Opinion
06-13-1904
VULCAN DETINNING CO. v. AMERICAN CAN CO.
Robert H. McCarter, Atty. Gen., and Henry Woolman, for complainant. T. M. Day, P. G. Bartlett, and Thomas Thatcher, for defendants.
Suit by the Vulcan Detinning Company against the American Can Company for an injunction restraining defendants from utilizing a trade secret. Demurrer to the bill overruled, and a limited injunction granted.
The bill sets out that the Electro Tinfabriek, a foreign copartnership, was in 1898 the owner of a secret process for detinning tin scrap; that on February 19, 1899, the Tinfabriek assigned the secret process to A. Kerns & Co. and their assigns, giving them a statement in writing of such secret process, and of the manner of erecting plants for its utilization; that Kerns & Co., on April 23, 1898, assigned the said process to the Vulcan Metal Refining Company, of New Jersey, which company erected a plant at Seawarren, N. J., under the direction of M. Laenes, a member of said Electro Tinfabriek; that two of the directors of the Vulcan Metal Refining Company and of its executive committee, who negotiated this assignment, were Franz A. Assman and Adolph Kerns; that for the purpose of preserving the secrecy of the process a written statement of it was confided to each of four directors, of whom Franz A. Assman was one; that Assman had opportunities to examine the operations of the complainant; that the business of the complainant was successful. The bill then states that a New Jersey company known as the Vulcan Western Company was organized on July 25, 1899, which company built a plant at Streator, Ill., of which company Mr. Assman was a director and member of its executive committee until June 1, 1901; that this company obtained from the Vulcan Metal Refining Company the right to use the secret process, and began business at once, and that the two companies mentioned made improvements in the construction and operation of their plants, which improvements were kept secret from all persons except their trusted employés and officers, including Mr. Assman; that one Philip Bauman was employed as foreman in the Seawarren plant, and as such became familiar with the construction and operation of the plant; that one Gustav Schmaal was employed as chief engineer and one Solomon W. Egbert as foreman, and as such they became acquainted with the process; that in June, 1901, Assman sold his stock in the Vulcan Metal Refining Company and in the Vulcan Western Company to Adolph Kerns, who was then a large stockholder in both companies, and is now a large stockholder in the Vulcan Detinning Company, for a large advance over what he paid for it, and that its value arose from the ownership by the two companies of the secret process; that Assman then resigned as director and member of the executive committees of both companies, and after demand returned the written statement of the secret process which he had retained possession of until such demand; that in April, 1902, the Vulcan Metal Refining Company and the Vulcan Western Company sold and assigned its plant, machinery, and secret processes to David Le Roy and GustavEckstein and their assigns, and that on May 1, 1902, they sold and assigned their rights in the same to the complainant. The bill then sets out that in March, 1901, Mr. Assman, while still a director of the two Vulcan companies, caused to be organized a New Jersey company known as the American Can Company, of which he became director, and chairman of its executive committee, and practically the head of the company, which position he still retains; that he employed Bauman, Schmaal, and Egbert, and erected new plants—one at Paulsboro, N. J., and the other at Joliet, Ill.—in the construction and operation of which plants the secret process was employed. It sets out that the knowledge of Assman, Baumnn, Schmaal, and Egbert were utilized, and that the new companies utilized all the devices owned and controlled by the complainant, including many for which patents had not yet even been applied for, and for which paten is have since been granted unto the complainant; that they are now operating said plants under said processes; that the defendant companies are trying to employ the servants of the complainant by large rewards, and have sought to acquire from complainant's employés a knowledge of all its methods of constructing and operating under its secret processes. The bill states that while Egbert was still in the employ of the complainant he furnished information to Assman and the American Can Company concerning the secret processes, and that Egbert after agreeing to enter into the service of the can company remained with the complainant for the purpose of acquiring and communicating to the can company the details of the construction of the plant of the complainant, and all improvements therein, and the operation under said secret processes, which information the defendants are now using. The bill prays for an injunction against Assman and the American Can Company, restraining them from operating the plants at Paulsboro and Joliet and other similar plants by the secret processes, and restraining Bauman, Schmaal, and Egbert from performing any further services in said plants, or utilizing or communicating the said secret processes.
Robert H. McCarter, Atty. Gen., and Henry Woolman, for complainant.
T. M. Day, P. G. Bartlett, and Thomas Thatcher, for defendants.
REED, V. C. (after stating the facts). The arguments are directed to two questions: First, whether the bill is demurrable; and, second, if not, then whether, upon the affidavits submitted, a preliminary injunction should go. I will consider the questions in their order.
The first ground assigned by the demurrants is that the bill discloses no ground for equitable relief. The particular criticism upon the bill under this head is that there is no allegation showing that either of the partners composing the copartnership mentioned as the Electro Tinfabriek were the inventors or discoverers of the secret process, or that they trace the title of this copartnership back to any inventor or discoverer. As a rule, the statement of ownership in a complainant of the property, for an injury to which relief is sought, is sufficient. Houghten v. Reynolds, 2 Hare, 264; Tudor v. Cambridge Water Works, 1 Allen, 164; Ely v. New Mexico & A. R. Co., 129 U. S. 291, 9 Sup. Ct. 293, 32 L. Ed. 688. I am of the opinion that the statement of the fact that the assignee of the complainant was the owner of the secret processes was a sufficiently certain statement of that fact.
The second criticism of the bill under this head is that, assuming that the Tinfabriek copartnership once owned the secret, no transmission of its right to ask judicial protection of this right passed to the complainant. The argument in support of this proposition is that a trade secret, from its inherent quality, is nonassignable; otherwise there would be no need for obtaining patents. It is to be observed, however, that a valid patent protects its owner and his assignees and licensees against every one infringing it; while a trade secret protects its owners only against those who have learned the secret under a contractual or confidential obligation to preserve the secrecy. The assignability of a secret process was recognized in Tode v. Gross, 127 N. Y. 480-485, 28 N. E. 469, 13 L. R. A. 652, 24 Am. St. Rep. 475; Thum v. Tloczynskl, 114 Mich. 149, 72 N. W. 140, 38 L. R. A. 200, 68 Am. St. Rep. 469; Fowle v. Park, 131 U. S. 88, 9 Sup. Ct. 658, 33 L. Ed. 67; Simmons Medicine Co. v. Simmons (C. C.) 81 Fed. 163. No case has been cited in which the ability of a discoverer of a trade secret to sell the same has been denied. I think the title of the complainant is sufficiently stated.
Nor do I think the chain of title is broken by the fact that the date of the assignment from Kerns & Co. to the Vulcan Metal Refining Company is stated to be April, 1898, while the date of assignment to Kerns & Co. is fixed at February, 1899. The last date is obviously a clerical error. But, apart from this, the title which Kerns & Co. got would have passed by estoppel to the Vulcan Metal Refining Co. Kane v. Lodor, 56 N. J. Eq. 268-274, 38 Atl. 966.
The second ground assigned by the demurrant is that it appears by the bill that many parts of the secret processes had been published, and that it does not appear that any part thereof remained secret. In support of this insistence the following language of the bill is cited, namely: "The defendants utilized all the devices owned and controlled by your orator, including many for which patents had not been applied for, and for which patents have since been granted to your orator." The point made is that for infringemeritsof a patented process relief must be sought in a federal court. But the language quoted means that there were unpatented as well as patented devices. It was not incumbent upon the pleader to separate the one from the other by a detailed description of the one class or of both classes.
The third ground assigned is that it does not appear that the causes of action are vested in the complainant. The objection taken under this head is not rested on the nonassignability of the trade's secret, already considered. The argument for the demurrants is this, namely: that Bauman, one of the defendants, was employed, not by the complainant, but by the Vulcan Metal Refining Company, and Schmaal and Egbert, two other defendants, were employed by the Vulcan Western Company; that the right to hold these men to secrecy, if it existed at all, belonged solely to the companies for which these defendants worked, and that the bill shows no assignment of such rights existing in those companies to the complainant. This view differs the question of the assignability of the trade secret from the question of the assignability of the right to preserve the secret, and it distinguishes the latter from the former, so that the assignment of the secret will not include the right to enforce the preservation of the secrecy. In my judgment, this view is not sound. The duty of the employs, arising by contract or by confidence reposed in him, to preserve the secrets of the business, was undoubtedly primarily owed to the employer. The right to enforce this duty of silence was a factor—indeed, a most important factor—in estimating the value of the secret it was a part of the property in the secret. To say that the owner can sell the secret, but the vendor cannot assert this right of the owner and protect the secret from revelation, would in most instances place the assignee at the mercy of the assignor. In equity the contract held by and the duty owing to the owner of a trade secret is not merely assignable, but the assignee of the trade secret has a part of the property right transferred; that is, the right to utilize and protect the secret passes to the assignee. The right of the two companies, by whom the defendants already mentioned were employed, to enjoin them from revealing the secret, passed to the complainant.
Lastly, it is objected that the bill is multifarious. I cannot conceive of an instance in which the propriety of uniting several defendants in a single suit is more conspicuous than this. All of the defendants were directly concerned in a single movement, by which, as the bill charges, Mr. Assman, by the help of each of the other defendants, organized plants and operated them, in violation of a duty which each defendant owed to the complainant. The demurrer should be overruled, with leave to file an answer in 20 days.
The next question is whether an injunction should be advised. Mr. Assman, in his answering affidavits, admits that after it was decided by the American Can Company to provide detinning plants, he, in April, 1902, had an interview with Mr. Schmaal, who was not then, but had previously been, employed by the Vulcan Western Company; that Schmaal told him that he could put up and operate a plant for detinning scrap, and he told Schmaal to set up an experimental plant in one of the factories of the American Can Company, and to demonstrate that he could successfully apply his process. Assman says that Mr. Schmaal set up such a plant, and then the officers of the company determined to build two plants, one at Paulsboro and the other at Joliet, and afterwards they were constructed by Mr. Schmaal, he relying upon his own knowledge. Assman says that he gave no instructions, and was not competent to do so, and first visited the plants after they were completed. Mr. Schmaal swears that he built the plants by his own knowledge, and not from anything Assman told him, nor from any paper Assman showed him. The affidavits leave no doubt in my mind that Mr. Schmaal was employed by Mr. Assman because of the familiarity of the former with the secret processes. As to these two defendants, of which Mr. Assman was and is the head, it is clear that they are using a process concerning which they were under an obligation, springing out of their relations with the Vulcan companies, not to reveal, and not to use otherwise than in the service of the Vulcan companies. Mr. Bauman and Mr. Egbert stand upon a different footing, as, according to the answering affidavits, Mr. Bauman sought service from Mr. Schmaal, and was employed by him at Paulsboro, two months after the works had been in successful operation. Mr. Egbert says that he was employed as contractor to erect the plant at Joliet, and that he did so according to the instructions given and plans furnished by Mr. Assman, and that he never gave any instructions to Assman or to Schmaal, or to the can company, respecting the construction or operation of a detinning plant at Streator. He denies having furnished information to Assman or the can company, while he was employed at Streator, or that he remained in the employment of the complainant, or any other company, for the purpose of being enabled to more accurately furnish information from time to time to the can company, as charged in complainant's bill. There is, however, another phase of the case, appearing in the affidavit of Dr. Goldsmith, who says that he is the original inventor of the detinning process used by the complainant; that he erected a plant and used such process at Essen, in Germany, in 1889. He says that his secret process was procured by fraud by M. Laenes and two others, who enticed away some employés of Dr. Goldsmith, and that these persons organized the Electro Tinfabriek in Holland, bywhich copartnership, as already stated, the complainants are empowered to use the secret. According to Dr. Goldsmith's affidavit, he inspected the defendant's plant at Paulsboro, and says that the method of operating that plant is similar to his at Essen. It does not appear that Dr. Goldsmith has ever assigned his right to the trade secret to the defendants. It only appears in the affidavit of Mr. Assman that the Doctor, upon inspection of the plant at Paulsboro, expressed his satisfaction with it, and promised to communicate any improvements he might make, requesting at the same time the can company to give him the benefit of any improvements devised by it.
Assuming the accuracy of these statements, there can be no doubt that a person or company could be authorized by Dr. Goldsmith to install a plant and use the process. The defendants, however, do not occupy this position. The can company did not install its plant by virtue of any authority from Dr. Goldsmith. When they put this plant into operation, they knew nothing of such a person as Dr. Goldsmith, or of his methods. All the knowledge the officers and managers of the can company possess had come through Mr. Assman and the employe or employes of the Vulcan Company. Now, the title to this trade secret, held by the Vulcan Company, was, I think, good against every one but Dr. Goldsmith and his assignee. A person who became bound to the Vulcan Company by contract or by confidence cannot, as against that company, when suing for a breach of such contract or confidence, set up that the Vulcan Company had no right to such trade secret, because it had been obtained honestly from owners who had dishonestly obtained the knowledge from the discoverer. The legal question arising upon this feature of the case, however, is not so clear or well settled as to warrant a preliminary injunction, which would arrest the transaction of all the business of the defendants. I will, however, allow a limited injunction, restraining all the defendants from further communicating any part of the trade secret to any person, and from giving any further instructions concerning the processes to any employe, and from employing any person in the transaction of the business involving the use of the trade secret other than those now employed.