Fail-Safe, LLC v. A.O. Smith Corp.
674 F.3d 889
7th Cir.2012Background
- FS and AOS explored a joint development to create a pool suction entrapment prevention motor; no formal agreement or confidentiality pact was reached.
- FS disclosed information about features and testing to AOS; none of this was marked confidential.
- AOS later marketed two motors (eMod, Guardian) claimed to incorporate FS trade secrets.
- FS filed suit in April 2008 seeking misappropriation of trade secrets and unjust enrichment after correspondence halted in 2004.
- District court granted summary judgment for AOS on both claims, citing lack of reasonable protective steps or statute of limitations; FS appealed.
- Court reviews de novo and construes facts in favor of FS as the nonmoving party.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FS can prove misappropriation given lack of protective measures | FS argues a confidential relationship existed and disclosure was reasonable | AOS asserts no confidential relationship and no protective steps were taken | FS failed to take reasonable protective steps; misappropriation claim fails |
| Whether unjust enrichment requires fault/wrongfulness in Wisconsin law | FS contends no need for fault, only inequitable retention | AOS argues wrongfulness not required but inequity depends on independent protections | Unjust enrichment requires an independent basis to be inequitable; none present; claim fails |
| Whether damages/quantum meruit issues are moot due to merits ruling | FS seeks damages for asserted misappropriation | AOS disputes damages model and expert admissibility | Damages issues are moot because appeal affirms on merits; no need to address damages |
Key Cases Cited
- BondPro Corp. v. Siemens Power Generation, Inc., 463 F.3d 702 (7th Cir. 2006) (failure to take reasonable steps forfeits trade-secret protection)
- Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714 (7th Cir. 2003) (confidentiality expectations differ for small vs. large parties; need for protection may vary)
- ConFold Pac., Inc. v. Polaris Indus., 433 F.3d 952 (7th Cir. 2006) (unjust enrichment requires violation of an independent protection; mere use of ideas not protected)
- Abbott Labs. v. Norse Chemical Corp., 147 N.W.2d 529 (Wis. 1967) (unjust enrichment requires wrongful appropriation if no trade secret protected)
- RTE Corp. v. Coatings, Inc., 267 N.W.2d 233 (Wis. 1978) (inequitable retention may arise from independent protection violations)