753 F.2d 1244 (3rd Cir. 1985), 84-1155, SI Handling Systems, Inc. v. Heisley

Docket Nº:84-1155.
Citation:753 F.2d 1244
Party Name:225 U.S.P.Q. 441 SI HANDLING SYSTEMS, INC. v. Michael E. HEISLEY, Heico Inc. Philip L. Bitely, Richard O. Dentner, Eagle Sheet Metal Mfg. Co., Inc. Thomas H. Hughes, Sy-Con Technology Inc., Russell H. Scheel, Stanley K. Gutekunst, Barry L. Ziegenfus, Frank V. Possinger, Appellants.
Case Date:February 04, 1985
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 1244

753 F.2d 1244 (3rd Cir. 1985)

225 U.S.P.Q. 441

SI HANDLING SYSTEMS, INC.

v.

Michael E. HEISLEY, Heico Inc. Philip L. Bitely, Richard O.

Dentner, Eagle Sheet Metal Mfg. Co., Inc. Thomas H. Hughes,

Sy-Con Technology Inc., Russell H. Scheel, Stanley K.

Gutekunst, Barry L. Ziegenfus, Frank V. Possinger, Appellants.

No. 84-1155.

United States Court of Appeals, Third Circuit

February 4, 1985

Argued Sept. 10, 1984.

As Amended Feb. 27, 1985.

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Harold Cramer (argued), Anthony E. Creato, Sr., Steven R. Williams, Mesirov, Gelman, Jaffe, Cramer & Jamieson, Philadelphia, Pa., for appellants.

Edward C. Gonda, Seidel, Gonda & Goldhammer, P.C., Philadelphia, Pa., E. Jerome Brose (argued), Thomas R. Elliott, Jr., Charles W. Elliott, Brose & Poswistilo, Easton, Pa., for appellee.

Before ADAMS, HIGGINBOTHAM and SLOVITER, Circuit Judges.

OPINION

  1. LEON HIGGINBOTHAM, Jr., Circuit Judge.

    TABLE OF CONTENTS

    PAGE INTRODUCTION .................................... 1248 I. BACKGROUND .................................. 1248 A. SI Handling and CARTRAC .................. 1248 B. The Appellants and ROBOTRAC .............. 1251 C. Proceedings in the District Court ........ 1254 II. DISCUSSION .................................. 1254 A. Probability of Success on the Merits ..... 1255 B. Equitable Considerations ................. 1263 C. The Scope of the Injunction .............. 1265 CONCLUSION .................................. 1266 This is an appeal pursuant to 28 U.S.C. Sec. 1292(a)(1) (1982) from an interlocutory order of the district court preliminarily enjoining the use and disclosure of certain trade secrets. Our scope of review is narrow. On a motion for a preliminary injunction "[u]nless the trial court abuses [its] discretion, commits an obvious error in applying the law, or makes a serious mistake in considering the proof, the appellate court must take the judgment of the trial court as presumptively correct." A.O. Smith Corp. v. FTC, 530 F.2d 515, 525 (3d Cir.1976). Nonetheless, because we find that some of the district court's conclusions are without support in the applicable law of trade secrets, and that in some respects its order is so overbroad and vague as to constitute an abuse of discretion, we will vacate the order and remand for reformulation of the preliminary injunction.

    I.

    BACKGROUND

    The unusually voluminous record upon which this preliminary injunction was issued includes nineteen days of testimony and well over 100 exhibits. Much of this material is of a specialized, technical nature. We will summarize the evidence in as much detail as is necessary to properly frame the numerous issues raised in this appeal, but with due regard for SI Handling Systems, Inc.'s proprietary claims.

  2. SI Handling and CARTRAC

    Appellee SI Handling Systems, Inc. ("SI"), founded in 1958 by its current Chairman and Chief Executive Officer L. Jack Bradt, is a Pennsylvania corporation with headquarters and principal manufacturing facilities located in Easton, Pennsylvania. SI employs approximately 300 persons and had sales of 20 million dollars in the fiscal year ended February 27, 1983. Through a number of subsidiaries and licensees SI's products are sold in much of the industrialized world.

    SI is in the business of designing, manufacturing, and installing "materials handling systems". "Materials handling" is a generic term describing the transportation

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    of materials, by any mechanized means, between locations in a factory or warehouse. Forklift trucks and conveyor belts are familiar examples of materials handling devices. A materials handling "system" connotes a combination of devices or components designed to integrate a number of warehouse or factory operations, in order to achieve greater automation and efficiency. SI, which at the outset made only manually-operated steel pushcarts, is today an industry leader with four sophisticated, highly automated product lines, each of which possesses the flexibility to be custom-designed for diverse systems applications.

    This litigation involves only one of SI's product lines, known by the trade name "CARTRAC". CARTRAC was initially developed by a Swedish company which had limited success in marketing the product for light manufacturing applications during the 1960's. In 1971 SI purchased the worldwide rights to CARTRAC for 1.2 million dollars. SI's strategy with regard to acquisitions such as this is to identify products that can be further developed to meet market demands in a manner that secures SI a "unique proprietary advantage". Central to this strategy is the availability of patent or trade secret protection for SI's developments.

    A somewhat detailed description of CARTRAC is helpful to understanding the issues raised in this appeal. CARTRAC is generically described as a "car-on-track" materials handling system. The track is a simple pair of steel rails, resembling railroad tracks. Materials are placed upon a carrier--the "car"--which transports them along the track. Propulsion for the car is provided by a cylindrical drive tube that is mounted in between the two rails and parallel to them. The car engages the tube via a urethane drive wheel mounted on the underside of the car in a pivoting, spring-loaded housing. When the tube is caused to spin by a drive belt connected to an electric motor, it imparts a force (or "thrust") to the drive wheel and causes it to turn. If the drive wheel's motion is perpendicular to the track the car cannot move and the energy expended is simply dissipated in spinning the drive wheel. If, however, the drive wheel is turned at an angle, a component of the thrust will be imparted in the direction parallel to the rails, thus enabling the car to move along the track. The car will accelerate as the angle of the drive wheel is increased, reaching a maximum velocity at 45 degrees. SI does not claim that these basic principles of CARTRAC propulsion are trade secrets.

    SI's method of propelling the car along the track gives CARTRAC a number of capabilities not shared by other car-on-track systems. Among the advantages of the spinning tube approach are the capacity to operate different cars at different speeds at different points in the system ("asynchronous" operation), and to accelerate, decelerate, or stop an individual car at various points in the system with great precision and reliability.

    Another feature, especially important in the context of this litigation, is the ability of the cars to automatically "accumulate": that is, to line up between work stations. Thus, where one work station in an integrated operation is shut down, the accumulated cars feeding materials to other stations will provide a ready bank of materials until the stalled station is again operational. Accumulation permits work stations "upstream" or "downstream" from the affected station to operate more or less continuously. Automatic "car-to-car" accumulation is accomplished in CARTRAC systems through the placement of devices at the front of each car that reduce the angle of the drive wheel as it approaches the rear of a stopped car. This method of accumulation utilizes the only significant patent that SI currently holds with regard to CARTRAC, the so-called "Jacoby" patent (No. 3,818,837).

    In the years following SI's purchase of the rights to CARTRAC, SI further developed and refined the product for a variety of industrial applications. SI entered into a number of licensing agreements which provided

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    for, among other things, the exchange of technical information relating to any improvements in the design or manufacture of CARTRAC. The most important of these agreements, in the context of this litigation, was the one SI entered into with Ishihawajima-Harima Heavy Industries Co., Ltd. ("IHI") of Japan. IHI succeeded in selling CARTRAC to Nissan Motors for use in its highly roboticized automobile assembly plants. Substantial technical development was necessary to bring CARTRAC to the point where it could interact effectively with robots, interaction that requires the capability to move very heavy loads (such as car bodies) at very high speeds and to stop them at very precise locations. By 1976 SI had begun to study the market for "automotive CARTRAC" in the United States. In 1977 an extensive transfer of technology from IHI began, and in conjunction with Unimation, Inc., a leading robot manufacturer, SI sold several CARTRAC systems to Chrysler.

    Beginning in 1978, "SI mounted a campaign to convince General Motors that CARTRAC could provide the automated system necessary for it to retool and meet the Japanese automotive challenge." SI Handling Systems v. Heisley, 581 F.Supp. 1553, 1558 (E.D.Pa.1984). This campaign included intensive engineering and sales efforts. In January 1981, after several small purchases by GM, the companies consummated what has been referred to as "the big buy"--an order for eight CARTRAC systems at a price of more than 17 million dollars. Since then SI has continued to sell CARTRAC systems to GM, and continues to view the GM market as its outstanding business opportunity.

    Among the specific projects SI has undertaken to meet GM requirements is the development of inexpensive "two-way accumulation" cars. Such cars are desirable where a factory operation requires that cars be sent back and forth between two work stations to be loaded and unloaded cyclically. Two-way accumulation permits a bank of cars to "stack up" at both stations, without the necessity of turning the cars around so that they can accumulate in the "car-to-car"...

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