Aktiebolaget Bofors v. United States

• Decision Date: 29 November 1951
• Docket Number: No. 10870-10872.,10870-10872.
• Citation: 194 F.2d 145
• Parties: AKTIEBOLAGET BOFORS v. UNITED STATES (two cases). AKTIEBOLAGET BOFORS v. ACHESON, Secretary of State, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

194 F.2d 145 (1951)

AKTIEBOLAGET BOFORS v. UNITED STATES (two cases). AKTIEBOLAGET BOFORS v. ACHESON, Secretary of State, et al.

Nos. 10870-10872.

United States Court of Appeals District of Columbia Circuit.

Argued June 1, 1951.

Decided November 29, 1951.

Charles E. Rhetts, Washington, D. C., for appellant.

Joseph F. Goetten, Asst. U. S. Atty., Washington, D. C., with whom George Morris Fay, U. S. Atty. at the time the brief was filed, and Ross O'Donoghue and Joseph M. Howard, Asst. U. S. Attys., Washington, D. C., were on the brief, for appellees. Charles M. Irelan, Washington, D. C., appointed U. S. Atty. subsequent to the argument in this case, also entered an appearance for appellees.

Before CLARK, WILBUR K. MILLER and FAHY, Circuit Judges.

WILBUR K. MILLER, Circuit Judge.

The appellant, Aktiebolaget Bofors, instituted these three actions in the United States District Court for the District of Columbia on April 17, 1950. All three complaints, which contained substantially similar factual allegations and had the same general objective, were dismissed by the trial judge, and these appeals followed.

We summarize the allegations of the complaints. Bofors, a Swedish corporation engaged in manufacturing and selling munitions, was the owner of an unpatented secret process by the use of which it produced a 40mm anti-aircraft gun, apparently of superior excellence. The Navy Department of the United States desired to acquire the Bofors secret. Negotiations resulted in a contract dated June 21, 1941, by the terms of which Bofors granted to the Navy Department, in consideration of the sum of six hundred thousand dollars, an "Exclusive and irrevocable license to make, use and have made in the United States for the United States use" the Bofors 40mm water-cooled gun for naval use, the Bofors 40mm air-cooled gun for army use, all types of ammunition therefor, and the Bofors field carriage for 40mm guns. Bofors agreed to make full disclosure of its secret process and to furnish the services of two expert production engineers for a period of one year.

The money was paid, and Bofors delivered to the Naval Attache at the American Legation in Stockholm all plans, specifications, manufacturing drawings and engineering data necessary to enable our people to manufacture guns and ammunition under the Bofors secret process. The United States immediately began to use the trade secret so revealed to it and also began to transfer, under the Lend Lease Act^* and similar legislation, Bofors guns and ammunition to other nations to be used by them in the common war against Germany and Japan.

Bofors regarded such transfers as beyond the scope of the license which it had granted, and protested vigorously. Beginning in 1941 and continuing throughout several succeeding years, it informally importuned the American authorities either to work out a royalty arrangement for the unlicensed use of the trade secret, or to submit its claim for extra compensation to arbitration as provided in the contract. When all efforts to obtain an equitable adjustment through informal negotiation proved fruitless, Bofors addressed to the Secretaries of State, Defense, Army and Navy a formal document styled "Petition for Agency Action," which contained a full statement of the facts and again requested that those officials agree either to grant compensation for unauthorized use of the trade secret or to submit the dispute to arbitration. The petition for agency action was rejected by all four Secretaries, after which Bofors filed the three actions now before us.

1. No. 10870, Bofors v. United States. This action, alleged to sound in tort, is for damages in the sum of two million dollars. The government moved to dismiss on two grounds: (a) that the complaint failed to state a cause of action upon which relief could be granted, and (b) that the court was without jurisdiction over the subject matter. The District Court's order of dismissal expressly sustained both grounds of the motion.

We first examine the complaint to see whether it states a cause of action upon which relief can be granted. Bofors pleaded that the action arose under the Federal Tort Claims Act, 28 U.S.C. § 1346(b), so the initial inquiry is whether the allegations described a tort.

The owner of an unpatented trade secret has a property right in it as long as he does not disclose it. His right to the exclusive use of it depends upon the continuance of secrecy. Any person who obtains the secret from him by theft, bribery, stealth, breach of a confidential relation or other unlawful means violates his property right and commits a tort.¹ As Judge Holtzoff said in his opinion in this case, "So long as the secret remains intact, any one who invades it, is guilty of a tortious act."²

The tort lies in the wrongful acquisition. But one who has lawfully acquired a trade secret may use it in any manner without liability unless he acquired it subject to a contractual limitation or restriction as to its use. In that event a licensee who uses the secret for purposes beyond the scope of the license granted by the owner is liable for breach of contract, but he commits no tort, because the only right of the owner which he thereby invades is one created by the agreement of disclosure.³ The owner could not maintain a suit against him for damages arising from unlicensed use without pleading and proving the contract. This being true, the gist of the owner's action is the breach of the licensing agreement.⁴

Here the Navy Department acquired the secret lawfully. Subsequent unauthorized use by the United States was, therefore, not tortious. It follows that the complaint in case No. 10870 did not state a cause of action in tort. Moreover, 28 U.S.C. § 2680(h) excepts from those claims upon which the government may be sued under the Federal Tort Claims Act "Any claim arising out of * * * interference with contract rights."

Even though a tort claim was not stated in the complaint, we should determine whether its allegations set up any other cause of action, for the label which a plaintiff applies to a pleading does not determine the nature of the cause of action which he states. Bofors' denomination of its suit as one arising under the Federal Tort Claims Act was a conclusion which does not prevent the court from recognizing any other form of claim which the complaint described. According to the allegations here, the United States acquired the trade secret subject to the contractual limitation "to make, use and have made in the United States for the United States use" the devices therein described. If the United States used the secret process in manufacturing guns and ammunition for use by other nations, as Bofors alleged, it violated the agreement of June 21, 1941, and, consequently, the complaint stated a cause of action for breach of contract.⁵ It may be that the alleged action of our government in making unauthorized use of the trade secret was morally justified by the exigencies of war, as Harry L. Hopkins suggested;⁶ but the alleged refusal of the military and naval authorities of the United States to discuss or arbitrate the question of compensation for such unauthorized use had no justification. It should be borne in mind that the purpose of the action was not to prevent unlicensed use of the trade secret, which Hopkins thought ought not to be done, but to obtain compensation for past and future use of the secret beyond the scope of the license which had been granted. Our conclusion is that the complaint in case No. 10870 stated a cause of action for breach of contract. The District Court erred insofar as it based its order of dismissal upon the ground that the complaint did not state a cause of action upon which relief could be granted.⁷

It remains to decide whether the District Court had jurisdiction of the cause of action for breach of contract set forth in the complaint. That court has concurrent...