Petition for Writ of Certiorari — Ellis v. Cates

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IN THE

Hupreme Court of the Gnited States

Ocroser Term, 1951.

No. 340

Jutivus Hyman & Company, a Corporation; Jutrus Hyman,

individually and as President and Director of Julius

Hyman & Company; Roserr Sizser, individually and

as Secretary and Director of Julius Hyman & Com-

pany; Cuagtes A. Beckwith, Danie, E. Bonnet;

Nicx D’Amore; Ase DanisH; Epwarp Despres; Henry

Dupiak; Ernest Frermeicy ; Rex E. Livov; Wim E.

McCavtzey; THomas McKenna; Roy J. Mituer; Steve

Pocstk; Howarp Rosensaum; Yust Tasima; James F.

Warre; Farrz Worr and Sron Zevin, Petitioners,

Vv.

Vetsico: Corporation, Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

SUPREME COURT OF THE UNITED STATES AND

BRIEF IN SUPPORT.

CLAUDE PEPPER,

Attorney for Petitioners.

Passs or Byron S. Apams, Wasurrcton, D.C

IN THE

Supreme Court of the Anited States

Octoser TrERM, 1951.

No.

Jutius Hyman & Company, a Corporation; Jutius Hyman,

individually and as President and Director of Julius

Hyman & Company; Roserr Sizser, individually and

as Secretary and Director of Julius Hyman & Com-

pany; Cuartes A. Beckwith, Danie, KE. Bonnett;

Nicx D’Amore; Ase DanisH; Epwarp Despres; HENry

Dupiak; Ernest Frerreicn ; Rex FE. Linvov; Wii EF.

McCautey; THomas McKenna; Roy J. Miniter; Steve

Pocstk; Howarp Rosensaum; Yugi Tagrmma; James F.

Waite; Frirz Wor and Simon Zevin, Petitioners,

Veutsico, Corporation, Respondent.

PETITION FCR WRIT OF CERTIORARI TO THE

SUPREME COURT OF THE UNITED STATES AND

BRIEF IN SUPPORT.

To the Honorable Chief Justice of the United States and

to the Associate Justices of the Supreme Court of the

United States:

Your petitioners above named, Juttus Hyman & Co.,

ET AL., pray that a Writ of Certiorari issue to the Supreme

Court of the State of Colorado to review the judgment of

EE ee Rn IRI ee mM Ste Oe ree nee Ome ie

that Court filed as modified June 25, 1951, affirming and

modifying a decree of the District Court of Denver, Colo-

rado, awarding a decree against petitioners in a sum exceed-

ing one million dollars and granting an injunction against

petitioner’s use of certain formulas and processes for the

manufacture of an insecticide known as chlordane.

SUMMARY STATEMENT OF THE CASE.

The events culminating in this petition began with a joint

venture aptly characterized by the trial judge ix this case

as follows:

**One man had the brains and the other had the money,

and one furnished the brains and the other furnished

the money. The man who furnished the genius had no

capital, as I understand it, and that relationship con-

tinued and was built up from, you might say, an actual

capital outlay of $16,000 to a potential of over a million

dollar concern.”’ (R. 2, fol. 3361)

The man with the brains was Dr. Julius Hyman, a bril-

liant 29 year old chemist who in 1931 had two patent appli-

cations pending covering uses of certain polymers which he

had discovered in the residue from the refining of gasoline

from crude petroleum. The product covered by the appli-

cations for patents was a synthetic fast drying oil substan-

tially equivalent to linseed oil. (R. 2, fols. 798-805)

The man with the money was Joseph Regenstein, a cousin

of Hyman, whom Hyman approached with the proposal

that they develop the subjects of the Hyman patent applica-

tions. (R. 2, fol. 807 ) Regenstein agreed with Hyman to

enter upon the joint venture of developing the subjects of

the two applications. Regenstein, his lawyer and an asso-

ciate worked out the corporate structure Regenstein and

Hyman were to employ in the enterprise. (R. 2, fol. 1526,

1675) They organized a corporation, known first as

Varnoil Corporation and later as Velsico] Corporation,

with $20,000.00 capital stock, $16,000.00 of which was issued

for cash to two of Regenstein’s corporations, Transo Cor-

= )

poration and Arvey Corporation, and $4,000.00 to Hyman

in return for the assignment of his two patent applications

to the corporation. (R. 2, fols. 1518,1519) Hyman was not

entirely satisfied with his 20 percent of the company for

his two patent applications in view of the small capitaliza-

tion, but he accepted the arrangement. (R. 2, fol. 2339)

Regenstein became the President of the corporation and

was consulted in financial matters. (R. 2, fol. 1557) Hyman

became Executive Vice-president and Director of Research,

and was its actual operating head. (R. 2, fols. 1517, 1557)

The organization and operation of the business were con-

ducted somewhat informally, with few formal meetings of

stockholders or directors. (Ex. 13)

After a slow beginning the business progressed; in 1937

Velsicol completed a plant at Marshall, Illinois. In order

to meet operating deficits and finance the building of the

plant, Regenstein’s two corporations loaned substantial

sums to Velsicol. (R. 2, fols. 934-936) During these years

Hyman contributed many inventions to Velsicol. (R. 2,

fol. 2162) In the early forties the company began to earn

profits, and by 1943 it had erased its operating deficit. (R.

2, fols. 944, 2162, Exs. 22-25)

In 1943 Hyman invented a process for production of

vitamin K, a blood clotting vitamin. (R. 2, fol. 2159) By

this time he had assigned 37 of his inventions to Velsicol

without consideration and Velsicol was at iast in sound

financial condition. Hyman notified Regens‘ein that he

would not assign this or future inventions to Velsicol unless

he was compensated in some way. (R. 2, fols. 2162-65)

Regenstein insisted that Hyman continue to assign patents

and assured him that his greater participation in the com-

pany ‘‘would be worked out to his satisfaction.’”’ (R. 2,

fols. 1735, 1742) Hyman, in reliance upon this assurance

of Regenstein, assigned this patent application and others

in due course until 1945. (R. 2, fols. 2167, 2377)

In that year, Hyman invented an insecticide, now known

as chlordane, tests of which showed great promise. (R. 2,

fol. 964) Patent applications were duly filed for the inven-

tion in this country (R. 2, fol. 964); petitioners offered

proof of the filing of similar applications in England, Bel-

gium and several other foreign countries and of the publica-

tion of the invention in Belgium in April and May 1946 and

in England in January 1947. (R. 2, fols. 3007-15, R. 5, fols.

3573, 3580, Exs. 34-36) Hyman did not assign the patent

applications for this invention.

In 1946 he demanded of Regenstein, as a condition of

assigning this invention, an increased interest in the com-

pany. (R. 2, fols. 2206-8) Regenstein insisted that the

invention be assigned and represented that the increase in

interest would then be discussed and arranged. (R. 2, fols.

1568, 1705) In view of the 1943 incident Hyman refused to

rely on this representation. Both Regenstein and Hyman

consulted attorneys. (R. 2, fols. 1756, 2229-3, 2389) Hyman

was advised by counsel that he was justified in his conten-

tion that he was not obligated to assign these applications,

and continued his refusal. (R. 2, fol. 2389, 2390) On Sep-

tember 13, 1946, Regenstein formally demanded of Hyman

that he assign them or resign. (R.2, fol. 2225) Hyman re-

signed. Shortly thereafter the directors controlled by Reg-

enstein voted to initiate suit in Illinois against Hyman for

the assignment of these insecticide patent applications and

the corporation brought suit. (Ex. 13)

Early in December 1946 Regenstein brought about a re-

capitalization of Velsicol whereunder shareholders were |

privileged to buy 34 new shares for each share held. (R.

1, fols. 348-63, Ex. 13) Regenstein’s two corporations paid |

for their stock with their notes of the corporation which

then totaled $528,000.00, Hyman was unable to raise

$136,000.00 to exercise his warrants. The new stock was

issued at $10.00 per share rather than at a price equal to

the actual value of the outstanding shares, which was in

excess of $1000.00 per $10.00 par share (R. 2, fol. 1691), or

even at their book value, in excess of $150.00 per share.

(Ex. 28) The result of the recapitalization was that

Hyman’s equity in the company was reduced from 20 per-

cent to less than 1 percent, and the book value of his inter-

est was reduced from approximately $70,000.00 to less than

$7,000.00, and its actual value reduced in the same propor-

tion and in an even greater amount.

Of this transaction the trial court in this case said:

““* * * In other words, assuming he (Dr. Hyman) is

wrong, this thing of just one man turning over and

wiping him out by a twist of the wrist because he has

the money, because he has the credit, because he has

the control. After he comes at odds and ends with Dr.

Hyman, he turns the switch over night and Dr. Hyman

has one percent. His profits are based on that, whereas

before it was based on 20 percent.’’ (R. 2, fol. 3196)

* * * * * * * * *

‘““* * * it appeals to me that if they (these facts) are

true that Dr. Hyman is being wiped out. And, as a

Chancellor sitting in a Court of Equity, that does not

appeal tome. Assuming this corporation was indebted

to the extent that it was, it appears now that it has now

become a solvent, money-making concern; and that by

a twist of the finger, so to speak, what was a debt is

| being fostered into a money-making apparatus; instead

of giving 4% the money is being turned in to wiping

out Dr. Hyman’s interest, and take any profit that

he might earn to make that loan make money in excess

of the interest. It just does not appeal to me, gentle-

men.’’ (R. 2, fols. 3186, 3187)

Thus after having contributed 15 years of his life and

many valuable inventions to this highly successful venture

of which he was unquestionably the key figure, Hyman

emerged with only an insignificant stock interest greatly re-

duced even from the admittedly insufficient interest he had

theretofore owned, jobless and faced with the necessity of

defending a suit for the assignment of the chlordane pat-

ents.

In the late fall of 1946 Hyman located and leased a war

surplus plant in Denver, Colorado, organized Julius Hyman

& Co., and by March of 1947 was in production of chlordane.

(R. 2, fols. 1010-24)

On April 11, 1947, Regenstein had Velsicol file his suit in

the District Court of the City and County of Denver, Colo-

rado, against Hyman, his corporation and a number of

former Velsicol chemists and employees who had left to

join Hyman in Denver. The complaint alleged that chlor-

dane belonged to Velsicol ; that Hyman signed an agreement

dated January 31, 1931 ‘that any and all inventions, im-

provements, discoveries, formulas or processes relating to

oils, paints, varnishes or any of the ingredients or products

thereof or relating to the manufacture or production of

oils, paints, varnishes or any of the ingredients or prod-

ucts thereof, invented, discovered or learned by the under-

signed during the term of his employment by the company—

will U2 the sole and absolute property of the company— |

and the undersigned at all times, both during his employ-

ment and after the termination of his employment, will

keep all of the same secret from everyone except the com-

pany .. .’’; that the other individual defendants signed

certain secrecy agreements with Velsicol; that they and

Hyman were also bound by confidential relations not to

disclose their knowledge of chlordane; and that Julius

Hyman & Co. acquired the process by the disclosures of

Hyman and the other defendants in violation of their

secrecy agreements and with notice of such secrecy agree-

ments. The bill prayed for a decree awarding Velsicol all

the profits made by Hyman & Co. from the sale of chlor-

dane, damages, and an injunction against the defendants’

producing chlordane. (R. 1, fols. 1-82)

In his answer Hyman denied signing any agreement with |

Velsicol, admitted that Velsicol had shop rights authorizing

it to continue to manufacture chlordane but asserted that he

ES Ft ga et i 2 ° ail

— — PEE LIEN

The answer of Julius Hyman & Co. adopted the defenses

of Hyman’s answer. (R. 3, fols. 298-303) The other in-

dividual defendants, while admitting the signing of secrecy

agreements, in all other respects joined in the defenses

stated in Hyman’s answer. (R. 2, fols. 305-319)

The District Court granted the injunction, decreed that

Julius Hyman & Co. pay damages and account for all its

profits from chlordane to Velsicol, and granted other relief.

The accounting resulted in a judgment for $1,559,063.30

profits and $100,000.00 special damages for reducing the

price of chlordane. The Supreme Court of Colorado

affirmed the lower Court, modifying the accounting judg-

ment to a net sum of $1,238,789.10 profits and $100,000.00

damages.

The decree of the District Court was based on its finding

that Hyman ‘‘agreed to devote his time to said corporation

(Velsicol) as a chemist perfecting the ideas contained in

said patent applications (referring to the two petroleum

by-products applications assigned in 1931), and to devote

his time amd efforts to develop new uses for petroleum re-

fining by-products at a salary to be agreed upon from time

to time as the condition of the company might warrant, and

that all invertions and discoveries (pertaining to uses of

petroleum refining by-products) were to be kept secret and

assigned to the plaintiff corporation ‘(italics and material

in parenthesis ours); that the other individuals signed

agreements to keep secret the products of Velsicol; that

Hyman converted Velsicol’s property; that all the individ-

ual defendants breached their secrecy agreements ; and that

Julius Hyman & Co. was unlawfully appropriating Velsi-

col’s trade secrets to its own use. (R. 2, fols. 3373-94)

During the trial the Court sustained objection to petition-

ers’ offer of evidence of the British patent applications and

consequent publication of chlordane, making the process

a part of the public domain (R. 2, fol. 3183) ; subsequent to

the trial the Court denied petitioners’ motion, based on an

affidavit of the Belgian patent disclosures and others, to

dissolve the in

3570, 3643)

The Supreme Court of Colorado sustained these findings

of the trial court and made the additional finding, expressly

rejected by the trial court, that Hyman and the other in-

dividual defendants were bound by their confidential rela-

tions with Velsicol not to disclose chlordane. It affirmed

the rejection of their evidence of publication on the ground

that they were estopped to take advantage of the publica-

tion of the invention. (R. 6, p. 54)

Meanwhile, in the Velsicol suit against Hyman in Illinois,

for assignment of the chlordane application, the Supreme

Court of Illinois had entered a judgment, which has become

final, reversing the Appellate Court of Illinois, First Dis-

trict, and requiring Hyman to assign.

Meanwhile, also, Hyman had sued Velsicol and Regen-

stein and the other directors to set aside the recapitaliza-

tion on the ground of fraud. In that case the Appellate

Court of Illinois, First District, had entered a judgment,

which has become final, reversing the Superior Court of

Cook County, Tlinois, and dismissing Hyman’s complaint

on the ground that the recapitalization was justified by the

high ratio of debts to capital stock which had existed prior

thereto, and was not fraudulent as to Hyman because he

was offered an opportunity to purchase additional shares

pro rata.

Thus the Supreme Court of Colorado would write an end

to thé venture of Regenstein and Hyman with Regenstein

owning the very profitable property of the venture, includ-

ing forty of Hyman’s inventions; with Regenstein having

a judgment of over a million dollars against Hyman, his

company and associates; with Hyman’s new business for

developing his invention destroyed and Hyman enjoined

from the use of his own invention. In short Hyman will

have been ensnared in Regenstein’s corporate web and

financially devoured.

junction and find no damages. (R. 5, fols.

JURISDICTION.

This Court has jurisdiction under 28 U. S. C. Section

1257, subsection (3), because the Colorado Supreme Court

refused to allow petitioners the right to present the evi-

dence which would have voided the agreement not to dis-

close a trade secret which the Court enforced in its decree,

thus violating the Sherman Act. (15 U. S. C. Section 1)

That is, the agreement the Court enforced, being in re-

straint of trade, was valid only if it involved a trade secret.

Yet the Court refused on the ground of estoppel to allow

petitioners to present evidence to show no trade secret ex-

isted because the same had been eliminated by publication.

Cases relied on to support jurisdiction on this ground in-

clude MacGregor v. Westinghouse Electric and Manufac-

turing Co., 329 U. S. 402 (1947) ; Sola Electric Co. v. Jeffer-

son Electric Co., 317 U. S. 173 (1942); Nutt v. Knut, 200

U.S. 13 (1906) ; Conmar Products Corp. v. Universal Slide

Fastener Co., 172 F. 2d 150 (C. A. 2d, 1949).

This Court has jurisdiction of this cause under the same

section for the further reason that petitioners claim under

the Fourteenth Amendment to and the commerce clause of

the Constitution of the United States (Article 1, Section 8,

clause 3) the right to manufacture and sell in interstate

commerce a product of petitioner Hyman’s own invention

of which right the judgment of the Supreme Court of Colo-

rado deprives them without any evidence that Hyman pre-

cluded himself from the exercise of that right by agree-

ment and without any basis in law for the Court’s holding

that under the facts of this case Hyman was precluded by

his relations with Velsicol from its exercise.

Cases relied on to support jurisdiction on this ground in-

clude United Gas Public Service Co. v. Texas, 303

U.S. 123 (1938) ; First National Bank of Hartford, Wis. v.

City of Hartford, 273 U. S. 548 (1927); Southern Pacific

Co. v. Schuyler, 227 U. S. 601 (1913); United States v.

Joint Traffic Ass’n., 171 U. S. 505 (1898) ; Butchers’ Union

Slaughter House & Livestock Landing Co. v. Crescent City

Livestock Landing & Slaughter House Co., 111 U. S. 746

(1884),

The judgment of the Supreme Court of the State of Colo-

rado was entered May 28, 1951, (R. 6, p. 19), and its order

denying petition for rehearing and modifying its opinion

was entered June 25, 1951. (R. 6, p. 18)

QUESTIONS PRESENTED.

1. Is the judgment of the Supreme Court of Colorado in

conflict with the anti-trust laws of the United States in

restraining competition in subject matter not covered, at

the time of the breach of any fiduciary or contractual obli-

gation, by a subsisting trade secret?

2. Was a rule of estoppel properly invoked to exclude

evidence of the non-existence of the secrets as a result of

public disclosure, in enforcing a contract in restraint of

trade whose validity as an exception to the anti-trust laws

is based upon the protection of trade secrets?

3. Does the judgment of the Supreme Court of Colorado

deprive petitioners of their constitutional right to engage

in interstate commerce in that it is based upon a finding,

that the secrecy agreement found to have been executed by

Hyman with respondent covered his invention, chlordane,

which is without evidence to support it?

4. Does the judgment of the Supreme Court of Colorado

deprive petitioners of their constitutional right to engage

in interstate commerce in that it is based upon a finding,

that petitioner Julius Hyman executed a secrecy agreement

with respondent covered his invention, chlordane, which is

against the weight of the evidence?

5. Does the judgment of the Supreme Court of Colorado

deprive petitioners of their constitutional right to engage

in interstate commerce in that it is based upon a finding,

that petitioner Julius Hyman was bound by his relations

with respondent not to disclose his invention, chlordane,

which was erroneous as a matter of law?

Sete ae eee <a

REASONS FOR GRANTING THE WRIT.

1. Chlordane is an important insecticide and petitioner

Julius Hyman & Co. an important producer thereof, the

only competitor of respondent. The effect of the judgment

of the Court below is to destroy competition in this field.

The judgment on the accounting and damages feature of the

case was for the sum of $1,338,789.10; an accounting will

follow for a substantial additional period if the decision be-

low remains undisturbed. The immediate subject matter

of the case is thus important to the public as well as to peti-

tioners.

2. The decree of the Supreme Court of Colorado is in

- conflict with the Sherman Act in affirming on the ground

of estoppel the refusal of the trial court to allow petitioners

' to present evidence showing that respondent had in filing

applications for foreign patents made a public disclosure

of and put into the public domain the trade secrets which

were the subject of the agreement not to disclose found to

exist and enforced by the Colorado Supreme Court. Thus

the Colorado Supreme Court denied petitioners by estoppel

the right to prove the essential fact which would have made

) the agreement not to disclose enforced by the Court void as

a restraint of trade in violation of the Sherman Act.

3. The holding of the Colorado Supreme Court that peti-

tioners were estopped by the agreements and confidential

| relations the Court found to exist from asserting the publi-

} cation of the trade secrets is contrary to federal law that

a restraint of trade must be based upon facts justifying

the restraint and not upvn an estoppel to deny those facts.

The judgment of the Colorado Supreme Court enjoining

petitioners from competing with respondent in interstate

commerce thus imposes upon petitioners and the public a

restraint of trade without the warrant of a subsisting trade

secret,

4. The question whether a person who has violated a

trade secret is estopped to show the publication of the

‘ SMAI RRR NL RRL TALE CLIO ES TE PE AE SEP PAPA

trade secret and his right of access to it as a part of the

public domain is a subject of conflict between the Courts of

Appeals of the Second and Seventh Circuits in the cases of

Shellmar Products Co. v. Allen-Qualley Co., 87 F. 2d 104

(C. C. A. 7th, 1936), cert. den, 301 U. S. 695 and others in

the Seventh Circuit and Conmar Products Corp. v. Univer-

sal Slide Fastener Co., 172 F. 2d 150 (C. A. 2d, 1949)

and others in the Second Circuit. The Colorado Supreme

Court in the case at bar has followed the decisions of the

Seventh Circuit. The public interest requires that the con-

fusion resulting from this conflict, already producing

lengthening lines of divergence, should be settled by this

Court.

5. The federal policy as announced in the anti-trust laws

is and has been to encourage free competition. Federal

policy as announced in the patent laws is and has been to

encourage the publication of inventions. The decision of

the Colorado Supreme Court, by unduly enlarging the pro-

tection surrounding alleged trade secrets and minimizing

the effects of publication, frustrates these important federal

policies. The prejudice to the public interest in free compe-

tition is highlighted by the fact that damages of $100,000.00

were actually awarded to respondent in this ease for injury

to its business arising out of petitioners’ competitive reduc-

tion in the price of chlordane. Thus is the salutary effect

as regards the public of petitioners’ competition and the

pernicious effect of the lower Court’s judgment demon-

strated.

6. The basis of the Colorado Supreme Court’s judgment

denying petitioners their constitutional right to engage in

their chosen business is the dual finding that petitioner

Hyman was bound by express agreement and by implied

obligation arising out of confidential relations not to dis-

close his invention, chlordane. The finding that petitioner

Julius Hyman obligated himself by contract not to manu-

facture chlordane is totally without support in the evidence,

in that the only agreement alleged or proved did not relate

5 a he mre a re bes ” a

to or cover chlordane. The finding that confidential rela-

tions obligated him to the corporate creature of his joint

venture not to manufacture his own invention is a flagrant

misapplication of the doctrine of confidential relations. The

effect of these egregious errors is unfairly to deprive an

inventor of his own invention, and him and his associates

of the right to earn their livelihood in their chosen business.

7. The effect of the judgment of the Supreme Court of

Colorado is thus unlawfully to deny to petitioners the right

to compete with regard to an important product knowledge

of which is in the public domain and to deny the public the

benefit of such competition.

Wuenerorg, it is respectfully submitted that this petition

should be granted.

CiavuvE Pepprr,

Attorney for Petitioners.

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I. The Judgment of the Supreme Court of Colorado

in Enforcing an Agreement in Restraint of Trade

as to Alleged Trade Secrets, by Improperly

Applying Estoppel to Deny Proof of Their Dis-

closure, Requires Review by this Court ........ 17

A. The lower Court judgment enforces an unlaw-

ee See ane 17

B. The foregoing conflict with federal public

policy requires reversal of the judgment by

PR es: Kc bnelnickncccis oulsdaucci ice 23

II. The Judgment of the Supreme Court of Colorado

in Depriving Petitioners of their Constitutional

Right to Engage in Their Regular Business on

the Basis of a Finding Without Evidence to Sup-

port It that Petitioner Hyman was Bound by a

Secrecy Agreement which Covered Chlordane

and an Alternative Finding Erroneous as a

Matter of Law that He was Obligated to Secrecy

by Confidential Relations Requires Review by

arian cai he Ee Cee Ee Te eT Tor ee es 24

A. To the extent that the lower court judgment

is based on an agreement by petitioner Julius

Hyman not to disclose chlordane, it is without

evidence to support it ............ccceceee. 26

B. To the extent that the lower court judgment

is based on the finding that Hyman’s relations

with respondent made his invention, chlor-

dane, its property and gave rise to an implied

obligation of secrecy, it is erroneous as a

We Or WG ecco xdavbnncoiens ea: 31

CONCLUSION...

ii Index Continued.

TABLE OF AUTHORITIES.

Caszs : Page

Allgeyer v. State of Louisiana, 165 U. 8. 578 (1897)

1908)" Circular Loan (Co. v. Wilson, 198 Mass. 182

ale OE PS ES aii spec rine ais

BS MO itiert rss Shes epee cic sc ee,

Butchers’ Union Slaughter House & Livestock Land-

ing Co. v. Crescent City Livestock Landing and

Slaughterhouse Co., 111 U.S. 746 | ee

Conmar Products Corp. v. Universal Slide Fastener

Co., 172 F. 2d 150 (C.A. We ROD bh n beeen s nce,

eo v. Grand Lodge, K. of P., 225 U. S. 246

PUNE WE has hie Vda AEN Cpa cg gc yt.

oe lh ges: A ee a iat 28,

Edward Katzinger Co. v. Chicago Metallic Manufac-

turing Co., 329 U.S. 394 Ct SRR OiGis page 19, 23

Flanigan vy. Ditto, Inc., 84 F. 24 490 (C.C.A. 7th,

ing Co., 216 Fed. 401, 407 (C.C.W.D. Mich. 1908)

Hapgood v. Hewitt, 119 U.S. 226 (1886) ...... 29, 34,

Hathaway v. Porter Royalty Pool, Inc., 296 Mich, 90

Hecht Co. v. Bowles, 321 U.S. 321 5 ee

Hildreth v. Duff, 143 Fed. 139 (W.D. Pa., 1906)... .27,

MacGregor v. Westinghouse Electric & Manufactur-

ing Co., 329 U.S. 402 5 BPRS me pn 19, 2

Mullins Manufacturing Co. v. Booth, 125 F.2d 660

Se ke oY epee: OER

New Method Die and Cut-Out Co. v. Milton Bradley

Radio Station WOW v. J. ohnson, 326 U. 8. 120 ( 1945)

Schwegmann Bros. v. Calvert Distillers Corp., —

U.S. —, decided dt, Serene

Scott Paper Co. v. Marcalus Manufacturing Co., 326

OE fA hinieiicn

Index Continued. lii

Page

SPiN ards ecseesehenes sume Lee eee a 32

United Gas Public Service Co. v. Texas, 303 U.S. 123

Tee CTY TROL ET eR POT EPR oe. ee PT 30

United States v. Dubilier Condenser Corp., 289 U.S.

NOW ME Kai Wnacwk iL s4du 5 xaae ha K Hier Kau eeieks 34

Vulcan Detinning Co. v. American Can Co., et al., 67

Atl. 339 (Er. and Ap. N. J., 1907) ............... 32

West Disinfecting Co. v. U. S. Paper Mills, Inc., 44

A § 8: eS err eee 30

Wright v. Vocalion Organ Co., 148 Fed. 209 (C.C.A.

Be I bt ae tk ees bes oa sheaees oe etoni ce cen 29

STaTurEs:

i Se ee OS Se eer 9

Bes ee Cs I PON oko vnc kiko ebcececace ves 9

I UR ee Se 9

28 U.S.C. Sec. 1257, Subsection 3 ................. 9

Text Books:

Callman, The Law of Unfair Competition and Trade

Marks (1945) Section 56 ........cccccccccscsccs 33

BRIEF IN SUPPORT OF PETITION FOR CERTIORARI.

S eeteieneeeeeemeeeel

OPINIONS OF THE COURTS BELOW.

The opinion of the Supreme Court of Colorado (Mr.

Justice Alter speaking for the Court en banc) appears in

volume 6 of the record at page 19 and is reported in

Colo. . The findings of fact of the District Court for

the City and County of Denver appear in volume 2 of the

record at folios 3373-3394. The decree of the District Court

appears in volume 2 at folios 3529-3546, and the judgment

on acounting appears in volume 5 at folios 5618-5626. The

findings, decree, and judgment of the District Court are

unreported.

JURISDICTION.

The jurisdictional statement appears in the accompany-

ing petition.

STATEMENT OF THE CASE.

The essential facts of the case are stated in the accom-

panying petition.

SPECIFICATION OF ERRORS.

The Supreme Court of Colorado erred:

1. In sustaining the exclusion by the District Court of

petitioners’ evidence of the publication of the trade secrets

in issue.

2. In holding that an injunction restraining petitioners

from using the asserted trade secrets comprising the sub-

ject matter of this litigation is a proper remedy irrespective

of whether such trade secrets existed as trade secrets at the

time or were in the public domain through disclosure.

nets

—— DIONE ea

3. In applying a doctrine of estoppel against petitioners

to support the injunction and money award on the theory

that petitioners were tort feasors where such estoppel de-

prives petitioners of the right to establish that the trade

secrets were, in fact, in the public domain and thus operates

to effect an unlawful restraint of trade.

4. In failing to follow federal public policy as established

by the anti-trust laws of the United States and the decisions

of this Court and in affirming the judgment of the District

Court in disregard of and in conflict with such federal pub-

lic policy.

5. In effecting by its affirmance of the judgment of the

District Court a restraint of interstate commerce in chlor-

dane unsupported by a statutory or common law right.

6. In affirming the determination of the District Court of

Denver that petitioners were barred from manufacturing

chlordane without any specific finding of the District Court

that petitioner Hyman had obligated himself by contract

not to disclose chlordane or any evidence to support such a

finding.

7. In determining that petitioner Hyman, a party to a

joint venture embodied in corporate form and a founder

and co-owner of the resulting corporation, was bound by

an implied obligation to treat his own invention, chlordane,

as the property of the corporation and to keep it a secret,

even in the absence of an agreement to this effect.

—— Re ETT = ie ee ee OS SEA IGG PRS.

ARGUMENT.

The Judgment of the Supreme Court of Colorado in En-

forcing an Agreement in Restraint of Trade as to

Alleged Trade Secrets, by Improperly Applying

Estoppel to Deny Proof of Their Disclosure, Requires

Review by this Court.

A. The lower Court judgment enforces an unlawful re-

straint of trade.

Petitioners have made the argument at every oppor-

tunity in this case that to support a judgment and an in-

junction against their use of the chlordane processes, which

is otherwise in unlawful restraint of trade, said processes

must be secret. They have offered proof that all trade

secrets had been eliminated by publication in connection

with respondent’s program of patent applications on the

invention in several foreign countries prior to their alleged

wrongdoing. (R. 2, fols. 3007-15, R. 5, fols. 3572-83, Exs.

34-36.) They have offered proof that the chlordane formulas

were disclosed to Department of Agriculture representa-

tives in April 1946, and published by the Department widely

in February 1947. (R. 2, fols, 3015, Ex. 40.)

The reason for the rejection by the District Court of

petitioners’ proof is not a matter of record. (R. 2, fols.

3018-24, R. 5, fol. 3643.)

The Supreme Court of Colorado appears to have held

that the evidence was immaterial because petitioners are

estopped to take advantage of the publication of the secrets.

It states that because the disclosures through the patent

applications were directed by Hyman, because petitioners

obtained their knowledge of chlordane in confidence from

Velsicol rather than from any published sources, and be-

cause petitioners’ laboratory production of chlordane was

begun before the British publication (treated by the Court

for some reason as though it were the only foreign publi-

ae a ee ae ee ee

cation), the publication of the invention under the foreign

patent applications ‘‘did not result in a public disclosure

and place the same in the public domain insofar as these

defendants are concerned.’’ (R. 6, pp. 53-55.) The Court

clearly mistakes the law and misconstrues the facts.

The raising of an estoppel to give respondent a right to

enjoy a restraint of competition as to a non-existent secret

is manifestly improper.

(1) It is wrong in principle. Respondent’s monopoly of

its trade secrets cannot survive their disclosure. The

granting of the privilege of monopoly of trade secrets and

of entering into restrictive agreements to prevent compe-

tition as to these secrets forms a special exception to the

general principle that monopolies and agreements in re-

straint of trade are abhorrent to the American system of

free economy and illegal. Protection of the secret being

the reason for the exception, without the secret the excep-

tion vanishes. The Colorado Supreme Court misstates the

question it was called on to decide in casting it in terms

of whether petitioners were entitled to claim the benefit of

publication of the secrets. In this as in any lawsuit, the

question is whether the complaining party has received an

injury to a right. Respondent’s recovery must be based

upon its rights, not petitioners’ wrongs. Upon publica-

tion of its secrets it had no further rights which could be

damaged by petitioners’ conduct. As stated in Hamilton

Mfg. Co. v. Tubbs Mfg. Co., 216 Fed. 401, 407 (C. C. W. D.

Mich., 1908) :

‘‘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 disappears. There

can be no property in a process, and no right of protec-

tion, if knowledge of it is common to the world.”’

To grant respondent a recovery against petitioners based

on their profits from production during the period after

publication and to enjoin them from future competition is

to impose a penalty for petitioners’ conduct rather than to

grant compensation for violation of a right. No legal basis

has been shown or could exist for such a penalty. See Con-

mar Products Corporation v. Universal Slide Fastener Co.,

172 F. 2d 150, 156 (C. A. 2d, 1949).

(2) It is contrary to authority. This Court has repeat-

edly held that a restraint of trade cannot be based upon an

estoppel, but must rest upon facts justifying the restraint.

In cases where patent licenses contained price-fixing agree-

ments illegal as in restraint of trade unless supported by

valid patents it has held that the licensee could not be

estopped to claim the invalidity of the patent. MacGregor

*. Westinghouse Electric and Manufacturing Company, 329

U. S. 402 (1947); Edward Katzinger Co. v. Chicago Me-

tallic Manufacturing Co., 329 U. 8. 394 (1947); Sola Elec-

tric Co. v. Jefferson Electric Co., 317 U. 8.173 (1942). This

Court’s ruling in Scott Paper Co. v. Marcalus Manufactur-

mg Co., 326 U. S. 249 (1945) is even more to the point.

There an employee assigned his patent to his employer,

then resigned, formed his own company and began to manu-

facture the invention. The employer sued the former em-

ployee and his corporation for infringement. The latter

defended on the ground of invalidity, basing the defense

on an expired patent as constituting prior art. The em-

ployer contended they were estopped by the former em-

ployee’s assignment from attacking the validity. This

court held that the doctrine of estoppel could not be applied

to preclude the defense of an expired patent. Pointing out

that there can be no monopoly of an invention after expi-

ration of a patent, and that the employer thus enjoyed no

monopoly, the Court refused to invoke estoppel to grant it a

monopoly to whieh it was not entitled, saying (at pages

255-256) :

“<* * * Tf a manufacturer or user could restrict himself,

by express contract, or by any action which would give

rise to an estoppel, from using the invention of an ex-

pired patent, he would deprive himself and the consum-

ing public of the advantage to be derived from his

free use of the disclosures.”

The analogy between the expired patent there involved and

the disclosed secret here at issue is apt.

The Colorado Supreme Court appears to have relied on

Shellmar Products Co. v. Allen-Qualley Co., 87 F. 2d 104

(C. C. A. 7th, 1936), cert. den. 301 U. S. 695, to support

its decision. That case involved a disclosure by Allen-Qual-

ley to Shellmar of its secret process for making a candy

wrapper and unauthorized communication of this secret by

Shellmar to its patent attorneys, who made a patent search,

discovered a prior patent and purchased it for Shellmar.

An order having then been entered in one suit compelling

Shellmar to assign its patent and enjoining it from using

the process, Shellmar later sued to set asida the injunction

on the ground that subsequent disclosure by third parties

by publication of patents on the same process, prior in

invention, eliminated the trade secret. The Court held that

Shellmar was estopped by its breach of confidence from tak-

- ing advantage of the subsequent public disclosure.

To the extent that the Shellmar Products Co. case holds

that one who breaches the confidential disclosure to him of

a trade secret is estopped to take advantage of a later pub-

lic disclosure of the same invention in which he had no part,

it seems in direct conflict with the decisions of this Court

discussed above. Furthermore, its rule has been discussed

and expressly rejected by the Court of Appeals for the

Second Circuit first in Picard v. United Aircraft Corp., 128

F. 2d 632 (C. C. A. 2d, 1942) and again in Conmar Products

Corporation v. Universal Slide Fastener Co., 172 F. 2d 150

(C. A. 2d, 1949), wherein that Court held that the obliga-

tion to respect a trade secret did not survive the issuance of

a patent and the consequent publication even where the

defendant was charged with wrongfully inducing the plain-

tiff’s former employee to divulge the secret prior to publi-

cation.

The Colorado Supreme Court decision is therefore clearly

erroneous in principle and in conflict with applicable deci-

sions of this Court in enforcing against petitioners and

against the public interest a restraint of trade based upon

estoppel to establish that the claimed trade secrets were

actually in the public domain by disclosure.

Assuming, arguendo, that estoppel can be applied to bar

the defense of disclosure of trade secrets, the reasons the

Colorado Court announced for holding petitioners estopped

do not support an estoppel.

Hyman’s part in the foreign patent applications should

not estop petitioners. While a party undoubtedly could

not take advantage of his own tortious disclosure as a pub-

lication, there is no contention or evidence that Hyman’s

part in the publication was tortious, or that the publication

cannot be considered the act of respondent. The evidence

of record is that the patent applications in question, both

domestic and foreign, were filed by Velsicol’s regular pat-

ent attorney in exactly the same fashion as all other patent

applications of the company. Respondent’s patent coun-

sel, Lee J. Gary, testified that he consulted with Hyman

and, after 1944, jointly with the then Director of Research,

Colonel A. S. Behrman, as to patent matters. (R. 2, fols.

1781-3.) Gary testified that the chlordane applications

had been prepared by him in the usual manner and had been

sent to Hyman for execution and that Hyman had executed

the applications and returned them for filing. (R. 2, fols.

1809-13.)

The filing of the United States applications in 1945 and

the corresponding foreign applications in January or Feb-

ruary, 1946 (R. 2, fol. 2086), was authorized by Hyman as

an officer of respondent in the usual course of respondent’s

business and for the benefit of respondent. A failure to

direct filing of the patent applications within the statutory

period might have constituted an abandonment resulting in

a loss of patent rights and might well have been a breach of

duty.

At no time was any objection noted by respondent to the

filing of applications on chlordane either domestic or

foreign, nor has any claim been made at any time that the

filing was improper or in breach of Hyman’s duty to re-

spondent. On the contrary, in claiming the benefit of the

domestic and foreign applications, in compelling the assign-

ment of the patents and applications and enjoying their

fruits, respondent affirmed, ratified and adopted the actions

of Hyman in directing their filing. Respondent cannot now

disaffirm that the disclosures resulting from the filing of

the British and other foreign applications, notably the Bel-

gian applications which eventuated into patents as early as

April and May, 1946 (R. 5, fol. 3578), were its act.

No better foundation for estoppel is the Colorado Su-

preme Court’s finding that petitioners cannot rely upon

respondent’s publication of its secrets because they learned

them from respondent in confidence and not from the pub-

lished sources. In the first place, petitioner Hyman did not

learn the secrets from respondent but was the inventor

thereof. Moreover, the Court’s reasoning erroneously

makes the source of petitioners’ knowledge the crucial fact

rather than respondent’s possession of trade secrets requir-

ing protection. It announces the surprising principle that

one who obtains information under a bond of secrecy is

forever barred from its use although it is later disclosed to

all the world, unless, at least, he refreshes his recollection

from the published sources. Significantly, no authority is

cited for this proposition; there is none. It offends com-

mon judgment. One who discloses his secrets publicly has

forfeited his privacy and cannot by prior agreement inhibit

a few from competing in an area of public knowledge, with-

out being guilty of an unlawful restraint of trade. Flanigan

v. Ditto, Inc., 84 F. 2d 490 (C0. 0. A. 7th, 1936).

The Colorado Court’s finding that petitioners’ laboratory

production of Chlordane prior to publication estops them

from claiming benefit of the publication is groundless.

Such early laboratory production might render them liable

BEL NY RT REEL RUE WL TITY UT EN IS AN EH Pa

for any damage caused thereby, but could hardly support

damages based on profits from all production after publi-

cation, as here granted. Furthermore, this finding of the

Court is based solely on the British publication in January

1947 and completely ignores petitioners’ proffered proof of

Belgian applications resulting in much earlier publication

of the chlordane processes on May 31, 1946, prior to

Hyman’s rupture with Regenstein (R. 5, fol. 3578). Thus

‘*secrets’’ published months before Hyman and his associ-

ates even contemplated their independent venture have been

made by the Colorado Supreme Court in this case the basis

for enforcing against petitioners a restraint of trade.

B. The foregoing conflict with federal public policy requires

reversal of the judgment by this Court.

This Court has recently held that where interstate com-

merce is involved, any conflict between the law of the state

and federal law must be resolved in favor of Federal law.

See Schwegmann Bros. v. Calvert Distillery Corp.,

U.S. , decided May 21, 1951; MacGregor v. Westing-

house Electric & Mfg. Co., 329 U. S. 402 (1947); Edward

Katzinger Co. v. Chicago Metallic Manufacturing Co., 329

U. S. 394 (1947) ; Radio Station WOW v. Johnson, 326 U. 8.

120 (1945) ; Sola Electric Co. v. Jefferson Electric Co., 317

U.S. 173 (1942). The judgment of the Supreme Court of

Colorado in restraining petitioners from employing knowl-

edge in the public domain, irrespective of whether such re-

straint is supported by a subsisting trade secret, effects un-

lawful restraint of trade. The judgment cannot be sup-

ported upon the facts because of the exclusion of evidence

as to the existence of a trade secret at the time of breach.

It cannot be supported upon a doctrine of estoppel because

estoppel cannot be applied to enforce a restraint of compe-

tition as to a non-existent trade secret.

The basis of the jurisdiction of this Court on this ground

is well-stated in Sola Electric Co., Jefferson Electric Co.,

supra at 177:

MSS EUAN RTT GIL EIT SNA TAN IRE PER Pe tae ae

“«* * * Similarly this Court has declared that anyone

sued upon a contract may set up as a defense that it is

in violation of the Sherman Act. * * *

* * . * * * * * *

“Local rules of estoppel which would fasten upon the

public as well as the petitioner the burden of an agree-

ment in violation of the Sherman Act must yield to the

Act’s declaration that such agreements are unlawful,

and to the public policy of the Act which in the public

interest precludes the enforcement of such unlawful

agreements, * * *”?

The Supreme Court of Colorado has concluded that peti-

tioners are conspirators and has sought to punish them

rather than to compensate respondent for any damage

which respondent might establish by reason of a conspiracy

—in itself an abuse of the equitable process. Hecht Co. v.

Bowles, 321 U.S. 321, 329 (1944). In its desire to punish

petitioners, the Court below has invaded the rights of the

public and has deprived it of the healthful competition of

petitioner with respondent.

This presents an important federal question of which this

Court should take cognizance, lest by guise of trade secrets,

inviolate by estoppel, a monopoly prohibited by the anti-

trust laws may be judicially created and enforced.

II.

The Judgment of the Supreme Court of Colorado in De-

priving Petitioners of their Constitutional Right to

Engage in Their Regular Business on the Basis of a

Finding Without Evidence to Support It that Peti-

tioner Hyman was Bound by a Secrecy Agreement

which Covered Chlordane and an Alternative Finding

Erroneous as a Matter of Law that He Was Obligated

to Secrecy by Confidential Relations Requires Review

by this Court.

Every person has a constitutional right to engage freely

in his business, profession or employment. Similarly, au

inventor has a constitutionally guaranteed right te prac-

tice his own invention. These rights are fundamental.

They underlie the Constitution of the United States and,

furthermore, are specifically guaranteed by the Fourteenth

Amendment. This Court made this clear in Butchers’ Un-

ton Slaughter House & Livestock Landing Co. v. Crescent

City Livestock Landing & Slaughter House Co., 111 U. 8S.

746,

762 (1884) wherein, in refusing to enforce a monopoly

in the slaughtering business allegedly granted by the State

of Louisiana, it stated:

‘«* * * The right to follow any of the common occupa-

tions of life is an inalienable right; it was formulated

as such under the phrase ‘pursuit of happiness’ in the

declaration of independence, which commenced with

the fundamental proposition that ‘all men are created

equal; that they are endowed by their Creator with

certain inalienable rights; that among these are life,

liberty, and the pursuit of happiness.’’ This right is a

large ingredient in the civil liverty of the citizen. To

deny it to all but a few favored individuals, by invest-

ing the latter with a monopoly, is to invade one of the

fundamental privileges of the citizens, contrary not

only to common right, but, as I think, to the express

words of the constitution. * * *

‘‘But if it does not abridge the privileges and immu-

nities of a citizen of the United States to prohibit him

from pursuing his chosen calling, and giving to others

the exclusive right of pursuing it, it certainly does de-

prive him (to a certain extent) of his liberty for it

takes from him the freedom of adopting and following

the pursuit which he prefers, which, as already inti-

mated, is a material part of the liberty of the citi-

zen. * #@ #9)

The right is reaffirmed in Allgeyer v. State of Louisiana,

165 U. S. 578, 589 (1897) wherein the Court said:

‘¢* * * The ‘liberty’ mentioned in that (the fourteenth)

amendment means, not only the right of the citizen to

be free from the mere physical restraint of his person,

as by incarceration, but the term is deemed to embrace

the right of the citizen to be free in the enjoyment of

all his faculties; to be free to use them in all lawful

ways ; to live and work where he will; to earn his liveli-

hood by any lawful calling; to pursue any livelihood or

avocation; and for that purpose to enter into all con-

tracts which may be proper, necessary, and essential

to his carrying out to a successful conclusion the pur-

poses above mentioned, * * *”’

The Judgment of the Colorado Supreme Court in this

case destroys a business exceeding $2,000,000.00 in gross

volume per year in interstate commerce built up by the

manufacture and sale by petitioner Julius Hyman of his

own invention, an important insecticide, and gives respond-

ent a monopoly in this field. (R. 5, p. 525.) It is invalid as

destructive of a constitutional right unless there is basis in

law and fact for a determination that petitioners aliened

the right.

A. To the extent that the lower court judgment is based on

an agreement by petitioner Julius Hyman not to dis-

close chlordane, it is without evidence to support it.

Plaintiff in this case, respondent herein, has sought to

establish that Hyman aliened his rights by an agreement

not to disclose inventions which was applicable to chlordane.

The position of all of petitioners stands or falls with the

correctness of the findings as to an express agreement of

Hyman, as inventor, for if he did not bind himself by agree-

ment not to manufacture the invention, then his right to

disclose and make it freely should free all those who assist

him.

One who seeks to inhibit an inventor from engaging in

the manufacture and sale of his own invention assumes a

heavy burden in establishing that this right has been validly

surrendered. Mullins Mfg. Co. v. Booth, 125 F. 2d 660

(C. C. A. 6th, 1942.) An employer who seeks to enforce

against his employee an obligation of secrecy is required

to establish a definite and certain contract requiring se-

crecy as to the specific subject matter at issue. Such

HS SEIS BEN RIE LE SIE OS INS RR OE MEE ETRE RIE I EPID Lit ee ee —

agreements are strictly construed against the employer.

Hildreth v. Duff, 143 Fed. 139 (W.D. Pa., 1906) ; see Amer-

ican Circular Loan Co. v. Wilson, 198 Mass. 182 (1908).

In its complaint, respondent alleged that Hyman signed

an agreement under paragraph 1 of which he agreed to

keep secret ‘‘any and all inventions, improvements, dis-

coveries, formulas or processes relating to oils, paints,

varnishes or any of the ingredients or products thereof

invented, discovered or learned by the undersigned during

the term of his employment by the Company.’’ (Italics

ours.) (R. 1, fol. 13.) This agreement was alleged to have

been signed by Hyman January 31, 1931, at the time of

the formation of the corporation formed to exploit the

two patents relating to by-products of petroleum refining

and products resulting therefrom, owned by Hyman prior

to the formation of the corporation and conveyed by him

to the corporation when it was formed. (R. 1, fol. 14.)

This agreement was not produced at the trial. Hyman

denied ever having executed it. His testimony and that

of another witness, a member of the original Board of

Directors of the company, was that Regenstein’s attorney

submitted to him such an agreement when the corporation

was formed and he flatly declined to sign it. Respond-

ent produced no attesting witness to the signature of

this January 31, 1931 agreement and no other witness

who saw the signing of the agreement by Hyman. Re-

spondent’s only testimony to establish the agreement was

that Regenstein and his intimate representative Schneider

had, some time after the formation of the corporation,

seen an agreement which had Hyman’s signature on it.

No other witness testified to having seen or known of the

existence of such an agreement in all of the fifteen and

one half years which elapsed between the formation of

the corporation and the time Hyman left it. It is sub-

mitted that respondent clearly did not meet in this

ease the burden of showing, by a preponderance of the

evidence, that an agreement, by which Hyman is alleged

Meio MPEP LE ORE LOS ETERS LIGNE IRAE EIB LE IEE OEE SEREN ANE ERY TE IN tea

to have conveyed the sole property in his own invention

to the corporation, was executed. Dalzell v. Dueber Watch-

Case Manufacturing Co., 149 U. 8. 315 (1893.)

Neverthless, the District Court, after referring to the

formation of the corporation and the assignment to it by

Hyman of his two patents relating to the products of

petroleum refining, found that:

“* * * defendant Julius Hyman agreed to devote his

time to said corporation as a chemist perfecting the

ideas contained in said patent applications, (meaning

the patents pertaining to the products of petroleum

refining mentioned just previously in the decree and

assigned by Hyman to the corporation) and to devote

his time and efforts to develop new uses for petroleum

refining by-products at a salary to be agreed upon

from time to time as the condition of the company might

warrant, and that all inventions and discoveries (grow-

ing out of research on the patents relating to petroleum

refining) were to be kept secret and assigned to the

plaintiff corporation.’’ (Italics and parenthetical in-

sert ours.) (R, 2, fol. 3378)

But chlordane, which is the subject of this suit, is an

insecticide which is not a ‘“‘by-product’’ of ‘petroleum re-

fining’’. Nor is chlordane an ‘‘oil, paint, varnish or any

of the ingredients or products thereof,’’ which is the sub-

ject covered by the alleged agreement of January 31, 1931.

Furthermore, chlordane, invented by Hyman fourteen years

after the alleged agreement of 1931, was clearly not within

the scope of the activities of Velsicol or Hyman as contem-

plated by the parties at that time.

To construe an agreement relating either to ‘‘petroleum

refining by-products’’ or ‘oil, paint, varnish or any of

the ingredients or products thereof,’’ to cover chlordane,

an insecticide, which is neither a petroleum refining by-

produet, nor ‘‘an oil, paint, varnish or any of the ingre-

1 It is elear that the District Court did not regard Paragraph 2 of the

alleged agreement, relating to the non-disclosure of secrets, as broadening

the seope of Paragraph 1 under the circumstances of this case.

;

PETE LIN, ELE RANE IST TMI OST IN SONA IOAN RSH RNS NAR Np 4

dients or products thereof,’’ violates the established rule

above stated that such agreements are to be strictly con-

strued against the employer.

In Hildreth v. Duff, 143 Fed. 139 (W.D. Pa., 1906), where

an employee entered into an agreement to give the em-

ployer, Hildreth, ‘‘the full benefit and enjoyment of in-

ventions and improvements relating to machines or devices

pertaining to said Hildreth’s business,’’ it was held by the

court to relate to inventions and improvements relating

to machines or devices as contemplated by the parties at

the time the agreement was executed and not to a subse-

quent and different type of machine invented by the em-

ployee.

In Hapgood v. Hewitt, 119 U.S. 226 (1886), notwith-

standing that an employee superintendent of the employer

corporation agreed ‘‘to use his best efforts, and devote his

knowledge and skill, in devising and making improvements

in the plows manufactured by the corporation and in get-

ting up and perfecting plows and other agricultural instru-

ments adapted to its trade,’’ and received adequate com-

pensation, and even though his subsequent invention of a

new plow was produced at the employer’s expense, with

the employer’s material and with the aid of the employer’s

workmen, this Court held that the title to the employee’s

invention was not vested in the employer, the agreement

containing no express provision to that effect.

In Wright v. Vocalion Organ Co., 148 Fed. 209 (C. C. A.

1st, 1906), an employee entered into a contract with an

employer corporation engaged in the manufacture of mu-

sical instruments, including organs, under which the em-

ployee agreed, in consideration of an increased salary, that

a one-half interest in all improvements or inventions made

by him during the course of his employment ‘‘in or relative

to organs both keyed and automatic’’ should be assigned

to the employer. The employee during his employment made

and patented certain inventions which were applicable

alike to organs and self-playing pianos. The court held

_—_— REY TEAL LRN Se ON NEST NRT WEAN RD ORE EIN IMI At RRR NG ONT 8 1p Ne fe

that under this agreement the inventions were within the

contract only insofar as they related to organs and not as

to pianos.

In West Disinfecting Co. v. U.S. Paper Mills, Inc., 44 F.

2d 790 (M. D: Pa., 1929), the defendant had assigned to the

plaintiff his invention of a machine for interfolding paper

wels and ‘‘all] improvements thereon or variations

thereof.’’ He subsequently invented a new machine for

accomplishing the same purpose, similar in appearance, but

radically different in operation. The plaintiff sued to com-

pel an assignment of this invention. The court held that

the new invention, being more than a mere improvement,

was not covered by the assignmeni agreement.

Thus the law is clear that a secrecy or assignment agree-

ment will be construed to comprehend only those inventions

of the employee which come fairly, even strictly, within its

express terms. There being no evidence that Hyman exe-

cuted any agreement other than the one relating to ‘‘oils,

paints, ete.’’, which does not fairly include chlordane, there

is no evidence to support the Colorado Supreme Court’s

determination that Hyman was bound by an express agree-

ment not to disclose chlordane.

Where it is claimed that the decision of the highest Court

of a state denying a party an asserted federal right is with-

out evidence to support it, this Court can and should take

jurisdiction to determine whether there is evidence to sup-

port the findings of the state court. United Gas Public

Service Co. vy. Texas, 303 U. §. 123 (1938); South-

ern Pacific Co. v. Schuyler, 227 U. 8. 601 (1913) ; Creswill

v. Grand Lodge, K. of P., 225 U. S. 246 (1912). When there

is no evidence to support these findings, the state court de-

cision, depriving the petitioner of a federal right, is of

course invalid.

B. To the extent that the lower court judgment is based on

the finding that Hyman’s relations with respondent

made his invention, chlordane, its property and gave

rise to an implied obligation of secrecy, it is erroneous

as a matter of law.

The Colorado Supreme Court, notwithstanding the ex-

press refusal of the Denver District Court to make such a

finding (R. 2, fol. 3462), placed its decision alternatively on

the ground that petitioners were obligated by confidential

relations with respondent in such a way that they were

bound to secrecy not to disclose chlordane. (R. 6, p. 61.)

Actually, the Court’s finding of an express agreement—that

the ‘‘oil, paints, etc.’? agreement covered matter clearly not

within its terms—amounts to no more than a finding of an

implied obligation.

As on the express agreement issue, the position of all of

petitioners on this question stands or falls with the correct-

ness of the findings as to Hyman, as inventor, for if his

relations with respondent did not impose an implied obli-

gation of secrecy upon him, then his right to disclose and

make it freely should free all those who assist him. On

the other hand, as regards his obligations to Velsicol gen-

erally and relating to chlordane specifically, Hyman’s situ-

ation is entirely different from that of the others. Never-

theless, the Colorado Supreme Court lumped him with the

rest, saying of all petitioners indiscriminately (R. 6, p. 61):

‘ce * *&

if they are not bound to secrecy by virtue of

their employment agreements, the confidential and

fiduciary relationship which they sustained imposed as

binding an obligation of guarding plaintiff’s trade se-

crets as would a signed employment agreement, which

was definite and unmistakable in its ternis and the sub-

ject matter thereof, * * *”

On the undisputed facts of this case, the Colorado Su-

preme Court has entirely misconceived the relation of

Hyman to Velsicol, and in doing so has erroneously applied

SE ae ae eae ———

to him a doctrine of implied obligation of secrecy arising

out of a relation of confidence which has no proper applica-

tion to Hyman’s relations with Velsicol.

The doctrine is misapplied in two respects: (1) in treat-

ing Hyman as simply an executive employee of Velsicol,

rather than a joint venturer, founder and owner of the cor-

poration, and (2) in treating him as the recipient of a secret,

rather than as its inventor.

Two cases cited by the Colorado Supreme Court announce

the rule that where an employer communicates secret pro-

cesses or formulas to an officer or trusted employee for use

in connection with the latter’s performances of his duties,

the confidential position of the employee binds him to an ob-

ligation of secrecy even in the absence of a Specific secrecy

agreement. Vulcan Detinning Co. v. American Can Co., et

al., 67 Atl. 339 (Er. and Ap. N. J., 1907) ; Stone et al. v. Goss

et al., 55 Atl. 736 (Er. and Ap. N. J., 1903). Two obvious

essentials of this doctrine are ( 1) employer-employee rela-

tionship and (2) disclosure to the employee. Neither essen-

tial is met as regards Hyman in this case.

(1) Hyman was not simply an employee of Velsicol, and

the Colorado Supreme Court erroneously measured his

rights and obligations by principles applicable to employees.

The fundamental relation of Hyman and Regenstein was

that of joint venturers. They agreed together to embark

upon the exploitation of Hyman’s 1931 inventions and Vel-

sicol was simply the corporate agency created to carry out

their venture. Hyman’s relation to Velsicol was not simply

and essentially that of an officer-employee, but that of a

founder and proprietor. Hyman’s act in leaving Chicago

was not simply that of an employee quitting a job, but an

act of dissolution of a venture. And in this proceeding,

respondent is essentially the alter ego of Regenstein, and

the quarrel that of two cousins.

The fact that Regenstein and Hyman employed the eor-

porate form for their enterprise, that stock was issued and

that they became officers and directors of the corporation

—

do not of necessity change its character from that of a

joint venture, if that was its substance. This Court is en-

titled to view all the facts to determine that substance, and

is not precluded by the corporate form. Hathaway v. Por-

ter Royalty Pool, Inc., 296 Mich. 90 (1941).

In interposing the corporation, Velsicol, as the effective

power in this case, and in casting Hyman’s relations to his

and Regenstein’s enterprise in terms of his obligation as

an employee to the corporation, the Colorado Supreme

Court made the agent and instrument—Velsicol—the mas-

ter and the master—Hyman—the servant.

The effect of this translocation of parties was to impose

upon Hyman the obligations and restrict him to the rights

of an employee, whereas he was entitled to the vastly dif-

ferent rights and bound by the vastly different obligations

of a joint venturer.

The difference in these rights and obligations which is

critical here is that whereas an employee terminating his

employment may not use his employer’s secrets, upon the

dissolution of a partnership or joint venture, each partner

is ordinarily entitled to the free use of the firm’s secrets.

Baldwin v. Von Micheroux, 5 Misc. 386 (1893), aff’d. 83

Hun. 43. Thus Hyman should be entitled as freely to use

the products of his labors in the venture as Regenstein. It

is a gross miscarriage of justic to give Regenstein effective

and complete control of all the secrets simply because he

controlled the majority of the stock of Velsicol, especially

in view of the watering of Hyman’s interest in Velsicol

almost to extinction.

(2) Hyman, as the inventor of chlordane, was not as to

it the recipient of a confidence, and the Colorado Supreme

Court erroneously bound him by principles applicable to

the reciptent of a secret. Hyman is the inventor of clor-

dane. The cases draw a marked and logical distinction be-

tween inventors of trade secrets and other employees. See

Callman, The Law of Unfair Competition and Trade Marks

(1945) Section 55. The latter are bound by an implied

agreement not to disclose secrets communicated to them, as

discussed above, whereas the former, in the absence of an

express agreement to the contrary, have a property right

in their discoveries which entitles them freely to disclose

them. United States v. Dubilier Condenser Corp., 289 U.S.

178 (1933); Dalzell vy. Dueber Watch-Case Mfg. Co.,

149 U. S. 315 (1893); Hapgood v. Hewitt, 119 U. S. 226

(1886); American Stay Co. v. Delamey, 211 Mass. 229

(1912). The only exception is where the inventor is hired

for the specific purpose of inventing and where the inven-

tion is within the specific field of invention for which he

was hired. See United States v. Dubilier Condenser Corp.,

supra.

Courts are reluctant to find from the terms of the em-

ployment an implied obligation on the part of an employee

to give title to his inventions to his employer and to main-

tain secrecy as to them. The basis of this reluctance is

stated in United States v. Dubilier Condenser Corp., supra,

at page 16, where Mr. Justice Roberts said:

““* * * The reluctance of courts to imply or infer an

agreement by the employee to assign his patent is due

to a recognition of the peculiar nature of the act of

invention, which consists neither in finding out the

laws of nature, nor in fruitful research as to the op-

eration of natural laws, but in discovering how those

laws may be utilized or applied for some beneficial

purpose, by a process, a device, or a machine, * * *

“«* * * Recognition of the nature of the act of in-

vention also defines the limits of the so-called shop

right, which, shortly stated, is that, where a servant,

during his hours of employment, working with his

master’s materials and appliances, conceives and per-

fects an invention for which he obtains a patent, he

must accord his master a nonexclusive right to prac-

tice the invention. * * * This is an application of

equitable principles. Since the servant uses his mas-

ter’s time, facilities, and materials to attain a concrete

result, the latter is in equity entitled to use that which

embodies his own property and to duplicate it as often

as he may find occasion to employ similar appliances

in his business. But the employer in such a case has

no equity to demand a conveyance of the invention,

which is the original conception of the employee alone

in which the employer had no part. This remains the

property of him who conceived it, together with the

right conferred by the patent, to exclude all others

than the employer from the accruing benefits. These

principles are settled as respects private employ-

ment.’’

In American Stay Co. v. Delaney, 211 Mass. 229 (1912), a

skilled mechanic was employed to assist the President of

a corporation with the latter’s inventions, understanding

that he would be under an obligation to keep secret any-

thing disclosed to him. The Court refused to find that

there was a corresponding implied obligation not to dis-

close his own invention, even though the background in-

formation on which he based his invention was derived

from the performance of his duties as an employee. Simi-

larly, a designer who assisted in developing processes for

manufacture of toys from cardboard was held in New

Method Die and Cut-Out Co. v. Milton Bradley Co., 194 N. E.

80 (Mass. 1935) to be entitled to free use of the seeret proc-

esses, even though they were developed during his em-

ployment and even though other employees contributed to

the development of the secrets.

Even considered strictly as an employee, Hyman’s cir-

cumstances were clearly not such as to give rise to an im-

plied obligation to keep secret all inventions he might

personally make. He was the executive head of Velsicol,

not even directly concerned with research at the time of

this invention, there being a Director of Research. Velsi-

col had a large manufacturing plant employing many

workers as well as a large laboratory; Hyman’s primary

attention must have been devoted to management func-

tions. There was no showing that at the time of the chlor-

dane invention his duties as head of the company were

understood to entail his personal exercise of his inventive

powers in the development of any invention. Furthermore,

the District Court did not find that he was. Its finding that

he agreed to ‘‘develop new uses’’ for petroleum refining

by-products is not a finding he was bound to invent, for de-

velopment of ‘‘new uses’? does not imply invention.

The Colorado Supreme Court makes much of the ex-

penditure by Velsicol of substantial sums of money in re-

search in perfecting chlordane. It is abundantly clear

that such expenditure did not give rise to an obligation of

secrecy, but only entitled the employer to shop rights in

any discovery. Hapgood v. Hewitt, 119 U. 8. 226 (1886).

Petitioners have never denied that Velsicol is entitled to

such rights as to chlordane, worth many times the sums

expended in research.

It was no more within the contemplation of the parties

in 1931 when the venture was conceived that Hyman would

assign 40 inventions, of which many were entirely unre-

lated to the products for the production of which the cor-

poration was formed, than it was that Regenstein would

loan over one-half million dollars to the business over a

period of years. Clearly neither Velsicol nor Hyman

could have required Regenstein in any legal proceeding

at any given time to loan additional money to the corpo-

ration. Nor could either Velsicol or Hyman have legally

prevented Regenstein from declining to loan additional

funds to the corporation without attaching his own condi-

tions such as, for example, an increase in his stock in the

corporation (as a matter of fact, the loans were ultimately

converted into stock). Conversely, it is difficult to see how

either Velsicol or Regenstein could legally require Hyman

to continue to deny himself the use of his own inventions if

at any time he elected to decline to do so or to place condi-

tions upon his denying himself the use of them. The

loaning of money by Regenstein through his companies and

the contribution of his own inventions by Hyman were sim-

ply a continuing course of conduct between the ven-

turers until either elected to terminate the continuity of

this practice. To fasten a legal liability upon Hyman to

continue to deny himself his inventions against his will and

without consideration deemed adequate by him was clearly

a miscarriage of justice. Certainly these circumstances do

not constitute that clear and unequivocal obligation which

the law requires before it will deny to an inventor the use

of his own invention.

The Colorado Supreme Court thus committed clear error

in enforcing against Hyman the obligations of an employee

in receipt of confidential disclosures of trade secrets. His

position as the inventor of chlordane demanded a positive

showing of a clear agreement not to disclose it. His posi-

tion as one of the venturers, a founder and co-owner of the

corporation, was so special, so subject to varying responsi-

bilities depending upon the agreement of the parties, and

so different from that of the ordinary employee, as to de-

mand that his rights and obligations be measured by the

agreements of the parties, and not by conventional rules

for fixing the rights and duties of employees. In failing

to do this, and in applying inapposite doctrines to raise an

implied obligation, the Colorado Supreme Court committed

reversible error which, because it resulted in depriving

Hyman of his constitutional right to practice his invention,

requires review by this Court.

CONCLUSION.

The Supreme Court of Colorado, in the decision sought

to be reviewed here, refused to hear evidence essential to

the preservation of petitioners’ federal right that trade

secrets had been dedicated to the public domain by publi-

cation. It violates the federal policy of preserving free

competition by restraining petitioners from competing with

respondent in interstate commerce without justification in

fact or law. In violation of his constitutional rights it

denies an inventor, without justification, the use of his

invention. It destroys a $2,000,000 a year business in in-

terstate commerce in an insecticide important to agriculture

which petitioners (the principal being its inventor) were

manufacturing and selling in interstate commerce and en-

forces a monopoly in such commerce in respondent corpora-

tion in violation of the Sherman Act.

It adds public injury to private wrong.

Therefore, this Honorable Court should review it.

And when it does, I respectfully submit it will reverse it.

CLaupe Pepper,

Attorney for Petitioners.

INDEX AND SUMMARY.

_—

PAGES

Statement of the Case. This is a suit in equity by

Velsicol Corporation, respondent, for relief from in-

vasion by Julius Hyman & Company, Julius Hyman

and others, petitioners, of Velsicol’s property rights

in certain chemical products and trade secrets, and

for an accounting for damages and profits resulting

from breach of fiduciary and contractual obligations.

All issues of fact were found by the trial court in

favor of plaintiff (respondent) and against defend-

ants (petitioners) and a decree was entered accord-

ingly. The judgment of the Colorado Supreme Court,

affirming this decree, is what petitioners seek to re-

view 2-15

Jurisdictional Requisites Lacking. There is not

drawn in question in this case the validity of a stat-

ute of the United States or of any state, nor is there

involved any title, right, privilege or immunity set

up or claimed under the Constitution, treaties or

statutes of the United States. The decision of the

Colorado Supreme Court rests on non-federal

grounds. The conditions for review by certiorari of

a decision of a court of last resort of a state pre-

scribed by Section 1257 (3) of Title 28, U.S. Code,

are absent 16-25

Case Is Correctly Decided. The defendants (peti-

tioners) stood in confidential relations to plaintiff

(respondent) with respect to chlordane and its re-

lated secret formulas, processes and products, and

EEO ELE LEER ELC ITE LIME LOREEN IE LR LMI TE MEI IRI

PPh EOIN d

equity will make certain that defendants shall not

fraudulently abuse the trust plaintiff reposed in them.

This case is governed by equitable principles appli-

cable to any wrongful use of confidential information

or wrongful appropriation of property in breach of

trust. All questions presented by the petition here

have been concluded by the decisions in Velsicol Cor-

poration v. Julius Hyman, 405 Til. 352, ce. d. 339 U. S.

966, and Julius Hyman vy. Velsicol Corporation, 342

Ill. App. 489, a.d. 343 TIL App. ii. The decision of

the Colorado Supreme Court, here sought to

be reviewed, is in harmony with every decision of

every federal and state court on similar facts, and

would be affirmed on the merits if the merits were

before this Court for ws ise RO NEL 26-40

Conclusion. The Colorado Court has not decided a

federal question of substance nor has it decided a

case not in accord with the applicable decisions of

this Court. Furthermore, the case is correctly de-

cided on non-federal grounds. The petition should

be dismissed or denied for the reasons stated in this

answer - habitats etait

LIST OF AUTHORITIES.

Cases Crrep.

Albertson v. Clark, 70 Colo. 129

Allen v. Arguimbau, 198 U. S. 149

Allen v. Southern Pac, R. Co., 173 U.S. 479.......... 19, 33

Allen-Qualley Co. v. Shellmar Products Co., 31 F. 2d

293, 36 F. 2d 623, 87 F. 2d 104, 301 U.S. 695........28-29

A. O. Smith Corp. vy. Petroleum I. W. Co., 73 F. 2d

531

Ark. So. R. v. German Nat’l. Bk., 207 U.S. 270.......... 24

Bacon v. Texas, 163 U.S, 207 24

Becher v. Contoure Laboratories, 279 U.S. 388............ 19

Bell Tel. Co. v. Pa. Pub. Util. Comm., 309 U.S. 30...... 23

Bushnell v. Consolidated I. & M. Co., 138 Ill. 67........ 40

Calif. Powder Works v. Davis, 151 U.S. 389.......... 19, 24

Christman v. Miller, 197 U.S. 313.000... eee 23

eee W.. Memee, Be Coke, BeBe stein 40

Craddock v. Palmer, 91 Colo. 79.00........:c-cccccccceccecsssececooeeee 18

DuPont Powder Co. v. Masland, 244 U.S. 100.......... 26, 32

Kast Tenn. V. & G. Ry. Co. v. Frazier, 139 U.S. 288.. 20

Elmhurst v. Kegerreis, 392 Ill. 195 40

Enterprise Irrig. Dist. v. Canal Co., 243 U.S. 157...... 24

Felix v. Scharnweber, 125 U.S. 54 20

Fox Film Corp. v. Muller, 296 U.S. 207..................... 24

Fuller & Johnson Mfg. Co. v. Bartlett, 68 Wis. 73... 19

Germo Mfg. Co. v. Combs, 209 Mo. App. 651

Gr. No. Ry. Co. v. Sunburst O. & R. Co., 287 U.S. 358 24

mee x aman, A Ta I issn stin entrees 33

pearson. v. Auditor, 135.001. 128 css 18

Hart Steel Co. v. R. R. Supply Co., 244 U.S. 294......18, 40

Herb v. Piteairn, 324 U.S. 117 23

Hinkle v. Blinn, 92 Colo. 302........ i 39

Hoeltke v. C. M. Kemp Mfg. Co., 80 F. 2d 912.0... 30

Honeyman v. Hanan, 300 U.S. 14 19

RANE ESS)

Ta PATE eee FLIP Shs oh Sere ao

Hulbert v. Chicago, 202 U.S, 275 19

Hulse v. Bonsack Machine Co., 65 F. 864.000.0000... 39

Irving Iron Works v. Kerlow S. F. Co., 96 N. J.

Eq. 702 19

Jacobi v. Alabama, 187 U.S. 133 19

Julius Hyman v. Velsicol Corporation, 342 Ill. App.

489 3 40

Kardo Co. v. Adams, 231 F. 950 40

Kerfoot v. Farmers, ete. Bank, 218 U.E. 281... 23

King v. West Virginia, 216 U.S. 92... 23

Klinger v. Missouri, 13 Wall. 257... 20

Live Oak, ete. Assn. v. R. R. Comm., 269 U.S. 354...... 20

Long v. Converse, 91 U.S. 105 33

Los Angeles, etc. Co. v. Los Angeles, 217 U.S. 217... 33

Lynch v. New York, 293 U.S. 52 19, 24

MacBeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76.. 26

Magnetic Mfg. Co. v. Dings M. S. Co., 16 F. 2d 739.. 39

Magnolia Petroleum Co. v. Hunt, 320 U.S. 430... 18, 41

Mammoth Mng. Co. v. Grand Cent. Mng. Co., 213 U.S.

72 - =

Meinhard v. Salomon, 249 N.Y. 458 aaltuaseeics 32

Miller v. Lancaster Bank, 106 U.S. 542... 33

Montgomery v. Hernandez, 12 Wheat. 129... 33

Murdock v. City of Memphis, 20 Wall. 590... 19

N. O. Waterworks Co. v. La. Sugar Rfg. Co., 125

US. 18 19

New Jersey Zine Co. v. Singmaster, 4 F. Supp. 967..19, 39

Nickel v. Cole, 256 U.S. 222 24

O. & W. Thum Co. v. Tloezynski, 114 Mich. 149........ 39

Paley v. DuPont Rayon Co., 71 F. 2d 856........002..... 29

Parker v. McLain, 237 U.S. 469..00.20000....0....c.cccccccseeses- 23

Pomeroy Ink Co. v. Pomeroy, 77 N.J. Eq. 293........ 34

Richardson Machine Co. v. Scott, 276 U.S. 128.......... 24

Schavoir v. American R. L. Co., 104 Conn. 472.......... 32

Silurian Oil Co. v. Neal, 277 Ill. 46.............................. 38

S. W. Bell Tel. Co. v. Oklahoma, 303 U.S. 206......19, 24

Southern Pacific Co. v. Schuyler, 227 U.S. 601.......... 20

State v. Neal, 152 Fla. 582 : 32

Stone v. Goss, 65 N.J. Eq. 756 26

Street v. Chicago Wharfing Co., 157 Ill. 605............-... 39

| Utley v. St. Petersburg, 292 U.S. 106... 19

Velsicol Corporation v. Julius Hyman, 405 Ill. 352,

I TITIES: ariresccsheticitsthaodsinsplebdasittabadanaonnnabrosieg 16, 24, 38

Vulean Detinning Co. v. American Can Co., 72 N.J.

Kq. 387 30

Walter A. Wood, ete. Co. v. Skinner, 139 U.S. 293...... 20

Waters-Pierce Oil Co. v. Texas, 212 U.S. 86.............. 19

Westervelt v. National P. & S. Co., 154 Ind. 673.......... 26

Wilson’s Executor v. Deen, 121 U.S. 525_...02........ 38

Wireless S. A. Co. v. Mica Condenser Co., 239 Mass.

TIP ascahsceibcehae Mehiesesinacabinleasioediestectbenpteioeelbigniainhaivcadaiiinasiataaeatiae 26, 35

—_—

Worcester County Trust Co. v. Riley, 302 U.S. 292... 24

Cases DisTINGuIsHED.

Conmar Products Corp. v. Univ. §, F. Co., 172 F. 2d

Pe mtaorteinen: z 29

K. Katzinger Co. v. Chicago M. M. Co., 329 U.S. 394 33

MacGregor v. Westinghouse E. & M. Co., 329 U.S. 402 33

Picard v. United Aircraft Corp., 128 F. 2d 632........ 29

Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249. 33

Sola Elec. Co. v. Jefferson Elec. Co., 317 U.S. 173.. 33

Texts Crrep.

Freeman on Judgments, 5th Ed., Sec. 894.0000... 38

Nims on Unfair Competition, 4th Ed., Secs. 149-151... 32

Restatement of Torts, See. 757 . 26

3 Wigmore on Evidence, 3rd Ed., See. 17 23

iit ORES SEN EO AE SS II oe eae Se Phe a a

ae RMR og oe aie tee ee Re

Bis Ate

IN THE

SUPREME COURT OF THE UNITED STATES

Octoper Term, 1951.

No. 340

JULIUS HYMAN & COMPANY,

a@ corporation, et al.,

Petitioners,

vs.

VELSICOL CORPORATION, |

Respondent.

BRIEF IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI.

To the Honorable the Chief Justice of the United States

and the Justices of the Supreme Court of the United

States:

Velsicol Corporation, plaintiff below and respondent

here, presents this answer to the petition of Julius Hy-

man & Company, a corporation, Julius Hyman, individ-

ually and as president and director of Julius Hyman

& Company, and others, defendants below, for review by

writ of certiorari of the judgment of the Supreme Court

of the State of Colorado affirming a judgment of the Dis-

trict Court in and for the City and County of Denver.

The case presented to this Honorable Court by the

petition is not the case presented to the Colorado: courts.

The attempt of petitioners is to frame new issues to give

this Court jurisdiction to review the judgment of the

Colorado Supreme Court.

STATEMENT OF THE CASE.

This Court is entitled to an honest and intelligible

statement of the case presented for review. Petitioners’

statement is incomplete and misleading. It searcely iden-

tifies the case, much less gives this Court a true summary

of the record.

Nature of the Suit.

This suit is for a decree awarding plaintiff, respondent

here, an injunction to restrain Julius Hyman and the

other individual defendants, petitioners here, from dis-

closing to their creature, Julius Hyman & Company,

secret formulas, processes and products discovered by or

made known to them during and in the course of their

employment with plaintiff in confidential capacities and

under contracts to keep plaintiff’s secrets, and to re-

strain the defendants from using the formulas, processes

and products belonging to plaintiff, and particularly

the formulas and processes relating to the insecticide

*‘Velsicol 1068’’, now commonly called ‘*chlordane’’, and

other insecticides, and producing and marketing said

insecticides in competition with plaintiff, and for a judg-

ment for damages suffered by plaintiff by reason of the

breach of the contractual and fiduciary relations of the

individual defendants with plaintiff and by reason of the

unlawful and inequitable acts of the corporate defend-

ant as the creature and instrumentality of the individual

Fe ey ee ony ee ¢ ee = ony pres ee ee oe pee a oa a a

—— FEN EPRI TE PEELE SITET EN MOLLE NI IVE IS BETES ETT RRA

defendants in their conspiracy to injure plaintiff, and for

judgment for the gains and profits of the wrongful under-

takings and activities of the defendants, received by de-

fendants, or any of them, and appropriated to their own

use and benefit.

The Pleadings.

The complaint filed April 11, 1947, alleges facts show-

ing the relations of the parties, the position of Hyman

as the general manager of plaintiff’s business and the

director of its research from the date of plaintiff’s or-

ganization in January, 1931, to the date of his leaving

plaintiff in September, 1946, the position of the other

individual defendants as confidential employees of plain-

tiff at various periods prior to January 1, 1947, the

duties and obligations of the individual defendants by

reason of their contractual and fiduciary relations with

plaintiff to protect plaintiff in its rights and interests

in all discoveries and inventions made by them, or any

of them, during and in the course of their employment,

the confederation and activities of the individual de-

fendants in enticing technical and supervisory employees

of plaintiff, who had knowledge of plaintiff’s newly dis-

covered insecticides and the know-how of producing them,

to join in a conspiracy of wrongful competition with

plaintiff, the organization of Julius Hyman & Company

and the procuring of facilities at Rocky Mountain Ar-

senal, Colorado, to produce plaintiff’s insecticides, the

conspiracy of the defendants to appropriate plaintiff’s

secret formulas, processes and products to their use and

benefit, the pirating of plaintiff’s registered names of its

insecticides and plaintiff’s reports of field tests, and the

production and marketing of plaintiff’s insecticides by

defendants, and the fact that plaintiff has suffered and

—

will continue to suffer damages by reason of the unlaw-

ful interference and unfair competition unless defendants,

and each of them, were restrained. Specific and general

relief in equity is prayed. (R. I, 1-43*.) This complaint

was supplemented and the prayer was amended. R. V,

6-15, 455.

The answer of Julius Hyman filed July 31, 1947, ad-

mits the facts showing the relations of the parties, the

course of conduct of Hyman as executive vice president,

general manager and director of research of plaintiff,

and his course of conduct as the president and general

manager of Julius Hyman & Company, and the course

of conduct of other individual defendants as employees

of plaintiff and later as employees of Julius Hyman &

Company, and the activities of Julius Hyman & Company

in the production and marketing of plaintiff’s insecti-

cides. He denies that plaintiff has the exclusive right to

produce and market chlordane, and avers that he and his

assignees and licensees have the right to produce and

market the insecticides covered by applications for United

States Letters Patent Serial Nos. 607078 and 643759,

which include chlordane, subject to plaintiff’s shopright _

to produce and market said insecticides, and he denies _

that defendants are under the duties and obligations to

plaintiff alleged in the complaint. (R. I, 45-56.) He avers |

that plaintiff is estopped to prosecute this complaint by |

reason of an alleged agreement made by Joseph Regen- _

stein, president of plaintiff, in October, 1943, to make |

some arrangement to increase Hyman’s percentage of |

ownership in plaintiff and Regenstein’s alleged failure

to keep his promise. (R. I, 56--61.) He avers that with

*The record is in six volumes, each separately paged. We shall

refer to the volumes with a Roman numeral and to the cited pages

with Arabic numerals.

the information which plaintiff had made public any

competent chemist could determine the formulas, pro-

cesses and products in dispute and any competent en-

gineer could design and construct the necessary plant for

manufacture of said products, and that neither the prod-

ucts nor the processes are secret. (R. I, 61.) He avers

that plaintiff does not come into court with clean hands

because of certain recapitalization proceedings carried

out in December, 1946, which resulted in a reduction

in Hyman’s pro rata position in plaintiff. (R. I, 61-63.)

Other defendants adopted Hyman’s answer in pertinent

part. R. 1, 63-65.

It will be noted that the answers do not draw in ques-

tion the validity of a treaty, statute of the United States

or statute of Illinois or Colorado, and that the answers

do not set up or claim any title, right, privilege or im-

munity under the Constitution, treaties or statutes of the

United States. There is no reference in the answers to

any statute of the United States nor to the Constitution

of the United States.

This Court will also note that nothing is said in the

answers with respect to applications for letters patent

filed in Great Britain and in other foreign countries cor-

responding to the United States applications, and there

is no claim that defendants, or any of them, learned any

of plaintiff’s secrets by disclosures made by these appli-

cations for foreign patents nor is anything said about

the United States Department of Agriculture publica-

tions respecting the insecticides here in issue. All of this

defense resting on alleged disclosures of plaintiff’s

trade secrets is an afterthought presented by subse-

quent motions.

January 16, 1948, more than six months after the an-

swers were filed and more than a year after the individual

defendants had left the employ of plaintiff and had

organized Julius Hyman & Company and started opera-

tions in Colorado, defendants presented by motion for

summary judgment the defense that plaintiffs trade

secrets were in the public domain by reason of the lay-

ing open to public inspection in Great Britain on Janu-

ary 27, 1947, the Hyman applications for patents cover-

ing chlordane, and a release issued by the United States

Department of Agriculture under date of February 26,

1947, relating to chlordane. (R. I, 82-93.) This motion

was fully answered by plaintiff February 20, 1948. The

affidavits supporting the answer show that the laying

open to public inspection of an application in the British

Patent Office does not constitute a printed publication

of the invention and that although the information con-

tained in the British application was adequate to enable

any person skilled in the art of chemistry to make the

compounds and to use the formulas and processes de-

scribed in the applications, such applications do not

necessarily include technique and know-how adequate to

enable any person skilled in the art of chemistry to carry

out the commercial production of the products described

in said applications without gaining and acquiring addi-

tional technique and know-how and without having first

had the benefit of knowledge resulting from the expendi-

ture of large sums of money and considerable time re-

quired to develop such technique and know-how for the

commercial production of said products. They also show

that whatever disclosures were made by these foreign

applications covering chlordane were made by Julius

Hyman as the applicant, and that whatever disclosures

were made by the Department of Agriculture publications

_ ——.

the source was Julius Hyman & Company. They further

show that plaintiff was not a party to any alleged dis-

closures, and that no defendant obtained any of the

knowledge which he was employing in producing and

marketing plaintiff’s insecticides from the disclosures

made in connection with the prosecution of these foreign

applications or from the Goverment publications. (R. I,

93-126.) The motion for summary judgment was denied

after full hearing on March 3, 1948. R. I, 127.

Defendants moved on March 22, 1949, about two years

after the complaint was filed and one year after the case

was tried, for an order dissolving the injunction ordered

May 28, 1948, on the ground that plaintiff’s secrets had

been disclosed by the granting of patents in Belgium

and other foreign countries covering plaintiff’s insecti-

cides here in issue. (R. V, 1-6.) Plaintiff answered the

motion April 5, 1949, showing again that the applica-

tions in foreign countries covering chlordane had been

filed by Hyman, that plaintiff was not a party to the

filing and prosecution of the foreign applications cover-

ing chlordane, and that no defendant learned anything

new by these proceedings. (R. V, 16-22.) It appeared

from the Peterson affidavit attached to the answer, which

is not challenged, that the issuance, under date of May

31, 1946, by the Belgium Government to Julius Hyman

of the patent covering chlordane consisted of the step

of making typewritten copies of said patents available

for public inspection in the Patent Office at Brussels,

Belgium, that the Belgian patents are not printed and

that the Patent Office does not make any distribution

to the public of printed copies of the patents, and makes

distribution of typewritten or photostatic copies of

patents only to those who make specific requests for such

copies. There was no showing that any such request was

ever made. (R. V, 21.) There was a full hearing on this

motion and it was denied. R. V, 23.

The Decisions Below.

The issues of the ownership of the formulas, processes

and products described in the complaint, of the appro-

priation of these formulas, processes and products to the

use and benefit of defendants, and the liability of de-

fendants to account to plaintiff, were heard by the chan-

cellor and he found the facts as alleged in the complaint.

(R. II, 547-553.) The District Court entered its decree

May 28, 1948, finding the issues for the plaintiff and

against the defendants, who are petitioners here, order-

ing the issuance of an injunction as prayed and requiring

defendants to account. (R. II, 569-571.)* A special mas-

ter in chancery heard evidence on the accounting issues

and reported his conclusions. (R. V, 435-454.) On May

11, 1950, the Court entered its decree pursuant to the

recommendation of the master, as modified, awarding

plaintiff a joint and several judgment for damages

against all defendants in the amount of $100,000 and a

judgment against Julius Hyman & Company in the

amount of $1,559,053.30 on account of gains and profits

received by it from the production and sale of chlordane

for the period ending March 31, 1949, and appropriated

to its use and benefit. (R. V, 496-499.) This decree was

reviewed by the Supreme Court of Colorado and _ it

1 __

*It is significant that the Superior Court of Cook County, Illinois,

independently and almost concurrently reached the same conclusion

as to the ownership of the formulas, processes and products in a

suit by Velsicol Corporation against Julius Hyman to compel the

assignment of patent applications relating to chlordane and for

injunction. R. V, 10-12.

——

entered its judgment of affirmance of the decree, with

some modifications on the accounting issues, on June 25,

1951. (R. VI, 88-89.) The opinion of the Supreme Court

of Colorado is printed at R. VI, 19-88, and is reported

at 233 Pac. 2d 977.

The Facts.

Julius Hyman received extensive college training in

chemistry at the University of Chicago and the Univer-

sity of Leipzig. The Regensteins paid for it. (R. II, 174.)

He completed his college work in 1924 and was variously

employed during the next six years. His last employ-

ment prior to the organization of plaintiff was as a

research chemist with Pure Oil Company. (R. II, 175.)

A few days after he left that employment on October

31, 1930, he filed two applications for United States let-

ters patent relating to the use of petroleum refining by-

products. (R. II, 176-178.) He sought financial aid of

Joseph Regenstein, the principal stockholder of Arvey

Corporation and Transo Envelope Company, in the estab-

lishment of a chemical research laboratory. (R. IT, 132-

135, 178-182, 267-275.) Following discussions in November

and December, 1930, Velsicol Corporation was organized

under the laws of Illinois January 16, 1931, to discover,

prove, develop, produce and market chemicals of all kinds.

(R. I, 4-5; R. IV, 17.) Velsicol now has and always

had three stockholders,—Julius Hyman, Arvey Corpora-

tion and Transo Envelope Company. (R. I, 26, 52; R. II,

130.) Hyman was the only person financially interested

in plaintiff who had any knowledge of chemistry and who

knew the value and potentialities of the discoveries made

in Velsicol’s laboratory. (R. IT, 172, 268.) He was Velsi-

col’s executive vice president, general manager and di-

rector of research from its organization in January, 1931,

until he left in September, 1946. R. II, 146, 188, 284;

R. IV, 6-12.

All of plaintiff’s employees, including Hyman, were

under obligation by reason of express agreements to

keep plaintiff’s laboratory and manufacturing secrets for

its exclusive benefit and to assign to plaintiff any in-

ventions made during and in the course of their employ-

ment and any patent applications filed with respect there-

to. (R. Il, 146, 185, 189, 281; R. Il], 3.) Hyman denied

that he had executed such an agreement, but it was set-

tled in the Illinois suit brought to compel Hyman to as-

sign to plaintiff the patent applications relating to ‘‘Vel-

sicol 1068’’, now called ‘‘chlordane’’, that he had exe-

cuted and delivered such an agreement on January 31,

1931, (R. V, 10-12, 457-473.) and this decision concludes

this question. During the first thirteen years of plaintiff’s

existence all applications for letters patent filed by its

employees, including thirty-seven filed by Hyman, were

assigned to plaintiff in due course and without discussion

or condition. (R. II, 423, 426.) These applications covered

a wide field, including six insecticides. Many of them

never matured into patents. (R. I, 33-34, 54.) During all

of this period there was never a suggestion that Hyman

was not under obligation to give plaintiff full protection

in all discoveries made by any employee of plaintiff,

including Hyman, during and in the course of the em-

ployment. (R. II, 341, 423.) The first time Hyman sug-

gested that he did not think he should continue to assign

his inventions without some special consideration was in

a conversation with Regenstein about the first of Oc-

tober, 1943, (R. II, 332, 423,) but he thereafter assigned

three other applications, as he was required to do by his

OEE Le Bo OTERO VIED ALI LC IE IIE PM RT tee PIPE REO E SA POY TR ETN SDN IE DOTIOD

express agreement,—one as co-inventor with Peters cov-

ering a method for production of alphanapthoquinones,

and two as sole inventor covering insecticides. (R. I, 34;

R. II, 425-426.) Hyman was given additional compensa-

tion as the business grew. His ‘‘salary’’ was increased

from $18,200 a year in 1943 to $31,200 a year in 1945,

and he drew about $8,000 a year as ‘‘expenses’’. R. II,

428.

The business of plaintiff, Hyman’s relation to plain-

tiff’s business, the method of conducting the business, the

procedure followed by plaintiff’s chemists and other lab-

oratory technicians in conducting research and experi-

mental work for plaintiff, the dependence of the success

of plaintiff on the results of research, and the obligation

to it of plaintiff’s employees, including the individual

defendants here, and their relations to plaintiff’s research

and manufacturing operations are set forth in detail

by Hyman in verified statements which he filed with the

Stabilization Unit of the Treasury Department of the

United States during the period plaintiff’s new insecti-

cides were discovered, tested and proven. Pl. Ex. WW,

R. IV, 8-12; Pl. Ex. VV, R. IV, 6-8; Pl. Ex. YY, R. IV, 12.

In the summer of 1944, Hyman, as operating head of

plaintiff, assigned to Dr. Simon Herzfeld, a research

chemist employed in plaintiff’s laboratory, a project re-

lating to cyclopentadiene reactions. (R. II, 192, 403-405.)

Dr. Herzfeld used his own skill and ingenuity in carrying

out the experiments and in the course of his work he

produced a composition of matter not previously known.

(R. II, 192, 353.) Further work was done in association

with defendant Rex Lidov, the assistant director of re-

search, and Henry Bluestone, another research chemist.

This new product was known as ‘‘237’’, its laboratory

ae — —= . Se ee ee ee

number. (R. II, 192, 342.) Herzfeld, Lidov and Bluestone

filed patent applications covering these discoveries and

the applications were duly assigned to plaintiff. (R. I, 13,

47; R. II, 195, 345.) In due course the assigninents and

conformed copies of the filed applications were trans-

mitted to plaintiff to the attention of Hyman by plain-

tiff’s patent attorney, as had been the regular practice

for more than fourteen years. R. II, 341, 346.

The testing of ‘‘237’’ showed that it was an effective

insecticide but that it was too volatile for practical pur-

poses, and Hyman, as was his duty, directed further re-

search in plaintiff’s laboratory for the purpose of stabi-

lizing the product and making it more effective. The com-

position of matter ‘‘237’’ was chlorinated and its toxicity

and stability greatly increased. The empirical formula of

**237’’ is CyoH.Cl,. The formula of the chlorinated

product is C,,H,Clg, and that product became known as

**1068”’, which is a combination of the subnumerals of

the formula. (R. II, 193.) The product ‘‘237” is an es-

sential component of the product ‘‘1068’’. Without the

discovery of ‘‘237” there would have been no ‘‘1068’’.

(R. II, 206, 222, 249; R. ITT, 119, 155.) Hyman did none

of the laboratory work in relation to these insecticides.

All of the research and experimental work was done by

plaintiff’s laboratory employees at plaintiff’s expense at

Hyman’s direction. All results were reported to Hyman.

R. II, 192, 405, 430.

Hyman filed an application for United States Letters

Patent, July 25, 1945, Serial No. 607078, in his name as

the sole inventor, covering this new composition of

matter ‘‘1068”’, discovered and proven in plaintiff’s lab-

oratory, and a second application with broadened claims,

January 26, 1946, Serial No. 643759. (R. II, 195-196, 345-

EE Ar CR eR ee ree ea me en

346.) These Hyman applications covering the new insecti-

cide, now commonly called ‘‘chlordane’’, which is the sub-

ject matter of this suit, make specific reference to the

Herzfeld-Lidov-Bluestone applications covering ‘‘237”’ by

serial numbers, filing dates and the names of the in-

ventors. (R. II, 348.) The regular form of assignment

was sent to Hyman by Mr. Lee J. Gary, plaintiff’s patent

attorney, when he sent the first of the ‘‘1068”’ applications

to Hyman for execution, as had been his practice for the

fifteen years of plaintiff’s existence. (R. Il, 343, 426.)

Hyman returned the executed application without the

assignment. This was the first time Hyman had failed to

execute an assignment to plaintiff on the execution of

the application. (R. II, 341, 408.) Hyman, who had pre-

viously given Mr. Gary all instructions respecting in-

ventions made by him and other employees of plaintiff in

_ the regular course of its business, instrueted Mr. Gary to

file the two applications without the assignments, and

this was done. (R. II, 343, 347.) Mr. Regenstein, the

president of plaintiff, later learned that Hyman had not

assigned to plaintiff the ‘‘1068’’ applications and in June,

1946, demanded that the assignments be made. (R. II,

286, 334, 427.) In August, 1946, Regenstein consulted

Gary respecting the circumstances of the filing of the

“1068”? applications without Hyman’s assignments. This

was the first time in plaintiff’s fifteen years of existence

that Regenstein talked with Gary about the procedure of

filing patent applications ad obtaining the assignments.

(R. II, 348, 543.) Discussions continued for about six

weeks between the parties and their attorneys, Hyman

persisting in his position, which was in direct violation

of his agreement and his fiduciary relations with plaintiff,

and finally, on September 13, 1946, Regenstein, as presi-

dent of plaintiff, accepted Hyman’s proffered resignation

ins bie? ‘aes

Be SE ee Te RSS RM a oo REEE

PO TS Faia ana al Cig ed

ie aie

PRAGUE BR Ke cata aes

as executive vice president and general manager of plain-

tiff. R. II, 334, 413, 429.

Prior to the time Regenstein accepted Hyman’s resigna-

tion September 13, 1946, Hyman had called a meeting of

all the research chemists of plaintiff to meet in his office

in the afternoon of that day. (R. II, 429.) This meeting

was held and Hyman made a speech to plaintiff’s chemists

which was designed to and did cause dissention and

disloyalty. (R. III, 115-117, 148-150; R. V, 135.) There-

upon Hyman began an organized campaign of sabotaging

plaintiff’s operations and of soliciting plaintiff’s em-

ployees to join him in setting up an operation in compe-

tition with plaintiff. (R. II, 213, 237, 376, 379; R. III, 7,

10, 32, 41, 48, 58, 65, 68, 88, 90, 151.) There was a general

exodus of plaintiff’s technical and supervisory employees

in the fall of 1946 and the hegira to Rocky Mountain

Arsenal began. (R. II, 149, 213, 380, 470; R. V, 124.) The

individual defendants, as they left plaintiff, were promptly

put on the payroll of Julius Hyman & Company, which

had been organized in November, notwithstanding it had

no plant or laboratory in which to employ them. (R. II,

205.) These defendants had been directly connected with

research and development work in relation to plaintiff’s

insecticides ‘‘237’’ and ‘‘1068’’ and with the production

of these insecticides. (R. I], 194, 200, 210, 222, 226, 249,

260, 470; R. IIT, 67, 81, 128, 155.) Conclusive proof that

they carried to Julius Hyman the necessary technical

knowledge and experience to efficiently produce these

insecticides is the fact that this competitor had its plant

in operation within six weeks after it got possession (R.

IT, 206, 223, 257) and that it turned out 74,824 pounds of

finished chlordane during the first month of operation

without any preliminary research or experimental work.

—

(R. Il, 472.) Julius Hyman & Company produced no evi-

dence that it had any knowledge of the ‘‘237’’ or ‘‘1068”’’

(chlordane) formulas or of the know-how of producing

these insecticides except that which it gained surrepti-

tiously and unlawfully from the individual defendants

who joined in a conspiracy to destroy plaintiff as a

competitor and to steal its trade secrets.

Julius Hyman & Company called its product ‘‘Octa-

Klor’’ but its announcement pirated plaintiff’s trade-mark

‘*1068’’ by setting in its advertising matter the subnu-

merals of the empirical formula in bold display type and

the letters in inconspicuous type. It also pirated plain-

tiff’s field test reports with respect to the killing effect

of these new insecticides by fraudulently incorporating

them in a descriptive booklet. Hyman admitted this piracy.

(R. II, 207-209.) So did McCauley. (R. II, 482, 485.) The

first announcement of Julius Hyman & Company, made in

December, 1946, says in part: (R. IT, 208; R. IV, 14)

‘*The inclosed booklet describes the chlorinated

hydrocarbon insect toxicant C,)H, Cly. This compound

is the discovery of Dr. Julius Hyman, formerly Exe-

cutive Vice-President of Velsicol Corporation, and

now President of Julius Hyman & Company. C,H,

Cl, is manufactured and marketed under the trade

name Octa-Klor in the company’s plant in Denver,

Colorado.

‘‘ Julius Hyman & Company is composed of a group

of scientists, engineers, technicians, and other key

personnel who have worked together many years, and

who possess the knowledge and competence required

to produce C,oH, Cls, and the understanding needed

to serve the insecticide industry.”’

This circular was distributed to the trade nearly a month

before Julius Hyman & Company had a plant and three

months before it had produced any chlordane. R. II, 208.

JURISDICTIONAL REQUISITES LACKING.

No question is presented by the record in this case

which this Court will review. The validity of a treaty,

statute of the United States, or statute of any state is

not drawn in question in this case, nor is there involved

any title, right, privilege or immunity set up or claimed

under the Constitution, treaties or statutes of the United

States. The conditions for review by certiorari of a de-

cision of a court of last resort of a state prescribed by

Section 1257(3) of Title 28, United States Code, are

absent.

The case here is a suit in equity by Velsicol Corporation,

respondent, for relief from invasion by Julius Hyman &

Company, Julius Hyman and others, petitioners, of Velsi-

eol’s property rights in certain trade secrets. The issues

in the case at bar of the relations of Velsicol and Hyman,

and of the rights of Velsicol in the insecticides here in

issue, and of the breach of contractual and fiduciary re-

lations by Hyman were also present in Velsicol Corpora-

tion v. Julius Hyman, 405 Ill. 352. The complaint in the

Illinois case was filed in the Superior Court of Cook

County, October 15, 1946, nearly a month before Julius

Hyman & Company was organized in Delaware. All of

the issues in the case at bar could have been settled in

the Illinois case if Velsicol could have got jurisdiction

of Julius Hyman & Company and the individual defend-

ants other than Julius Hyman. By the decree in the IIli-

nois case it was determined that Velsicol was the owner

of the compound, then called ‘‘Velsicol 1068’’ and now

called ‘‘chlordane’’, and that Hyman was under con-

tractual and fiduciary relations to protect Velsicol in its

property rights in chlordane and to keep Velsicol’s trade

secrets with respect thereto for the exclusive use of Velsi-

ee ae ee WEIN et, A OES a oe iY OID PAN Er SERS ey

col. It ordered Hyman to assign to Velsicol the applica-

tions for United States letters patent covering chlordane

and all applications for letters patent filed in foreign

countries corresponding to the United States applications

and all patents which had issued or which did issue on

any of said applications. It ordered that an injunction

issue restraining Hyman and his assignees and associates

from using any of the formulas, processes and products

covered by said patent applications and from disclosing

said formulas, processes and products to anyone other

than plaintiff and from permitting the use of said formu-

| las, processes and products by anyone other than plain-

tiff, and from using or revealing any methods and tech-

nique of manufacture discovered by or made known to

him while he was in the employ of plaintiff or which he

learned from any other person now or formerly in the

employ of plaintiff. (R. V, 10-11.) This decree of the

Superior Court was in all respects affirmed by the Su-

preme Court of Illinois. 405 Ill. 352.

A petition to review this decree of the Supreme

Court of Illinois was filed in this Court. (No. 767, Oc-

tober Term, 1949.) Among the questions presented by

that petition were ‘‘Whether, under color of the federal

patent laws, a state court may insulate a corporation

against competition from a former employee in the manu-

facture and sale of an unpatentable product the process

for which has been made public’’, and ‘‘Whether a state

court may deprive a man of his right freely to engage

in his profession and thereby, contrary to the public

interest, insulate a corporation from competition in the

manufacture and sale of any of its formulas, processes,

methods or products regardless of whether they have been

either disclosed to the public or patented.’’ Among the

— Oo cei enegeT ee |

reasons for granting the writ stated in that petition was

‘‘The Court below deprived Petitioner of the constitu-

tional right to engage freely in his profession. It did so

by enjoining him from using or disclosing the subject

matter of the patent applications in question or any

other processes made known to him while in the employ

of Respondent with no regard as to whether any of the

processes were a matter of public knowledge or patented.”

(Pet. pp. 7-9.) These questions presented in the petition

in the Illinois case were substantially identical with the

questions presented in the petition in the case at bar.

This Court denied certiorari. (339 U.S. 966.) This prece-

dent should control in the present case.

The decision in the Illinois case conclusively de-

termined that Velsicol was the owner of chlordane, that

Hyman was under contractual and fiduciary obligations

to assign to Velsicol all patent-applications relating to

chlordane, that Hyman held said patent applications and

trade secrets in trust for Velsicol, and that Velsicol was

entitled to a decree in equity requiring Hyman to assign

all rights in chlordane to Velsicol and restraining Hyman

and his licensees and associates from using any of the

secret formulas and processes relating to chlordane. The

decree in the Illinois case has been executed. It is res

adjudicata against Hyman and his privy, Julius Hyman

& Company, as to all questions in the case at bar which

are here in issue. It is a ruling precedent against the

other defendants. The questions cannot be relitigated.

Magnolta Petroleum Co. v. Hunt, 320 U.S. 430, 438-439;

Hart Steel Co. v. Railroad Supply Co., 244 U.S. 294, 298;

Craddock v. Palmer, 91 Colo. 79, 81; Harmon v. Auditor,

123 Ill. 122, 133.

The case at bar is governed by equitable principles

applicable to any wrongful use of confidential information

or wrongful appropriation of property in breach of

trust. It is not a case which sets up a right under the

patent laws. Becher v. Contoure Laboratories, 279 U.S.

388, 391; New Jersey Zinc Co. v. Sinqmaster, 4 F. Supp.

967, 974; Irving Iron Works v. Kerlow Steel Flooring Co.,

96 N.J. Eq. 702; Fuller € Johnson Mfg. Co. v. Bartlett,

68 Wis. 73.

This Court described the situation at bar when it said

in Murdock v. City of Memphis, 20 Wall. 590, 638:

‘‘The claim of right here set up is one to be de-

termined by the general principles of equity juris-

prudence, and is unaffected by anything found in

the Constitution, laws, or treaties of the United

States. Whether decided well or otherwise by the

State Court, we have no authority to inquire.’’

Defendants did not by their answers to the complaint

present any defense under the Constitution or statutes

of the United States. The opinion of the Supreme Court

of Colorado shows clearly that no federal question was

presented for decision. It is settled law that this Court

will not review a judgment of a state court except where

the record shows affirmatively that a federal question

was raised by the pleadings or on the trial and was

presented to the state court for decision and was ac-

tually decided or that the judgment as rendered could

not have been given without deciding it. (Southwestern

Bell Telephone Co. v. Oklahoma, 303 U.S. 206, 212; Honey-

man v. Hanan, 300 U.S. 14, 18; Lynch v. New York, 293

U.S. 52, 54; Utley v. St. Peterburg, 292 U.S. 106, 111;

Waters-Pierce Oil Co. v. Texas, 212 U.S. 86, 97; Hulbert

v. Chicago, 202 U.S. 275, 279; Jacobi v. Alabama, 187 U.S.

133, 185; Allen v. Southern Pacific R. Co., 173 U.S. 479,

489; California Powder Works v. Davis, 151 U.S. 389, 393;

New Orleans Waterworks Co. v. Lowistana Sugar Refining

Co., 125 U.S. 18, 29; Klinger v. Missouri, 13 Wall. 257,

263.) The pleadings, the finding of the trial court, and

the opinion of the reviewing court may be examined to

see whether a federal question was presented and de-

cided, and the absence of reference to a federal question

is strong evidence that the decision of the state court

rests on non-federal grounds. Live Oak, etc. Assn. v.

Railroad Commission, 26% U.S. 354, 357; Walter A. Wood,

etc. Co. v. Skinner, 139 U.S. 293, 295; East Tennessee

V. & G. Ry. Co. v. Frazier, 139 U.S. 288, 291; Felir v.

Scharnweber, 125 U.S. 54, 58.

Not one of the cases cited in the petition (p. 9) to

support the jurisdiction of this Court has the slightest

relation to the situation at bar. All are clearly dis-

tinguishable on the records. In the cases coming up from

state courts a defense under a federal statute was speci-

fically claimed and denied. No such defense was set up

by the pleadings in this case. Southern Pacific Co. v.

Schuyler, 227 U.S. 601, which is one of the cases cited

in the petition which involved a review of a decision of

a state court, held that this Court had no jurisdiction to

review because there was a non-federal ground which

would sustain the decision of the state court.

The first ground stated in support of this Court’s

jurisdiction rests on a false premise. The Colorado Court

did not refuse ‘‘on the ground of estoppel to allow pe-

titioners [defendants] to present evidence to show no

trade secret existed because the same had been eliminated

by publication’’. (Pet. p. 9.) Defendants were granted

two full hearings in the District Court on the question

of the alleged disclosures of plaintiff’s trade secrets by

the proceedings in foreign countries following the filing

by Hyman in said countries of applications for patents

SLOPE LE SPR IO LAIN TEE AR A i rer ines ce eet ee emcee

ae ee ee

’ eovering chlordane and of the alleged disclosures made

by the United States Department of Agriculture re-

leases. (R. I, 82-127; R. V, 2-6, 16-23.) The exhibits

(D. Ex. 34, R. I. 102; D. Ex. 35, R. I, 86; D. Ex. 36, R.

I, 87; and D. Ex. 40, R. I, 91) which were offered and ex-

eluded on the trial (R. II, 511) are in the record and

were considered by the District Court in ruling on de-

fendants’ motion for summary judgment (R. I, 82, 127)

and defendants’ motion to vacate the decree (R. V, 3, 23)

and by the Supreme Court in ruling that they did not

constitute a defense in whole or in part to plaintiff’s

ease. (R. VI, 51-55.) The Colorado courts considered all

of the evidence offered by defendants in support of their

contention that plaintiff had no trade secrets to protect,

and ruled that the defense was without merit.

The Colorado District Court properly excluded the

proffered exhibits. Exhibit 34 (R. I, 102) is merely an

excerpt from the British Patents and Designs Act and in

itself proves nothing with respect to whether Velsicol’s

trade secrets were disclosed by the laying open to public

inspection of the Hyman patent applications covering

chlordane. Exhibit 35 (R. I, 86) is merely a certificate

of a British officer certifying that an application corre-

sponding to the Herzfeld-Lidov-Bluestone applications

covering ‘‘237’’ was filed in the British Patent Office

February 25, 1946, and was placed open to public in-

spection September 6, 1946. Exhibit 36 (R. I, 87) is a

like certificate of the same officer certifying that the

Hyman application covering ‘‘Velsicol 1068’’, now com-

monly called ‘‘chlordane’’, was filed by Julius Hyman

March 19, 1946, and was placed open to public inspection

January 27, 1947. These certificates do not prove or

tend to prove that any member of the public ever in-

spected these applications. There was no offer to prove

that any member of the public learned any chlordane

secret. No defendant claims that he learned any of Velsi-

col’s secrets from these applications or that copies of

the applications were ever made available to Julius Hy-

man & Company or to any member of the public. Ex-

hibit 40 (R. I, 91) is merely a release of the United States

Department of Agriculture which gives a definition of

‘*Velsicol 1068’’ and assigns to it the name ‘‘chlordane”’,

It discloses the long chemical name, the empirical formula

and the structural formula of the insecticide, but it does

not disclose the composition of the chemical compound

nor the method of making it. No chemist of character

would contend that this release constituted a disclosure

of the secrets of chlordane. The Peterson affidavit (R. I,

100-105) shows clearly that the mere laying open to

public inspection of a patent application by the British

Patent Office is no proof that any member of the public

made the inspection and learned the matters disclosed

by the application. The affidavits of Gary, Wilks, Kleiman,

Hinken, Camp and Jameson, (R. I, 106-126) show that

Velsicol made no voluntary disclosures of any of the

matters covered by the Hyman applications relating to

chlordane. Nothing done by Velsicol disclosed any of the

secrets of chlordane.

Defendants did not even offer to prove by any witness

that the chlordane secrets were in the public domain by

reason of the disclosures of the British applications or

otherwise. Defendants made no offer of any character

with respect to the applications for patents filed by Hy-

man in Belgium and other foreign countries, or with

respect to the granting of patents in those countries, or

with respect to any of the secrets of said patent applica-

ETRE Cote tt > CNA PRAEGER TR ILI RIESE AAG NIE WEP I fe TAM OR RIES RS ORR

tions ever getting into the public domain. No witness was

put on the stand. No question was asked. Nothing was

done except to offer the four documents. This does not

amount to an offer of proof. Wigmore on Evidence, 3rd

Ed., See. 17.

Defendants’ argument that the Colorado District Court

denied to them the right to present evidence to show

that plaintiff’s trade secrets were in the public domain

by reason of the alleged disclosures in foreign countries

is an attempt to build a federal question out of nothing.

A federal question resting on a false assumption is

clearly deviod of merit. Parker v. McLain, 237 U. S.

469, 473.

The Colorado courts considered all of the evidence that

was offered by the defendants on the issue of whether

plaintiff had trade secrets which equity would protect.

These courts decided that the formulas and processes

relating to chlordane were trade secrets belonging to

plaintiff, that plaintiff had done nothing to disclose these

trade secrets to the public, that the secrets of chlordane

were not in the public domain, and that Hyman and his

confederates wrongfully appropriated these secrets to

their use and gain in violation of their contractual and

fiduciary relations to plaintiff. These are clearly questions

of general law and not of federal law. (Bell Telephone

Company v. Pennsylvania Public Utility Commission,

309 U.S. 30, 32; Kerfoot v. Farmers, etc. Bank, 218 U.S.

281, 288; King v. West Virginia, 216 U.S. 92, 100; Mam-

moth Mining Co. v. Grand Central Mining Co. 213 US.

72, 77; Christman v. Miller, 197 U.S. 313, 319.) Where the

decision of a state court rests on adequate non-federal

grounds, this Court will not review the decision. (Herb

v. Pitcairn, 324 U.S. 117, 126; Southwestern Bell Tele-

phone Co. v. Oklahoma, 303 U.S. 206, 212; Fox Film Corp.

v. Muller, 296 U.S. 207, 210; Lynch v. New York, 293 US.

52, 54; Richardson Machine Co. v. Scott, 276 U.S. 128,

133; Enterprise Irrigation Dist. vy. Canal Co., 243 U.S.

157, 163-5; Bacon v. Texas, 163 U.S. 207, 216; California

Powder Works v. Davis, 151 U.S. 389, 393.) Where a state

court decision rests on an adequate non-federal ground

this Court is not concerned with the correctness of the

decision. Worcester County Trust Co. v. Riley, 302 U.S.

292, 299; Great Northern Ry. Co. v. Sunburst O. & R. Co.

287 U.S. 358, 365; Nickel v. Cole, 256 U.S. 222, 225;

Arkansas Southern R. Co. v. German National Bank,

207 U.S. 270, 275.

The second ground brought forward by petitioners (p.

9) to find some peg on which to hang the question of the

jurisdiction of this Court is even a greater sham. The

decree of the Superior Court of Cook County, Illinois,

(R. V, 10-12,) affirmed by the Supreme Court of Illinois,

(405 Ill. 352.) and which this Court refused to review,

(339 U.S. 966,) settles beyond dispute that ‘‘Hyman pre-

cluded himself from the exercise of that right [right to

make and sell chlordane] by agreement’’ and ‘‘that under

the facts of this case Hyman was precluded by his rela-

tions with Velsicol from its exercise.’’ These questions

cannot he relitigated.

In disposing of the contention that the District Court

erred in excluding the proffered exhibits, the Colorado

Supreme Court applied the familiar rule that one cannot

take advantage of his own wrong. It found that Hyman

had complete control of the filing and prosecution of the

foreign applications covering chlordane, (R. VI, 26,) that

if any disclosures of trade secrets resulted from the

co etnies ey hep "7 ‘ BEETS ee ENERO ROT TAG AERA SP a

operation of law in these foreign countries upon said

applications Hyman is directly responsible for such dis-

closures, (R. VI, 38,) and that the conduct of defendants

in betraying the confidence of plaintiff and in appropriat-

ing to their own use and benefit plaintiff’s trade secrets

is abhorrent to its conception of ordinary honesty. R. VI,

51-55.

Defendants advance the novel theory, rejected by the

Colorado courts and by every court that has ever con-

sidered the question, that an employee who learns his

employer’s trade secrets in confidence may insulate him-

self against a decree of injunction and accounting by

making a disclosure of his employer’s secrets before he

appropriates them to his use and profit. The mere state-

ment of the proposition is its own best answer.

It appears clear that this Court is without authority to

review the judgment of the Supreme Court of Colorado

and that the petition should be dismissed on that ground.

CASE CORRECTLY DECIDED.

We think we have shown that this case is one to be

determined by general principles of equity jurisprudence

and is unaffected by anything found in the Constitution,

treaties or statutes of the United States and that this

Court is without jurisdiction to review the decision of

the Colorado Supreme Court. But, if this case were be-

fore this Court on the merits, it has been correctly de-

cided and there is no purpose to be served by further

review. The decision of the Colorado Court is in full

accord with applicable decisions of this Court and of

other federal courts and of every state court that has

ever passed on a question of similar character. There

—_

is no case which supports the monstrous doctrine, ad-

vanced in the petition, that the public interest is served

by ‘‘dividing the wealth’? by the method eniployed by

Hyman and his confederates. Chlordane is the property

of Velsicol and defendants have no right to compete in

the production and sale of chlordane.

The starting point in this case is not property, but

that the defendants stood in confidential relations to

plaintiff with respect to chlordane and its other secret

formulas, processes and products. Whether plaintiff has

been able to keep the secrets of chlordane and methods

of producing it from the public generally is not the issue

here. Defendants owe the plaintiff a duty with respect to

the formulas, processes and products here involved not

owed by the members of the public generally. The dis-

advantage of knowing plaintiff’s secrets is a burden de-

fendants cannot escape. [Equity will make certain that

defendants shall not fraudulently abuse the trust plain-

tiff reposed in them. (Dupont Powder Co, v. Masland,

244 U.S. 100, 102; Stone v. Goss, 65 N.J.. Eq. 756, 55

Atl. 736, 737-8; MacBeth-Evans Glass Co. v. Schnelbach,

239 Pa. 76, 86 Atl. 688, 693; Westervelt v. National Paper

& Supply Co., 154 Ind. 673, 57 N.E. 552, 544: Wireless

Speciality Apparatus Co. v. Mica Condenser Co., 239

Mass. 158, 131 N.E. 307, 310; Germo Mfg. Co. v. Combs,

209 Mo. App. 651, 240 S.W. 872, 881; Restatement of

Torts, See. 757, Vol. IV, pp. 5-10.) These cases dispose

of the first division of defendants’ argument. Pet. pp.

17-24.

The evidence shows beyond point of dispute that plain-

tiff diligently employed every reasonable means to keep

its secret formulas, processes and products out of the

public domain. No defendant denies this. In fact they

admit it. (R. Il, 195, 197, 201, 204, 431.) Whatever dis-

closures, if any, were made prior to September 13, 1946,

were made by or at the direction of Hyman as the opera-

ting head of plaintiff. He was the only person financially

interested in plaintiff who had any contact with plain-

tiff’s patent attorneys. (R. I], 351.) He filed the patent

applications relating to ‘‘Velsicol 1068’’ (chlordane) in

his own name as the inventor and he had complete con-

trol of these applications, domestic and foreign. (R. LI,

350.) Plaintiff did not and could not have taken any

action with respect to the pending patent applications re-

lating to chlordane prior to the time it procured the

assignment of these applications after the conclusion of

the Illinois case in late 1949. There is a complete ab-

sence of evidence that any stockholder, director or officer

of plaintiff other than Hyman, had any knowledge of the

filing of the applications relating to chlordane in any of

the foreign countries or that they had any knowledge

of the practice under the laws of these countries with

respect to laying applications open to public inspection.

If Hyman by his acts has lessened the protection to

which plaintiff is entitled from the general public, he

cannot take advantage of his own wrong and seek to

insulate himself against answering for his breach of

faith.

It is conceded that no defendant learned any of plain-

tiff’s secrets from the disclosures made by operation of

law in foreign countries or by any publication of the

United States Department of Agriculture, but they learned

what they know about chlordane and the methods of

producing it during and in the course of their employ-

—_—

oe ae ee

| eae area MONI Rt Al coh ei NE Seip ie ici Bh

ment with plaintiff. They had not only agreed in writing

to protect plaintiff in its secrets but the very nature of

their employment placed them under obligation to keep

in confidence what they learned in confidence. Whatever

defense would be available to one who independently dis-

covered the same secrets defendants discovered in plain-

tiff’s employ, such a defense is not open to the individual

defendants who, in breach of their contractual and fidu-

ciary relations, have appropriated plaintiff’s secrets to

their own use and benefit, nor to the corporate defendant

which is the creature and instrumentality of the individual

defendants. These defendants conspired and confederated

to unlawfully appropriate plaintiff’s trade secrets and

to unfairly compete with plaintiff and they cannot

escape the consequences of their wrong-doing.

It is little wonder that defendants anticipated plain-

tiff’s reliance on the several decisions in the litigation

between Shellmar Products Company and Allen-Qualley

Company and undertook to distinguish the case. (Pet.

p. 20). The reasoning of these opinions is sound, is in

harmony with settled law, and has never been challenged

in so far as it has any application to the problems at

bar. They completely dispose of defendants’ contentions

that the disclosures with respect to the foreign applica-

tions relating to chlordane, if there were any disclosures,

can in any wise affect the rights and privileges of plain-

tiff as against defendants. The District Court (31 F.

2d 293) awarded Allen-Qualley an injunction notwith-

standing it appeared that the confection wrapper made

under plaintiff’s secret process might infringe on another

covered by an outstanding patent belonging to a third

person, holding that the question involved was the valid-

ity in equity of the acts of defendant in receiving in con-

fidence a disclosure of plaintiff’s secrets and appro-

priating them to its own use. The Court of Appeals for

the Seventh Circuit affirmed this decree. (36 F. 2d 623.)

Thereafter defendant filed a bill of review in the District

Court to modify the decree of injunction on the ground

that the trade secrets of plaintiff had been disclosed to

the world through the issuance of United States, British

and Canadian patents covering the method and machine

involved, and the District Court dismissed this complaint

for want of equity. The Court of Appeals affirmed this

decree with an instructive opinion, (87 F. 2d 104,) and

this Court denied certiorari. (301 U.S. 695.) The facts

in that case presented a much stronger situation for the

defendant than is presented for the defendants in the

ease at bar, but the Court of Appeals held in line with

the settled law that whatever the opportunities open to

the public generally, the defendant, having violated its

trust, was barred in equity from using plaintiff’s pro-

cess. It would be difficult to find a case more nearly in

point on the facts and equities with the case at bar.

The contention that this decision of the Seventh Cir-

cuit is in conflict with the decisions of the Second Cir-

euit in Picard v. United Aircraft Corp. 128 F. 2d 632,

and in Conmar Products Corp. v. Universal Slide Fa3-

tener Co. 172 F. 2d 150, (Pet. p. 20,) has been answered

by this Court. It denied certiorari in the first of the two

eases, (317 U.S. 651,) and we must assume that if this

Court had considered that the decisions of the two Courts

of Appeal were in conflict on an important question of

law, it would have taken the Picard case and resolved

the conflict. The facts clearly distinguish the cases. In

the Conmar case the decision was for the defendant be-

cause it was held that he was not under duty under the

facts of that case not to disclose the secrets there in-

volved.

i Pi. : ees ROTARY RRR

Other decisions of federal courts in harmony with the

decision of the Colorado Supreme Court in this case

on the point that the owner of a trade secret is entitled

to protection in equity from its appropriation by one

who has learned the secret in confidence, whether the

secret is patentable or not, are Hoeltke v. C. M. K emp

Mfg. Co. (C.A. 4), 80 F. 2d 912, 922, cert. denied, 298 U.S.

673, and A. O. Smith Corp. v. Petroleum Iron Works Co.

(C.A. 6), 73 F. 2d 531, 537, 74 F. 2d 935.

Another case which holds squarely against the con-

tentions of defendants, and the effect of which they seek

to avoid by saying that the trade secrets there were dis-

closed by the employer to the employee rather than by

the employee to the employer, is Vulcan Detinning Co. v.

American Can Co. 72 N.J. Eq. 387, 67 Atl. 339. We sub-

mit that the new attorney for defendants has read the

opinion in this case carelessly. Vulcan brought suit

against American to restrain the latter from using a

secret process for separating tin from iron in tin scrap.

German scientists discovered the process and one Laernos

pirated it. Adolph Kern organized Vulean Metal Re-

fining Company and began using the stolen process in

this country. Vulean Detinning Company acquired Kern’s

company and the process which it kept secret. Franz

Assman, one of the original incorporators of Vulcan

Metal, had one of four copies of the process in his cus-

tody. Subsequently he sold his stock in Vulcan Detin-

ning and became associated with American (an as its

president. American instal'ed two plants using a process

of detinning similar to the process used by Vulean, hav-

ing employed for this purpose three former employees

of Vulean. These facts show clearly that Vulean, like

Velsicol, learned the trade secrets from an employee who,

Bein.

like Hyman, later undertook to appropriate them. Cer-

tainly Vulean did not communicate anything to its or-

ganizers who had obtained the secrets before Vulcan

was organized. In holding that Vulean was entitled to

an injunction to protect its process from use by those

who had control of its trade secrets by virtue of the con-

fidential relation, the Court said in part: (67 Atl. 343)

‘*Looking, now, a little more closely at the nature

of the relief called for by the complainant’s case

which we are now enabled to do in the light of the

issues that have been actually tried, we shall see,

I think, that too much emphasis has perhaps been

placed upon the element of absolute secrecy in the

process, and that not enough stress has been laid

upon the inequitable character of the defendants’

conduct in making a use of such process that was

inimical to the complainant’s interests. * * * IT am

now saying that the main ground for relief dis-

closed by the complainant’s case is the existence of

inequitable competition arising from a breach of

trust, and hence referable to general principles of

equity, and not to those special doctrines by which

unpatented secrets are protected. In the application

of these general principles the secrecy with which a

court of equity deals is not necessarily that absolute

secrecy that inheres in discovery, but that qualified

secrecy that arises from mutual understanding, and

that is required alike by good faith and by good

morals. * * *

*“*The conclusions to which the foregoing considera-

tions lead is that, entirely aside from the technical

secrecy of the process or the abstract question of

property therein, the complainant is entitled to have

its trustee, his associates, and their servants re-

strained from using against the interests of the com-

plainant the very process with which its trustee

was intrusted for its benefit.’

Schavoir vy. American Rebonded Leather Co. 104 Conn.

472, 133 Atl. 582, is another case where the plaintiff was

given protection in equity notwithstanding he made use

of elements in the manufacture of channel cloth which,

in certain combinations, were covered by an old patent

which he did not own, since a trade secret will be pro-

tected from wrongful disclosure though the owner of the

secret cannot secure property rights in it under the

patent law. In that case the defendant’s knowledge of the

process came to it in confidence, and its defense on the

ground that the secret was in the public domain was

denied, the Court saying: (133 Atl. 583)

“It is open to any one to use the same process,

provided they came by the necessary knowledge fair-

ly. * * * The knowledge of the process which the

defendant had was obtained by reason of the confi-

dence reposed in it by the plaintiff and upon its

express promise not to divulge the information so

secured and to use the formula only as authorized

by the plaintiff. * * * In such a situation, the right

of the plaintiff to protection in equity is amply

established.’’

It is well settled that the fundamental basis for relief

in a case of this character is a violation of trust and

confidence and that the case must be determined on gen-

eral principles of equity and not upon technical rules re-

lating to discovery and invention. DuPont Powder Co. v.

Masland, 244 U.S. 100, 102; Wireless Specialty Apparatus

Co. v. Mica Condenser Co. 239 Mass. 158, 131 N.E. 307,

310; Germo Mfg. Co. v. Combs, 209 Mo. App. 651, 240

S.W. 872, 882; State v. Neal, 152 Fla. 582, 12 So. 2d

590, 592; Meinhard v. Salomon, 249 N.Y. 458, 164 N.E.

545, 546; Nims on Unfair Competition, 4th Ed. Sees. 149-

151.

_— :

The cases cited by defendants (Pet. p. 19) to the effect

that ‘‘a restraint of trade cannot be based upon an

estoppel’’ have no relation to the facts in the case at

bar. MacGregor v. Westinghouse E. & M. Co. 329 US.

402; Edward Katzinger Co. v. Chicago Metallic Mfg. Co.,

329 U.S. 394, and Sola Electric Co. v. Jefferson Electric

Co. 317 U.S. 173, presented the question whether a li-

eensee by virtue of his license agreement is estopped to

challenge a price-fixing clause by showing that the patent

is invalid and that the price restriction is accordingly

unlawful because not protected by the patent monopoly,

and it was held that this defense was available to the

defendant. These cases came up through the federal courts

and in each case the Sherman Anti-Trust Act was spe-

cifically pleaded as a defense. In this case no title, right,

privilege or immunity asserted by the defendants grows

out of the Sherman Anti-Trust Act and in such situation

no federal question is presented. (Los Angeles, etc. Co.

v. Los Angeles, 217 U.S. 217, 228; Allen v. Arguimbau,

198 U.S. 149, 155; Alen v. Southern Pacific R. Co. 173

U.S. 479, 489; Miller v. Lancaster Bank, 106 U.S. 542,

544; Long v. Converse, 91 U.S. 105, 113; Hale v. Gaines,

22 How. 144, 160; Montgomery v. Hernandez, 12 Wheat.

129, 132.) It was never the purpose of the Sherman-

Anti-Trust Act to protect the possessor of stolen prop-

erty. Scott Paper Co. v. Marcalus Mfg. Co. 326 US.

249, presented the question whether the assignor of a

patent is estopped by virtue of his assignment to defend

a suit for infringement of the assigned patent on the

ground that the alleged infringing device is that of a

prior art expired patent, and of course it was held that

the defense was available. No such question is presented

by the record in this case.

; a

To hold, as defendants suggest this Court should do,

that an employee may invoke the anti-trust laws as a

defense to a violation of his fiduciary and contractual

obligations to his employer would open the door to fraud

and breach of trust. The obligation of an employee,

whether imposed by express contract or arising from the

relationship of the parties, not to appropriate to his

own use the trade secrets of his employer is clearly

not an agreement in restraint of trade. Competition is

unlawfully restrained only when competitors who have

a right to compete with each other are precluded from

so doing. Defendants, as the Colorado Supreme Court

has properly found, have no such right so far as chlor-

dane is concerned. It is the property of plaintiff. Defend-

ants have no rights in or title to it.

The argument that plaintiff has adopted the acts of

Hyman in filing the chlordane applications in foreign

countries (Pet. p. 21) does not change the fact that Hy-

man claimed to be the owner of the patent applications

relating to chlordane, that he filed the applications for

his benefit and not for the benefit of plaintiff, that he

had complete control of the filing and the prosecution

of the applications and that plaintiff got no control of

these applications until after it had won its suit in

Illinois to compel Hyman to assign these applications to

it. Plaintiff’s control came after the damage was done.

Neither reason nor authority supports the argument

of defendants (Pet. p. 22) that Hyman oecupies a shel-

tered position because he was the inventor of chlordane

and that he did not learn the secrets of chlordane from

plaintiff or any of its other employees. Pomeroy Ink

Co. v. Pomeroy, 77 N.J.Eq. 293, 78 Atl. 698, is squarely

in point against the argument. Eltweed Pomeroy was the

—_

president and general manager of Pomeroy Bros. Co. and

the trade secrets involved were largely the result of his

discoveries and experiments. Pomeroy Ink Co. purchased

the assets of Pomeroy Bros. Co., which included the trade

secrets. Eltweed Pomeroy became an employee of Pom-

eroy Ink Co. and was given charge of promoting the

sale of its products which were made by secret processes.

After he left the employ of the Company he offered

the secret formulas and processes to others, claiming

that he had the right to sell these formulas and processes

because he was the inventor. Disposing of this defense,

the Court said: (78 Atl. 699-700)

‘‘The present case is not one where complainant’s

right to the use of the formulas and formula notes,

as against the defendant, depends upon the principle

of ‘confidential communication, for, as to this feature of

the case, the defendant while an officer and manager

of the company was himself the inventor or dis-

coverer of the process, and communicated it to the

company. But the vital question in the case is whether

the defendant, the discoverer or inventor of the

processes disclosed by the formulas, transferred to

the Pomeroy Bros. Co. the exclusive right to the

formulas and formula notes as their property. If

so, such transfer is binding on him and passed with

the assets of the company to the complainant.’’

After analyzing the facts and finding that the complain-

ant, Pomeroy Ink Co., was the owner of the formulas

and processes, the Court applied the principle of the

eases which grant relief for breach of confidential com-

munication of trade secrets and held that Pomeroy should

be enjoined from disclosing the secrets and appropriating

them to his use and gain. Since it has already been finally

determined by the decree of the Illinois court that plain-

tiff is the owner of the chlordane secrets, it follows that

Hyman and his confederates have no right to use these

secrets in competition with plaintiff notwithstanding Hy-

man is the inventor.

Another case holding that the inventor should be en-

joined from carrying away the invention belonging in

equity to his employer and disclosing it to a competitor is

Wireless Specialty Apparatus Co. v. Mica Condenser Co.,

239 Mass. 158, 131 N.E. 307. Wireless had been engaged

in making radio condensers for the United States during

World War I and on the signing of the Armistice it

became apparent that the industry would be seriously

affected, if not ended, unless the company could produce

magneto condensers to be sold to manufactures of elecri-

cal apparatus. After extensive experiments plaintiff’s em-

ployees succeeded in bringing about the necessary changes.

McPherson, one of the employees, made application for

letters patent on the inventions and he assigned these

inventions to a competing company. The Court held that,

whatever the decision in a separate case to require the

assignment of the patent applications (the Illinois case

by plaintiff against Hyman, 405 Til. 352), plaintiff was

entitled to protection from misappropriation of the secrets

obtained by its employees in the course of their employ-

ment (the case at bar), saying: (131 N.E. 310)

“Although the first suit is decided on the basis

that the plaintiff is entitled to relief because it is the

equitable owner of the inventions already considered,

it does not follow that it can get nothing under the

second bill. It may be that no patent will issue be-

cause of lack of novelty or other reason and that the

plaintiff will in fact receive nothing of value under

any decree entered in the first suit. The fact that an

invention is patentable does not compel the taking

out of a patent, nor prevent the person entitled to it

from keeping it secret, nor bar him from equitable

—

relief against those disclosing its existence and de-

tails in violation of trust and confidence, nor as

against those who obtain knowledge through such

violation with notice and purpose to make use thereof.

The fundamental requirement for relief is a violation

of trust and confidence.’’

Conclusive against defendants’ position is the fact

that Hyman appropriated the secrets of ‘‘237’’, covered

by the Herzfeld-Lidov-Bluestone applications owned by

plaintiff, in making the compound covered by the chlor-

dane applications. Hyman knew nothing about the basic

compound ‘‘237’’, which is an essential ingredient of the

improved insecticide ‘‘1068’’, or chlordane, until ‘‘237’’

was discovered and developed in plaintiff’s laboratory by

plaintiff’s employees who were under contractual and

fiduciary obligations to plaintiff to assign the ‘237’

invention to plaintiff. Herzfeld, Lidov and Bluestone com-

plied with their duty to plaintiff and assigned the patent

applications relating to ‘‘237’’ simultaneously with the

execution of the applications. Hyman knew this and as

the executive head of Velsicol accepted the assignment

for Velsicol. Therefore the phony defense that he did not

learn the secrets of chlordane from those in confidential

relations to plaintiff blows up in his face. His contribu-

tion to the invention of chlordane was to suggest that

‘*237’’ be chlorinated. To his amazement, as well as

that of the other chemists employed by plaintiff, this

resulted in an entirely new composition of matter which

was an unusually effective insecticide and so he became

the inventor. To say that these circumstances of ihe

invention of chlordane by Hyman insulate him against

a suit for accounting for appropriation of the chlordane

secrets in wrongful competition with plaintiff is to intro-

duce a new conception of equity and honesty. The de-

cision in the Illinois case disposed of this defense and

held Hyman accountable.

II.

The questions presented under the second division of

petitioners’ argument (pp. 24-37 ) have all been conclu-

sively settled by final decisions of the Illinois courts. It

does not appear that the distinguished attorney, brought

into this case to prepare and present this petition, is

familiar with these earlier decisions.

Issues squarely presented in Velsicol Corporation v.

Julius Hyman, 405 Ill. 352, were the existence, interpreta-

tion, validity and enforceability of the agreement between

the parties, and the Court made a specific finding that

the agreement was executed and delivered as alleged in

the complaint, that it covered chlordane and the patent

applications relating thereto, and that it was valid and

enforceable in equity. The Supreme Court of Illinois

affirmed the decree compelling Hyman to assign the

chlordane applications and enjoining him and others in

privity with him from using the formulas, processes and

products covered by the applications and from disclosing

them to anyone other than plaintiff. This Court refused

to review the decision of the Supreme Court of Illinois.

339 U.S. 966.

Where the existence, validity and interpretation of a

contract has been adjudicated in one action it is con-

clusive hetween the same parties and their privies in

another action. Wilson’s Executor v. Deen, 121 U.S. 525,

532; Silurian Oil Co. v. Neal, 277 I. 45, 50; Albertson v.

Clark, 70 Colo. 129, 130; Freeman on Judgments, 5th

Ed. See. 894.

Even if the question of the validity, interpretation and

enforceability of Hyman’s agreement with Velsicol were

open for review, the decision of the Colorado court is

QE EE LOIS SE RIT EIA MGTIO it

PATA PLE ALI TG SOW ITS ASR MEN, TE

supported by the decisions of all federal and state courts

which have dealt with like questions. (New Jersey Zinc Co.

v. Singmaster, 4 F. Supp. 967, aff. 71 F. 2d 277, cert.

denied 293 U.S. 591; Paley v. DuPont Rayon Co. (C.A. 7)

71 F. 2d 856, 858; Hulse v. Bonsack Machine Co. (C.A. 4)

65 F. 864, 868; O. d W. Thum Co. v. Tloceynski, 114 Mich.

149, 72 N.W. 140, 144.) The individual defendants worked

under these agreements for the respective periods of their

employment and there was no difficulty in interpretation

while the parties were working in harmony. It was only

after defendants had violated the agreements and plain-

tiff was obliged to bring defendants to account that it

occurred to the defendants that the agreements were

unduly restrictive and were against public policy. The

rule is settled that a party cannot contend after a dispute

has arisen for construction of an agreement in violence

of the interpretation he has given the agreement in his

dealings with the other party during the period they

were working in harmony. Magnetic Mfg. Co. v. Dings

Magnetic Separator Co. (C.A. 7) 16 F. 2d 739, 741, cert.

denied, 274 U.S. 740; Street v. Chicago Wharfing Co.

157 Ill. 605, 614; Hinkle v. Blinn, 92 Colo. 302, 304.

The repeated assertion that Julius Hyman and Joseph

Regenstein were engaged in a joint venture and that

the corporate character of Velsicol Corporation should be

ignored has no support in the record. The fact is that

Hyman sought Regenstein’s assistance in the organization

of a corporation to establish and operate a research

laboratory to test, prove and develop some ideas which

Hyman had with respect to the use of petroleum refining

by-products and to carry on research and experimentation

generally in the field of chemistry. (R. II, 178-181, 261.)

Hyman had had extensive college training in chemistry

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—— CORBI LD OO LIT IOFIG ITE ALE PEALE EY LOE TONNE LEE ALAM, EAL ELOY. SIE

3 a ’ _

and some experience in research and Regenstein and his

business associates in Arvey end Transo relied on Hy-

man’s judgment as to the business possibilities. (R. II,

132-135, 267-274.) Plaintiff was regularly organized as a

corporation under the laws of Illinois and was regularly

conducted as such. Hyman became a director, officer, gen-

eral manager and director of research of plaintiff and

conducted its affairs as a corporation from the date of

its organization in January, 1931, to the date of his

resignation in September, 1946. He cannot now challenge

plaintiff’s corporate existence and pretend the under-

taking was a mere joint venture. (Kardo Co. v. Adams,

(C.A. 6), 231 F. 950, 967; Bushnell v. Consolidated I. &

M. Co., 138 Ill. 67, 74.) Furthermore, Hyman filed a suit

in the Superior Court of Cook County, Illinois, in De-

cember, 1946, setting up his rights as a stockholder in

Velsicol and sought to set aside certain recapitalization

proceedings. This was inconsistent with his claim that

he was a partner of Joseph Regenstein and not a stock-

holder in Velsicol Corporation. He lost this suit. Julius

Hyman v. Velsicol Corporation, 342 Ill. App. 489. Leave

to appeal was denied by the Supreme Court of Illinois.

343 Ill. App. ii.

The decrees in the Illinois eases could not have been

entered except that the Illinois courts found against

every contention made by the defendants under Division

II of their argument. Defendant Hyman made substan-

tially the same arguments in the Illinois cases that he

makes here and cited substantially the same authorities.

The decrees in these Illinois cases conclude all parties

and their privies as to matters essential to said decrees.

(Hart Steel Co, v. Railroad Supply Co., 244 U.S. 294, 298;

Elmhurst v. Kegerreis, 392 Ill. 195, 203; Clark vy. Knoz,

ORE PE TEs OA

32 Colo. 342, 348.) Under Section 1, Article IV of the

Constitution of the United States full faith and credit

must be given to these judicial proceedings in Illinois.

Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 438-9,

Conclusion.

The Supreme Court of Colorado has not decided a

federal question of substance nor has it decided a case

not in accord with applicable decisions of this Court.

The decision of that Court rests on adequate and inde-

pendent state grounds and under the decisions of this

Court there is no authority for further review.

Furthermore, the case is correctly decided and pre-

sents no new question which would justify this Court in

reviewing it if it had the authority.

Velsicol Corporation, respondent, prays that this pe-

tition be dismissed or denied for the reasons stated in

this answer.

Respectfully submitted,

FLoyp E. Tompson,

Ciype E. Sxorey,

Joun R. Coen,

Attorneys for Respondent.

Jounston, THompson, Raymonp & Mayer,

11 South LaSalle Street, Chicago 3, Illinois.

Suorey & Woops,

135 South LaSalle Street, Chicago 3, Illinois.

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