Smith v. Dravo Corp.

• Citation: 203 F.2d 369
• Decision Date: 11 May 1953
• Docket Number: No. 10683.,10683.
• Parties: SMITH v. DRAVO CORP.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

203 F.2d 369 (1953)

SMITH v. DRAVO CORP.

No. 10683.

United States Court of Appeals Seventh Circuit.

April 10, 1953.

Rehearing Denied May 11, 1953.

Wilfred S. Stone, Becher W. Hungerford, Chicago, Ill., for appellant.

Charles B. Spangenberg, Chicago, Ill., William H. Parmelee, William G. Young, John S. Mason, Christy, Parmelee & Strickland, Pittsburgh, Pa., for appellee.

Before DUFFY, LINDLEY and SWAIM, Circuit Judges.

LINDLEY, Circuit Judge.

Plaintiffs appeal from a judgment for defendant entered at the close of a trial by the court without a jury. The complaint is in four counts: 1 and 2 charge an unlawful appropriation by defendant of plaintiffs' trade secrets relating to the design and construction and selling and leasing of freight containers; 3 and 4 aver infringement of plaintiffs' patents Nos. 2,457,841 and 2,457,842. Under count 1 plaintiffs seek: (a) to enjoin defendant from (1) competing with plaintiffs in the freight container business until such time as plaintiffs shall have reestablished their container in the trade and (2) manufacturing any such container embodying the features of plaintiffs' design; (b) the surrender and destruction of defendant's containers and drawings and tools especially designed for the manufacture of the containers; (c) the assignment of all patents obtained by defendant on freight containers, container ships and lifting rigs; (d) an accounting of and payment to plaintiffs of the profits realized by defendant, together with threefold the amount of damages suffered by plaintiffs, as a result of the alleged unlawful appropriation of plaintiffs' trade secrets; (e) reasonable attorney's fees. Count 2 seeks recovery in the sum of $1,000,000 on a theory of unjust enrichment, while counts 3 and 4 demand the customary patent infringement relief of damages and injunction. We concern ourselves first with counts 1 and 2.

In the early 1940s Leathem D. Smith, now deceased, began toying with an idea which, he believed, would greatly facilitate the ship and shore handling and transportation of cargoes. As he was primarily engaged in the shipbuilding business, it was quite natural that his thinking was chiefly concerned with water transportation and dock handling. Nevertheless his overall plan encompassed rail shipping as well. He envisioned construction of ships especially designed to carry their cargo in uniformly sized steel freight containers. These devices (which, it appears, were the crux of his idea) were: equipped with high doors at one end; large enough for a man to enter easily; weather and pilfer proof; and bore collapsible legs, which (1) served to lock them (a) to the deck of the ship by fitting into recesses in the deck, or (b) to each other, when stacked, by reason of receiving sockets located in the upper four corners of each container, and (2) allowed sufficient clearance between deck and container or container and container for the facile insertion of a fork of a lift tractor, and (3) were equipped with lifting eyelets, which, together with a specially designed hoist, made possible placement of the containers upon or removal from a ship, railroad car or truck, while filed with cargo. The outer dimensions of the devices were such that they would fit compactly in standard gauge North American railroad cars, or narrow gauge South American trains, and in the holds of most water vessels.

World War II effectually prevented Smith from developing his conception much beyond the idea stage. Nevertheless blue prints were drawn in 1943, and in 1944, as a result of considerable publicity in trade journals and addresses delivered by Smith before trade associations, Agwilines, one of the principal New York ship operators, displayed great interest in the proposals. Certain refined features, particularly in dimensions and folding legs, were the result of discussions between Smith and Agwilines' officials.

In 1945 production started, and in the fall of that year twelve containers were used by Agwilines in an experimental run. Relative success was experienced, with the result that, by the spring of 1946, Brodin Lines, Grace Lines, Delta Lines and Stockard, in addition to Agwilines, were leasing Safeway containers. (Leathem D. Smith Shipbuilding Company was the owner of the design and manufactured the containers. Safeway Container Corporation purchased the finished containers from the shipbuilding company and leased them to shippers.)

During this period the containers were occasionally seen on the docks. However, in view of their limited number (100) this was far from an every day occurrence. Furthermore, the details of their construction could not be ascertained by casual, distant appraisal. But, in the quest for acceptance, some minor construction details were revealed in the publicity material distributed throughout the shipping trade, including: the outer dimensions, cubic and weight capacities, placement of the lifting lugs, stacking sockets, double doors and the fact that the legs were folding. Three dimensional perspective illustrations demonstrated the use of the containers.

Up until this time the devices were of a "knock-down" variety, i. e., they could be taken apart when not in use, thus enabling the user to conserve storage space when hauling a cargo for which they were not adapted. However, in the spring of 1946, having determined that return cargoes for which the containers could be employed were generally available, and that the cost of erecting and dismantling and empty "knock-down" was greater than the cost of the hold space occupied by an empty container, the design was altered slightly so that future containers would be rigidly constructed. The first of the rigid type was placed in use in early 1947.

On June 23, 1946, Smith died in a sailing accident. The need for cash for inheritance tax purposes prompted his estate to survey his holdings for disposable assets. It was decided that the container business should be sold. Devices in process were completed but no work on new ones was started.

Defendant was interested in the Safeway container, primarily, it appears, for use by its subsidiary, the Union Barge Lines. In October 1946 it contacted Agwilines seeking information. It watched a loading operation in which Agwilines used the box. At approximately the same time, defendant approached the shipbuilding company and inquired as to the possibility of purchase of a number of the containers. It was told to communicate with Cowan, plaintiffs' eastern representative. This it did, and, on October 29, 1946, in Pittsburgh, Cowan met with defendant's officials to discuss the proposed sale of Safeways. But, as negotiations progressed, defendant demonstrated an interest in the entire container development. Thus, what started as a meeting to discuss the purchase of individual containers ended in the possible foundation for a sale of the entire business.

Based upon this display of interest, Cowan sent detailed information to defendant concerning the business. This included: (1) patent applications for both the "knockdown" and "rigid" crates; (2) blue prints of both designs; (3) a miniature Safeway container; (4) letters of inquiry from possible users; (5) further correspondence with prospective users. In addition, defendant's representatives journeyed to Sturgeon Bay, Wisconsin, the home of the shipbuilding company, and viewed the physical plant, inventory and manufacturing operation.

Plaintiffs quoted a price of $150,000 plus a royalty of $10 per unit. This was rejected. Subsequent offers of $100,000 and $75,000 with royalties of $10 per container were also rejected. Negotiations continued until January 30, 1947, at which time defendant finally rejected plaintiffs' offer.

On January 31, 1947 defendant announced to Agwilines that it "intended to design and produce a shipping container of the widest possible utility" for "coastal steamship application * * * and use * * * on the inland rivers and * * * connecting highway and rail carriers." Development of the project moved rapidly, so that by February 5, 1947 defendant had set up a stock order for a freight container which was designed, by use of plaintiffs' patent applications, so as to avoid any claim of infringement. One differing feature was the use of skids and recesses running the length of the container, rather than legs and sockets as employed in plaintiffs' design. However, Agwilines rejected this design, insisting on an adaptation of plaintiffs' idea. In short defendant's final product incorporated many, if not all, of the features of plaintiffs' design. So conceived, it was accepted by the trade to the extent that, by March 1948, defendant had sold some 500 containers. Many of these sales were made to firms who had shown considerable prior interest in plaintiffs' design and had been included in the prospective users disclosed to defendant.

One particular feature of defendant's container differed from plaintiffs: its width was four inches less. As a result plaintiffs' product became obsolete. Their container could not be used interchangeably with defendant's; they ceased production. Consequently the prospects of disposing of the entire operation vanished.

The foregoing is the essence of plaintiffs' cause of action. Stripped of surplusage, the averment is that defendant obtained, through a confidential relationship, knowledge of plaintiffs' secret designs, plans and prospective customers, and then wrongfully breached that confidence by using the information to its own advantage and plaintiffs' detriment.

Our jurisdiction of count 1 rests on the diverse citizenship of plaintiffs (citizens of Wisconsin and a Wisconsin corporation) and defendant (a Pennsylvania corporation). Eckert v. Braun, 7 Cir., 155 F.2d 517. Therefore, under Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L. Ed. 1188, the law of the forum, Illinois, is determinative of the substantive issues raised. And this includes the...