United States District Court, W.D. Arkansas, El Dorado Division
SYSTEMS SPRAY-COOLED, INC. PLAINTIFF
FCH TECH, LLC; WILLIAM HENRY; and J. MICHAEL CAMPBELL DEFENDANTS
O. Hickey United States District Judge
the Court is an Amended Motion for Preliminary Injunction
filed by Plaintiff Systems Spray-Cooled, Inc.
(“Systems”). ECF No. 61. Defendants FCH Tech,
LLC, William Henry and J. Michael Campbell (collectively
referred to as “Defendants”) have filed a
response in opposition to the motion. ECF No. 27. On December
12, 2016, the parties appeared before the Court for a hearing
on the motion. After the hearing, Plaintiff submitted a
post-hearing brief in support of its Motion for Preliminary
Injunction. ECF No. 44. Defendants also submitted a
post-hearing brief in opposition to the motion. ECF No. 42.
The Court finds this matter ripe for its consideration.
case involves the alleged misappropriation of trade secrets
and confidential information from Systems. Systems is a
Tennessee corporation with principal offices in Nashville,
Tennessee and El Dorado, Arkansas. In 1999, Systems purchased
the Systems Spray-Cooled technology and business from UCAR
Carbon Company, Inc. Systems Spray-Cooled technology is a low
pressure spray-cooling system designed to cool furnaces and
other equipment with extreme heat loads in the steel
industry. Systems' Spray-Cooled technology is unique in
the steel industry, as most within the industry use
traditional high pressure cooling systems.
Henry and Campbell are former long-term employees of Systems.
Campbell was employed by Systems or one of its subsidiaries
from September 1992 until February 2013. Campbell held
numerous positions within Systems during his tenure. Campbell
was hired as an engineer and eventually rose to Executive
Vice President of Systems in July 2012. Henry worked as a
draftsman and designer for Systems from January 2007 to
September 2013. During their employment with Systems, both
Campbell and Henry signed employment agreements which
contained confidentiality and non-compete provisions.
Campbell was terminated from his position with Systems for
reasons unrelated to the instant motion, while Henry resigned
from his position voluntarily.
October 2015, Henry and Campbell formed FCH Tech, LLC, a
Tennessee company which provides custom designed steel plate
fabrications and machine parts. Henry and Campbell
acknowledge that FCH Tech was formed, in part, with the
intent to directly compete with Systems. Prior to the
formation of FCH Tech, Systems was the only provider of low
pressure, spray cooling equipment in the steel industry.
September 20, 2016, Systems filed suit against Defendants.
The Complaint alleges that Henry and Campbell executed
employment agreements while employed with Systems that
included non-compete and confidentiality provisions
prohibiting the taking, disclosure, or use of Systems'
trade secrets and confidential information. Although Systems
concedes that Henry and Campbell are no longer bound by the
non-compete provisions of the employment agreements, Systems
alleges that Henry and Campbell are both subject to the
confidentiality provisions until October 2018 and February
Complaint alleges that Henry and Campbell breached the terms
of their confidentiality provisions by taking and possessing
Systems' trade secrets and confidential information in
violation of the Defense of Trade Secrets Act, 18 U.S.C.
§ 1832, et seq., the Arkansas Trade Secrets
Act, Ark. Code Ann. §§ 4-75-601, et seq.,
and the Computer Fraud and Abuse Act, 18 U.S.C. § 1030,
et seq. In addition, Systems asserts claims against
Defendants for breach of employment agreement, tortious
interference with business expectancy, breach of fiduciary
duty, and unjust enrichment.
November 11, 2016, Systems filed a Motion for Preliminary
Injunction. ECF No. 12. On March 30, 2017, Systems filed an
Amended Motion for Preliminary Injunction. ECF No. 61. In the
amended motion, Systems seeks to enjoin Defendants, as well
as anyone acting in concert with Defendants, from further
misappropriation, disclosure and use of Systems' trade
secrets and confidential information until a final
determination on the merits of the pending litigation has
been made. In addition, Systems seeks to enjoin Defendants
from directly or indirectly designing or supplying low
pressure spray-cooling equipment for the steel industry for a
three year period.
primary function of a preliminary injunction is to preserve
the status quo until, upon final hearing, a court may grant
full, effective relief.” Ferry-Morse Seed Co. v.
Food Corn, Inc., 729 F.2d 589, 593 (8th Cir. 1984).
“A preliminary injunction is an extraordinary remedy
and the burden of establishing the propriety of an injunction
is on the movant.” Roudachevski v. All-Am. Care
Centers, Inc., 648 F.3d 701, 705 (8th Cir.2011). It is
well-settled that applications for preliminary injunctions
within the Eighth Circuit require the Court to consider the
following four factors: (1) the movant's likelihood of
success on the merits; (2) the threat of irreparable harm to
the movant; (3) the balance between the harm suffered by the
movant and the harm that other interested parties will incur
if an injunction is granted; and (4) whether the issuance of
an injunction is in the public interest. Dataphase Sys.,
Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir.
1981). The Court will separately address each of these
Substantial Likelihood of Success
Arkansas Trade Secrets Act
Whether the Information in Question Qualifies as Trade
first Dataphase factor the Court must consider is
whether Systems is likely to succeed on the merits. In order
to evaluate Systems' likelihood of success on the merits,
the Court must first determine whether the information in
question constitutes a “trade secret” under
Arkansas law. Under the Arkansas Trade Secrets Act, a trade
secret is defined as information, including a formula,
pattern, compilation, program, device, method, technique, or
process, that derives independent economic value, actual or
potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use. Ark.
Code Ann. § 4-75-601(4)(A). The Act also requires that
the information at issue be the subject of reasonable efforts
to maintain its secrecy. Ark. Code Ann. §
addition to the definitions contained within the Arkansas
Trade Secrets Act, the Arkansas Supreme Court has established
six factors to determine whether information is a trade
secret. Arkansas courts consider the following factors to
determine whether information qualifies as a trade secret:
(1) the extent to which the information is known outside the
business; (2) the extent to which the information is known by
employees and others involved in the business; (3) the extent
of measures taken by the plaintiff to guard the secrecy of
the information; (4) the value of the information to the
plaintiff and its competitors; (5) the amount of effort or
money expended by the plaintiff in developing the
information; and (6) the ease or difficulty with which the
information could properly be acquired by others. Saforo
& Assocs., Inc. v. Porocel Corp., 991 S.W.2d 117,
120 (Ark. 1999). The Arkansas Supreme Court has made clear
that, despite being one of many factors to consider, a
company's effort to maintain the secrecy of information
is a prominent one. ConAgra, Inc. v. Tyson Foods,
Inc., 30 S.W.3d 725, 730 (Ark. 2000).
contends that Defendants misappropriated information
regarding its Spray-Cooled technology that qualify as
technical trade secrets, including design drawings. Systems
further maintains that Defendants misappropriated its
financial and business trade secrets, including pricing
estimate information, customer lists, revenue forecasts and
financial statements. The Court will consider in turn whether
each of the aforementioned categories of information
qualifies as a trade secret.
Systems contends that its design drawings qualify as trade
secrets. During the preliminary injunction hearing, the Court
heard testimony from Dick Arthur, an expert on low pressure,
spray-cooling equipment. Arthur testified about the
techniques and features Systems has developed as a result of
its experience designing and supplying low pressure,
spray-cooling equipment for the steel industry. Arthur
testified that such features include proprietary water
distribution patterns for Systems' spray-cooled roofs.
Systems asserts that the design drawings at issue embody the
water distribution patterns and other features Systems has
developed and, therefore, qualify as trade secrets. Arthur
further testified that he reviewed the publicly available
exhibits provided by Defendants, including patents, and
provided his opinion that none of the exhibits contained
Systems' trade secrets. Arthur also testified that none
of Defendants' exhibits contained specific information
that can be derived from Systems' design drawings.
addition, Systems argues that it has taken reasonable
measures to safeguard its design drawings. Systems offered
testimony and evidence establishing that each of the design
drawings contains a legend indicating that the drawing is
confidential and exclusively owned by Systems. Systems also
offered evidence to demonstrate that it executes
confidentiality agreements with vendors, fabricators and
licensees to limit the use and disclosure of the design
drawings. The Court also heard testimony from Chuck Hays, CEO
of the Systems Group, concerning confidentiality provisions
contained within employment agreements that each Systems
employee is required to sign. Hays specifically testified
that the confidentiality provisions require employees to
obtain written consent prior to disclosing any confidential
information. According to Hays, the confidentiality
provisions explicitly define confidential information to
include Systems' design drawings. Systems introduced
evidence to establish that Defendants Henry and Campbell both
signed employment agreements that included the
confidentiality provisions. It is also undisputed that
Systems has expended a substantial amount of time and
resources developing the technology embodied within the
response, Defendants argue that Systems' design drawings
do not qualify as trade secrets. Defendants maintain that the
information needed to design competing low pressure
spray-cooling systems is readily ascertainable. Defendants
specifically assert that Systems' expired patents and
other publicly available information, such as technical
materials written by Systems employees, contain sufficient
information to allow Defendants to design and manufacture a
competing system using the technology. In support of this
contention, Defendants have submitted exhibits containing
Systems' patents and other publicly available information
that, according to Defendants, can be used to design
spray-cooling systems. In addition, Defendant Campbell
testified that Systems' spray-cooling technology is
readily ascertainable and can be reverse engineered by
reading Systems' patents, as well as by visually
inspecting and measuring equipment owned by Systems'
previously stated, in order for information to qualify as a
trade secret, it cannot be readily ascertainable to others
that might be interested in learning the information. Ark.
Code Ann. § 4-75-601(4)(A). Arkansas trade secret law
does not protect information that is readily ascertainable
through legitimate means such as reverse engineering or
simple observation. See Coenco, Inc. v. Coenco Sales,
Inc., 940 F.2d 1176, 1179 (8th Cir. 1991). Reverse
engineering is described as the “process of starting
with a known product and working backward to find the method
by which it was developed.” Gibraltar Lubricating
Servs. v. Pinnacle Res. Inc., 486 S.W.3d 224, 226 (Ark.
Ct. App. 2016). The expense and amount of effort it takes to
reverse engineer a product are factors to consider when
determining whether or not information is readily
ascertainable. Id. at 227.
have not presented convincing evidence that Systems'
design drawings do not qualify as trade secrets. With regard
to Systems' design drawings, Defendant Campbell offered
contradictory testimony about whether specific information
contained within Systems' design drawings is publicly
available through patents and technical materials. However,
Arkansas courts have recognized that “[e]ven where
information about a product or its ingredients is publicly
available, such as through a patent, it may be the
combination of characteristics and components that offers a
competitive advantage.” Gibraltar, 486 S.W.3d
at 228. Here, Arthur testified that the patents offered by
Defendants only provide general information and did not
contain the specific information necessary to build a
spray-cooling system that can be determined from Systems'
addition, although Defendants argue that a person of ordinary
skill in the art of engineering would be able to reverse
engineer much of Systems' alleged trade secrets in
theory, Defendants have not submitted any testimony or
evidence to demonstrate how much time, money or effort it
would take to actually duplicate Systems' low pressure,
spray-cooling technology. Without such evidence, the Court
cannot determine whether Systems' spray-cooling
technology is indeed readily ascertainable at this stage of
Court concludes that Systems has sufficiently shown that it
has taken reasonable efforts to protect the secrecy of its
design drawings. In light of the six Safaro factors
that the Court must consider in determining whether
information is entitled to trade secret protection, the Court
concludes that, on balance, Systems has offered sufficient
evidence to prove that its design drawings qualify as trade
secrets under Arkansas law at this stage of the litigation.
next argues that its pricing information qualifies as a trade
secret. Systems specifically argues that an internal estimate
sheet qualifies as a trade secret. During the preliminary
injunction hearing, Systems introduced testimony from Hays,
CEO of the Systems Group, regarding the internal estimate
worksheet. Hays testified that the estimate worksheet is
essentially a spreadsheet and that the information contained
within the worksheet demonstrates how Systems calculates its
prices for every project. Hays testified that the worksheet
includes historical data, such as the cost of labor to do a
particular engineering project. Hays further testified that
Systems' estimate worksheets are internal documents and
not available to the public. Systems asserts that the
pirating of this information would be detrimental because
competitors would be able to easily undercut Systems'
pricing. Hays further testified that employment agreements
signed by Systems' employees, including Defendants
Campbell and Henry, during the course of their employment
designate “pricing information, ” such as the
internal estimate worksheet, as “confidential
argue that the internal estimate worksheet is not entitled to
trade secret protection. Defendants refute Systems'
assertion that they currently possess Systems' internal
estimate worksheets. Furthermore, Defendants contend that any
information contained within the estimate worksheet is now
outdated and, therefore, not entitled to trade secret
protection. At the preliminary injunction hearing, Defendant
Campbell testified that the pricing information that he had
access to while employed at Systems is now stale. In
addition, Campbell testified that Systems' estimate
worksheet would be of little utility because Defendants use a
different pricing structure than Systems.
preliminary injunction hearing, Systems provided testimony to
refute Defendants' contention that the information
contained within the internal estimate worksheet is stale.
Hays testified that the estimate worksheet at issue was
recently used to place a bid on a project to replace a
furnace roof at one of Nucor's facilities. Hays stated
that Defendants also placed a bid on the Nucor project. Hays
further testified that, at the time of the hearing, the quote
was still outstanding for the project.
courts have previously held that a company's pricing
information may be worthy of trade secret protection under
the proper circumstances. Bradshaw v. Alpha Packaging,
Inc., 379 S.W.3d 536, 539 (Ark. App. 2010). Although
Arkansas courts are silent on the issue, the Eighth Circuit
has considered similar trade secret laws from other states
and held that a trade secret may lose its protected status
upon a showing that the information has become stale or
outdated. Synergetics, Inc. v. Hurst, 477 F.3d 949,
958 (8th Cir. 2007) (applying Missouri trade secrets law).
“Determination of when trade secret information becomes
stale cannot be made by reference to a bright line rule and
necessarily requires fact specific consideration.”
Id. (internal citation omitted).
Hurst, the Eighth Circuit rejected the
defendant's conclusory argument that the plaintiff's
trade secrets grew stale and unworthy of protection.
Id. at 957. The Eighth Circuit agreed with the
district court's finding that the defendant's
argument lacked merit because the defendants failed to offer
any evidence in support of their position or provide
“any facts and circumstances to suggest that the
information [was] stale.” Id. at 958.
to the defendants in Hurst, Defendants have failed
to offer any convincing facts to suggest that the information
contained within Systems' estimate worksheet is stale.
Systems presented evidence which established that the
internal estimate worksheet includes numerous formulas used
to calculate the pricing for a particular project. Although
Defendants maintain that information such as raw materials,
labor and shipping change over time, it appears that this
information may be easily adjusted within Systems'
worksheet. Moreover, it is unclear if the formulas within the