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Learning Curve Toys, Inc. v. PlayWood Toys, Inc. - 342 F.3d 714 (7th Cir. 2003)

Rule:

The Illinois Trade Secrets Act, 765 Ill. Comp. Stat. 1065/1 et seq., 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 Ill. Comp. Stat. 1065/2(d)(2). Whether the measures taken by a trade secret owner are sufficient to satisfy the Act's reasonableness standard ordinarily is a question of fact for the jury. Indeed, only in an extreme case can what is a "reasonable" precaution be determined as a matter of law, because the answer depends on a balancing of costs and benefits that will vary from case to case. 

Facts:

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 misappropriation of a trade secret in a realistic looking and sounding toy railroad track under the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seqThe 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." 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. 

Issue:

Did PlayWood have a protectable trade secret in the toy railroad track?

Answer:

Yes

Conclusion:

The United States Court of Appeals held that there was legally sufficient evidence for the jury to find that PlayWood had a trade secret in its concept for a noise-producing toy railroad track that it revealed to Learning Curve during a meeting. Specifically, the court found that 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. Secondly, the trade secret was not widely disseminated to PlayWood's employees. PlayWood was a small business, consisting only of two persons, and although the trade secret was provided to a third-party, it was done so under a confidentiality agreement. Furthermore, by returning a verdict in favor of PlayWood, the jury necessarily found that plaintiff was bound to PlayWood by a pledge of confidentiality. There was also substantial evidence from which the jury could have determined that PlayWood's concept had value, as it was undisputed that Learning Curve’s sales skyrocketed after it began to sell a track based on PlayWood's prototype. Lastly, the district court gave too much weight to the effort and expense of developing the track.

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