Hyde Corporation v. Huffines

*586 ON motion for rehearing

Mr. Justice Norvell

delivered the opinion of the Court.

. While petitioner’s motion for rehearing presents nothing that was not passed upon in the original opinion, there are certain matters which may be clarified by further statement.

Petitioner seems to have some objection to the use of the term “trade secrets” in describing this case. The generally accepted definition of a “trade secret” is that contained in the Restatement of Torts. In Extrin Foods, Inc. v. Leighton, Supreme Court, King’s County, N.Y. 115 N.Y.S. 2d 429 , the Court said:

“In resolving this issue the Court is first required to define the term ‘secret’ as applied to a formula. The term ‘trade secret’ is defiined in the Restatement of Torts, Section 757, p. 5, as follows:

‘b. Definition of trade secret. A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. * * * A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article.’

“See also Nims on Unfair Competition and Trade Marks (4th Ed.), page 403; Kaumagraph Co. v. Stampagraph Co., 235 N.Y. 1, 7 , 138 N.E. 485, 487 ; Fairchild Engine & Airplane Corp. v. Cox, Sup., 50 N.Y.S. 2d 643 , 656.”

To the authorities cited, we may add the following: Sun Dial Corporation v. Rideout, 29 N.J. Super. 361 , 102 Atl. 2d 90, affirmed, 16 N.J. 252 , 108 A. 2d 442 ; B. F. Gladding & Co. Inc. v. Scientific Angles, Inc. 6 Cir., 245 F.2d 722 ; Schreyer v. Casco Products Corp., 97 F. Supp. 159 , reversed in part, 190 F.2d 921 , 87 C.J.S. 413.

It appears from the record before us that Huffines had conceived and developed a device which he called a “Compressor Mechanism for Refuse Truck”, and had applied for a patent *587 thereon. The details of this device were unknown to Hyde Corporation until disclosed to its representatives during negotiations which culminated in a licensing agreement. Such details of construction were “trade secrets” belonging to Huffines, Smith v. Dravo Corp., 7th Cir., 203 F.2d 369 , and were fully disclossed by his patent application, the details of which were made available to Hyde Corporation, together with blue prints, etc., long before the application was made public by the Patent Office when a patent was granted covering some of the claims contained in the original application. If these details as to construction were received by Hyde Corporation in confidence and that company later attempted to exploit them to Huffines’ injury through a breach of confidence, an action lies, and it matters not whether the suit be designated as a “trade secret” case or as a suit for breach of confidence, which is a term commonly used by Huffines in describing his claim for relief. See Bercher v. Contoure Laboratories, 279 U.S. 388 , 49 S. Ct. 356 , 73 L. ed. 752.

We have not held as a matter of law that the relationship of licensor and licensee in itself created a confidential relationship between' the parties. It is undoubtedly true, as stated in one of the briefs filed herein, that, “The existence of a confidential relationship btween a Licensor and Licensee is to be determined in each case [and] it does not follow that merely because the parties occupy a position of Licensor and Licensee a confidential relationship results as a matter of law.” The trial judge was evidently of the opinion that the Hyde Corporation obtained its knowledge of the device involved through its dealings with Huffines while the parties were attempting to work out a contract for their mutual benefit. As a result of these negotiations, they entered into an agreeable arrangement which actually had the effect of putting the Hyde Corporation into the garbage disposal body business. “Viewing the picture as a whole,” the conclusion was reached that a confidential relationship existed between the parties which entitled Huffines to relief by way of injunction. The picture as a whole encompasses the contract of the parties, the facts shown by the undisputed evidence as well as those established by the jury’s verdict. The holding of the trial court on the point was affirmed by the Court of Civil Appeals and also by this Court upon authority of the decisions set forth in the original opinion.

The all-important question in this litigation is whether the injunction should extend beyond the date of the issuance of patent. Upon this point there is an admitted conflict of authority. On rehearing, petitioners adopt some' change of approach *588 or emphasis in argument. The trial judge in the present case rendered an extremely detailed decree as compared with the one entered in K & G Oil Tool & Service Co., Inc., v. G. & G. Fishing Tool Service, this volume 594, 314 S.W. 2d 782 , which was attacked for indefiniteness of term. The descriptions of the claims in the patent application and the patent itself were incorporated in the decree, not as patent claims, but as descriptions of the features of the Huffines device which should be protected by injunction as so-called “trade secrets”. While there is a suggestion that certain of these descriptions or claims may relate to matters well within the realm of public knowledge long before Huffines held any negotiations with a representative of Hyde Corporation, that is hardly the gravamen of the argument nor can it reasonably be supported by the grounds set forth in the motion for new trial filed in the trial court (even considering a “motion to amend and correct judgment” as a part of the motion for new trial), or the points urged in the Court of Civil Appeals, and the assignments contained in the original and amended application for writ of error.

It is contended that upon the issuance of the patent, the claims contained in the application for the patent as distinguished from the claims of the patent itself became public property. This of course is true. The effect of the injunction is to deprive Hyde Corporation of the right to do that which every other person could do, e.g., make full use of the disclosures of the claims contained in the patent application which were not carried forward and protected by the patent. This situation was recognized in the original opinion. We again encounter the conflict between Conmar Products Corporation v. Universal Slide Fastner Co., 2 Cir., 172 F.2d 150 and Adolph Gottscho, Inc. v. American Marking Corporation, 18 N.J. 467 , 114 A.2d 438 , and similar cases. All trade secrets are not patentable and it seems that where one has gained knowledge of trade secrets in confidence, he should not be permitted to exploit the economic advantage gained thereby to the detriment of the opposing party simply because of the public disclosure of the claims contained in the patent application. One who has obtained prior knowledge of a device in confidence may well establish a manufacturing head start, so to speak. He may not and often does not stand on the basis of economic equality with competing manufacturers or the public at large at the date of the public disclosure of the claims in the patent application. For this reason relief by way of injunction should not arbitrarily be denied because the trade secrets contained in an application for a patent have been made public. Whether an injunction should issue and if so the parti *589 cular type of decree that should be rendered must, to a large degree, depend upon the facts of each particular case. Schreyer v. Casco Products Corp., 2nd Cir., 190 F.2d 921 ; Franke v. Wiltchek, 2nd Cir., 209 F.2d 493, 495 .

In view of the dissenting opinion filed by .Judge Jerome Frank in the latter case, we may comment on the holding thereof in some detail as the dissent raises a point similar to that suggested by amicus curiae in the case now before us. Franke v. Wiltchek was strictly a trade secrets case. The federal jurisdiction was based upon a diversity of citizenship of the parties. 28 N.S.C.A. Sec. 1332, and the law of the State of New York was applicable. It was urged that the heart of plaintiffs’ process (alleged to be a trade secret) “was revealed by an expired patent, and that the improvements thereon were unpatentable applications of mechanical skill.” The Court of Appeals said that,

“* * * This totally misconceives the nature of plaintiffs’ right. Plaintiffs do not assert, indeed cannot assert, a property right in their development such as would entitle them to exclusive enjoyment against the world. Theirs is not a patent, but a trade secret. The essence of their action is not infringement, but breach of faith. It matters not that defendants could have gained their knowledge from a study of the expired patent and plaintiffs’ publicly marketed product. The fact is that they did not. Instead they gained it from plaintiffs via their confidential relationship, and in so doing incurred a duty not to use it to plaintiffs’ detriment. This duty they have breached. Junker v. Plummer, 320 Mass. 76 , 67 N.E. 2d 667 , 165 A.L.R. 1449 citing 4 Restatement, Torts Sec. 757 and comment a (1939) ; Peabody v. Norfolk, 98 Mass. 452 ; Vulcan Detinning Co. v. American Can Co., 72 N.J. Eq. 387 , 67 A. 339 , 12 L.R.A.N.S., 102 ; Tabor v. Hoffman, 118 N.Y. 30 , 23 N.E. 12 , 16 Am. St. Rep. 740 ; Spiselman v Rabinowitz, 270 App. Div. 548 , 61 N.Y.S. 2d 138 , appeal denied 270 App. Div. 921 , 62 N.Y.S. 2d 608 ; Extrim Foods, Inc. v. Leighton, 202 Misc. 592 , 115 N.Y.S. 2d 429 . See also Smith v. Dravo Corp., supra, 7 Cir., 203 F.2d 369 ; Schreyer v. Casco Products Corp., 2 Cir., 190 F.2d 921 , certiorari denied 342 U.S. 913 , 72 S. Ct. 360 , 96 L.Ed. 683 ; 4 Restatement, Torts Sec. 757 and comment a (1939) ; Nims, The Law of Unfair Competition and Trade-Marks Sections 141, 143a, 148 (4th Ed. 1947) ; Note, Protection and Use of Trade Secrets, 64 Harv. L. Rev. 976 , 979, 982; cases collected in annotated note 170 A.L.R. 449 , 488-490;”

*590 The Court divided upon the propriety of awarding injunctive relief. The majority in an opinion by Judge Clark upheld the action of the district judge in granting a perpetual injunction. It was said:

“It would appear, therefore, that New York law governs of this point. But the question remains largely academic; for the only way in which New York law seems at all unique is in the number and force of the pertinent decisions. The leading case not only for that jurisdiction, but — in view of its extensive citation — for the country, is still Tabor v. Hoffman, supra, 118 N.Y. 30, 37 , 23 N.E. 12, 13 , 16 Am. St. Rep. 740 , where the court held a plaintiff ‘entitled to the preventive remedies of the court,’ without respect to whether ‘one secret can be discovered more easily than another’ or that a defendant’s resort to the secret ‘was more of a convenience than a necessity.’ That decision is particularly in point because there defendant’s counsel and a dissenting opinion took special exception to the grant of an injunction, as distinguished from the award of damages at law. See 118 N.Y. 30, 32, 33, 38 , 23 N.E. 12 . Among recent cases which follow and apply it the following may be cited: Spiselman v. Rabinowitz, supra, 270 App. Div. 548 , 61 N.Y.S. 2d 138 , appeal denied 270 App. Div. 921 , 62 N.Y.S. 2d 608 ; Biltmore Pub. Co. v. Grayson Pub. Corp., 272 App| Div. 504, 71 N.Y.S. 2d 337 ; Petnel v. American Tel. & Tel. Co., 280 App. Div. 706 , 117 N.Y.S. 2d 294, 295 ; Sachs v. Cluett, Peabody & Co., 177 Misc. 695 , 31 N.Y.S. 2d 718 , per Shientag, J.; Smith v. Dravo Corp., supra, 7 Cir., 203 F. 2d. 369; Schreyer v. Casco Products Corp., D.C. Conn., 97 F. Supp. 159, 168 , affirmed on this issue, 2 Cir., 190 F. 2d 921 , certiorari denied 342 U. S. 913 , 72 Sup. Ct. 360, 96 L. Ed. 683 ; International Industries, Inc. v. Warren Petroleum Corp., D.C. Del., 99 F. Supp. 907, 914 ; Schavoir v. American Rebonded Leather Co., 104 Conn. 472 , 133 A. 582, 583 ; and see also Nims, The Law of Unfair Competition and Trade-Marks, Sections 141, 143a, 148 (4th Ed. 1947) ; Note, Protection and Use of Trade Secrets, 64 Harv. L. Rev. 976 , 982. Thus apt in its facts and citation of authorities is the late case of Extrin Foods, Inc. v. Leighton, supra,, 202 Misc. 592 , 115 N.Y.S. 2d 429 , where Justice Hart enjoined the use of a discoverable formula for the preparation of certain flavoring products and ordered an accounting of profits.

“As the several cases cited earlier in this opinion show,, there is nothing singular in this aspect of New York law. In citing a multitude of cases to the point that an inventor or discoverer ‘will ordinarily be granted an injunction’ against use of *591 a formula or trade secret, the editors of a lengthy annotation of cases in 170 A.L.R. 449 , 488-490, say that in fact ‘most of the cases are injunction cases’ and cite only two insignificant or in-apposite cases to the contrary. See to like effect Spiselman v. Rabinowitz, supra, 270 App. Div. 548 , 61 N.Y.S. 2d 138 , appeal denied 270 App. Div. 921 , 62 N.Y.S. 2d 608 . We have found no case authority to throw doubt on this law. So, indeed, if a search be made for ‘federal law’ so-called, the result must be the same on existing authorities, as we have pointed out above; see, for example, the discussion below and in our court in Schryer v. Casco Products Corp., supra.”

While Judge Frank was of the opinion that an award of damages would do complete justice under the facts of the case, his argument raises the question of an injunction of limited duration. In the dissenting opinion reference was made to a differentiation as to remedies suggested in the Restatement of the Law of Torts. In support of such differentiation, Judge Frank submitted the following argument:

“* * * (a) The harm done by a defendant’s breach of a plaintiff’s confidence is the use of the secret to the plaintiff’s ‘loss’ or ‘detriment.’ (b) By defendant’s wrong he deprives plaintiff of a trade secret defined as something which gives plaintiff ‘an opportunity to obtain an advantage over competitors.’ (c) Where the device or process consists of a ‘novel invention,’ the plaintiff may have chosen not to patent it — which would limit the period of his monopoly — but to keep the invention to himself with the expectation that no one, except those in his confidence, will discover the secret, so that his monopoly will endure for an unlimited time. If the defendant comes to know the secret of such an invention by improper means his use of this knowledge will cause a loss to plaintiff for an indefinite future period during which plaintiff will lose his ‘opportunity to obtain an advantage over competitors.’ Wherefore a perpetual injunction affords a proper protection — a protection as enduring as the monopoly grounded on the secret invention, (d) But where the secret involves only a slight, non-patentable and easily-discoverable improvement, competitors will soon, in all probability, legitimately learn how to contrive this improvement. Consequently, defendant’s wrong has caused a loss of plaintiff’s ‘advantage over competitors’ which, at most, would not have lasted long. Perpetually to enjoin defendant in such circumstances would be to harm him without regard to the loss or detriment suffered by plaintiff.

*592 “In short, such an injunction — continued beyond the time when, in all likelihood, the trade, by legitimate means will catch up with the plaintiff — is sheer punishment, nothing- else. * * *

“The historic injunctive process was designed to deter, not to punish. The essence of equity jurisdiction has been the power of the Chancellor to do equity and to mould each decree to the necessities of the particular case. Flexibility rather than rigidity has distinguished it.” * * *

By way of illustration of the Frank argument, it might be said that the “secrets” of the magnetic fishing tool involved in K & G Tool & Service Co., Inc. v. G & G Fishing Tool Service, this volume 594, 314 S.W. 2d 782 may be more readily ascertained from the publicized patent application or from a legitimate examination of the tool itself than could the “secrets” of the “Compressor Mechanism for Refuse Truck” here involved. If so, a fair competitive balance could be attained by a restraint of lesser duration in one case than in the other. Of course, as is indeed probable, the matter may be academic. With the loss of the trade advantage, the duration of the restraint may be wholly immaterial to a defendant. However that may be, as pointed out in the original opinion, the question of an injunction of limited durating is not before us. The issuance of a perpetual injunction is a common remedy afforded in trade secret cases. The authorities cited by the majority in Franke v. Wiltchek cannot be lightly brushed aside. Nor are we disposed to destroy “the carefully built law of trade secrets,” so that as a practical matter “such business assets (may) be left open to highjacking from all sides.” The trial judge upon proper findings has correctly determined that this is a case for injunctive relief. He has ordered that the usual equitable order issue, e.g. the perpetual injunction. It would seem to follow that if an injunction of limited duration be substituted therefor as suggested by Judge Frank’s argument, an abuse of discretion in issuing the perpetual injunction would have to be shown. Franke v. Wiltcheck, 209 F. 2d 493, 1 .c. 499. No such showing- was made in this case. As heretofore stated, the question of a limited duration injunction as opposed to a perpetual injunction is not raised by a party hereto. The matter is not before us.

Petitioner’s motion for rehearing is overruled.

Opinion delivered June 4, 1958.