Abbott Laboratories v. Norse Chemical Corp.

• Decision Date: 10 January 1967
• Citation: 147 N.W.2d 529,33 Wis.2d 445
• Parties: , 152 U.S.P.Q. 640 ABBOTT LABORATORIES, Appellant, v. NORSE CHEMICAL CORPORATION, a Wis. corporation et al., Respondents.
• Court: Wisconsin Supreme Court

Page 529

147 N.W.2d 529

33 Wis.2d 445, 152 U.S.P.Q. 640

ABBOTT LABORATORIES, Appellant, v. NORSE CHEMICAL CORPORATION, a Wis. corporation et al., Respondents.

Supreme Court of Wisconsin.

Jan. 10, 1967.

Whyte, Hirschboeck, Minahan, Harding & Harland, Milwaukee, Victor M. Harding and Robert V. Abendroth, Milwaukee, of counsel, for appellant.

Brady, Tyrrell & Bruce, Milwaukee, Elwin J. Zarwell and Samuel J. Recht, Milwaukee, of counsel, for respondents.

WILKIE, Justice.

Consideration of the issues raised on this appeal must commence with an exposition of the nature of the Abbott production process and of the Abbott customer list.

The Abbott Production Process.

The production of a cyclamate is a chemical reaction which was originally embodied in the 1941 du Pont patent, and which became available to everyone in 1959. However, although the basic reaction was known, the methods of producting this product commercially had to be developed.

The basic production processes dealt with in development are purification, yield, and speed. Purification essentially deals with ways of removing water and other impurities as the reaction is taking place. The yield process involves an attempt to get a greater output from materials used in the reaction, and speed must be achieved in carrying out this reaction to make it economically profitable. Overall, the chemical engineering involved in formulating the entire process is attempting to achieve high production at lowest cost by dealing with these three essentials. Substitution of cheaper materials and equipment is made where feasible as part of the attempt to hold down costs.

Customer List.

The Abbott marketing process was very costly and expensive to develop. In 1950, Sucaryl was virtually an unknown product and there were several important hurdles to be overcome. First, Abbott had to get sanction for the product's marketing for consumer use from the United States government. Then, Abbott also had to develop a market for its product among bottling companies, food producers, and drug companies. Often this involved substantial customer education in the use of an artificial sweetener, and Abbott sometimes assisted in the development of processes by other companies who used Sucaryl in their products.

Abbott's customer list essentially involved the names and addresses of Sucaryl users. The list also disclosed the name of a key individual in the organization who was familiar with artificial sweeteners and whom Abbott had educated in their use. Mueller had access to this list and the trial judge found:

'The Abbott customer list was used by the defendant Mueller in making up the Norse customer list and in soliciting Abbott's customers, but Abbott's customer list was not private, confidential or a trade secret.'

On the question of liability a single issue is raised on this appeal. Do Abbott's technology and customer list constitute trade secrets so as to give rise to an unfair-competition action when wrongfully taken by the defendants?

This is a case of first impression in this state, there being no previous decisions by this court on trade secret protection.

The law of trade secrets has developed to deal with a particular problem in American industry--employee mobility among key employees of an industrial concern. In today's economy there is tremendous demand for highly trained technical, engineering, and research personnel. When an employee changes jobs, 'it is inevitable that some of the employee's previously acquired knowledge will be made available to his new employer. It is at this point that the problem arises--where do the trade secrets begin and the employee's intellectual tools of the trade end?' ¹

Kalinowski sets out the basic factors of the problem as follows:

'There is no simple answer to this question. Its treatment at the hands of the courts has reflected a desire to balance the cross-currents of such social values as freedom of contract, personal economic freedom, and business ethics. Thus, the courts are reluctant to place any 'undue restrictions upon an employee's liberty of action in his trade or calling.' Nor will they require an employee who changes employers to 'wipe clean the slate of his memory.' On the other hand, their aim is to enforce 'increasingly higher standards of fairness of commercial morality in trade.'

'The public interest is likewise involved to a considerable degree. The basis of our industrial system is a free economy. The encouragement of technological advancement is vital to the maintenance of our economic system and of our industrial productivity. On the one hand, it can be said that if the employer's trade secrets are not protected from appropriation by the employee or the unscrupulous, research and development will be impaired. No employer would be willing to spend large sums of money on research and development of new ideas, processes or methods if these can be taken and used by others with impunity. On the other hand, if potential competitors are intimidated and the dissemination of ideas, processes and methods is impaired, competition is fettered and the public is injured. The courts have sought to balance these conflicting, yet fundamental, interests, but have done so with differing results.' ²

The law concerning trade secrecy developed as common law. The basis of the doctrine is an attempt to enforce morality in business. By its very nature, the trade secrecy doctrine, under the heading of unfair competition, deals with an area that is nebulous at to the guidelines to be applied. However, the law features two basis themes.

The first theme was initiated by Mr. Justice HOLMES as the rationale for protecting trade secrets in E. I. Du Pont de Nemours Powder Co. v. Masland. ³

'* * * The word property as applied to trademarks and trade secrets is an unanalyzed expression of certain secondary consequences of the primary fact that the law makes some rudimentary requirements of good faith. Whether the plaintiffs have any valuable secret or not the defendant (a former employee) knows the facts, whatever they are, through a special confidence that he accepted. The property may be denied, but the confidence cannot be.'

This philosophy has been adopted by the Restatement, 4 Torts, p. 5, sec. 757b, as the basis for judicial protection of trade secrets.

Courts who emphasize the breach of confidence aspect of the law of unfair competition are essentially dealing with business morality. Usually, however, the cases involve a substantial breach of business ethics and an assumed trade secret. For example, in Standard Brands Inc. v. U.S. Partition & Packaging Corp., ⁴ the case involved drawings and patterns necessary to produce a process machine more efficient than any other in the industry. Key employees tried to steal these plans and encouraged other employees to join their enterprise. Defendants were able to swtitch most of the business of their former employer. Judge GRUBB of the federal court for the Eastern district of Wisconsin stated the law as follows:

'* * * In the absence of an agreement of the contrary * * * an agent is free to engage in competition with his principal after termination of his employment. Furthermore, he may plan and develop his competitive enterprise during the course of his agency provided the particular activity engaged in is not against the best interests of his principal. * * * Protection of the principal's interest requires a full disclosure of acts undertaken in preparation for entering into competition.' ⁵

In Judge GRUBB's view the unlawful act was procuring the means to fashion the employees' enterprise by appropriation of their principal's property, and the fact that these machines could have been duplicated without reference to the drawings does not excuse the conduct.

Another case to the same effect is Franke v. Wiltschek, ⁶ in which the court states:

'* * * Plaintiffs do not assert, indeed cannot assert, a property right in their development such as would entitle them to exclusive enjoyment against the world. Theirs is not a patent, but a trade secret. The essence of their action is not infringement, but breach of faith. It matters not that defendants could have gained their knowledge from a study of the expired patent and plaintiffs' publicly marketed product. The fact is that they did not. Instead they gained it from plaintiffs via their confidential relationship, and in so doing incurred a duty not to use it to plaintiffs' detriment.' ⁷

The second theme in the development of the law of trade secrets is the requirement of the existence of an actual trade secret as the sine qua non of a cause of action for unfair competition and even authority quoted by respondents recognizes this. ⁸ Whether employees are guilty of a breach of confidence often turns on the nature of the idea and concepts which they take with them to their new jobs.

The trial court held that neither the technology nor the customer information constitutes a trade secret. The crucial question on this appeal is whether the trial court is incorrect in either determination.

We believe that the Restatement of the Law correctly states the general law of trade secrets. ⁹ It gives proper balance to the two factors that have cropped up throughout the development of the law of trade secrets. In defining a trade secret, in comment b the Restatement states:

'A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.' ¹⁰

And further states:

'A trade secret is a process or device for continuous use in the operation of the business.' ¹¹

An indispensable feature of a trade secret is that

'The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are...