Petition for Writ of Certiorari — United States Rubber Co. v. Underwater Storage, Inc.

Supreme Court brief1967

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Text

S, CLERK

INTHE. es ee

Supreme Court vf the Huited States :

_ OcTOBER: TERM, _— .

No. 88 8 7 : = ie

UNITED Srares RUBBER Company, Petitioner,

) | i

UNDERWATER STORAGE Inc., Respondent. .

PETITION FOR A WHIT OF CERTIORARI TO TH UNITED

| STATES COURT OF APPEALS FOR THE DISTRICT OF

COLUMBIA CIRCUIT —

Rosert F. “Conran, ae

815 Connecticut Avenue, N.W.

Washington, D. C., 20006

Harvey E. BUMGARDNER, JR.,

1230 SixthAvenue

Rockefeller Center

‘ New York, N. Y., 20020

: Attorneys for Petitioner

Of Counsel:

. Kurt SHAFFERT -

Press or Byron S. Apams Paurrina, Inc., Wasuincron, D.C.

_ INDEX

= - 23 Page |

Oprt0wa Batow .....0.ccccvcccccce See lncesaae

JURISDICTION . HIG See eee PLES CCED ha etecddebeasenares

Quaertons. PRESENTED ........0506ccceccecccccceecce

STATUTE Invotwnp beteuesd csgtdbnceeuevenedinwccs ,

ConcisE i aa OF SG 5 hiss ca conn th ieee

| ARGUMENT ........ Sir, Cea See Skewes Prrererr

Operation of Statutes of Linitetions Generally...

‘The Nature of the Cause of Action for Tortious

Misappropriation of a Trade Secret Viubdowduend

. ,»lhe ‘‘Fraud Cases’? Exception to the General Ap-

is plication of Statutes of Limitations .............

The: Remedy | Created by the Court of Appeals in

I Fis hss a voekesdisseacecs cc.

The Court of Apiddle* Reliance Upon the Interna-

tional News Service Case .......... Whvteheewid

The Court. of Appeals’ Decision Conflicts With the

' Established Maxims of Equity cerns eaeeecins eu

NES RD rey eer ae ae a TRS ERS

. Index Continued

‘CITATIONS zi

| i? Page

Bralgtie v. Thys Co., 279 U.S. 29 (1964) ........0000. ‘17

Cheney Bros. v. Doris Silk Corp., 35 F.2d 279 (2d Cir-

1929), cert. dented 281 U. SP 728. ee ee °18

Cincinnati Bell Foundry Co. v. Dodds, 19 Weekly Law | :

| Bulletin 84 (Ohio 1887) .........cccceceereeeees “10

’ . International News Service v. Associated Press, 548 os

em 8: Se ED ok 6s by bn ca eh cuawnenas keeuce 3,16,17 °

Sachs v. Cluett, Peabody and Co., 265 App. Div. 497,

39 N.Y.S.‘2d 853 (First Dept. 1943) aff’d ‘mem.

| 291 N.Y. 772, 58 N.E. 2d 241 (1944) ..........07.

ScottPaper €o: v. Marcalus Mfg- Co., 326 U.S. 249

: SE cin bia tavakn teu ecséxkaade sa00see kas me

Reichenfelder v. — 287 U. Ss. 315 — execute oe

ects ‘Bearven: : ah ed lake 7.

* 2B U.S.C. §1254(1) -.e ese eeee seen ees es Rereweenhas .. 2

28 U.S.C. § 1332 .......... ccneureekceked fiscottne. ©

i 77 Stat. 510 (1963) D.C. Cone, 1961 Ed. § 12-301 (Supp.

ALT, 19GA) neccecscccveens Sve rreededyanvenseds 4,6

ieciekasede: |

ResTaTEMENT, Torts § 757 (1939) ............... ace ae

¢ as XK, ae | es

2. meetin Lae

“IN THE

| Bure Court uf the Miited & it.”

~ Qcroser TERM, 1966 :

No.

. Untrep Srares Rusper Company, Petitioner,

UNDERWATER SToRAGE INc., Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

’ STATES COURT OF APPEALS FOR THE, DISTRICT OF’

Dest: CIRCUIT 2s P

OPINION s BELOW

“The opinion of the Court of Appeals is siniied at

US. App. D.C. , F.2d. |, 151.U.8.P.Q. 90,

_ 156 N.Y. Law J., Nov. 14, 1966, p. 1, 94 Wass. L. REp.

- 1721. (1966) and is reprinted herein as Appendix E.

The opinion of the United States District Court for the

District of Columbia is reported ‘at 249 F. Supp. 235,

147 U.S.P.Q.) 408 (1965) and is a herein as .

ee D.

_ 2

_ JURISDICTION

The judgment of the Court of Appeals was dated’

-and entered on September 21, 1966. A timely petition

for rehearing was denied on October 27, 1966. The

jurisdiction of this court is invoked pursuant to 28

U.S.C. § 1254(1).. a we 4

QUESTIONS PRESENTED

1. A statute of limitations applicable to Joitiods dis-

closure or ,. of another’s txade secrets states that no

action shall’ be brought after the expiration.of three

years from the time at which it accrues. Query: Where

a trade secret owner learns that his secret has: been

misappropriated, used and destroyed by geriéral publi-

cation and thereafter delays bringihg any action agaihst

the tort-feasor for more than three years, is his entire

right of action barred by the statute, (as the nig ri

Court held) or, despite his inaction for more than thi

. years after learning of the destruction of. his. trate

_seeret, does his right of action persist forever with re-

x spect to, uses by the tort-feasor occurring within three

years of any future action he may — (as the Court

of Appeals held) ?

2. ‘The Court of . soos reinstated plaintiff 8 ‘com- |

plaint alleging ¢1) plaintiff’s ownership of a trade

secret, (2) the issuance to plaintiff of a United States

patent covering the trade secret, (3) defendant’s mis-

appropriation, use and general publication of the secret

-before issuance of the patent and further use there-

after, and (4) praying for money damages and an

injunction against defendant’s further use .of the

former secret. Query: Is the plaintiff entitled to the

injunctive relief prayed for after defendant’s gen-

eral puffication of the secret since it is clear that

‘

; n)

an adequate remedy is provided at law by way of money

damages for the.value of the destroyed trade secret and

an injunction could. not operate to retrieve the secret .

from the publie’s knowledge and thereby prevent irrep-

arable’ injury, but could only have the purely punitive -

effect. of removing defendant permanently as a com-

petitor to the plaintiff and all others in the trade after

the patent coverifig the trade secret has expired? _

"3. In International News Service v. Associated

Press, 248 U.S, 215 (1918) this Court found that one

‘who painstakingly gathers’ news does not absolutely

lose, by publishing this news, all right to control the

use which his competitors may make of the published

news and issued-an injunction to preserve the competi-

tive positions of the parties as they. existed prior to |.

the wrongdoing -with respect to each other and with

respect to other competitors. Query: Is International | ,

News Service to he taken as authority for issuing an

_- Injunction against the wrongdoer in the case of mis-

appropriation and publication of a trade secret where

_ the effect of an-injunction will not be to preserve“the

positions of the parties but will be to permanently ..

disable the defendant as a competitor of ‘the plaintiff -

_ and others in the trade? pan ey Siubictiat i

4. The Court of Appeals for the District of Columbia:

Circuit has reversed the District Court:to adopt a con- -

struction of the effect of the statute of limitations

enacted by Congress upon actions for the tortious mis-

. appropriation of trade secrets whereunder actions for

past wrongs, rather than being quieted by the passage

of time, can forever be brought. - The. Court of: Ap-

peals acknowledges the absence of dispositive prece- _

dent from any jurisdictiori for this construction, but

- relies upon an expression of public policy which it < be

finds by interpreting International News Service in a

manner in direct conflict with the restrictive ‘interpre- ?

tation given to that case by other circuits. - Query:

Should..xiot this court review ‘this decision so funda-

mental to the nature of the rights in trade secrets, a

burgeoning area of. the law having already significant

and ¢onstantly growing impact upon the commerce of

the nation ? ? ¢

apie + srdture INVOLVED.

- This case involves 17 Stat. 510 (1963), D. C. Conz,

1961. Ed. § 12-301 (Supp. III, 1964) which is set out |

in full herein in,Appendix C. The relevant portion of

one statute provides:

<[A]etions for the following on ae thay not -

be “brought after the expiration of the period |

specified below from the time the right to main-

tain the action accrues:

(8) for which a limitation is ik a

specially preseribed—3 years. Ae:

< - . “CONCISE STATEMENT OF THE CASE .

In 1960 petitioner (defendant below), under a con-

tratt with the Office of Naval saat’ of the U.S.

Navy, installed in the Gulf of Mexico an underwater

oil storage facility capable of holding quantities of

; petroleum: beneath the surface of the ocean until they

are needed. to fuel naval surface ships. Upon the con-

the petitioner, still pursuant to the terms of the con-

- elusion of: cnt this demonstration installation

tract, disassembled the same and.prepared a written: -

description of the facilities and of the results of the |

demonstration in a report which it submitted to the

. . U.S. Navy and which the U.S. Navy published in ~

: eect 1960 in a‘ booklet entitled ieee

_of a 50,000 Gallon Submersible Fuel Cache’’ which was

distributed to the general publie.

On March 27, 1964 the respondent (plaintiff below)

brought this action in the U.S. District Court for the

'~ District of: Columbia under 28 U.S.C. § 1332 alleging |

that Dr. Harold G: Quase, its executive vice-president,

had developed ‘‘certain systems, methods, technical -

know-how, and inventions relating to an underwater -

storage system for strategic materials”’, that Dr. Quase

had assigned all of his rights thereto to plaintiff,. and

_ that ‘‘during various times beginning in 1958 defend-

ant, [had] .wrongfully appropriated and utilized these

. Including use thereof in connection with the said

. Navy contract.’”’ (The entire complaint is set out

herein in Appendix A.)

Dr. Quase has stated upon Pritts that he a

tained.a copy of the said U.S. Navy: report ‘‘prac-

* tically a week after it came out’’, in January .or ©

February of 1961, and that he was convinced from a

reading of this report. that defendant was ‘‘infring-

ing’’ his rights. _ (Relevant excerpts from the deposi-

tion-of Dr. Quase are set out in the Joint. Appendix, .

pp. 11-52, which is. contained in the certified reeord:)

. In his deposition Dr. Quase also stated that, while he

did not know how defendant had obtained his secrets,

the only way in which defendant could have obtained

them was through a third party who might have been. -

a person or persons in the Office of Naval Research ©

of the U.S. Navy to whom, Dr. Quase alleges, he en-

trusted his secret information ‘ih/confidence. * Plain- ©

' tiff prayed for damages in the amount of five million

. dollars ($5,000,000) for this appropriation and utiliza-

tion, a declaration that plaintiff is the owner. of the

said systems, methods and inventions and a perpetual sa

injunction against defendants for the use thereof.

_ Defendant answered by admitting that it had been

a party. to the said government contract but denying

that it had ever wrongfully appropriated or used any

‘technical know-how or trade secrets of the plaintiff or

its assignor, Dr. Quase, and denying that any of its

publications referred to any wrongfully acquired know-

how or trade secrets. Defendant also pleaded the three

year statute of limitations. (The Answer is set out

herein i in Appendix B.)

‘There is no dispute between the parties as to the

fact that the applicable portion of the statute of limi-

tations is the one which provides that actions may not

be brought more than three years from the time that

the right to maintain them accrues. (The statute, 77

‘Stat. 510 (1963), D. C. Cone, 1961 Ep. § 12-301 (Supp.

ITI, 1964) is.set out infull herein in Appendix C.)

Nor is theré any suggestion ae the statute had been

tolled at any time.

The District Court~granted summary por eee foe

defendant on the ground that the statute of limita-

tions had run since plaintiff first learned of the alleged

misappropriation, use and Jai publication of the

secret.

On plaintiff ’s appeal, the Court of Appeals So

holding that although there was no dispositive prece-

dent on the point plaintiff should on policy. grounds .

- recover for any use of the formerly secret information

by defendant which could be proven te have occurred

within the three years immediately preceding the bring-

' ing of the action. . To defendant’s argument that there

ean be no recovery for use of formerly secret informa-

tion more than three years after the destriction of

the secret by its general publication, the Circuit Court

"answered : | : :

Insofar as appellee’s argument extends to parties

who are not misappropriators in the first instance,

or possessors of the secret by virtiie of learning it

from the misappropriator(s) with-knowledge that -

it was stolen, we believe this argument ‘to have

merit. However, the fault in appellee’s reasoning

lies in its applying as a test to its’ own actions the |

rights of appellant as against the public generally

(td est, those who have acquired the ‘secret after

publication), instead of considering the rule which

should obtain between the original ‘possessor and |

the misappropriator or those who have received

. the secret from the misappropriator with knowl-

_ edge of the wrongful appropriation. We do not

‘believe that a misappropriator or his ‘privies can

‘‘baptize’’ their wrongful actions by general publi-

‘ eation of the secret. . Nor do we believe that the

~ _ fact of the destruction of the secret prevents the

_ eontinued use by the misappropriator or his privies

‘from being a continuing wrong vis-a-vis the origi-

nal possessor of the secret. It is the continuing

use of another’s secret, wrongfully obtained, or

used after knowledge that it has been wrongfully

obtainéd, that makes the tort a continuing one.

Once the secret is out, the rest of the world may

well have a right to copy it at will; but-this should

_ not protect the misappropriator or his privies. -

Their gain is ill-gotten an@ the passage of time or

publication to the rest of the world should not

serve to cleanse their hands. See International

News Serv. v. Associated ‘Press, 248 U.S. 215, °

239 (1918). ae

ARGUMENT :

Operation of Statutes of Limitations Generally

In considering any decision determined on public ~

policy :grounds as to how a statute of limitations de-

' fense shall be applied to a cause of action, it is useful

to keep in mind the well-known publie policy to which

ar Congress addressed itself in enacting such a stat-

It is indisputable that by their very nature,

pi i of limitations inevitably work for the bene-

- fit of the wrongdoer vis-d-vis a party who fails to.

bring his action within the specified period after he

is first able to do so. In this sense statute of limita-

__ tions defenses always serve to, ‘‘baptize’”’ the wrongful —

‘act. However, the statute of limitations need not

deprive a party suffering a wrong of his right to

recover therefor. All it requires of him is that he

bring his action within -the time which the. statute

specifies after his cause of action has accrued. To deter-

mine the effect of the statute upon this particular

-eause of action it is therefore necessary first to deter-

mine what the essential elements of a cause of action

for misappropriation of.a trade secret are. When

- these are present, the. cause of action must be said to

have accrued:

The Natute of the Cause of Action for Tortious

Misappropriation of a Trade Secret

It is beyond dispute that the owner of a ttade secret

will be protected in his interest in maintaining ex-

clusivity of knowledge of his secret information and

in preventing unauthorized use thereof. When an-

other tortiously obtains knowledge of this secret and -

makes such unauthorized use thereof as falls short of

its general publication, a cause of action for damages

_ for the unauthorized use and for an injunction against

9 : .

further use thereof by the tort-feasor, but most im-

,portantly for an injunction against general disclo-

sure of the, trade secret by the besdabueed accrues: to

the owner of the secret.

General disclosure of the trade secret is the greates

wrong which can be committed against its owner ~a

much as this act destroys the secret. With this wrong-

ful act a.cause of action accrues to its owner to recover

for the total past and prospective value of that secret,

or, at.the very least this cause of action must be said

to accrue to the owner of the former secret at the time

- that he learns of its wrongful destruction.

After the tortious déstruction of the trade secret its

former owner no longer has any subsisting right —

_ against. the violation of which the law can protect him.

Therefore, no further causes of action can accrue as . 3

a. result of uses of the formerly secret information —— ~“f

after the.secret-has been destroyed by publication. : In

Sachs v. Cluett, Peabody and Co., 265 App. Div. 497,

39 N.Y.S. 2d 853 (First: Dept. 1943) aff'd mem.

291 N.Y. 772, 53 N.E. 2d 241 (1944). the expiration of

the period defined by the statute of limitations fol-

_ lowing the wrongful taking and publication of a trade’ |

secret was held to bar any recovery, including that for

uses made of the formerly secret information within

the statutory period. The court observed : :

* A continuing ight, may exist where there is an

interference with but not destruction or conversion

of property. (30 N.Y.S. 2d at 857]

This reasoning was. explained with the following -

- parable:

If defendant hits plaintiff ’s horse vipedtedlo.

plaintiff has a new cause of*action upon each

‘

LS ie et

a striking; but if defendant destroys plaintiff’s

horse, or takes it and claims it as his own, plain-

tiff’s right accrues immediately and hé*must sue

within the period of limitation measured from

that date—or never. [39 N.Y.S. 2d at 857]

Tortiausly acquiring knowledge of pr eee s trade

secret and using this secret in competition with the

owner in such fashion as not to publish the secret is

admittedly analogots to striking a blow at his horse. .

Each time a blow is struck, or each time the secret. .

information is covertly used, a ‘new cause of action .

for damages accrues: to the owner. -Except for the

wrongdoer’s knowledge of it, the secret remains in-*

tact and the court can fashion remedies against the

wrongdoer which. will restore the secret at full value

to its owner.

When the tortious aequirer of. the secret id lace :

it, however, he has in effect killed the horse and no

order of the court can restore the secret to its former

owner any more than~it could bring the dead horse

- back to life. If the former owner does not bring his

action to; recover for the total value of the former .

secret of the dead’ horse within the period per-

mitted by the statute of slam he i is barred from

all recovery.

One of the most widely wapiie statements as to the

nature of the right in trade secrets which the law will’

protect is that made by Chief Justice William Howard

Taft (when he was on the lower bench) in Cincinnati

Bell Foundry Co. v. Dodds, 19 Weekly “Law Bulletin

- 84 (Ohio 1887) :

‘The property in a secret process is the power to

-make use of it to the exclusion of the world. If

the world knows the process then the property

‘nai

}

Oe” nek me

disappears. There cam be no property in a process —

and no right 9f protection if. knowledge of it is

common to the world. -— - -

A more modern view of this right, expressed in

RESTATEMENT, Torts § 757 (1939) Comment a, (this

section with comments is set out in its entirety herein .

in Appendix F.) -avoids calling this right a property

right but.also stresses that the secret status of the

_ information is the subject of legal protection against

_ one who acquires it by unlawful. means:

The protection afforded by .the rule stated in

this Section is in some respects greater and in

‘some respects less than that afforded by ‘the. pat-

ent law. It is greater in that it is not limited-to

_ a fixed number of years and does not require

“novelty and invention as in the case of patents

(see Comment b). It'is less in that secrecy of the

process and impropriety in the method of procur-

ing the secret are requisite here but not in the

‘ ease of patents. [Emphasis added.]

The applicable, portion of the black letter ‘rule of this

Section is: . ! oa

* One who discloses‘or uses another’s trade ‘secret,

aap a privilege to do so, is liable to the other

7 ‘ : : ‘ ° ; :

(a) -he discovered the secret. by improper means,

++ [Emphasis added]

The only proper inference to be drawn from this

proposition on which the authorities so ‘uniformly

agree, hamely that the protectable interest which ‘a

trade secret qwner enjoys is the maintenance of the

status of secrecy, is that no ‘protectabJé interest sur-

vives the termination of the secret status. Therefore,

the exclusive remedy for the tortious acquisition of a

trade secrét and its wrongful destruction by the tort- .

feasor’s general publication must be an action ‘to -

recover from the tort-feasor for the entire value of

the secret. This is so regardless of whether the tort-

feasor has used the secret and whether such use is

before or after the destruction. It works no untoward

hardship upon the victim of this wrongful appropria-

tion to require of him, as of the victims of ‘all other

‘tortious acts, to bring his‘action to recover for this -

wrong within the period defined by the statute of

limitations from the time of the occurrence of that.

act? . a

It, is sidioaiiat in ‘this context to distinguish the |

_ legal status of members of the general public who may

engage in purely tortious conduct with respect to an-

-other’s trade ‘secret’ from the special legal status of

those who have removed themselves from the géneral

public by entering into a contractual relationship,

either express or implied, with the trade secret owner.

The tort-feasor is answerable for his conduet im ac-. “

quiring the secret by. improper means in: an action

brought within the appropriate statutory period after

| eras tata of the tort.

"One liable to another under contract, however, does

not learn of the secret by unlawful appropriation.* He —

receives knowledge of the secret lawfully from its

owner under the terms of a contract, and is therefore -

. bound by all of the contractual duties which he as-

sumes. These duties generally include keeping \the

~ seeret in confidence and compensating the owner for

1Tt. willbe nated that plaintiff has pleaded (Complaint, para-

~—graph-3; Appendix A) that he has’ obtained a patent on the trade ©

- secret involved herein. Thus the. rule contended for herein has

____ less impact. upon plaintiff in this action than upon one who relies ~

_ solely upon his rights under the law of trade secrets.

13 ) Pye

( its use. He is answerable for-each breach of his con-

tractual duties which has occurred within the statutory

‘period preceding the bringing of the action, and ‘his

liability for use of the secret may well survive the

publication of the secret if he has agreed to do sa in

consideration for being made privy to the secret. The .

subsisting right upon which the owner. of the trade -

secret relies in such a ease is his right under the con-

tract (whichsmay well survive publication of. the

~Lsecret) rather than upon his right to maintain the

secret status of his information (which, as has been

said, is irresurrectably destroyed by publication).

The “Fraud Cases” Exception to the General Application of

ens ae Statutes of Limitations -

* The only exception recognized in the law to the gen-

. eral rule as to the operation of the statute of limita-

tions on actions to recover for tortious acts is where

the very nature of the wrongful act may serve to

conceal from the victim that a wrong is being perpe-

trated upon him. Sueh a situation is not uncommon

in fraud cases. HoweVer, the only modification to the’

general operation of the statute pf limitations’ which

the law makes in such cases is td hold that the cause

of action accrues (anid therefore that the statutory

period begins to run) when the victim of the wrong-

' doing discovers. the wrong. ,No greater exception to

the general rule would seem necessary to protect trade

- secret owners from covert invasions of their rights... *

\ - .

Plaintiff has admitted gaining actual knowledge of

.the alleged misappropriation from him of the ‘secret |

and of its publication more than three years before

the bringing of his action. Thus, plaintiff admits to —

letting the statutory period following his learning

of all of the operative facts of\the-alleged tort per-

petrated upon him expire before bringing this action.

| 8 ‘ ‘

a The Remedy Created by the Court of Appeals in This Case

The Court of Appeals has takén the position that

permitting one who misappropriates and publishes a

‘trade secret, after the expiration of the statutory

period from these wrongful acts, to use ‘without in-

curring liability thereby the formerly secret informa-

tion would be permitting him to “‘baptize’’ his wrong-

ful action in misappropriating the secret by the second

wrongful action of publishing it. This position, totally

ignores the fact that, far from being a ‘‘baptism’’,

' the act of publication is a tort calling down upon the

wrongdoer the wrath of an action to recover for the

total value of the secret. The former owner of the

secret is only required, at least thsofar as he seeks -

redress ‘from temporal authority, to bring this action

in timely fashion. There is no basis in logic, and no

“analogous situation in any area of the law which would

justify imposing eternal damnation upon the former |

wrongdoer in the form of a perpetual liability for —

use of the information formerly embraced by the |

trade seeret.. Under the rule pronounced by the Court |

_ of Appeals in this case defendant remains subject to

. liability for any use which he may make of this in-

formation, even one hundred years from now. Thus

he must refrain from competing not only with plain-

tiff who allegedly originated this information, but also

with the'rest of the public who clearly now enjoy the

right to make full use of this information subject aad

to plaintiff’s patent right.

If such liability exists, what is its extent? What

measure of damages is to be applied to any post-

publication _use—of- the formerly secret information

-which plaintiff-can-prove-defendant to have made?

His right to recover for the total value of the secret

Sahee oate te ttes

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as a result. of its wrongful destruction by publication

is barred by the statute of limitations. Is that right

of actioh to be barred only to permit thé recovery which

plaintiff could have gotten under it had.he brought

it in timely fashion to’ survive by allowing him to

recover its value in actions fér-post-publication uses

of the information ? ? i. *

‘It is to be emphasized-that, under the rationale of

the Court of Appeals, actions to recover for. post-

publication uses made of the formerly setret informa-

_ tion by. those privy to its wrongful publication would

Seem to lie even where the former!owner had brought

a timely action to recover for the total value of the

secret after its publication. .For the wrongdoer in

such a situation. is as much the holder of an ill-gotten

gain as the wrongdoer in the instant case, and ‘the

passage of time or publication to the rest of the world

should not serve to cleanse their hands’? any yiore

than it should here. Or is the rule to be that where

a plaintiff, after his secret has been destroyed . by

wrongful publication, brings a timely action to recover °.

for the total value of the secret this recovery will be

’ his full compensation, but where he fails to bring such

an action in timely fashion the liability defined in this |

‘ease by the Court of Appeals shall subsist and permit

him to make his recovery by way of damages for post-—

publication uses of the formerly secret information?

The operation of the law can not be enhanced by cir-

cumventing the policy served by the statute of limita-

tions with the creation of. special causes of action solely

?In view of plaintiff’s exclusive right for a limited time under

- his patent and his perpetual exclusive right against defendant as

_eredted by the Court of Appeals, plaintiff would appear to have

an opportunity for multiple recovery for a single use by defendant. - ~

oe 4 5. 36 - i,

for the purpose of compensating those sili haye per-

- mitted the passage of time to bar their regularly. recog-

nized remedies. é

The Court of Appéals’ F Reliance Upon ie en. News

Service Case

The Court of. Appeals expressly pointed out that

it had found no dispositive precedent for the novel

eause of action which it fashioned in order to reverses

the summary judgment for defendant entered by the

Distriet Court. For a prior expression of the public

policy which the Court of Appeals sought to serve, it

refers us to International News one v. Associated

Press, 248 US. 215 (1918). 3 |

A consideration of the- Jaeuaioes News Service

_ ease, however, reveals a number of crucial distinctions

between it and the instant case. First of all, the

activity which the plaintiff there sought to enjoin was

future misappropriations of his news by the defend-

ant, not'the further use of material already wrongfully

taken: Certainly the-case did not involve the use of

material over three years after (or more than the statu-

tory period after) it had been published.

Secondly, the plaintiff in International News Serv-

. tce sought a. remedy which would place the defendant

on the same footing as plaintiff’s other competitors.in -

the news distribution field. It’ sought (and obtained)

- an order requiring the ‘defendant to expend an effort

wm the future the new which it intended to furnish to

its customers. Thus it prevented the reaping of ‘the

: harvest of those who have not sown.’’ In this case,

on the other hand, plaintiff seeks relief which would

disable the defendant from, or at least place him at a

serious disadvantage in, competing with the other

17. vy

members of his trade i in ‘the use of publicly available

information.’ |

‘Thirdly, the rule of International News Service. wae

fashioned for a very special circumstance which could .

not be more remote from the one at bar. -The plaintiff

in International News Service dealt in a commodity

the sole value of which lay in its prompt publication. ~

The sole value in a trade secret, on the other hand, lies

in its. owner’s ability to keep it secret.. It would be a |

‘complete contradiction of the nature of trade secret

protection. to suggest that exclusive ,xights: to a trade

3 s@ret can survive its publication.

‘In order to ‘fashion the remedy granted in Ianter-

national N ews Service, this Court first had to establish

that the plaintiff had an interest which ee his

act of » publishing his news:

The contention that the news is abandoned to

the public for all purposes when published in the

first newspaper is untenable. Abandonment is a

the Associated Press negatives such a purpose.

The cost of the service would be prohibited if the

_ reward were to be so limited. . ..* Their effect is

that publication by each member must be deemed

not by any means an abandonment of the news to

_°. the world for any and all purposes, but a publica-

, tion for limited purposes. {248 U. at 241-42,

- Emphasis added.]

Having. found the publication which preceded the ad-

verse use complained of to be a limited one, i.e. one - -

8 Subject to plaintiff’s patent right which. operates against all

‘ . competitors alike for a limited time. Upon the expiration of that

time, however, plaintiff will continue to enjoy a perpetual. exclu-

sive right against defendant. Contra, Brulotte v. Th Co., 279

U.S. 29 (1964), Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S.

i (1945). : ng

which did’ not - destroy plaintiff ’s subsisting rights -

therein, this Court was then in a position to grant a

remedy to protect those subsisting rights. Whatever

the propriety of the majority’s finding that the publi-

eation in International News Service was but a limited

one, there can be no question but. that the tortious.

publication which plaintiff admits to havé occurred (in

the instant-case) was a general one, irrevocably ending

all of plaintiff’s rights to the published material.

ty analogous fact situations, has long -been recog-

‘silk designs from reaping where they had not sown,

Judge L. Hand in Cheney Bros. v. Doris Silk Corp.,

35 F.2d 279, 280 (2d Cir. al cert. denied 281 U.S.

> 728 (1930) stated :

" Of the cases on which the plaintiff relies, the chief

248 U.S. 215, 39 S. Ct. 68, 63 L. Ed. 211, 2 A.L.R.

293. Although that concerned another subject-

matter—printed news dispatches—we agree that,

if it meant to lay down a general doctrine, it would

cover this case; at least, the language of the ma-

jority opinion goes so far. We do not believe

that it did. While it is. of course true that law

ordinarily speaks i in general terms, there are cases

where the occasion is at once the justification for,

and the limit of, what is decided. This appears to

us such an instance ; we think that. no more was

covered than situations substantially similar to

those then at bar. The difficulties of understand-

ing it otherwise are insuperable. We are to sup- ;

pose that the court meant to create a sort of com-

mon-law patent or copyright for reasons of justice.

Either would flagrantly conflict with the scheme

- which Congress has for more than a century de-

vised to cover the subject-matter. ;

Rae Me ee ee em a eee tate ine A al at ea Se tees Sal een alan bia tincontlet we Sibel

This distinction drawn by the Second Circuit has been

_ recognized by this Court'in Reichenfelder v. Quinn, 287

U.S. 315, 319 (1932) :

- Beyond the traditional boundaries of the common

. law, only some imperative justification in policy

_ will lead the courts to Tecognize in old values new

property rights. et International News

‘Service v. Associated Press ... with Cheney Bros.

y. Doris Silk Corp... .-. :

Taking International N ews Service as the basis for

the creation of a permanent liability for use of infor-

mation which was orice embraced by a trade secret but

which has since entered the public domain (subject to

the patent right) represents a very sharp departure

from the construction which International News Serv-

ice has uniformly recetved since 1918 and is an inno-

vation of very questionable desirability in the law.

_ The Court of Appeals’ Decision Conflicts With the

Established Maxims of Equity

Reversal of the summary judgment for defendant

appears to place plaintiff in a position to recover on

_ his prayer for a perpetual injunction against plain-

* tiff’s, use of the subject, matter of the former trade

secret. As has been pointed out herem, the one whose

_ trade secret is misappropriated -from him and de-

stroyed by general publication has an adequate remedy

at law in the form of money damages for the total

value of the,secret, provided only that he pursues it

seasonably. Furthermore, inasmuch as the rest of the

world already has aecess to this formerly secret in-

formation, further use of it by defendant does not

pose the threat of irreparable injury .to the plaintiff

by terminating the secret status of that information.

Also the rest of the world is now/free to compete with

plaintiff in the use of this information so that it can-

_ not be said that plaintiff would be irreparably injured

by defendant’s competition with him in the use of _

this information/ Thus if there is any liability for ~

the use of this now published information, it is clearly

such liability as for which there is'an adequate legal

remedy in the form of damages. The issuance of an:

injunction in such a situation constitutes the use of

the-injunctive powers of a court solely for the purpose

of: punishing a wrongdoer—a use clearly contrary to

the generally accepted principles of equity.

Yet this misapplication of: the principles of equity

. is no less glaring than the underlying reason expressed

_ by the Court of Appeals for reversing this judgment,

namely to avoid permitting the passage of time or

publication to the rest of the world to serve to cleanse

defendant’ s hands. The doctrine of unclean hands is

a longstanding defense against one who seeks equitable

relief. That is, a condition precedent to obtaining the —

forms of relief which only equity can provide is that _.

the: party seeking this relief have ‘‘clean hands’’ with

regard to the‘transaction at issué. It is a requirement

made of plaintiffs. It is not proper to fashion extraor- —

dinary sanctions to be imposed upon defendant, as

the Court of. Appeals has here done, because ~~ has —

unclean hands.. )

SUMMARY

The Court of Appeals has, without precedent there-

for, fashioned a form of liability in trade secret cases*

under which the user of any published information is .

forever liable to an action by one who would seek to

- establish that the information once constituted his.

_ trade secret and was deseiatiid ee from him by:

the user.

‘This holding stems from a balancing _ the court of

the policy underlying the statute of limitations with

the policy of preventing tort-feasors from benefitting _

. from their wrongdoing in a fashion which badly under-

_ values the former and results in reducing competition. .

/ As. justification for this departure, the Court of

Appeals relies upon this Court’s decision~in I nter-

+ national News Service even thowgh that ‘case is

totally inapposite to the instant one and even though

‘such an interpretation of, that case is widely at vari-

ance to the interpretation whicli the other circuits have

> given to the case since it was decided in 1918.

This extraordinary form of liability is totally un-

__ hecessary, inasmuch as the right to bring a timely

action for the total value of a trade secret after its

tortious publication is a fully adequate remedy at law

for the former owner of the trade secret. The time-

liness of such an action is measured by the statutory

'* period following the wrongful publication. Should

the former owner be unaware of the wrong committed .

against him, he certainly requires no greater protec-

tion against the operation of the statute of limita-

tions than that which must suffice the victim of a covert |

fraud, namely to initiate the running of the statutory |

periéd at the time of plaintiff’s discovery of the wrong.

. Ropert. F. Conran,

: | 815 Connecticut Avenue, N.W..:

3 i Washington, D. C., 20006

Harvey E. peace: IR.,

1230 Sixth. Avenue

Rockefeller Center °

New York, N. Y., 20020.

Attorneys for Petitioner

Of Counsel: |

Kurt SHAFFERT

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.