American Cyanamid Co. v. Power Conversion, Inc.

• Decision Date: 13 June 1972
• Citation: 336 N.Y.S.2d 6,71 Misc.2d 213
• Parties: , 175 U.S.P.Q. 303 AMERICAN CYANAMID COMPANY, Plaintiff, v. POWER CONVERSION, INC., et al., Defendants.
• Court: New York Supreme Court

Page 6

336 N.Y.S.2d 6

71 Misc.2d 213, 175 U.S.P.Q. 303

AMERICAN CYANAMID COMPANY, Plaintiff, v. POWER CONVERSION, INC., et al., Defendants.

Supreme Court, Westchester County.

June 13, 1972.

McCarthy, Fingar, Gaynor & Donovan, White Plains, for plaintiff.

Smith, Ranscht, Pollock & Barnes, White Plains, for defendants.

JOHN MARBACH, Justice.

This is a motion to dismiss defendants' first and second affirmative defense and counterclaim in an action for misappropriation of trade secrets, unfair competition and breach of contract. Defendant Martin C. Rosansky had been employed by plaintiff in its program to develop a lithium battery. The research and development work was conducted in secrecy and all employees connected with it were required to sign employment agreements in which they agreed to maintain and hold in confidence the information and trade secrets to which they would be exposed. Defendant Rosansky resigned from plaintiff's employ in February, 1970, to join defendant, Power Conversion, Inc. (PCI), which had just been incorporated by defendant Bruce Jagid. PCI manufactures lithium batteries, which plaintiff claims bear a striking resemblance to those made by plaintiff during its research and development work. Plaintiff never actually manufactured and marketed lithium batteries because it did not at that time--March, 1970--believe that a commercially viable process had been perfected. However, during the research and development program, spanning a period of five years, plaintiff obtained several patents on inventions related to various aspects of a lithium battery.

To the charge of misappropriation of plaintiff's trade secrets, defendants have asserted three affirmative defenses, only two of which are subject of this motion. The gravamen of these defenses is that plaintiff, in seeking these patents, misrepresented facts to the United States Patent Office and thus obtained the patents by fraud. It is also alleged that plaintiff has asserted to PCI's customers that PCI's lithium batteries infringe on plaintiff's patents and proprietary information, knowing the patents to be invalid and unenforceable. This alleged conduct is pleaded as an equitable defense of unclean hands barring plaintiff's requested relief.

That branch of the motion seeking to strike the first and second affirmative defenses is denied.

It is well established that the doctrine of unclean hands is only available when the conduct relied on is directly related to the subject matter in jurisdiction and the party seeking to invoke the doctrine was injured by the conduct. National Distillers etc. Corp. v. Seyopp Corp.,17 N.Y.2d 12, 15, 267 N.Y.S.2d 193, 194, 214 N.E.2d 361, 362; Weiss v. Mayflower Doughnut Corp., 1 N.Y.2d 310, 316, 152 N.Y.S.2d 471, 474, 135 N.E.2d 208, 210.

Misconduct in obtaining a patent constitutes a recognized defense to a charge of patent infringement, Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 54 S.Ct. 146, 78 L.Ed.2d 293, but that is not the claim asserted here. In A. H. Emery Company v. Marcan Products Corp., 389 F.2d 11, p. 18 (C.A.2d 1968), cert. denied 393 U.S. 835, 89 S.Ct. 109, 21 L.Ed.2d 106, it was stated that the defense of unclean hands arising out of conduct in obtaining patents 'does not apply with equal force to the claim of misappropriation of trade secrets which . . . is to a large degree a 'separate matter ". This holding is reiterated as a general principle by a leading authority in the field, 4 Callmann, Unfair Competition, Trademarks and Monopolies, 3rd Ed., § 87.1(b)(3), p. 54. No New York authority exactly on point has been found although the cases of Extrin Foods, Inc. v. Leighton, 202 Misc. 592, 602--603, 115 N.Y.S.2d 429, 438, and L. M. Rabinowitz & Co. v. Dasher, Sup., 82 N.Y.S.2d 431, 441--442, are nearly so to the extent that in both cases the defenses alleged (misrepresentation in violation of Federal Food, Drug, and Cosmetic Act in Extrin Foods and monopoly in violation of the Clayton Act in L. M. Rabinowitz & Co.) were held to be unrelated to the alleged misappropriation of trade secrets and thus no bar to recovery.

To determine the relationship of plaintiff's alleged conduct before the Patent Office to the trade secret protection sought in this action, a few basic rules applicable to patent practice must be appreciated.

The basic premise underlying our patent system is that the public awards the patentee a seventeen-year patent monopoly in consideration for a full and complete disclosure by the patentee of the best mode for carrying out his invention. Thus, at the end of the monopoly period, the public will be free and able to practice and use the invention without further tribute, 1 Walker on Patents (Deller's Ed., 1964), § 6, p. 40; 69 C.J.S. Patents, § 5.

This requirement for a full disclosure of the best mode known to an applicant at the time he files his application is embodied in 35 U.S.C., § 112. Failing a frank and complete disclosure of the best mode, the patent is invalid. Engelhard Industries, Inc. v. Sel-Rex Corp., D.C., 253 F.Supp. 832, affd. 3 Cir., 384 F.2d 877.

The burden of fair dealing imposed on one solicits patents from the Patent Office, with the opportunities for misconduct attendant to Ex parte proceedings, has been stated by the Supreme Court as follows, Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 818, 65 S.Ct. 993, 999, 89 L.Ed. 1381:

'Those who have applications pending with the Patent Office or who are parties to Patent Office proceedings have an uncompromising duty to report to it all facts concerning possible fraud or inequitableness underlying the applications in issue. Cf. Crites, Inc. v. Prudential Ins. Co., 322 U.S. 408, 415, 64 S.Ct. 1075, 1079, 88 L.Ed. 1356, 1361. This duty is not excused by reasonable doubts as to the sufficiency of the proof of the inequitable conduct nor by resort to independent legal advice. Public interest demands that all facts relevant to such matters be submitted formally or informally to the Patent Office, which can then pass upon the sufficiency of the evidence. Only in this way can that agency act to safeguard the public in the first instance against fraudulent patent monopolies. Only in that way can the Patent Office and the public escape from being classed among the 'mute and helpless victims of deception and fraud.' Hazel-Atlas Glass Co. v. Hartford-Empire Co., supra, (322 U.S. 238, 246, 64 S.Ct. 997, 1001, 88 L.Ed. 1250, 1255).' See also Scott Paper Co. v. Fort Howard Paper Co., 432 F.2d 1198, cert. den., 401 U.S. 913, 91 S.Ct. 882, 27 L.Ed.2d 812.

Assuming these principles are followed in practice, the grant of a patent vitiates the trade secret cloak of protection, Bickley v. Frutchey Bean Co., D.C., 173 F.Supp. 516, and cases cited therein. In Newport Industries, Inc. v. Crosby Naval Stores, Inc., 5 Cir., 139 F.2d 611, 612, the court explained:

'A process that is a secret cannot be one that is patented; because full disclosure, so that the public may know how to use it when the patent expires, is the consideration for the monopoly given the patentee for a limited time.'

Assuming the defendants' allegations in the first and second affirmative defenses to be true, as indeed, must be done on this CPLR 3211(b) motion, 4 Weinstein-Korn-Miller, New York Civil Practice, par. 3211.46, and applying the above principles, the conclusion is inescapable that there would be no trade secrets to misappropriate and thus no cause of action for misappropriation. The remedy in such a situation would lie in a patent infringement action, assuming, of course, the patents were still in effect. Thus, it cannot be stated carte blanche that there is no direct relationship in this instance between the alleged conduct before the Patent Office and the claimed trade secrets. A fortiori the opposite must be true. And if the allegations in the affirmative defenses are proven, it might very well be that a trial court would reach the conclusion that it would be inequitable to permit plaintiff the protection of a trade secret that it would have had to relinquish had its procedures before the Patent Office been in accord with the law. So held the Supreme Court of Michigan in Dow Chemical Co. v. American Bromine Co., 210 Mich. 262, 177 N.W. 996 (1920).

Plaintiff's reliance upon A. H. Emery Company v. Marcan Products Corp., 2 Cir., 389 F.2d 11, supra, is not persuasive. In Emery, the trial court, after hearing the evidence, found that the alleged misconduct before the Patent Office was only remotely related, if at all, to the breach of the trade secret trust. The Second Circuit Court of Appeals, in affirming, held that the trial court's conclusion was not an abuse of discretion but at the same time noted that '. . . the record would have supported the trial judge if he had reached a contrary conclusion . . .' This language certainly weakens Emery as authority for a general principle that Patent Office misconduct is wholly unrelated to a trade secret claim as seems to be suggested in Callmann, Unfair Competition, Trademarks and Monopolies, supra. Manifestly, such a proposition cannot be applied as a matter of law so as to require a dismissal of the affirmative defenses. Inasmuch as defendants' pleading alleges that this conduct before the Patent Office and subsequent activities of plaintiff have caused injury to the defendants, the pleading is sufficient on its face under the liberalized pleading provisions of CPLR 3013, Foley v. D'Agostino, 21 A.D.2d 60, 248 N.Y.S.2d 121; 3 Weinstein-Korn-Miller, New York Civil Practice, par. 3013.03.

Plaintiff has also moved to dismiss the counterclaim for failure to state a cause of action under General Business Law, § 340, popularly known as the 'Donnelly Act', claiming that the allegations fail to assert that the acts complained of were committed by plaintiff pursuant to a contract, agreement, arrangement or combination with others for...