First Technology Safety Systems, Inc. v. Depinet

• Decision Date: 15 December 1993
• Docket Number: No. 93-3019,93-3019
• Citation: 29 USPQ 2d 1269,11 F.3d 641
• Parties: , 1994 Copr.L.Dec. P 27,187, 27 Fed.R.Serv.3d 947, 29 U.S.P.Q.2d 1269 FIRST TECHNOLOGY SAFETY SYSTEMS, INC., a Michigan Corporation, Plaintiff-Appellee, v. Paul DEPINET; Steven Fuhr; Barry Wade; Vector Research, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 641

11 F.3d 641

62 USLW 2390, 1994 Copr.L.Dec. P 27,187,

27 Fed.R.Serv.3d 947,

29 U.S.P.Q.2d 1269

FIRST TECHNOLOGY SAFETY SYSTEMS, INC., a Michigan

Corporation, Plaintiff-Appellee, v. Paul DEPINET; Steven Fuhr; Barry Wade; Vector Research, Inc., Defendants-Appellants.

No. 93-3019.

United States Court of Appeals, Sixth Circuit.

Argued Nov. 19, 1993.

Decided Dec. 15, 1993.

Jennifer J. Dawson, Marshall & Melhorn, Toledo, OH, Jon D. Kreucher, and Jon H. Kingsepp (argued and briefed), William J. Clemens, Howard & Howard, Bloomfield Hills, MI, for plaintiff-appellee.

Jack G. Fynes, Stephen A. Rothschild (argued and briefed), Shumaker, Loop & Kendrick, Toledo, OH, for defendants-appellants.

Before: KENNEDY, MILBURN, and GUY, Circuit Judges.

MILBURN, Circuit Judge.

Defendants appeal the district court's order denying their motion to vacate an order granting plaintiff's request for immediate ex parte order of inventory and impoundment. On appeal, the issue is whether the district court abused its discretion in refusing to vacate its ex parte order, which permitted plaintiff and its counsel, accompanied by the United States Marshal, to enter defendants' business premises and inventory and impound computer programs, computer printouts, and documents bearing the name of plaintiff or its predecessor, and to copy and inventory defendants' business records (purchase orders, invoices, correspondence, customer lists, and customer information materials). For the reasons that follow, we reverse and remand.

I.

On April 3, 1992, plaintiff First Technology Safety Systems, Inc. ("FTSS") filed a verified complaint against defendants for unfair competition, unfair trade practices, conversion, receiving and concealing trade secrets, tortious interference with contract or business advantage, breach of contract, and copyright infringement. At the same time, plaintiff filed an emergency motion for ex parte order of seizure and impoundment of evidence, which stated

[p]ursuant to 17 U.S.C. Sec. 503 and [Federal Rule of Civil Procedure] 65, plaintiff FTSS requests the Court to enter an ex parte order directing the United States Marshall [sic] to seize and impound certain materials which constitute critical evidence in this litigation, yet are likely to be destroyed or concealed by defendants if an ex parte seizure order is not entered.

J.A. 95.

Within its complaint, brief, and affidavits supporting its motion, plaintiff presented the following information to the district court. Until December 1990, plaintiff was the sole designer and manufacturer of anthropomorphic test devices, more commonly known as crash test dummies. Plaintiff owned various inventions, trademarks, trade secrets, and copyrights on the vehicle crash test dummies and their related calibration software programs, manufacturing processes, component parts, customer lists, contacts, pricing information, and marketing strategy. On December 19, 1990, defendants Stephen Fuhr and Barry Wade, employees of plaintiff, formed defendant Vector Research, Inc. to compete with plaintiff in the design and manufacture of crash test dummies and related calibration software. The day before Vector's incorporation, Fuhr terminated his employment with plaintiff, but Wade continued to be employed as plaintiff's senior project engineer until January 4, 1991. Defendant Paul Depinet continued to be employed as plaintiff's data acquisitions supervisor until March 8, 1991. Plaintiff alleged that Fuhr, Wade, and Depinet violated their fiduciary duty as employees of plaintiff by using plaintiff's trade secrets, proprietary information, and copyrighted materials to build Vector's business.

Plaintiff submitted employee proprietary agreements which were signed by the individual defendants during their employment with FTSS. ¹ These agreements address the trade secrets and proprietary information that an employee is prohibited from disclosing except for the benefit of FTSS. In addition, the agreements prohibited those individuals who had signed them from disclosing such information directly or indirectly after termination of employment with plaintiff and required return of any confidential information to FTSS.

Plaintiff alleged that computer media from one of its predecessors included information on costing, history of customers, customer information including the identity of customers, customer contracts, and other secrets related to the marketing of crash test dummies. This information had been transferred to a backup computer media that had been in the actual custody of Fuhr while he worked for plaintiff, but at the time plaintiff filed the complaint, this computer media could not be located. Shortly after Vector was formed, it allegedly contacted potential customers whose identity defendants could have only procured via the customer lists accessible to the former FTSS employees. The vice-president of finance for FTSS averred that a quotation submitted to a potential customer was turned down as plaintiff was informed that the order for calibration equipment was awarded to Vector Research.

Eleven days after Vector's incorporation, defendants produced a price list for crash test dummies, calibration equipment, component replacement parts, and data acquisition software effective January 1, 1991. ² The affidavit of George Pitarra, the former president and CEO of plaintiff, stated that it was "extremely unlikely" that a start-up company could develop and implement computer software for the calibration of crash test dummies in less than one year or could develop and market the full line of crash test dummy equipment described in Vector's price list in less than two years. Plaintiff alleged that information regarding the calibration of the crash test dummies, as well as the software involved, was a trade secret and was prohibited from distribution by former employees as evidenced by the employee proprietary information agreements.

In November 1991, plaintiff's president attended an international auto safety exhibition in Paris, France, where defendant Endevco gmbh ³ sponsored a stand and was representing Vector Research crash test dummies for sale. At the show, a crash test dummy manufactured by plaintiff was displayed in Vector's exhibit. Later that same month, both the president and the FTSS chairman attended a similar exhibit in Birmingham, England, and again encountered an FTSS crash test dummy displayed under Vector's advertising poster. The Endevco representative manning the stand acknowledged that the crash test dummy was indeed manufactured by plaintiff but stated it would not be removed from the stand.

In its brief supporting the ex parte motion, plaintiff argued that immediate relief was necessary.

The evidence of the defendants' misconduct is now in the defendants' possession. For example, the dummy calibration software which is now being sold by defendants as their product is not in plaintiff's possession. That software can be identified by the source code and other identifying factors and compared to plaintiff's copyrighted software. Similarly, the plaintiff's engineering drawings, Bills of Materials, patterns and processes, and customer lists can be readily identified as the plaintiff's property. However, it is current business practice to store many business records electronically on computer tapes, floppy disks and hard disks. Not only is information stored in this manner easier to use than printed materials, it also is easier to destroy. Stated quite simply, if the incriminating evidence which proves the plaintiff's allegations still exists, it can now be seized and impounded but, given the character of the defendants' activities, it is very unlikely that such evidence would ever be produced through normal discovery if ex parte impoundment is not ordered.

Plaintiff does not seek the impoundment of the defendants' own dummies, or component parts, or business records. The plaintiff does not ask the Court to seize the defendants' inventory and thus stop defendants from continuing to manufacture and sell their product. All the plaintiff seeks is the impoundment of evidentiary materials relevant to the allegation that the defendants built their business using plaintiff's property. Impoundment and destruction of the defendants' computer software and any other infringing material can await a full hearing on the merits, but the critical evidence of defendants' wrongdoing must be seized now.

J.A. 99-100. Plaintiff represented to the district court that the requested ex parte order of seizure and impoundment was authorized by law under 17 U.S.C. Sec. 503 and Federal Rule of Civil Procedure 65.

After considering the materials presented by plaintiff, the district court granted the ex parte order of inventory and impoundment and an order to seal the record. The seizure order, which was drafted by plaintiff's counsel, permitted the United States Marshal along with representatives of the plaintiff to inventory and impound certain materials from the business facilities of Vector. The order also provided that plaintiff and its attorneys be allowed to inspect, copy, and photograph all such seized materials.

The order authorized the marshal to impound a variety of items that could be identified as belonging to plaintiff or its predecessors in interest, such as blueprints, computer printouts, computer programs, and documents bearing the name of plaintiff or its predecessor. The order further authorized the copying and inventory of all invoices and purchase orders for parts, customer lists, or other customer information materials held by the defendant, and all correspondence between defendant Vector Research and the plaintiff or the Endevco defendants. The impounded and copied materials were to be retained by the marshal or plaintiff's counsel in trust for the court. The order also required that the plaintiff deposit a cash or surety bond in the amount of $2,000.

On April 8, 1992, at...