Summary
The Seventh Circuit affirmed summary judgment for CLEAResult Consulting, Inc. on NEXT Payment Solutions, Inc.’s Defend Trade Secrets Act claim. The court held that NEXT’s generic descriptions of software functionality did not identify protectable trade secrets with sufficient specificity. The court also upheld exclusion of NEXT’s proposed unjust-enrichment theory based on “other proprietary information” because it was a late-raised theory that would prejudice CLEAResult and delay the proceedings.
Topics
Practice areas
Questions Presented
- Whether NEXT identified software modules and combinations in the FAST Tool with sufficient specificity to qualify as protectable trade secrets under the Defend Trade Secrets Act.
- Whether the district court abused its discretion by excluding NEXT's proposed unjust-enrichment theory based on misuse of other proprietary information as an untimely new theory that would prejudice CLEAResult and delay the proceedings.
Holdings
- A trade-secret plaintiff must identify concrete, protectable secrets with enough specificity for the fact finder to distinguish information that is generally known or readily ascertainable from information that is secret and derives independent value from being secret. NEXT's generic descriptions of what its software modules did, without identifying the underlying methods, algorithms, source code, or other concrete secret information, were insufficient to support its DTSA claim.
- A district court may exclude a new theory of liability raised after discovery and summary judgment when allowing it would prejudice the opposing party or unduly delay the proceedings. The district court acted within its discretion by excluding NEXT's theory based on misuse of other proprietary information because the complaint and litigation history did not identify that theory as separate from the trade-secret theory.
Key quotations
“At the least, a plaintiff must present enough specifics for the fact finder to distinguish between information that is generally known and information that is not readily ascertainable and thus qualifies as a statutory secret.” (at 7)
“Protectable trade secrets must be generally unknown, not readily ascertainable, and must be described with specificity.” (at 14)
“It was within its discretion to exclude that new theory of liability on the grounds that it would prejudice CLEAResult and delay the trial.” (at 17)
Factual background
NEXT developed a customized online appointment-scheduling application, called the FAST Tool, for CLEAResult. The tool had public-facing and internal-facing functions, as well as underlying rules, algorithms, and source code to which only NEXT had access. After CLEAResult acquired another application, it used an internal project to compare the new application with the FAST Tool and later transitioned customers to the new system. NEXT alleged that CLEAResult misappropriated secret information, but conceded that CLEAResult never accessed the FAST Tool's underlying source code, processing engine, or rules software.
Procedural history
NEXT sued CLEAResult for trade-secret misappropriation under the Defend Trade Secrets Act and unjust enrichment under Illinois common law. The district court granted summary judgment on the DTSA claim because NEXT failed to identify its alleged software trade secrets with sufficient specificity. During pretrial proceedings, the court excluded NEXT's proposed theory based on misuse of other proprietary information as an untimely new theory that would prejudice CLEAResult and delay trial. NEXT voluntarily dismissed its remaining claims with prejudice, and the district court entered final judgment for CLEAResult. The Seventh Circuit affirmed.