Stamicarbon, N.V. v. American Cyanamid Co., 254

• Decision Date: 04 October 1974
• Docket Number: No. 254,D,254
• Citation: 506 F.2d 532
• Parties: , 1974-2 Trade Cases 75,307 STAMICARBON, N.V., Appellant, v. AMERICAN CYANAMID COMPANY, Appellee. ocket 74-1960.
• Court: U.S. Court of Appeals — Second Circuit

Page 532

506 F.2d 532

183 U.S.P.Q. 321, 1974-2 Trade Cases 75,307

STAMICARBON, N.V., Appellant, v. AMERICAN CYANAMID COMPANY, Appellee.

No. 254, Docket 74-1960.

United States Court of Appeals, Second Circuit.

Argued Sept. 12, 1974.

Decided Oct. 4, 1974.

John E. Haigney, New York City (Ide & Haigney, Ronald M. Glick, New York City, of counsel), for appellant Stamicarbon, N.V.

Samuel W. Murphy, Jr., New York City (Donovan, Leisure, Newton & Irvine, Kevin D. Brenan,

P. Michael Anderson, New York City (Stephen T. Waimey, Law Student, of counsel), for appellee American Cyanamid Co.

Thomas E. Kauper, Asst. Atty. Gen., Dept. of Justice, Washington, D.C. (Carl D. Lawson, Robert B. Nicholson, Attys, on the brief), as amicus curiae urging affirmance.

Before KAUFMAN, Chief Judge, and SMITH and TIMBERS, Circuit Judges.

IRVING R. KAUFMAN, Chief Judge:

James Madison probably did not suppose, on suggesting to the House of Representatives its inclusion in the Bill of Rights, ¹ that the right to a public trial would one day conflict with someone's interest in concealing a method for producing a triamino derivative of symmetrical triazine. It is not surprising then, that he gave no advice on how properly to resolve the controversy with which we are now presented. Stamicarbon, N.V. (Stamicarbon), a Netherlands corporation, appeals to us from an order denying its motion for a preliminary injunction to prevent disclosure of its trade secrets by American Cyanamid Co. (Cyanamid), the defendant in a criminal contempt proceeding which has been continued by Judge Brieant pending this appeal. We affirm.

I. FACTS

The rather improbable series of events which culminated in this action began a decade ago, whth the entry of a consent decree against Cyanamid for antitrust violations ² in the production of melamine. ³ The decree prohibited Cyanamid from producing more than 30 million pounds of melamine annually for ten years, ⁴ unless the production capacity of American competitors not in conspiracy with Cyanamid should in the interim increase by 25 million pounds. Imports for the preceding year were to be included in the computation of Cyanamid's production for any given year. The decree also forbade Cyanamid to expand its production capacity beyond 30 million pounds annually during the ten-year period.

The decree was modified in 1969 to permit Cyanamid to expand its production capacity. ⁵ At its new facility Cyanamid employed a secret process, acquired from Stamicarbon by license, for producing melamine from urea and ammonia rather than the more commonly used dicycyanamide. Article III of the licensing agreement provided:

Client (Cyanamid) shall treat all Stamicarbon Know-How furnished to Client under this agreement as strictly confidential and shall use its reasonably best efforts to prevent disclosure thereof to third parties.

In March 1974 the United States moved by order to show cause to hold Cyanamid in criminal contempt for violation of the 1964 consent decree. The Government indicated that it would demand a fine in excess of $500 for the alleged violation. ⁶ It claimed that the nonconspiratorial American melamine production capacity had not increased by 25 million pounds as of January 1, 1973, and that Cyanamid had nonetheless produced more than 30 million pounds in 1972, and imported 569,320 pounds in 1971. Some of the information upon which the Government relied was drawn from a report, made in 1973 by J. Lisle Reed, entitled 'U.S. Plant Capacity for the Production of Melamine, An Independent Study Conducted for the Department of Justice and American Cyanamid, Inc.'

Since Cyanamid admits that it produced 33,625,200 pounds of melamine in 1972, the only issue in the contempt trial will be whether the production capacity of Cyanamid's three American competitors increased by 25 million pounds beween the effective date of the decree and December 31, 1972. The Government will attempt to show, through the testimony of J. Lisle Reed and officers of the three companies, that Cyanamid's competitors have actual production capacities which are less than their designed outputs because of human and mechanical shortcomings in their production processes. ⁷ Two of those competitors-- Premier Petrochemical Co. (Premier) and Melamine Chemicals, Inc. (MCI)-- are licensees of Stamicarbon, and use its secret process for making melamine under contracts similar to that signed by American Cyanamid. On May 8, 1974 Cyanamid for the first time obtained from the Government a copy of the report of J. Lisle Reed, under a stipulation and order which provided:

If said report, documents or information contained therein are used in conjunction with the trial of this case, they shall be utilized in a manner which will maintain the confidentiality of the sensitive commercial or proprietary information contained therein, subject to further order by the Court.

Three days before the contempt trial was scheduled to begin, MCI moved that its testimony relating to production processes be received in camera, in order to maintain the secrecy required of MCI by Stamicarbon's licensing agreement. The Government agreed to the procedure but Cyanamid objected, and the district judge refused to order in camera proceedings without Cyanamid's consent. The following day Stamicarbon commenced this independent action before the presiding judge in the contempt trial. The injunction it sought would prevent Cyanamid from disclosing Stamicarbon secrets by requiring receipt of evidence relating to those secrets in camera. The complaint alleged that Cyanamid was required pursuant to its licensing agreement with Stamicarbon to consent to such a procedure.

On July 15, 1974, the day the contempt trial was to begin, a hearing was held on Stamicarbon's application for a preliminary injunction. The district judge failed to make any finding respecting the contract or the applicability of its provisions, but held that it had 'to balance the right to a public trial on the one hand with the right to have the secrets preserved on the other . . ..' Finding that Stamicarbon would suffer irreparable injury from disclosure, the district judge nonetheless indicated that it was unlikely that the trial would elicit the evidence sought to be protected. He concluded 'as a matter of law' that he 'lack(ed) power under the circumstances of this case' to compel Cyanamid against its wishes to submit to in camera proceedings. ⁸ The criminal contempt trial was then continued so that Stamicarbon could appeal the denial of the preliminary injunction.

II. ABUSE OF DISCRETION

In denying the application for a preliminary injunction, the district court found that Stamicarbon would suffer irreparable injury if its secret process were in fact disclosed. The court indicated doubt, however, that relevant evidence at trial would touch upon the salient features of that process. Thus the injury alleged by Stamicarbon may well be no more than speculative. It is well established that a party wishing to establish its right to a preliminary injunction must demonstrate either a probability that it will succeed on the merits coupled with a threat of irreparable injury, or a balance of hardship decidedly in its favor together with a serious question regarding the merits of the underlying action. Pride v. Community School Bd. of Brooklyn, N.Y., Dist. #18, 488 F.2d 321, 324-325 (2d Cir. 1973); Gulf & Western Indus. Inc. v. Great Atlantic & Pacific Tea Co., Inc. 476 F.2d 687 (2d Cir. 1973); Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738 (2d Cir. 1953). A district court's decision to deny a preliminary injunction, after an assessment of these factors, will be overturned only where there has been an abuse of discretion. Societe Comptoir de l'Industrie etc. v. Alexander's Dept. Stores, Inc., 299 F.2d 33, 35 (2d Cir. 1962); Huber Baking Co. v. Stroehmann Bros. Co., 208 F.2d 464 (2d Cir. 1953); 7 Moore's Federal Practice P65.04(2) (1974). We are unable to say, upon the record before us that Judge Brieant abused his discretion in finding the threat of irreparable injury insufficiently probable to justify the award of interim relief to Stamicarbon.

There is a further reason for our hesitance in upsetting the decision of the district court in this case. A determination of the propriety of interim injunctive relief cannot always be made simply by reference to the interests of the parties before the court. 'Courts of equity may, and frequently do, go much further both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.' Virginian Ry. Co. v. System Federation, 300 U.S. 515, 552, 57 S.Ct. 592, 601, 81 L.Ed. 789 (1937). To be effective, an injunction would require participation by Stamicarbon in the underlying contempt trial, so that the evidence which should be taken in camera could be identified. Such monitoring of a criminal proceeding ought not lightly to be imposed upon the court and the parties, even if Cyanamid's right to a public trial may be subordinated to Stamicarbon's interests. For both the defendant and the public-- on whose behalf the consent decree is being enforced-- deserve that prosecutions be conducted with dispatch, and without danger of mishap. Before running the risk of miscarriage, we would require a convincing indication from the district judge that the need repeatedly to pass on the merits of claims of secrecy, coupled with the possibly frequent shuttling between public and in camera proceedings, would not prejudice the fair and expeditious conduct of the criminal contempt trial.

III. WAIVER

Stamicarbon raises on appeal two distinct claims of waiver which we must decide without reference to the abuse of discretion standard. It is alleged that Cyanamid's consent in the licensing agreement to 'treat all Stamicarbon Know-How furnished . . . under this agreement as strictly confidential and . . . (to) use its...