On October 22, 2014, the US Court of Appeals for the Seventh Circuit refused to enforce a confidentiality agreement where the owner of the information did not take reasonable steps to keep that information confidential (nClosures Inc. v. Block and Co., Inc., Nos. 13‐3906 & 14‐1097, (7th Cir. Oct. 22, 2014)).

nClosures Inc. and Block and Company, Inc. had a business relationship in which nClosures designed and Block manufactured a product called Rhino Elite, which is a metal enclosure for electronic tablets. Before nClosures gave Block its designs for the Rhino Elite, the two companies signed a confidentiality agreement. nClosures did not ask anyone else involved in the project to sign a confidentiality agreement, including Rhino Elite's independent designer, Block employees or other manufacturers that produced Rhino Elite predecessor products.

Based on nClosures' design, Block manufactured the Rhino Elite in 2011. However, by March 2012 Block had begun to develop its own competing product, the Atrio.

nClosures subsequently sued Block in the US District Court for the Northern District of Illinois for, among other things, breach of contract. nClosures alleged that Blocked breached the confidentiality agreement by using nClosures' confidential information to create the Atrio.

In 2013, the district court granted summary judgment to Block on the breach of contract claim on that basis that the parties' confidentiality agreement was unenforceable.

The Seventh Circuit affirmed the district court's decision and held that the confidentiality agreement was unenforceable because nClosures had not taken reasonable steps to protect the confidentiality of its information. When applying Illinois law, a federal court will enforce a confidentiality agreement only if both:

The court found that even though nClosures made Block sign a confidentiality agreement at the beginning of their relationship, nClosures failed to take reasonable steps to protect its confidential information, such as by:

When disclosing proprietary information to other parties, businesses should ensure that they have protected the confidentiality of their information so that the information is not used for unintended purposes. As this case illustrates, simply having one recipient sign a confidentiality agreement may not be enough when the information has been or can be accessed by multiple parties. To successfully enforce a confidentiality agreement, a business must generally show that it has taken reasonable steps to protect its proprietary information, such as by:

For more information on how to protect confidential information and trade secrets, see Practice Notes, Confidentiality and Nondisclosure Agreements and Protection of Employers' Trade Secrets and Confidential Information: Best Practices for Protecting Confidential Information and Trade Secrets.