American Can Co. v. Mansukhani
| Decision Date | 10 August 1984 |
| Docket Number | No. 83-2553,83-2553 |
| Citation | 223 USPQ 97,742 F.2d 314 |
| Parties | , 223 U.S.P.Q. 97 AMERICAN CAN COMPANY, Plaintiff-Appellee, v. Ishwar MANSUKHANI, d/b/a Brand Associates, and Ruth Brand, d/b/a Brand Associates, and Brand M, Inc., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Andrew O. Riteris, Michael, Best & Friedrich, Milwaukee, Wis., for defendants-appellants.
Douglas W. Wyatt, Wyatt, Gerber, Shoup, Scobey & Badie, New York City, for plaintiff-appellee.
Before WOOD, CUDAHY and FLAUM, Circuit Judges.
This is an appeal from the district court's preliminary injunction enjoining defendants from taking actions which might constitute misappropriation of plaintiff's trade secrets. The appeal presents several important procedural issues involving the use of ex parte temporary restraining orders in trade secret cases. The appeal also involves the scope and necessary precision of injunctive relief in trade secret cases. At the heart of the case is the problem that courts face in framing orders to prevent defendants from competing unfairly by using another's trade secrets while still permitting defendants to compete fairly using public information and their own talents and experience.
Plaintiff-appellee American Can Company ("American Can") develops, manufactures and sells commercial jet inks. Commercial jet inks are sprayed onto a printing surface without direct contact, and they are therefore useful for printing on delicate surfaces or other surfaces for which contact printing is unsuitable. For example, some of the commercial jet inks involved in this case are used to print date codes on aluminum beer cans or to print on plastic antifreeze jugs.
Defendants-appellants are Ishwar Mansukhani, his wife, Ruth Brand, and their businesses, Brand Associates and Brand M, Inc. Mansukhani is an experienced ink chemist, and his wife is also a physical chemist, although she had no experience with inks until she and her husband started their businesses in late 1980.
The relationship between plaintiff and defendants goes back to August 1976. At that time, American Can had a wholly owned subsidiary called M & T Chemicals, Inc. ("M & T"), which was engaged in the commercial jet ink business. M & T hired Mansukhani as a chemist; at that time, he was experienced in ink chemistry but had had no experience with jet inks. He signed an agreement with M & T promising not to use its trade secrets and to return all documents at the end of his employment. Mansukhani began to develop commercial jet inks, and he invented numerous inks. Over the next several years, Mansukhani continued to work at the same laboratory, but the identity of his employer changed several times. In August 1977, American Can sold M & T to Axco Industries, Inc., and in August 1979, Axco sold M & T to Whittaker Corporation. Then, in October 1980, Whittaker sold the assets and rights pertaining to the jet ink business back to American Can. (For the sake of simplicity, we shall generally refer to all of Mansukhani's employers as "American Can" or "the plaintiff.") When American Can took over the business, it asked Mansukhani to stay on the job, but he declined the offer. Instead, he and his wife started their own commercial jet ink business in December 1980. They began to sell commercial jet inks to several of American Can's customers at substantially lower prices than American Can was offering.
American Can filed its original complaint in this action on October 23, 1981. Federal jurisdiction is based on diversity of citizenship. The complaint charged that Mansukhani was competing unfairly by misappropriating plaintiff's trade secrets. After a trial in March 1982, the district court found that Mansukhani had violated the confidentiality agreement by taking with him copies of patent applications, ink formulas and other documents when he left his old job. The district court also found that Mansukhani had contacted several former customers of Whittaker and had sold jet inks to them for substantially lower prices. Mansukhani had had access to information needed to formulate inks suitable for those customers' specific needs, and the inks Mansukhani had sold were precisely identical to the "400 Series" inks he had helped to develop for plaintiff. Applying Wisconsin trade secret law, 1 the court found that the formulas for the 400 Series inks were trade secrets and that defendants had misappropriated those secrets. The court entered a permanent injunction on June 18, 1982. American Can Co. v. Mansukhani, 216 U.S.P.Q. (BNA) 1094 (E.D.Wis.1982). The relevant, operative terms of the injunction permanently enjoined defendants from
selling the commercial jet inks developed while Mansukhani was employed by plaintiff's predecessors to the companies or individuals for whom those inks were specifically developed, or to any other companies or individuals.
216 U.S.P.Q. at 1100 (emphasis supplied). The defendants later asked the court to clarify that order. They asked whether the On July 20, 1983, plaintiff American Can filed ex parte papers contending that defendants were violating the terms of the permanent injunction by selling their inks SK-2914 and SK-2916. American Can asked for an ex parte temporary restraining order and for a finding that defendants were in contempt of court by selling inks violating the injunction. The court apparently was not satisfied with the plaintiff's initial showing. Five days later, on July 25, 1983, plaintiff presented to Judge Warren a second ex parte motion with a supplementary brief. In the motion, plaintiff sought an ex parte temporary restraining order which (1) would enjoin defendants from selling jet inks of any type to any of plaintiff's customers and (2) would permit plaintiff's employees (in the company of United States Marshals) to enter defendants' premises for the purpose of seizing ink samples and various documents.
order extended to inks other than the three which had been the subjects of the suit, and they asked whether the order covered inks which had different ingredients than those in the commercial version of the 400 Series inks described in the court's June 18 memorandum. In response to the request for clarification, the district court said that the best clarification would be an explanation of its intentions. The court said the injunction was intended to cover "any of those commercial jet ink formulas developed for specific customers while Mansukhani was employed by plaintiff's predecessors." Order of July 13, 1982 (emphasis supplied). Defendants appealed the district court's permanent injunction, and this court affirmed. American Can Co. v. Mansukhani, 728 F.2d 818 (7th Cir.1982)
On July 25, 1983, the district court held an ex parte hearing on plaintiff's motion for the temporary restraining order. The next morning, July 26, the district court signed the ex parte order which enjoined defendants from selling
jet inks of any type, including defendants' SK-2914 and SK-2916 jet inks, to any of plaintiff's customers, previously serviced by Mansukhani when he was employed by plaintiff or its predecessors, including the customers Anheuser-Busch Company and Beverage Products, Inc.
Order of July 26, 1983. That portion of the order was in effect for ten days. 2 The court also ordered United States Marshals to accompany plaintiff's employees to the defendants' plant and to seize ink samples and documents which plaintiff's employees would identify. The temporary restraining order did not permit plaintiff to keep the seized samples and documents (as plaintiff had originally requested), but instead directed the marshals to keep the materials pending a further order from the court. In addition, the order set a hearing date of August 5 with respect to plaintiff's request for a preliminary injunction. After the court issued the ex parte order, plaintiff's employees and United States Marshals went to defendants' plant, served defendants with the temporary restraining order and took the samples pursuant to the order. Also that same day, plaintiff notified all of its commercial jet ink customers that the defendants were subject to the temporary restraining order.
Later that day, the defendants filed a motion asking the district court to lift or modify the temporary restraining order. The next day, on July 27, the district court held a hearing on the motion, but defendants were not permitted to present testimony contradicting the affidavits upon which the ex parte order had been based. 3 The district court denied defendants' motion to lift the restraining order, and on July 28 this court denied defendants' emergency application for a stay pending appeal. On On August 5, 1983, the district court held a hearing on plaintiff's request for a preliminary injunction. At the end of the hearing, the court concluded that a preliminary injunction should issue and instructed counsel for both parties to work out the proper wording. After counsel were unable or unwilling to agree on wording, the district court issued on August 16, 1983, a memorandum order which supplemented the prior permanent injunction. The order permanently enjoined defendants
August 4, 1983, the day before the hearing on the preliminary injunction, Anheuser-Busch--a significant customer for both plaintiff and defendants--switched from defendants' ink to plaintiff's ink for use at its St. Louis canning facility. 4
from selling those commercial jet inks developed while defendant Mansukhani was employed by plaintiff's predecessor to the companies or individuals for whom those inks were specifically developed, or to any other companies or individuals. The set of inks so enjoined from sale by defendants includes but is not limited to those numbered R-453, P-473, and BK-493.
Order of August 16, 1983, at 6 (emphasis supplied). Defendants were also...
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