Summary
refusing to automatically grant trade secret status to confidential information under the terms of a confidentiality agreement
Summary of this case from Diomed, Inc. v. Vascular Solutions, Inc.Opinion
Civil No. 98-2510 (DWF/JMM)
July 18, 2001
Alfred H. Edwall, Jr., Esq., Edwall Law Office, Roseville, MN and John Boyle, Esq., Anthony Ostlund Baer, Minneapolis, MN, appeared on behalf of the Plaintiff.
Scott S. Payzant, Esq., and Ernest W. Grumbles, III, Esq., Oppenheimer Wolff Donnelly, Minneapolis, MN, appeared on behalf of the Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on June 29, 2001, pursuant to Defendant's Motion for Summary Judgment. In the Complaint, Plaintiff alleges misappropriation of a purported trade secret in violation of Minn. Stat. § 325C.01. Specifically, the complaint alleges that in 1995 Midland disclosed information to Baldwin Filters regarding the use of a "flow baffle" inside a desiccant canister to enhance air-drying capacity. Because the Plaintiff has not established any evidence of misappropriation, Defendant's motion is granted.
Background
Defendant Midland Brake ("Midland") sold and manufactured a large variety of air brake products, including its Pure Air Plus ("PAP") air dryer system, from its facilities in Kansas City, Missouri, and Iola, Kansas, until Haldex Brake Products Corporation bought Midland in April of 1998. Plaintiff Porous Media Corporation, a Minnesota corporation ("Porus"), is a manufacturer of a variety of filters and filter components for use in industrial, medical, and vehicle operations. From 1992 to 1997, Midland purchased desiccant canisters from Porous for use in Midland's PAP air dryers.
In late 1993 and early 1994, problems developed with the PAP system as a result of Porous-manufactured canister failures. In early winter of 1994, Porous and Midland representatives met to discuss bursting problems with the canister and also to discuss improvement to the flow path through the desiccant canister. Shortly thereafter, Midland and Porous entered into a Confidential Disclosure Agreement that imposed upon both parties a duty to refrain from disclosing "technical information" shared between the two parties. The February 4, 1994, Agreement also provided that Midland was required to purchase all canisters from Porous for a period of at least five years. In April 1997 Midland ended their relationship with Porous, citing among other things, poor product performance. After the relationship was terminated, Porous filed a claim against Midland for breach of contract. Porous ultimately prevailed in the suit and recovered damages of approximately $1.6 million.
On October 6, 1994, Porous representatives Dan Spearman and Wendy Lastovich met with Midland's Everett McGaugh and director Paul Johnson to discuss proposed changes to the canister. At this "brainstorming" session there were discussions concerning possible improvement of the canister by increasing the length of the air flow path through the desiccant within the canister. The possible use of a flow baffle tube inside the PAP canister was discussed for the first time between the parties. At this meeting, a Midland representative brought in a brochure from Haldex showing the DRY EST desiccant canister product that utilized an array of baffle tubes. The parties dispute who at the meeting developed the idea of how the empty central tube in the Pure Air Plus could be widened and filled with desiccant. Porous maintains that the baffle tube idea was jointly invented at the October 6, 1994, meeting, that the idea just emerged from the brainstorming session, and that they cannot identify who first suggested the idea. Midland maintains that McGaugh originated the idea at the meeting. Midland further maintains that, in 1991, Midland engineer Hal Dvorachek independently conceived of an idea similar to that of McGaugh's drawing and Porous's alleged trade secret.
After the October 6, 1994, meeting, Porous engineer John Rapheal headed up efforts on a new design to incorporate an extended flow path through the use of a baffle. Rapheal worked with the existing desiccant can to modify the base plate to insert a flow baffle. Porous sent some of Rapheal's drawings to Midland, and although the exact date is not known, the earliest possible date is December 30, 1994.
Due to the ongoing problems with the Porous Media PAP canister, Midland commenced efforts in late spring 1994 to identify possible alternative suppliers of the desiccant canister and coalescing filter. Manufacturer Baldwin Filters ("Baldwin"), based in Kearney, Nebraska, expressed interest in the project. Shortly thereafter, Midland supply manager Bob Gill sent to Baldwin engineer Claude Strope some outline drawings of the existing PAP canister and coalescing filter, along with the specification for both products. These outline drawings did not include the internal configuration of the canister, nor did they include any Porous-originated drawings.
Strope researched canisters in the marketplace and information on desiccant beds. On December 1, 1994, Strope prepared a drawing of a canister with a flow baffle tube. Strope and Baldwin account manager Gregg Nelson brought the drawing and others like it to a December 20, 1999, meeting with Midland representatives Everett McGaugh and Bob Gill. At this meeting, Everett McGaugh showed Baldwin the sketch he made on October 6, 1994 showing the flow baffle. Based on the uncontroverted evidence in the file, this December 20, 1994, meeting is the first time Midland discussed the use of flow baffle with anyone at Baldwin.
Discussion 1. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed R. Civ. P. 56(c). The court must view the evidence and the inferences which may be reasonably drawn from the evidence in the light most favorable to the non moving party. Enterprise Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as whole, which are designed to 'secure the just, speedy, and inexpensive determination of every action.'" Fed.R.Civ.P. 1. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as matter of law. Enterprise Bank, 92 F.3d at 747. The non moving party must demonstrate the existence of specific facts in the record which create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik, 47 F.3d at 957.
2. Misappropriation of the Purported Trade Secret
Midland asserts that, assuming Porous can establish a trade secret, it has failed to come forward with any admissible evidence of misappropriation. An action for misappropriation of trade secrets requires both proof of the existence of a trade secret and proof of the wrongful appropriation of such trade secret. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 892 (Minn. 1983). Misappropriation "involves the acquisition, disclosure, or use of a trade secret through improper means." Widmark v. Northrup King Co., 530 N.W.2d 588, 592 (Minn.Ct.App. 1995). The Plaintiff argues that there are witness credibility issues for trial on whether Midland disclosed the purported Porous trade secret. This argument is based on the premise that the Affidavits of Midland witnesses Hal Dvorachek and Everett McGaugh are contradictory. After a close reading of the record, the Court rejects the argument made by Porous and agrees with Midland that Porous has not elicited any evidence of misappropriation.
The chronology of events proves that Midland did not misappropriate any trade secret by disclosing it to Baldwin. The Plaintiff asserts that the trade secret was passed from Porous to Midland at the October 6, 1994, meeting between the two parties. Assuming arguendo that there was a legitimate trade secret given to Midland at this meeting, Porous still cannot prove that this idea was passed from Midland to Baldwin. Quite simply, reiteration of the relevant facts shows just the opposite.
Shortly after the October 6, 1994, meeting between Midland and Porous representatives, Baldwin expressed interest in being the new supplier of the desiccant canister and coalescing filter. At this time Midland only provided Baldwin with basic information about the PAP canister for use with its proposal. The uncontroverted evidence indicates that Baldwin only received a sample of the existing commercial PAP canister, drawings of the existing commercial PAP canister, and the official specification document for the existing commercial canister. The drawings of the existing commercial canister did not include a flow baffle.
Baldwin prepared a design drawing on December 1, 1994, showing its version of a PAP canister with a flow baffle. It was not until December 20, 1994, when Baldwin presented this drawing to Midland, that the parties first discussed the use of a flow baffle. The first Porous drawing with a flow baffle ever shown to Midland was dated December 30, 1994. The facts clearly indicate that Midland could not have misappropriated Porous's purported trade secret because it was 10 days after Baldwin had already presented their proposed idea to Midland that Porous drawings were in Midland's possession for the first time. Therefore, this Court finds that Baldwin "conceived" the use of a flow baffle and incorporated its idea into a new desiccant canister design prior to having any discussion with Midland about the concept of using a flow baffle. The argument by Porous that Porous sent drawings to Midland which "Midland undoubtedly disclosed," in some fashion, to Baldwin is not supported by any evidence in the record and is mere speculation. Porous even admits that none of the initial drawings sent from Midland to Baldwin depict their purported trade secret. There is not a scintilla of evidence to support a claim for misappropriation.
As noted above, the Court rejects Porous's assertion that the Affidavits of Hal Dvorachek and Everett McGaugh are contradictory. Close scrutiny of the Affidavits does nothing to prove the presence of misappropriation by Midland. Porous's argument is based on the fact that Hal Dvorachek asserts that he independently developed the trade secret claimed by Porous and that Everett McGaugh also maintains that he invented the concept "out of the blue" at the October 6, 1994, meeting. The record shows that in early 1994, once Harold Dvorachek learned of the problems occurring with the Porous manufactured canisters, he called McGaugh and then sent his drawings to him because he believed they would solve some of the problems that Midland was experiencing. Later in 1994,
McGaugh and Dvorachek spoke again, and after looking at the Dvorachek drawings McGaugh stated: "I had the same idea." This testimony is not contradictory and does not create any issues of material fact. It only proves that two Midland employees may have had similar ideas and briefly talked about those ideas with each other.
Porous directs the attention of the Court to the Confidential Disclosure Agreement and by doing so, in essence, tries to expand the parameters of what constitutes a trade secret. Porous argues that since Porous and Midland went to the trouble of creating an agreement, even information that might not acquire trade secret status generally is elevated to that status when construed in light of the contract's creation of a confidential relationship. This argument hinges on the October 6, 1994, meeting and the fact that Everett McGaugh gave his drawing from this meeting to Baldwin on December 20, 1994. McGaugh's action could be deemed in violation of the February 4, 1994, Confidential Disclosure Agreement. Porous draws support for this argument by citing the case of Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983). In Electro, the Minnesota Supreme Court determined that the elements of trade secret status and confidentially of the relationship at issue "should not be artificially separated for purposes of analysis since, in a significant sense, they are interdependent. Electro-Craft Corp., 322 N.W.2d at 897. The argument is irrelevant, however, since Baldwin independently conceived of its design before Midland disclosed the October 6, 1994, drawing.
The fact that Everett McGaugh did ultimately give Baldwin the drawing from the October 6, 1994, meeting with Porous could be construed as a possible breach of contract claim. Even though it is not determined who at the meeting came up with the idea in dispute, the Confidential Disclosure Agreement could be applicable since it was at a "brainstorming" session where the information discussed was undoubtedly meant to be kept only between the two parties. However, since Porous is only alleging misappropriation of a trade secret, the Confidential Disclosure Agreement is not applicable to the current dispute. We are not willing to broaden the narrower definition of a trade secret pursuant to Minn. Stat. § 325C.01 to encompass the language of the Confidential Disclosure Agreement.
3. Purported Trade Secret Claim
Without a proven trade secret there can be no action for misappropriation, even if Midland's actions were wrongful. Electro-Craft Corp., at 332 N.W.2d 890. Midland argues that there is no trade secret because the trade secret claimed by Porous was generally known within the industry. To be a trade secret, the information must not be generally known or readily ascertainable. Electro-Craft Corp. 322 N.W.2d at 898. Porous argues that Midland has simplified a complex trade secret and therefore misdefined the crux of their argument. Porous maintains that the use of a single flow path, especially within the existing canister, was not public knowledge or readily ascertainable information before Claude Strope's 1997 patent on this same concept was issued. Moreover, Porous asserts that the trade secret is not merely lengthening the amount of air flow through desiccant. Rather, Porous maintains the purported trade secret to be the particular manner of lengthening the air flow through Midland's existing PAP canister, without increased manufacturing costs and without customer dissatisfaction with a change in product.
The Court need not reach the issue of whether Porous has articulated a trade secret because, without proof of misappropriation, the arguments made by both sides are moot in determining issues of material fact. However, since the parties devoted a large portion of their briefs to the issue of whether a trade secret exists or not, the Court will briefly discuss the matter.
Midland points to patents from 1957, 1983, 1990, and 1994 and maintains that the various patents depict Porous's trade secret. Because one of the purposes of patents is public disclosure to those in the industry, the general rule is that design concepts disclosed in patents are "generally known" and cannot be trade secrets. Coneco, Inc., v. Coneco Sales, Inc. 940 F.2d 1176, 1179 (8th Cir. 1991). The question becomes whether the patents are similar to Porous's claimed trade secret so that it could be said the information was readily ascertainable in the industry.
In 1957, U.S. Patent No. 2,790,512 was issued. This patent shows the use of a baffled desiccant bed, with a tube or otherwise, in a closed air drying system. In 1983, U.S. Patent No. 4,388,086 was issued. This patent shows the concept of having a small efficient desiccant filter with long flow path by use of a cylindrical baffle tube. In 1988, Haldex obtained a foreign patent for a product. In 1990, Haldex received U.S. Patent No. 4,946,485 for the same product which utilizes two concentric baffle tubes projecting upward through desiccant toward the closed end of the cartridge and one tube projecting downward between the two tubes causing the air to wind up and down through desiccant material. In 1994, Bendix obtained a European patent on a design for a screw-on replaceable desiccant canister with a single piece baffle tube projecting toward the closed end of the canister from a plate that extended to the internal wall of the canister. The baffle forces the air to flow up and down through the desiccant, creating a longer flow path than single-pass canisters with the same external dimensions.
Porous asserts that the Bendix patent, while close to the Porous design, was never known to Midland prior to this litigation commencing, is a foreign patent, and was not "generally known" in the industry. Furthermore, Porous argues that the patent does not disclose how to use the concept within the existing canister without increasing manufacturing costs and changing the size or shape of the canister.
Contrary to Porous's assertion, Midland was aware of the 1994 Bendix patent prior to the fall of 1994. Paul Johnson, Midland's Director of Engineering during this period, testified that he was specifically aware of the patent. Viewing all of the various patents that Midland presented, and especially the 1994 Bendix patent, this Court finds that no reasonable fact finder could construe Porous's idea as a "trade secret." The particular manner in which Porous claims to have lengthened the air flow through Midland's existing PAP canister, without increased manufacturing costs and without customer dissatisfaction with a change in product, could have been easily developed from information that was both generally known and readily ascertainable to those in the industry. Quite simply, combining publicly available patents with the exact specifications of the existing Midland PAP canister, most any competent company in the separation and filtration industry could develop a "new" product. It cannot be said that the product Porous developed was in any way novel in the filtration and separation industry even though Porous came up with a design that fit within the existing Midland PAP canister. The fact that both Baldwin and Porous were able to develop somewhat similar products that fit within Midland's existing canister in a reasonably short time frame is a testament to this.
A contrast between the Bendix patent and the Porous design shows virtually the same product, further evidencing the fact that Porous's purported trade secret was generally known within the industry. The internal configuration of the Porous design was extremely similar to the 1994 Bendix patent. Both contain a desiccant filled spin on canister with a baffle tube insert creating an up and down flow path. The only distinction between Porous's claimed baffle idea and Bendix's was Porous's extension of the plate portion of the baffle out to the internal wall of the housing. Midland engineer Hal Dvoracheck developed a concept similar to the purported trade secret in 1991. Even though the 1991 drawing does not show exact specifications of the product, general industry knowledge of basic concepts is present. The drawing showed a single desiccant filled spin on canister. Inside the canister was a plastic tube extending from the open end up toward the closed end without reaching the dome of the closed end. In light of this overwhelming and uncontroverted evidence, the Court concludes, as a matter of law, that the claimed concept is not a trade secret.
For the reasons stated, IT IS HEREBY ORDERED:
The Defendant's Motion for Summary Judgment (Doc. No. 73) is GRANTED.
The Plaintiff's Complaint (Doc. No. 1) is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.