U.S. Court of Appeals Finds Confidentiality Agreement for Design and Production of a Tablet Computer Unenforceable

An industrial design firm, nClosures, produced metal cases for tablet computers, such as the iPad. Ian LeBlanc designed a case for nClosures in early 2011 called the Rhino Elite. In May 2011, the co-founders of nClosures attended a tradeshow in Chicago to showcase the Rhino Elite prototypes.

At the tradeshow, the co-founders Daniel Gorman and Daniel McKean met with Greg Carlson, CEO of Block and Co. Block manufactured metal cash drawers but was interested in entering into the tablet enclosure market. Carlson approached Gorman and McKean about a possible relationship. At a May 24, 2011 meeting, the two companies signed a confidentiality agreement regarding the potential deal between them.

After signing the agreement, nClosures gave Block the design files for the Rhino products. The parties then attempted to negotiate a written contract concerning the manufacture and sale of the tablet enclosures.

The parties were never able to agree on a written contact and made an oral agreement that Block would manufacture the Rhino units and sell them to nClosures for $19.25 per unit. nClosures was permitted to sell some units to its customers and some units back to Block at an increased price of $53 per unit.

After the Rhino units went on sale in October 2011, Block developed a design of its own for tablet enclosures known as Atrio. In August 2012, Block terminated its deal with nClosures. nClosures filed a lawsuit against Block alleging fraud, trade secret misappropriation, breach of fiduciary duty and breach of contract. In December 2013, the U.S. District Court granted summary judgment in favor of Block, and nClosures appealed to the U.S. Court of Appeals.

The appeals panel began by finding that nClosures did not take proper steps to protect the confidentiality of its propriety information. The appeals panel noted that nClosures did not require designer Ian LeBlanc or manufacturers to produce the various versions of the Rhino Elite to sign confidentiality agreements.

It was also noted that neither the Rhino nor Rhino Elite drawings were marked with words such as “confidential” or “contains proprietary information.” Thus, the panel concluded that the confidentiality agreement was not enforceable.

The next issue taken up was whether Block and nClosures formed a partnership under Illinois law. The panel stated that the parties never intended to carry on as co-owners of a business for profit and that nClosures net gain of $33.75 per Rhino Elite unit from Block did not constitute a profit-sharing agreement between the companies. As a result, this precluded a claim for breach of fiduciary duty.

Last, the panel rejected Block’s assertion that the district court abused its discretion in denying Block’s motion for attorney fees. The panel noted that the district court had stated that it found its decision on summary judgment in the case to be a close call and that it did not find bad faith on the part of nClosures in filing the lawsuit.

Accordingly, the appeals panel concluded that the district court judge did not abuse his discretion in denying to impose sanctions against nClosures. The court affirmed the district court’s decision granting summary judgment and dismissing the lawsuit.

nClosures, Inc. v. Block and Co. Inc., Nos. 13-3906 and 14-1097; U.S. Court of Appeals 7th Cir., Oct. 22, 2014.

Kreisman Law Offices has been handling breach of contract cases, commercial litigation, business disputes and catastrophic injury cases for individuals and businesses for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Highwood, Homewood, River Grove, Chicago Heights, Chicago Ridge, Midlothian, St. Charles, Northfield, Niles, Lockport, Romeoville, Lincolnshire, Deerfield, Joliet, Cicero, Waukegan and Wilmette, Ill.

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