Seventh Circuit Rejects Pool Technology Company’s Trade Secrets Claim

On March 29, 2012, the Seventh Circuit upheld summary judgment in favor of a defendant on plaintiff’s claims for trade secrets misappropriation and unjust enrichment, holding that plaintiff failed to take any measures, let alone reasonable measures, to protect its alleged trade secrets during joint marketing negotiations with defendant. Fail-Safe LLC v. A.O. Smith Corp., No. 11-1354 (7th Cir. Mar. 29, 2012). The decision highlights the need for written confidentiality agreements signed, sealed, and delivered before people explore doing business with each other.

Fail-Safe developed an anti-entrapment pump which prevents pool drains from trapping swimmers. After A.O. Smith representatives learned of Fail-Safe’s pump at a trade show and in a magazine ad, the two companies had several meetings and extensively negotiated A.O. Smith’s possibly marketing and selling the pump for Fail-Safe. Never during the negotiations did Fail-Safe require A.O. Smith to sign a confidentiality agreement not to use or disclose the alleged secret technology, nor did Fail-Safe even raise confidentiality during any meeting or correspondence, even though it had done so in the past with other potential marketing partners. The only confidentiality obligation was on Fail-Safe, which signed a one-way confidentiality agreement without asking for a reciprocal obligation from A.O. Smith. The Seventh Circuit held that the failure to take any precaution to protect the technology precluded Fail-Safe’s trade secrets claim as a matter of law, rejecting Fail-Safe’s argument that whether its protective measures were sufficient was a question to be decided by the jury. The court went so far as to say “you can’t steal free advice,” and that “Fail-Safe courted its own disaster by failing to take any protective measures.”

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