PATRIOT HOMES, INC. v. FOREST RIVER HOUSING, INC. No. 06-3012.
512 F.3d 412 (2008)
PATRIOT HOMES, INC. and Patriot Manufacturing, Inc., Plaintiffs-Appellees, v. FOREST RIVER HOUSING, INC., doing business as Sterling Homes, Defendants-Appellants.
United States Court of Appeals, Seventh Circuit.
Decided January 10, 2008.
Scott D. Matthews (argued), Ice Miller, Indianapolis, IN, for Plaintiffs-Appellees.
D. Michael Anderson, Barnes & Thornburg, South Bend, IN, Ryan M. Fountain (argued), Mishawaka, IN, for Defendants-Appellants.
Before BAUER, FLAUM, and EVANS, Circuit Judges.
EVANS, Circuit Judge.
Two companies, Patriot Homes and Forest River Housing, compete in the modular housing manufacturing industry. Patriot sued Forest River Housing's subsidiary, Sterling Homes, and four former Patriot employees (now Sterling employees) for copying their home designs. Sterling appeals the district court's preliminary injunction order which enjoined it from misappropriating Patriot's copyrights, confidential information, trade secrets, and computer files.
The parties have had, for several years, a rather contentious relationship. In 2004, Forest River tried to purchase Patriot. When Patriot declined Forest River's overtures, Forest River did an end run and hired away four of Patriot's employees (they are named as individual defendants in this case) and then formed a new company, Sterling, to build modular homes. Before leaving Patriot, the four employees copied information from the company's computers and brought the materials with them when they joined Sterling. Patriot's former general manager assumed the role of general manager of Sterling. Sterling allegedly used the information taken from Patriot's computers to build and sell homes. In the spring of 2005, Sterling distributed brochures containing exact copies of Patriot's floor plans. Sterling's homes, however, were less expensive. Patriot filed suit, alleging copyright infringement under 17 U.S.C. §§ 101 et seq. and violations of the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030. Patriot sought preliminary and permanent injunctive relief against Sterling to prevent the disclosure or use of its information and trade secrets, an order requiring Sterling to return all of Patriot's confidential information and trade secrets that are allegedly under Sterling's control, compensatory damages, punitive damages, and pre- and post-judgment interest.
Sterling does not deny that Patriot's former employees took information from Patriot's computers before they jumped ship, nor does it deny that it has used the information. Sterling contends, however, that all of Patriot's alleged trade secret and/or confidential information is readily ascertainable and in the public domain. As a result, Sterling maintains that its use of the information was not improper. To understand this contention, a brief look at the modular home business is helpful.
After the preliminary injunction hearing, Sterling sent Freedom of Information Act (FOIA) requests to Indiana, Michigan, and Illinois requesting copies of the documents that Patriot submitted for state approval. In response to the requests, Indiana produced thousands of documents, including Patriot's systems manuals, quality assurance manual, and individual modular submissions. None of these documents were marked confidential. Michigan and Illinois produced similar documents in response to Sterling's requests, including various systems manuals. Patriot wrote to each state demanding that it take immediate remedial action to preserve the confidential nature of these documents; however, none of the states complied or indicated that the documents were improperly produced. Although none of the documents were marked confidential, Patriot contends that the information it submitted to each state is proprietary and confidential. Sterling asserts that the only alleged trade secret/confidential information not contained in materials obtained from the FOIA requests are: (1) bills of material; (2) prewrites; (3) pricing information contained in the prewrites; (4) order forms; and (5) information regarding which models are the best sellers. Otherwise, everything that Patriot contends is confidential and trademarked was produced in response to the FOIA requests.
In June of 2006, the district court entered a preliminary injunction against Sterling enjoining it from:
The preliminary injunction also required Sterling to:
Sterling does not quibble with the injunction's prohibition on using the computer files obtained from Patriot's computers; it asserts, however, that the remainder of the injunction is so vague as to constitute only a general prohibition not to break the law, leaving it without guidance as to when its actions might violate the injunction.
We review the district court's decision to grant a preliminary injunction for abuse of discretion. Foodcomm Int'l v. Barry,
The preliminary injunction entered by the district court uses a collection of verbs to prohibit Sterling from engaging in certain conduct, but ultimately it fails to detail what the conduct is, i.e., the substance of the "trade secret" or "confidential information" to which the verbs refer. While the law prohibits using another's trade secrets, American Can Co. v. Mansukhani,
In American Can, a case involving a similar issue, the plaintiff accused the defendant, a former employee, of misappropriating its trade secrets for a certain type of commercial jet ink. We found that the district court erred in issuing a preliminary injunction enjoining the defendant from misappropriating the plaintiff's trade secrets without determining whether the defendant's new inks were in fact substantially derived from plaintiff's trade secrets. 742 F.2d at 326 (finding that the district court erred when it failed to consider "the public information about plaintiff's ink formulas, particularly as revealed in patent documents, and [defendant's] own knowledge and experience" in determining the scope of the injunction).
Patriot argues that there is no requirement that a court identify each and every element of copyright originality or trade secret and that the injunction identified specific proscribed acts. We disagree. The district court did not specify what information is a trade secret; the parties also dispute what information is protected. Sterling cannot tell, and neither can we, whether using the information it obtained through the FOIA requests would violate the injunction. While it is not always easy to ascertain what information is a trade secret or confidential at this stage of the proceedings, the district court still must make this determination in order to clearly delineate Sterling's responsibilities pursuant to the injunction. Id. at 332 ("The problem of framing an appropriate order may be particularly acute in trade secret cases, but trade secret injunctions that are too vague must be set aside.") (Internal citations omitted.) In fact, Patriot stated during oral argument that the only way Sterling might know that it violated the injunction order is to look at the transcript from the preliminary injunction hearing. This requires a lot of guesswork on Sterling's part in order to determine if it is engaging in activities that violate the injunction, since the order itself is a little more than a recitation of the law. See IDS Life Ins. Co. v. SunAmerica Life Ins. Co.,
For these reasons, we VACATE the preliminary injunction because it lacks specificity as required by Rule 65(d).
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