
to the fact that Learning Curve’s track was virtually identi-
cal to that of its competitor, Brio, which had the lion’s
share of the track market. Because there was “no differentia-
tion” between the two brands of track, Learning Curve’s
track was not even displayed in many of the toy stores
that carried Learning Curve’s products. Id. Learning Curve
had worked unsuccessfully for several months attempt-
ing to differentiate its track from that of Brio.
After detailing the problems with Learning Curve’s
existing track, Abraham inquired of Clausi whether “there
was a way to differentiate” its track from Brio’s track. Trial
Tr. at 86. Clausi immediately responded that he “had had
a chance to look at the track and get a feel for it [over] the
last few days” and that his “thoughts were that if the track
were more realistic and more functional, that kids would
enjoy playing with it more and it would give the retailer
a reason to carry the product, especially if it looked differ-
ent than the Brio track.” Id. at 87. Clausi further explained
that, if the track “made noise and [] looked like real train
tracks, that the stores wouldn’t have any problem, and the
Thomas the Tank line, product line would have [] its own
No. 02-1916 7
different track” and could “effectively compete with Brio.”
Id. Abraham and Wilson indicated that they were “in-
trigued” by Clausi’s idea and asked him what he meant by
“making noise.” Id.
Clausi decided to show Abraham and Wilson exactly
what he meant. Clausi took a piece of Learning Curve’s
existing track from the table, drew some lines across the
track (about every three-quarters of an inch), and stated:
“We can go ahead and machine grooves right across the
upper section . . . , which would look like railway tracks,
and down below machine little indentations as well so
that it would look more like or sound more like real track.
You would roll along and bumpity-bumpity as you go
along.” Trial Tr. at 255. Clausi then called Borsato into the
conference room and asked him to cut grooves into the
wood “about a quarter of an inch deep from the top sur-
face.” Id. at 88. Borsato left the room, complied with Clausi’s
request, and returned with the cut track three or four
minutes later. Clausi ran a train back and forth over the
cut piece of track. The track looked more realistic than
before, but it did not make noise because the grooves were
not deep enough. Accordingly, Clausi instructed Borsato
to cut the grooves “just a little bit deeper so that they go
through the rails.” Id. Borsato complied with Clausi’s
request once again and returned a few minutes later with
the cut piece of track. Clausi proceeded to run a train
back and forth over the track. This time the track made a
“clickety-clack” sound, but the train did not run smoothly
over the track because the grooves were cut “a little bit too
deep.” Id. at 258. Based on the sound produced by the
track, Clausi told Abraham and Moore that if PlayWood
procured a contract with Learning Curve to produce the
track, they could call it “Clickety-Clack Track.” Id. at 89.
Both Abraham and Wilson indicated that Clausi’s con-
cept of cutting grooves into the track to produce a clacking
8 No. 02-1916
sound was a novel concept. Thereafter, Wilson and Clausi
began to discuss how they could improve the idea to
make the train run more smoothly on the track, but Abra-
ham interrupted them and stated: “No, focus. You guys
have to get the contract for the basic product first, and then
we can talk about new products, because . . . it takes [our
licensor] a long time to approve new products and new
designs.” Trial Tr. at 89.
The meeting ended shortly thereafter without further
discussion about Clausi’s concept for the noise-produc-
ing track. Before he left, Wilson asked Clausi if he could
take the piece of track that Borsato had cut with him while
the parties continued their discussions. Clausi gave
Wilson the piece of track without hesitation. The piece of
track was the only item that Abraham and Wilson took
from the meeting. Clausi and Moore did not ask Wilson
for a receipt for the cut track, nor did they seek a written
confidentiality agreement to protect PlayWood’s alleged
trade secret. After the meeting, Clausi amended PlayWood’s
confidentiality agreement with Borsato to ensure that mate-
rials discussed during the meeting would remain con-
fidential. Clausi also stamped many of the documents
that he received from Learning Curve during the meeting
as confidential because they included information on prod-
ucts not yet released to the public. PlayWood never dis-
closed the contents of Learning Curve’s documents to
anyone.
During March of 1993, PlayWood and Learning Curve
met on three separate occasions to discuss further the
possibility of PlayWood manufacturing Learning Curve’s
Thomas products. At one of the meetings, and at Learning
Curve’s request, PlayWood submitted a manufacturing
proposal for the Thomas products. Learning Curve rejected
PlayWood’s proposal. Learning Curve told Clausi that its
No. 02-1916 9
licensor wanted the Thomas products to be made in the
United States.
Thereafter, PlayWood had no contact with Learning
Curve until late October of 1993, when Abraham con-
tacted Clausi to discuss another possible manufacturing
contract because Learning Curve’s secondary supplier was
not providing enough product. Again, PlayWood submit-
ted a manufacturing proposal at Learning Curve’s re-
quest, but it too was rejected. Learning Curve later stated
that its new business partner had decided to manufacture
the product in China.
Clausi and Moore continued to work on PlayWood’s
toy concepts. After the 1994 New York Toy Fair, which
was not particularly successful for PlayWood, Clausi and
Moore began to focus their efforts on refining PlayWood’s
concept for the noise-producing track. During this time,
Clausi and Moore made no attempt to license or sell the
concept to other toy companies because they believed
that PlayWood still had “an opportunity to get in the
door” with Learning Curve if they could perfect the con-
cept and also because they believed that they were bound
by a confidentiality agreement. Trial Tr. at 267.
In December of 1994, while shopping for additional track
with which to experiment, Moore discovered that Learning
Curve was selling noise-producing track under the name
“Clickety-Clack Track.” Like the piece of track that Clausi
had Borsato cut during PlayWood’s February 18, 1993,
meeting with Learning Curve, Clickety-Clack Track™ has
parallel grooves cut into the wood, which cause a “clacking”
sound as train wheels roll over the grooves. Learning Curve
was promoting the new track as
the first significant innovation in track design since
the inception of wooden train systems. . . . It is quite
10 No. 02-1916
simply the newest and most exciting development to
come along recently in the wooden train industry, and
it’s sure to cause a sensation in the marketplace. . . . [I]t
brings that sound and feel of the real thing to a child’s
world of make-believe without bells, whistles, elec-
tronic sound chips or moving parts.
PlayWood’s Tr. Ex.71.
Moore was “stunned” when he saw the track because he
believed that Learning Curve had stolen PlayWood’s
concept. Trial Tr. at 268. He testified: “This was our idea.
This is what we’ve been working on even up to that day
to go back to [Learning Curve] as an opportunity to get
in the door, and there it is on the shelf.” Id. Moore pur-
chased a package of Clickety-Clack Track™ and showed
it to Clausi. Clausi testified that he was disappointed
when he saw the track because he believed that Learning
Curve had taken PlayWood’s name and design concept
“almost exactly as per [their] conversation” on February 18,
1993. Trial Tr. at 103.
PlayWood promptly wrote a cease and desist letter to
Learning Curve. The letter accused Learning Curve of
stealing PlayWood’s concept for the noise-producing
track that it disclosed to Learning Curve “in confidence
in the context of a manufacturing proposal.” PlayWood’s
Tr. Ex.66 at 1. Learning Curve responded by seeking a
declaratory judgment that it owned the concept.
Previously, on March 16, 1994, Learning Curve had
applied for a patent on the noise-producing track. The
patent, which was obtained on October 3, 1995, claims
the addition of parallel impressions or grooves in the
rails, which cause a “clacking” sound to be emitted as
train wheels roll over them. The patent identifies Roy Wil-
son of Learning Curve as the inventor.
No. 02-1916 11
Clickety-Clack Track™ provided an enormous boost to
Learning Curve’s sales. Learning Curve had $20 million
in track sales by the first quarter of 2000, and $40 million
for combined track and accessory sales.
B. District Court Proceedings
Learning Curve responded to PlayWood’s cease and
desist letter by seeking a declaratory judgment that it
owned the concept for noise-producing toy railroad track,
as embodied in Clickety-Clack Track.™ PlayWood coun-
terclaimed against Learning Curve, as well as its repre-
sentatives, Roy Wilson, Harry Abraham and John Lee.
PlayWood asserted that it owned the concept and that
1
Learning Curve had misappropriated its trade secret.
Learning Curve voluntarily dismissed its complaint for
declaratory relief, and PlayWood’s claim for trade secret
misappropriation proceeded to trial. The jury returned a
verdict in favor of PlayWood. The trial court declined to
enter judgment on the verdict and instead asked the par-
1
In its amended counterclaim, PlayWood asserted eight
causes of action: (1) implied-in-fact contract; (2) quasi-contract;
(3) idea misappropriation; (4) fraud and deceptive business
practices under the Illinois Consumer Fraud and Deceptive
Business Practices Act, 815 ILCS 505/1 et seq.; (5) misappropria-
tion of trade secrets under the Illinois Trade Secrets Act, 765
ILCS 1065/1 et seq.; (6) unfair competition under § 44(b) of the
Lanham Act, 15 U.S.C. § 1126; (7) unfair competition under
§ 43(a) of the Lanham Act, 15 U.S.C. § 1125; and (8) deceptive
trade practices under the Uniform Deceptive Trade Practices
Act, 815 ILCS § 510/1 et seq. R.35. With the exception of misap-
propriation of trade secrets, the district court entered summary
judgment against PlayWood on all counts. PlayWood does not
appeal the grant of summary judgment on those counts.
12 No. 02-1916
ties to brief Learning Curve’s Rule 50 motion on the issue
of whether PlayWood had a protectable trade secret under
the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. The
district court granted Learning Curve’s motion and en-
tered judgment in its favor on the ground that PlayWood
presented insufficient evidence of a trade secret. See R.202.
Specifically, the court determined that PlayWood did not
have a trade secret in its concept for noise-producing
toy railroad track under Illinois law because: (1) PlayWood
did not demonstrate that its concept was unknown in the
industry; (2) PlayWood’s concept could have been easily
acquired or duplicated through proper means; (3)
PlayWood failed to guard the secrecy of its concept; (4)
PlayWood’s concept had no economic value; and (5)
PlayWood expended no time, effort or money to develop
the concept. See id.
II
DISCUSSION
A. Trade Secret Status
We review the district court’s decision to grant Learning
Curve’s motion for judgment as a matter of law de novo,
viewing the evidence in the light most favorable to Play-
Wood. See Veach v. Sheeks, 316 F.3d 690, 692 (7th Cir. 2003).
“We shall not second-guess the jury’s view of the con-
tested evidence; the proper inquiry is whether, given the
totality of the evidence, [PlayWood] presented sufficient
evidence from which a reasonable jury could find in [its]
favor.” David v. Caterpillar, Inc., 324 F.3d 851, 858 (7th Cir.
2003).
The parties agree that their dispute is governed by the
Illinois Trade Secrets Act (“Act”), 765 ILCS 1065/1 et seq. To
No. 02-1916 13
prevail on a claim for misappropriation of a trade secret
under the Act, the plaintiff must demonstrate that the
information at issue was a trade secret, that it was misap-
propriated and that it was used in the defendant’s business.
See Composite Marine Propellers, Inc. v. Van Der Woude, 962
F.2d 1263, 1265-66 (7th Cir. 1992) (per curiam); Southwest
Whey, Inc. v. Nutrition 101, Inc., 117 F. Supp. 2d 770, 775-76
(N.D. Ill. 2000); Magellan Int’l. Corp. v. Salzgitter Handel
GmbH., 76 F. Supp. 2d 919, 926 (N.D. Ill. 1999). The issue
currently before us is whether there was legally sufficient
evidence for the jury to find that PlayWood had a trade
secret in its concept for the noise-producing toy railroad
track that it revealed to Learning Curve on February 18,
1993.
The Act defines a trade secret as:
[I]nformation, including but not limited to, technical
or non-technical data, a formula, pattern, compilation,
program, device, method, technique, drawing, pro-
cess, financial data, or list of actual or potential custom-
ers 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). Both of the Act’s statutory require-
ments focus fundamentally on the secrecy of the informa-
tion sought to be protected. See Mangren Research & Dev.
Corp. v. Nat’l Chem. Co., Inc., 87 F.3d 937, 942 (7th Cir. 1996);
Computer Care v. Serv. Sys. Enters., Inc., 982 F.2d 1063, 1072
(7th Cir. 1992); Pope v. Alberto-Culver Co., 694 N.E.2d 615, 617
14 No. 02-1916
(Ill. App. Ct. 1998); Stampede Tool Warehouse, Inc. v. May, 651
N.E.2d 209, 215 (Ill. App. Ct. 1995); Serv. Ctrs. of Chicago,
Inc. v. Minogue, 535 N.E.2d 1132, 1136 (Ill App. Ct. 1989).
However, the requirements emphasize different aspects of
secrecy. The first requirement, that the information be
sufficiently secret to impart economic value because of its
relative secrecy, “precludes trade secret protection for
information generally known or understood within an
industry even if not to the public at large.” Pope, 694 N.E.2d
at 617. The second requirement, that the plaintiff take
reasonable efforts to maintain the secrecy of the information,
prevents a plaintiff who takes no affirmative measures to
prevent others from using its proprietary information
from obtaining trade secret protection. See Jackson v. Ham-
mer, 653 N.E.2d 809, 816 (Ill. App. Ct. 1995) (“[T]he Act
requires a plaintiff to take ‘affirmative measures’ to prevent
others from using information.”).
Although the Act explicitly defines a trade secret in
terms of these two requirements, Illinois courts frequently
refer to six common law factors (which are derived from
§ 757 of the Restatement (First) of Torts) in determining
whether a trade secret exists: (1) the extent to which the
information is known outside of the plaintiff’s business;
(2) the extent to which the information is known by employ-
ees 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’s business and to its competitors; (5) the
amount of time, effort and money expended by the plain-
tiff in developing the information; and (6) the ease or
difficulty with which the information could be properly
acquired or duplicated by others. See Delta Med. Sys. v. Mid-
America Med. Sys., Inc., 772 N.E.2d 768, 780 (Ill. App. Ct.
2002); Stampede Tool Warehouse, 651 N.E.2d at 215-16;
George S. May Int’l Co. v. Int’l Profit Assocs., 628 N.E.2d 647,
No. 02-1916 15
653 (Ill. App. Ct. 1993); see also C&F Packing Co., Inc. v.
IBP, Inc., 224 F.3d 1296, 1302 (Fed. Cir. 2000) (applying
Illinois law).
Contrary to Learning Curve’s contention, we do not
construe the foregoing factors as a six-part test, in which the
absence of evidence on any single factor necessarily pre-
cludes a finding of trade secret protection. Instead, we
interpret the common law factors as instructive guide-
lines for ascertaining whether a trade secret exists under
the Act. The language of the Act itself makes no reference
to these factors as independent requirements for trade
secret status, and Illinois case law imposes no such re-
quirement that each factor weigh in favor of the plaintiff.
See ILG Indus., Inc. v. Scott, 273 N.E.2d 393, 396 (Ill. 1971)
(“An exact definition of a trade secret, applicable to all
situations, is not possible. Some factors to be considered
in determining whether given information is one’s trade
secret are [the six factors enumerated in the Restatement].”)
(internal quotation marks omitted). In this respect, Illinois
law is compatible with the approach in other states. Courts
from other jurisdictions, as well as legal scholars, have
noted that the Restatement factors are not to be applied
as a list of requisite elements. See, e.g., Basic American, Inc.
v. Shatila, 992 P.2d 175, 184 (Idaho 1999); Minuteman, Inc.
v. Alexander, 434 N.W.2d 773, 778 (Wis. 1989); 2 Gregory
E. Upchurch, Intellectual Property Litigation Guide: Patents
& Trade Secrets § 16.02, at 16-17 to 16-18 (2002) (“On the
whole, these factors are a guide to the proper decision on
the existence of a trade secret, not a list of requirements.”).
The existence of a trade secret ordinarily is a question
2
of fact. As aptly observed by our colleagues on the Fifth
2
See Nilssen v. Motorola, Inc., 963 F. Supp. 664, 675 (N.D. Ill. 1997)
(applying Illinois law); see also Penalty Kick Mgm’t Ltd. v. Coca
(continued...)
16 No. 02-1916
Circuit, a trade secret “is one of the most elusive and
difficult concepts in the law to define.” Lear Siegler, Inc. v.
Ark-Ell Springs, Inc., 569 F.2d 286, 288 (5th Cir. 1978). In
many cases, the existence of a trade secret is not obvious;
it requires an ad hoc evaluation of all the surrounding
circumstances. For this reason, the question of whether
certain information constitutes a trade secret ordinarily is
best “resolved by a fact finder after full presentation
of evidence from each side.” Id. at 289. We do not believe
that the district court was sufficiently mindful of these
principles. The district court, in effect, treated the Restate-
ment factors as requisite elements and substituted its
judgment for that of the jury. PlayWood presented suf-
ficient evidence for the jury reasonably to conclude that
the Restatement factors weighed in PlayWood’s favor.
1. Extent to which PlayWood’s concept for noise-
producing toy railroad track was known outside
of Playwood’s business
PlayWood presented substantial evidence from which
the jury could have determined that PlayWood’s concept
for noise-producing toy railroad track was not generally
known outside of Playwood’s business. It was undisputed
at trial that no similar track was on the market until Learn-
ing Curve launched Clickety-Clack Track™ in late 1994,
2
(...continued)
Cola Co., 318 F.3d 1284, 1291 (11th Cir. 2003) (applying
Georgia law); Pate v. Nat’l Fund Raising Consultants, Inc., 20 F.3d
341, 344 (8th Cir. 1994) (applying Colorado law); Chevron U.S.A.
Inc. v. Roxen Serv., Inc., 813 F.2d 26, 29 (2d Cir. 1987) (applying
New York law); 1 Melvin F. Jager, Trade Secrets Law § 5.2, at 5-3
(2002); 2 Gregory E. Upchurch, Intellectual Property Litigation
Guide: Patents & Trade Secrets § 16.03, at 16-18 (2002).
No. 02-1916 17
more than a year after PlayWood first conceived of the
concept. Of course, as Learning Curve correctly points
out, “[m]erely being the first or only one to use particular
information does not in and of itself transform otherwise
general knowledge into a trade secret.” George S. May Int’l,
628 N.E.2d at 654. “If it did, the first person to use the
information, no matter how ordinary or well known, would
be able to appropriate it to his own use under the guise of
a trade secret.” Serv. Ctrs., 535 N.E.2d at 1137. However,
in this case, there was additional evidence from which
the jury could have determined that PlayWood’s concept
was not generally known within the industry.
First, there was substantial testimony that Learning Curve
had attempted to differentiate its track from that of its
competitors for several months, but that it had been unable
to do so successfully.
Furthermore, PlayWood’s expert witness, Michael Ken-
nedy, testified that PlayWood’s concept, as embodied in
Clickety-Clack Track™, was unique and permitted “its
seller to differentiate itself from a host of competitors who
[were] making a generic product.” Trial Tr. at 518. Kennedy
explained that the look, sound and feel of the track made
it distinct from other toy railroad track: “[W]hen a child
runs a train across this track, he can feel it hitting those
little impressions. And when you’re talking about young
children[,] having the idea that they can see something
that they couldn’t see before, feel something that they
couldn’t feel before, hear something that they couldn’t hear
before, that is what differentiates this toy from its other
competitors.” Id. at 489.
Finally, PlayWood presented evidence that Learning
Curve sought and obtained a patent on the noise-producing
track. It goes without saying that the requirements for
patent and trade secret protection are not synonymous.
18 No. 02-1916
Unlike “a patentable invention, a trade secret need not be
novel or unobvious.” 2 Rudolf Callmann, The Law of Unfair
Competition, Trademarks and Monopolies § 14.15, at 14-124
(4th ed. 2003). “The idea need not be complicated; it may
be intrinsically simple and nevertheless qualify as a
secret, unless it is common knowledge and, therefore,
within the public domain.” Forest Labs, Inc. v. Pillsbury
Co., 452 F.2d 621, 624 (7th Cir. 1971) (internal quotation
marks omitted). However, it is commonly understood that
“[i]f an invention has sufficient novelty to be entitled to
patent protection, it may be said a fortiori to be entitled to
protection as a trade secret.” 1 Roger M. Milgrim, Milgrim
on Trade Secrets § 1.08[1], at 1-353 (2002) (internal footnotes
omitted). In light of this evidence, we cannot accept Learn-
ing Curve’s argument that no rational jury could have
found that PlayWood’s concept was unknown outside of
its business.
2. Extent to which PlayWood’s concept was known to
employees and others involved in PlayWood’s
business
The district court did not address the extent to which
PlayWood’s concept was known to employees and others
involved in PlayWood’s business. However, we agree with
PlayWood that the evidence was sufficient to establish
that its concept for noise-producing track was known
only by key individuals in its business.
At the outset, we note briefly that PlayWood was a small
business, consisting only of Clausi and Moore. Illinois
courts have recognized on several occasions that the
expectations for ensuring secrecy are different for small
companies than for large companies. See Jackson, 653
N.E.2d at 815 (“[T]he determination of what steps are
No. 02-1916 19
reasonably necessary to protect information is different
for a large company than for a small one.”); Elmer Miller,
Inc. v. Landis, 625 N.E.2d 338, 342 (Ill. App. Ct. 1993)
(“[R]easonable steps for a two or three person shop may be
different from reasonable steps for a larger company.”).
Apart from Clausi (PlayWood’s sole toy designer and the
person who conceived of the concept for noise-produc-
ing track) and Moore (PlayWood’s sole officer and di-
rector), the only person who knew about the concept was
Borsato, the person who physically produced PlayWood’s
prototype at Clausi’s direction. The concept was dis-
closed to Borsato in order for PlayWood to develop fully its
trade secret. See 1 Roger M. Milgrim, Milgrim on Trade
Secrets § 1.04, at 1-173 (2002) (“A trade secret does not lose
its character by being confidentially disclosed to agents or
servants, without whose assistance it could not be made
of any value.”) (internal quotation marks omitted). More-
over, Borsato’s actions were governed by a written confi-
dentiality agreement with PlayWood. Indeed, as an extra
precaution, Clausi even amended PlayWood’s confiden-
tiality agreement with Borsato immediately after the
February 18, 1993, meeting to ensure that materials dis-
cussed during the meeting would remain confidential.
From this evidence, the jury reasonably could have deter-
mined that this factor also weighed in favor of PlayWood.
3. Measures taken by PlayWood to guard the secrecy
of its concept
There also was sufficient evidence for the jury to deter-
mine that PlayWood took reasonable precautions to guard
the secrecy of its concept. The Act requires the trade secret
owner to take actions that are “reasonable under the
circumstances to maintain [the] secrecy or confidentiality”
of its trade secret; it does not require perfection. 765 ILCS
20 No. 02-1916
1065/2(d)(2). Whether the measures taken by a trade
secret owner are sufficient to satisfy the Act’s reasonable-
3
ness standard ordinarily is a question of fact for the jury.
Indeed, we previously have recognized that “only in an
extreme case can what is a ‘reasonable’ precaution be
determined [as a matter of law], because the answer de-
pends on a balancing of costs and benefits that will vary
from case to case.” Rockwell Graphic Sys., Inc. v. DEV Indus.,
Inc., 925 F.2d 174, 179 (7th Cir. 1991).
Here, the jury was instructed that it must find “by a
preponderance of the evidence that PlayWood’s trade
secrets were given to Learning Curve as a result of a
confidential relationship between the parties.” Trial Tr. at
1449. By returning a verdict in favor of PlayWood, the jury
necessarily found that Learning Curve was bound to
PlayWood by a pledge of confidentiality. The jury’s deter-
mination is amply supported by the evidence. Both Clausi
and Moore testified that they entered into an oral confiden-
tiality agreement with Abraham and Wilson before begin-
ning their discussion on February 18, 1993. In particular,
Clausi testified that he told Abraham and Wilson: “I also
have some things, some ideas on how to produce the
track and produce the trains now that I’ve had a chance
to look at them for the last couple of days, and I think
they’re confidential as well. So if we’re both okay with
that, we should continue.” Trial Tr. at 77. In addition to
this testimony, the jury heard that Learning Curve had
3
See Mangren Research & Dev. Corp. v. Nat’l Chem. Co., Inc., 87
F.3d 937, 943 (7th Cir. 1996); Rockwell Graphic Sys., Inc. v. DEV
Indus., Inc., 925 F.2d 174, 179 (7th Cir. 1991); see also 1 Roger M.
Milgrim, Milgrim on Trade Secrets § 1.04, at 1-170 (2002); 2 Rudolf
Callmann, The Law of Unfair Competition, Trademarks and Monopo-
lies § 14.26, at 14-209 (4th ed. 2003).
No. 02-1916 21
disclosed substantial information to PlayWood during the
February 18th meeting, including projected volumes,
costs and profit margins for various products, as well as
drawings for toys not yet released to the public. The jury
could have inferred that Learning Curve would not have
disclosed such information in the absence of a confidential-
ity agreement. Finally, the jury also heard (from several
of Learning Curve’s former business associates) that
Learning Curve routinely entered into oral confidentiality
agreements like the one with PlayWood.
PlayWood might have done more to protect its secret. As
Learning Curve points out, PlayWood gave its only proto-
type of the noise-producing track to Wilson without first
obtaining a receipt or written confidentiality agreement
from Learning Curve—a decision that proved unwise
in hindsight. Nevertheless, we believe that the jury was
entitled to conclude that PlayWood’s reliance on the oral
confidentiality agreement was reasonable under the cir-
4
cumstances of this case. First, it is well established that
“[t]he formation of a confidential relationship imposes
upon the disclosee the duty to maintain the information
received in the utmost secrecy” and that “the unprivileged
use or disclosure of another’s trade secret becomes the
basis for an action in tort.” Burten v. Milton Bradley Co., 763
F.2d 461, 463 (1st Cir. 1985). Second, both Clausi and
Moore testified that they believed PlayWood had a realistic
4
We iterate that the proper inquiry is not whether, in our
independent judgment, we believe that PlayWood took reason-
able precautions to maintain the secrecy of its concept; rather,
the issue is whether PlayWood’s “failure to do more was so
plain a breach of the obligation of a trade secret owner to
make reasonable efforts to maintain secrecy as to justify” over-
turning the jury verdict in its favor. Rockwell, 925 F.2d at 177.
22 No. 02-1916
chance to “get in the door” with Learning Curve and to
produce the concept as part of Learning Curve’s line of
Thomas products. Clausi and Moore did not anticipate
that Learning Curve would violate the oral confidentiality
agreement and utilize PlayWood’s concept without per-
mission; rather, they believed in good faith that they “were
going to do business one day again with Learning Curve
with respect to the design concept.” Trial Tr. at 236-37.
Finally, we believe that, as part of the reasonableness
inquiry, the jury could have considered the size and sophis-
tication of the parties, as well as the relevant industry.
Both PlayWood and Learning Curve were small toy com-
panies, and PlayWood was the smaller and less experi-
enced of the two. Viewing the evidence in the light most
favorable to PlayWood, as we must, we conclude that
there was sufficient evidence for the jury to determine
that PlayWood took reasonable measures to protect the
secrecy of its concept.
4. Value of the concept to PlayWood and to its compet-
itors
There was substantial evidence from which the jury
could have determined that PlayWood’s concept had value
both to PlayWood and to its competitors. It was undis-
puted at trial that Learning Curve’s sales skyrocketed
after it began to sell Clickety-Clack Track™. In addition,
PlayWood’s expert witness, Michael Kennedy, testified
that PlayWood’s concept for noise-producing track had
tremendous value. Kennedy testified that the “cross-cuts
and changes in the [track’s] surface” imparted value to its
seller by causing the track to “look different, feel different
and sound different than generic track.” Trial Tr. at 504.
Kennedy further testified that, in his opinion, the track
would have commanded a premium royalty under a
No. 02-1916 23
negotiated license agreement because the “invention al-
lows its seller to differentiate itself from a host of competi-
tors who are making a generic product with whom it is
competing in a way that is proprietary and exclusive, and
it gives [the seller] a significant edge over [its] competi-
tion.” Id. at 518-19.
Despite this evidence, the district court concluded that
PlayWood’s concept had no economic value. The court’s
conclusion was based, in part, on the fact that PlayWood’s
prototype did not work perfectly; as noted by the court,
the first set of cuts were too shallow to produce sound
and the second set of cuts were too deep to permit the
train to roll smoothly across the track. In the district
court’s view, even if the concept of cutting grooves into
the wooden track in order to produce noise originated
with Clausi, the concept lacked value until it was refined,
developed and manufactured by Learning Curve.
We cannot accept the district court’s conclusion be-
cause it is belied by the evidence. At trial, Kennedy was
asked whether, in his opinion, the fact that PlayWood’s
prototype did not work perfectly affected the value of
PlayWood’s concept, and he testified that it did not. See
Trial Tr. at 578. Kennedy testified that he would assign
the same value to PlayWood’s concept as it was con-
ceived on February 18, 1993, as he would the finished
product that became known as Clickety-Clack Track™
because, at that time, he would have known “that most of
the design [had] already been done and that [he] just
need[ed] to go a little bit further to make it really lovely.” Id.
at 578. Kennedy further testified that it was standard
practice in the industry for a license to be negotiated based
on a prototype (much like the one PlayWood disclosed
to Learning Curve) rather than a finished product and that
the license generally would cover the prototypical design,
24 No. 02-1916
as well as any enhancements or improvements of that
5
design. See Trial Tr. at 500-01. Based on this testimony, we
5
Specifically, Kennedy testified:
Q: Now, when you were at Tyco, you were in the toy
business and people were bringing you inventions,
did people bring you inventions or trade secrets that
were in the kind of form that we find Defendants’
Exhibit 9 [Clickety-Clack Track], fully polished and
finished and so on?
A: I’ve seen some pretty rough-looking toys in meeting
with inventors. I’ve seen toys that were obviously made
by hand. I’ve seen toys that had cracks, seams and
joints that you don’t expect to see when they’re manu-
factured. Certainly that’s true. . . . So the answer is:
You don’t see a final product when you meet with an
inventor. You see a preliminary product or a prototype
kind of product.
Q: Now, when a prototype is brought to you as a disclo-
sure, as a secret, as an invention that somebody wants
to license to you, does it make a difference to you
whether it’s a prototype or a finished product?
A: Not necessarily, because it depends on who is going to
make it, which is uncertain at the time. It depends on
how difficult it is to make, which could be uncertain
at that time. It’s helpful if we know that it’s easy to
make. It’s helpful if we know how much it costs to make.
But you don’t always know that.
Q: When you go to license that kind of invention that’s
brought to you, is it your intent to license only the
prototype that’s brought to you?
A: No. I think every license agreement that I negotiate
in the toy industry includes the prototypical design. It
includes enhancements and improvements on that
(continued...)
No. 02-1916 25
cannot accept the district court’s conclusion that Play-
Wood’s concept possessed no economic value.
It is irrelevant under Illinois law that PlayWood did not
actually use the concept in its business. “[T]he proper
criterion is not ‘actual use’ but whether the trade secret is
‘of value’ to the company.” Syntex Ophthalmics, Inc. v.
6
Tsuetaki, 701 F.2d 677, 683 (7th Cir. 1983). Kennedy’s
testimony was more than sufficient to permit the jury to
conclude that the concept was “of value” to PlayWood. It
is equally irrelevant that PlayWood did not seek to
patent its concept. So long as the concept remains a secret,
i.e., outside of the public domain, there is no need for patent
5
(...continued)
design, regardless of whether they’re made by the
inventor or whether they’re made by the manufacturer.
It includes something called line extensions, which is
the transfer of this invention to a toy which maybe
wasn’t first thought of for its application. It includes
all of those things.
Trial Tr. at 499-501.
6
Both the Uniform Trade Secrets Act and the Restatement
(Third) of Unfair Competition expressly reject prior use by the
person asserting rights in the information as a prerequisite to
trade secret protection. See Unif. Trade Secrets Act § 1 cmt.
(1990) (“The broader definition in the proposed Act extends
protection to a plaintiff who has not yet had an opportunity or
acquired the means to put a trade secret to use.”); Restatement
(Third) of Unfair Competition § 39 cmt. e (1995) (“Use by the
person asserting rights in the information is not a prerequisite
to protection under the rule stated in this Section,” in part,
because such a “requirement can deny protection during peri-
ods of research and development and is particularly burdensome
for innovators who do not possess the capability to exploit
their innovations.”).
26 No. 02-1916
protection. Professor Milgrim makes this point well: “Since
every inventor has the right to keep his invention secret,
one who has made a patentable invention has the option
to maintain it in secrecy, relying upon protection ac-
corded to a trade secret rather than upon the rights which
accrue by a patent grant.” 1 Roger M. Milgrim, Milgrim
on Trade Secrets § 1.08[1], at 1-353 (2002). It was up to
PlayWood, not the district court, to determine when and
how the concept should have been disclosed to the public.
5. Amount of time, effort and money expended by
PlayWood in developing its concept
PlayWood expended very little time and money develop-
ing its concept; by Clausi’s own account, the cost to
PlayWood was less than one dollar and the time spent was
less than one-half hour. The district court determined that
“[s]uch an insignificant investment is . . . insufficient as a
matter of Illinois law to establish the status of a ‘trade
secret.’ ” R.202 at 16. We believe that the district court
gave too much weight to the time, effort and expense
7
of developing the track.
7
Professor Milgrim, for one, rejects any per se requirement of
developmental costs:
Where cost is referred to it is almost always invariably
incidental to other, basic definitional elements, such as
secrecy. Since it is established that a trade secret can be
discovered fortuitously (ergo, without costly development),
or result purely from the exercise of creative facilities, it
would appear inconsistent to consider expense of develop-
ment of a trade secret as an operative substantive element.
See 1 Roger M. Milgrim, Milgrim on Trade Secrets § 1.02[2], at 1-146
& 1-150 (2002) (internal footnotes omitted).
No. 02-1916 27
Although Illinois courts commonly look to the Restate-
ment factors for guidance in determining whether a trade
secret exists, as we have noted earlier, the requisite stat-
utory inquiries under Illinois law are (1) whether the
information “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) whether the information “is the
subject of efforts that are reasonable under the circum-
stances to maintain its secrecy or confidentiality.” 765 ILCS
1065/2(d). A significant expenditure of time and/or money
in the production of information may provide evidence
of value, which is relevant to the first inquiry above.
However, we do not understand Illinois law to require
such an expenditure in all cases.
As pointed out by the district court, several Illinois
cases have emphasized the importance of developmental
costs. However, notably, none of those cases concerned
the sort of innovative and creative concept that we have
in this case. Indeed, several of the cases in Illinois that
emphasize developmental costs concern compilations of
8
data, such as customer lists. In that context, it makes
8
See, e.g., Delta Med. Sys. v. Mid-America Med. Sys., Inc., 772
N.E.2d 768, 781 (Ill. App. Ct. 2002) (“Delta presented no testi-
mony at the hearing as to the amount of effort expended in
acquiring its customer list.”); Strata Mktg., Inc. v. Murphy, 740
N.E.2d 1166, 1177 (Ill. App. Ct. 2000) (“Strata’s customer lists,
which it alleged take considerable effort, time, and money to
compile, could be deemed a trade secret.”); Stampede Tool
Warehouse, Inc. v. May, 651 N.E.2d 209, 216 (Ill. App. Ct. 1995)
(“The customer list has been developed through the laborious
method of prospecting, which requires a substantial amount of
time, effort, and expense by Stampede.”); Springfield Rare Coin
(continued...)
28 No. 02-1916
sense to require the expenditure of significant time and
money because there is nothing original or creative about
the alleged trade secret. Given enough time and money, we
presume that the plaintiff’s competitors could compile
a similar list.
Here, by contrast, we are dealing with a new toy design
that has been promoted as “the first significant innova-
tion in track design since the inception of wooden train
systems.” PlayWood’s Tr. Ex.71. Toy designers, like many
artistic individuals, have intuitive flashes of creativity.
Often, that intuitive flash is, in reality, the product of earlier
thought and practice in an artistic craft. We fail to see
how the value of PlayWood’s concept would differ in any
respect had Clausi spent several months and several
thousand dollars creating the noise-producing track.
Accordingly, we conclude that PlayWood’s lack of proof
on this factor does not preclude the existence of a trade
secret.
8
(...continued)
Galleries, Inc. v. Mileham, 620 N.E.2d 479, 485 (Ill. App. Ct. 1993)
(“Under Illinois law, customer lists and other customer infor-
mation will constitute confidential information only when the
information has been developed by the employer over a num-
ber of years at great expense and kept under tight security.”);
Abbott-Interfast Corp. v. Harkabus, 619 N.E.2d 1337, 1344 (Ill. App.
Ct. 1993) (“Items such as customer lists, pricing information,
and business techniques can be trade secrets if the employer
has developed the information over a number of years at
great expense and kept [it] under tight security.”) (internal
quotation marks omitted); Prudential Ins. Co. of America v. Van
Matre, 511 N.E.2d 740, 745 (Ill. App. Ct. 1987) (“A customer list
or other customer information constitutes a trade secret in
which an employer holds a protectable interest where the
employer developed the information over a number of years,
at great expense, and kept the information under lock and key.”).
No. 02-1916 29
6. Ease or difficulty with which PlayWood’s concept
could have been properly acquired or duplicated
by others
Finally, we also believe that there was sufficient evidence
for the jury to determine that PlayWood’s concept could
not have been easily acquired or duplicated through prop-
er means. PlayWood’s expert witness, Michael Kennedy,
testified: “This is a fairly simple product if you look at it.
But the truth is that because it delivers feeling and sound
as well as appearance, it isn’t so simple as it first appears.
It’s a little more elegant, actually, than you might think.”
Trial Tr. at 504. In addition to Kennedy’s testimony, the jury
heard that Learning Curve had spent months attempting
to differentiate its track from Brio’s before Clausi dis-
closed PlayWood’s concept of noise-producing track.
From this evidence, the jury could have inferred that, if
PlayWood’s concept really was obvious, Learning Curve
would have thought of it earlier.
Despite this evidence, the district court concluded that
PlayWood’s concept was not a trade secret because it
could have been easily duplicated, stating that “[h]ad
PlayWood succeeded in producing and marketing [the]
notched track, the appearance of the track product itself
would have fully revealed the concept PlayWood now
claims as a secret.” R.202 at 5-6. Of course, the district court
was correct in one sense; PlayWood’s own expert recog-
nized that, in the absence of patent or copyright protec-
tion, the track could have been reverse engineered just by
looking at it. See Trial Tr. at 562. However, the district
court failed to appreciate the fact that PlayWood’s concept
was not publicly available. As Professor Milgrim states:
“A potent distinction exists between a trade secret which
will be disclosed if and when the product in which it is
embodied is placed on sale, and a ‘trade secret’ embodied
in a product which has been placed on sale, which prod-
30 No. 02-1916
uct admits of discovery of the ‘secret’ upon inspection,
analysis, or reverse engineering.” 1 Roger M. Milgrim,
Milgrim on Trade Secrets § 1.05[4], at 1-228 (2002). “Until
disclosed by sale the trade secret should be entitled to
protection.” Id.; see also 2 Rudolf Callmann, The Law of
Unfair Competition, Trademarks and Monopolies § 14.15, at 14-
123 (4th ed. 2003) (“The fact that a secret is easy to dupli-
cate after it becomes known does not militate against its
being a trade secret prior to that time.”). Reverse engineer-
ing can defeat a trade secret claim, but only if the product
could have been properly acquired by others, as is the case
when the product is publicly sold. Here, PlayWood dis-
closed its concept to Learning Curve (and Learning Curve
alone) in the context of a confidential relationship; Learn-
ing Curve had no legal authority to reverse engineer the
prototype that it received in confidence. See Laff v. John O.
Butler Co., 381 N.E.2d 423, 433 (Ill. App. Ct. 1978) (“[A]
trade secret is open to anyone, not bound by a confiden-
tial relationship or a contract with the secret’s owner, who
can discover the secret through lawful means.”). Accord-
ingly, we must conclude that the jury was entitled to
determine that PlayWood’s concept could not easily have
been acquired or duplicated through proper means.
B. Exemplary Damages
The Illinois Trade Secrets Act authorizes exemplary
damages of up to twice the amount of compensatory
damages if there was a “willful and malicious misappropri-
ation.” 765 ILCS 1065/4(b). The jury was not given an
instruction on exemplary damages because the district
court granted Learning Curve’s motion for judgment as
a matter of law on this issue prior to closing argument.
See Trial Tr. at 1355. PlayWood submits that the jury
should have been permitted to determine whether Learning
No. 02-1916 31
Curve’s intentional misappropriation of PlayWood’s trade
secret in the realistic looking and sounding toy railroad
track justified an award of exemplary damages. See Medow
v. Flavin, 782 N.E.2d 733, 746 (Ill. App. Ct. 2002) (stating
generally that “the question of whether a defendant’s
conduct was sufficiently willful or wanton to justify the
imposition of punitive damages is for the jury to decide”)
(quoting Schmidt v. Ameritech Illinois, 768 N.E.2d 303 (Ill.
App. Ct. 2002)).
There are no Illinois cases construing the phrase “willful
and malicious misappropriation” under the Act. How-
ever, we previously have held that the phrase includes
“an intentional misappropriation as well as a misappro-
priation resulting from the conscious disregard of the
rights of another.” Mangren Research & Dev. Corp. v. Nat’l
Chem. Co., Inc., 87 F.3d 937, 946 (7th Cir. 1996); see also Lucini
Italia Co. v. Grappolini, No. 01 C 6405, 2003 WL 1989605,
at *19 (N.D. Ill. Apr. 28, 2003); RKI, Inc. v. Grimes, 177
F. Supp.2d 859, 879 (N.D. Ill. 2001); Richardson Elecs., Ltd.
v. Avnet, Inc., No. 98 C 5095, 1999 WL 59976, at *5 (N.D.
Ill. Feb. 6, 1999); but see Roton Barrier, Inc. v. Stanley
Works, 79 F.3d 1112, 1120 (Fed. Cir. 1996) (holding that
exemplary damages are not permitted under the Act when
the defendant was motivated by competition, rather than
9
by malice).
9
In other contexts, Illinois courts routinely have held that
“exemplary damages may be awarded when torts are commit-
ted with fraud, actual malice, deliberate violence or oppression,
or when the defendant acts willfully, or with such gross negli-
gence as to indicate a wanton disregard of the rights of others.”
Kelsay v. Motorola, Inc., 384 N.E.2d 353, 359 (Ill. 1978); see
also Medow v. Flavin, 782 N.E.2d 733, 747 (Ill. App. Ct. 2002);
Tucker v. Illinois Power Co., 597 N.E.2d 220, 231 (Ill. App. Ct. 1992).
32 No. 02-1916
We agree with PlayWood that a rational jury could
determine that exemplary damages are justified in this
case. Specifically, we believe that a rational jury could
determine that Learning Curve intentionally misappropri-
ated PlayWood’s trade secret in the noise-producing track
and then attempted to conceal the misappropriation by
creating false evidence of prior independent development.
Accordingly, we remand this case to the district court with
10
the instruction to hold a jury trial on exemplary damages.
10
We decline to consider PlayWood’s argument that the district
court erred by excluding under Daubert v. Merrell Dow Phar-
maceuticals, Inc., 509 U.S. 579 (1993), the testimony of Play-
Wood’s ink expert that a handwritten entry in Lee’s “100-Day
Agenda” relating to noise-producing track was not written
contemporaneously with the other handwritten entries. Rule
10(b)(2) of the Federal Rules of Appellate Procedure provides
that “[i]f the appellant intends to urge on appeal that a finding
or conclusion is unsupported by the evidence or is contrary to
the evidence, the appellant must include in the record a tran-
script of all evidence relevant to that finding or conclusion.”
Fed. R. App. P. 10(b)(2). PlayWood did not request that the
transcript of the Daubert hearing be included in the record on
appeal. As a result, we are unable to evaluate whether the dis-
trict court erred in excluding the testimony of PlayWood’s ink
expert; accordingly, PlayWood has forfeited this argument. See
Hotaling v. Chubb Sovereign Life Ins. Co., 241 F.3d 572, 581 (7th
Cir. 2001); LaFollette v. Savage, 63 F.3d 540, 545 (7th Cir. 1995);
Wilson v. Electro Marine Sys., Inc., 915 F.2d 1110, 1117 (7th Cir
1990). We recognize that, as an alternative to forfeiture, we have
the authority under Rule 10(e) of the Federal Rules of Appellate
Procedure to order PlayWood to supplement the record to
include the Daubert hearing. See Fed. R. App. P. 10(e); see also
LaFollette, 63 F.3d at 545. However, we decline to exercise that
authority in this case because PlayWood “ha[s] had ample
(continued...)
No. 02-1916 33
We leave it to the district court on remand to consider
PlayWood’s request for attorneys’ fees. See 765 ILCS
1065/5(iii) (permitting the court to award reasonable
attorneys’ fees to the prevailing party where “willful and
malicious misappropriation exists”).
Conclusion
For the foregoing reasons, the judgment of the district
court is reversed, and the jury’s verdict is reinstated. The
case is remanded to the district court for a jury trial on
exemplary damages and for consideration of attorneys’
fees by the court. PlayWood may recover its costs in this
court.
REVERSED and REMANDED
10
(...continued)
opportunity to correct the problem but ha[s] failed to do so.”
LaFollette, 63 F.3d at 545. Learning Curve pointed out in its
answer brief that the Daubert hearing was not made part of the
record on appeal. See Appellees’ Br. at 41 (“PlayWood would
have this Court undertake a de novo review and reverse the
trial court’s ruling on the admissibility of expert testimony,
rendered after a Daubert hearing, without any reference to the
evidence introduced at that hearing! Indeed, PlayWood has
not included the hearing transcript in the record before the
Court.”). Despite notice of Learning Curve’s objection to the
incomplete record, PlayWood made no attempt to supple-
ment the record or to explain why a transcript of the hearing
was not necessary to permit meaningful appellate review.
34 No. 02-1916
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-18-03