Law School Case Brief
ATC Distribution Grp., Inc. v. Whatever It Takes Transmissions & Parts, Inc. - 402 F.3d 700 (6th Cir. 2005)
The Kentucky Uniform Trade Secrets Act, like other statutes based on the Uniform Trade Secrets Act, defines a trade secret as information that, among other things, derives economic value from not being generally known to, and not being readily ascertainable by proper means by, other persons who can readily obtain economic value from its disclosure or use. Ky. Rev. Stat. Ann. § 365.880 (2002). In determining whether information is readily obtainable by proper means, courts generally distinguish between, on one hand, lists of customers discoverable only through extraordinary efforts and through many years' expenditure of time and money, or the purchasers of unusual goods or services not generally known to an industry at large, and, on the other hand, lists of customers whose identities as purchasers of a given type of product may be obtained through such legitimate channels as telephone books, the internet, or by calling local businesses.
ATC Distribution Group, Inc. ("ATC"), which sold transmission parts, was formed when ATC's predecessor acquired Hester Transmission Parts ("HTP"). ATC acquired the services of defendant Kenny Hester as part of the acquisition, as well as the right to use HTP's transmission parts catalog. Several years later, Hester left ATC to form his own transmission parts company, defendant Whatever It Takes Transmissions & Parts, Inc. ("WITT"). WITT later hired away several of ATC's other employees and created a transmission parts catalog that was almost identical to the ATC catalog. Also, according to ATC, some of those former employees took with them copies of customer lists, reports of accounts receivable, and reports detailing the pricing groups to which ATC assigned customers. Some of those employees also began calling their former customers to solicit business for WITT. Thereafter, ATC filed a lawsuit against Witt, Hester and the other former ATC employees alleging 12 intellectual property and unfair business practices claims. The district court granted summary judgment in favor of WITT and the other defendants on almost all of ATC's claims. ATC appealed.
Did the district court err in granting summary judgment in favor of WITT on ATC's claim that WITT misappropriated ATC's customer lists on the ground that those lists were not trade secrets under Kentucky law?
The court of appeals affirmed the district court's judgment. The court ruled, inter alia, that ATC’s catalog, part numbers, and illustrations lacked originality for copyright protection. The catalog's classification scheme was an idea that was not copyrightable under 17 U.S.C.S. § 102(b). The catalog was not eligible for copyright protection as a compilation. The unfair competition claim was completely preempted; it was based on an alleged misappropriation of part numbers. The unjust enrichment and misappropriation claims were preempted insofar as they relied on an appropriation of the catalog and part numbers, but not as to customer lists. But the lists were not trade secrets under Kentucky law. Taking accounts receivable information was not a breach of fiduciary duty absent evidence the information was actually used. There was no defamation per quod due to a lack of pecuniary loss, and there was no libel per se, because no statements exposed ATC to public hatred or disgrace. There was no evidence of malice or unjustified conduct for intentional interference, and no evidence the former employees' appropriation of secrets adversely affected customer relationships.
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