Seventh Circuit Finds Confidentiality Agreement Unenforceable

The Seventh Circuit recently further defined the limits of confidentiality agreements. The Court cautioned companies that it will not blindly enforce confidentiality agreements by holding that it will only enforce agreements when the information sought to be protected is actually confidential in nature and reasonable steps have been taken to maintain that confidentiality.

In nClosures Inc. v. Block & Co., Inc., 770 F.3d 598 (7th Cir. 2014), nClosures entered into an agreement where it agreed to design metal casings for electronic tablets and Block & Co. agreed to manufacture them. At the beginning of the relationship, the parties entered into a confidentiality agreement. Months later, Block & Co. created its own design for metal casings and began manufacturing a competing product. The business relationship soured, and nClosures sued for breach of the confidentiality agreement. The District Court granted summary judgment in favor of Block & Co., finding the confidentiality agreement unenforceable because nClosures did not take reasonable steps to keep its proprietary information confidential. nClosures appealed the District Court’s decision.

The Seventh Circuit affirmed, acknowledging that courts applying Illinois law will enforce confidentiality agreements only when the information sought to be protected is actually confidential and reasonable steps are taken to keep the information confidential. In this case, while the parties’ principals signed the confidentiality agreement, no additional confidentiality agreements were signed by those who accessed the design files, the designs were not kept under lock and key or on a computer with limited access, and the designs were not marked confidential or proprietary. The Seventh Circuit determined that those facts showed that nClosures did not take reasonable steps to protect the confidentiality of its proprietary information and, therefore, its confidentiality agreement was unenforceable.

Although the Court applied Illinois law, companies in states that are within the Seventh Circuit’s jurisdiction should interpret this case as a call to action. A signature on a confidentiality agreement is not enough. Companies should be engaging in reasonable efforts to keep proprietary information confidential, such as restricting access, consistently enforcing confidentiality agreements, and taking various other steps. If you have any questions about whether or not your company is engaging in reasonable efforts to keep proprietary information confidential, please do not hesitate to contact your DeWitt attorney.