Closures v. Block — Trade Secrets

The Seventh Circuit refused to enforce a confidentiality agreement because the company took no other steps to guard its tablet-enclosure designs, holding that an NDA without reasonable secrecy measures is worthless.

A confidentiality agreement is only as good as the conduct behind it. That is the blunt lesson of nClosures Inc. v. Block & Co., 770 F.3d 598 (7th Cir. 2014), where the Seventh Circuit refused to enforce a signed NDA because the company that drafted it did almost nothing else to keep its information secret. A small design firm had handed its tablet-enclosure drawings to a manufacturer under a confidentiality agreement, watched the manufacturer release a competing product, and sued. It lost—not because the agreement was missing, but because the secrecy was. The case is now a fixture in trade-secret practice for a simple proposition: paperwork without practice protects nothing.

At a glance

Case: nClosures Inc. v. Block & Co., No. 14-1097, 770 F.3d 598 (7th Cir. Oct. 22, 2014).
Court: U.S. Court of Appeals for the Seventh Circuit (applying Illinois law in diversity).
Posture: Appeal from summary judgment for Block & Co. in the U.S. District Court for the Northern District of Illinois.
Holding: A confidentiality agreement is enforceable only where the protected information is actually confidential and the owner made reasonable efforts to keep it secret; nClosures took no such steps, so the agreement could not be enforced.
Significance: Establishes that an NDA is not a substitute for operational secrecy measures—courts treat confidentiality agreements much like trade secrets, demanding real-world safeguards.

The facts: a partnership that became a competitor

In May 2011, nClosures and Block & Co. began working together. nClosures designed metal enclosures to secure electronic tablets such as iPads; Block manufactured them. At the start of the relationship the two companies signed a confidentiality agreement, and nClosures then shared its design files for its “Rhino” and “Rhino Elite” enclosures so Block could build them. By March 2012, Block had developed its own competing enclosure, the “Atrio.” In November 2012, nClosures sued in federal court on diversity jurisdiction, alleging breach of contract and breach of fiduciary duty.

The district court granted summary judgment to Block, and the Seventh Circuit affirmed. The appellate court’s reasoning did not hinge on whether Block had copied anything. It hinged on whether nClosures had done enough to make the confidentiality agreement mean something—and concluded it had not.

The rule: confidentiality agreements demand reasonable secrecy efforts

Applying Illinois law, the court stated the controlling principle: federal courts “will enforce [confidentiality] agreements only when the information sought to be protected is actually confidential and reasonable efforts were made to keep it confidential.” In other words, the existence of a signed NDA is a necessary but not sufficient condition. The party seeking to enforce the agreement must also show that it treated the information as a secret through concrete conduct.

This collapses much of the distance between contract law and trade-secret law. Under the Illinois Trade Secrets Act and its uniform-act cousins, “reasonable measures” to maintain secrecy are an element of a trade secret. The Seventh Circuit imported a parallel expectation into the contract analysis: a confidentiality agreement protecting business information will be enforced only if the information is genuinely confidential and was guarded as such. A plaintiff cannot outsource its diligence to a one-page agreement signed at the outset and then ignore the information’s handling for the life of the relationship.

The fatal gaps: what nClosures failed to do

The court catalogued nClosures’s omissions, and the list reads like a checklist of everything a careful company should do. First, although nClosures and Block signed an initial confidentiality agreement, nClosures did not require additional confidentiality agreements from the individuals who actually accessed the Rhino and Rhino Elite design files. Second, the drawings were not marked with any confidentiality legend—nothing reading “confidential” or “contains proprietary information.” Third, the files were not kept under lock and key. Fourth, they were not stored on computers with restricted or limited access.

On that record, the court held, no reasonable jury could find that nClosures engaged in reasonable steps to protect the confidentiality of its information. Because the secrecy efforts were absent, the confidentiality agreement was unenforceable, and the breach-of-contract and fiduciary-duty claims failed with it. The design firm had relied on a single signature and treated the underlying drawings as ordinary working files—the precise behavior that defeats a secrecy claim.

Open questions

How many measures are “reasonable”? The court listed several missing safeguards but did not announce a minimum set, leaving the sufficiency question to the facts of each case.
Does confidential marking alone suffice? The opinion treats labeling, access restriction, and downstream NDAs as cumulative; it does not say which single step, if taken, would have saved the claim.
How does this interact with formal trade-secret claims? The decision blurs the line between contract enforceability and trade-secret status, but the precise overlap—and whether the same evidence governs both—remains case-specific.

Implications

An NDA is a floor, not a ceiling. Signing a confidentiality agreement is the beginning of protection, not the whole of it; courts expect ongoing, demonstrable secrecy efforts.
Mark and lock down sensitive files. Label documents as confidential, store them with restricted access, and keep them out of general-circulation folders.
Extend NDAs to everyone who touches the data. A single agreement between two companies does not cover individual employees and contractors who later access the files.
Document your safeguards. Because reasonableness is judged on the record, contemporaneous evidence of access controls and confidentiality markings can be decisive.
Treat contract and trade-secret protection as one program. The same secrecy measures that satisfy trade-secret law also make confidentiality agreements enforceable; skimping on one undermines both.

Frequently asked questions

Why did nClosures lose despite having a signed confidentiality agreement? The Seventh Circuit held that under Illinois law a confidentiality agreement is enforceable only when the company also takes reasonable steps to keep the information secret. nClosures did not mark its designs confidential, lock them up, restrict computer access, or require NDAs from everyone who saw them, so the agreement was unenforceable.

What “reasonable measures” were missing in nClosures v. Block? The court pointed to several gaps: the design files were not marked confidential or proprietary, they were not kept under lock and key, they were not stored on access-restricted computers, and individuals who accessed them were not required to sign their own confidentiality agreements.

Does this case apply only to trade secrets? Its core lesson reaches contract claims too. The court treated the enforceability of the confidentiality agreement itself as turning on whether reasonable secrecy efforts were made, so even a breach-of-contract theory failed when the underlying information was not actually protected.