Patroit Homes, Inc., et al. v. Forest River Housing, Inc. d/b/a Sterling Homes

Two companies, Patriot Homes
and Forest River Housing, compete in the modular hous2
ing 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.

Modular home manufacturers must obtain approval
from the states where they hope to sell their homes. To
obtain state approval, each company must submit to the
state the systems manuals, quality assurance manuals,
model drawings, and substantiating engineering calculations
for the homes that the manufacturer plans to
sell in that state. Patriot primarily sells its homes in
Big Ten territory: Indiana, Ohio, Michigan, and Illinois.

It has submitted the required information to each state.

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:
[u]sing, copying, disclosing, converting, appropriating,
retaining, selling, transferring, or otherwise exploiting
Patriot's copyrights, confidential information, trade
secrets, or computer files.

The preliminary injunction also required Sterling to:
[c]ertify that copied data and materials of Patriot's
property, confidential information and trade secrets
on computer files and removable media (CDs, DVDs,
tapes, etc.) have been deleted or rendered unusable.
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, 328 F.3d 300, 303 (7th Cir. 2003). Rule 65(d)
of the Federal Rules of Civil Procedure requires that the
injunction set "forth the reasons for its issuance; . . . be
specific in terms; . . . [and] describe in reasonable
detail, and not by reference to the complaint or other
document, the act or acts sought to be restrained." See
also Marseilles Hydro Power, LLC v. Marseilles Land
and Water Co., 299 F.3d 643, 646 (7th Cir. 2002) (stating
that any injunction issued by a federal district court
must be detailed and specific to ensure proper enforcement
through contempt proceedings or otherwise); PMC,
Inc. v. Sherwin-Williams Co., 151 F.3d 610, 619 (7th Cir.
1998) (finding that an injunction must "be precise
and self-contained, so that a person subject to it who
reads it and nothing else has a sufficiently clear and
exact knowledge of the duties it imposes on him that if
he violates it he can be adjudged guilty of criminal
contempt"). This requirement of specificity spares courts
and litigants from struggling over an injunction's scope
and meaning by informing those who are enjoined of "the
specific conduct regulated by the injunction and subject
to contempt." Marseilles Hydro Power, 299 F.3d at 647
(citing Consumers Gas & Oil, Inc. v. Farmland Indus.,
Inc., 84 F.3d 367, 371 (10th Cir. 1996)); Hispanics United
of DuPage County v. Village of Addison, 248 F.3d 617, 620
(7th Cir. 2001).

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, 742 F.2d 314, 328 (7th
Cir. 1984), it is not clear from the injunction order what
the trade secret or confidential information is in this
case. Patriot claims that its trade secret is the "playbook"
for constructing modular homes consisting of its blueprints,
engineering calculations, quality control manuals,
and other documents. But it does not deny that much of
this information was readily available when Sterling
submitted FOIA requests because at that time Patriot
had not asked the states to keep the information confidential.

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., 136 F.3d 537, 543
(7th Cir. 1998) (finding that a provision of an injunction
that enjoins the defendant from inducing the plaintiffs'
sales agents and former sales agents to engage in "unlawful
insurance practices" but failing to specify the practices
does not comply with Rule 65(d)); City of Mishawaka
v. Am. Elec. Power, 616 F.2d 976, 990 n.18 (7th Cir. 1980)
(vacating an injunction enjoining defendants "from monopolizing
or attempting to monopolize the distribution
and sale of electric power" because the injunction was too
vague to identify the activities enjoined); E.W. Bliss Co. v.
Struthers-Dunn, Inc., 408 F.2d 1108, 1113 (8th Cir. 1969)
(finding that a preliminary injunction stating that "[a]ll
defendants separately and jointly are restrained from
using or disclosing trade secrets and confidential technical
information of plaintiff to any person, firm or corporation"
is impermissibly vague). Cf. Syntex Ophthalmics,
Inc. v. Tsuetaki, 701 F.2d 677, 684 (7th Cir. 1983)
(upholding a preliminary injunction where the district
court's order placed defendants on notice of the restrained
acts and provided a procedure for interpreting and applying
the injunction and distinguishing between plaintiff's
trade secrets and information in the public domain).

For these reasons, we VACATE the preliminary injunction
because it lacks specificity as required by Rule 65(d).2

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http://www.ca7.uscourts.gov/tmp/A11FFV9X.pdf