Anaconda Co. v. Metric Tool & Die Co.
| Decision Date | 12 February 1980 |
| Docket Number | Civ. A. No. 76-2434. |
| Parties | The ANACONDA COMPANY, a Corporation of Montana v. METRIC TOOL & DIE COMPANY, a Corporation of Pennsylvania. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Charles E. McKenney, John J. Lauter, Pennie & Edmonds, New York City, for plaintiff.
John F. A. Earley, Harding, Earley & Follmer, Philadelphia, Pa., for defendant; Stockham & Donahue, Morrisville, Pa., of counsel.
This is a trade secret case. Plaintiff, The Anaconda Company ("Anaconda"), a Montana corporation, is best known for its mining operations. However, Anaconda is a diversified company also engaged in the fabrication of a varied line of products made from copper, aluminum, steel, and other materials, including a product known as flexible metal hose.1 One application of flexible metal hose is an item known as telephone cord armor ("TCA"), a strip-wound metal hose familiar to all users of coin telephones. TCA is what protects the telephone cord from wear and tear, abuse, and vandalism. Anaconda fabricates TCA on a sophisticated profile and winding ("P&W") machine which it engineered and built for this purpose, after a considerable and expensive development period.
Anaconda claims that the design of its P&W machine used to make TCA is a trade secret which was misappropriated by the defendant Metric Tool & Die Company ("Metric"). Metric is a Morrisville, Pennsylvania concern2 which was originally engaged in small scale manufacturing operations, including stamping and drilling and the design and manufacture of sundry machine tools and dies. Metric began to manufacture TCA after it was invited to bid on TCA by Western Electric Company, Inc., ("Western Electric" or "Western"). Western is the principal buyer of TCA in the nation, and Metric has now succeeded Anaconda as Western Electric's principal supplier of TCA. Anaconda claims that the misappropriation was achieved by industrial piracy: the hiring of Anaconda employees from its Mattoon, Illinois, plant and the unauthorized removal from that plant of certain tooling and drawings which served as a material aid to Metric in the construction of its own P&W machine for the manufacture of TCA.
Metric's principal defense is that it designed, engineered, and built its P&W machine on its own, admittedly with some help from some former Anaconda employees, but essentially on the basis of the expertise of Metric's president and sole stockholder, Edward Hussian ("Hussian"), an experienced tool and die maker. Inter alia, Hussian claims that Metric built the machine through "reverse engineering" — i. e. working backward from the finished product, TCA, which Western had made available to him. Metric has also interposed a number of other defenses: that Anaconda's P&W machine design did not constitute a trade secret because it was not sufficiently novel, because many of its component parts were publicly available, and because Anaconda had not protected the confidentiality of the machine's design; that the alleged misappropriation occurred more than six years before the initiation of this lawsuit, which consequently is barred by the statute of limitations; and that Anaconda was guilty of laches because of its delay in bringing this suit.
Jury trial was waived by the parties. The trial of the case consumed eight days. For reasons which follow, we find that Metric misappropriated Anaconda's trade secrets in the design of its P&W machine, and enjoin Metric's use of those trade secrets for a period of 16 months, but decline to award damages because of laches.
This opinion constitutes our findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).
P&W machines are used for the production of a variety of strip-wound flexible metal hose products, ranging from oil cans, shower hoses, and small diameter cable to TCA. The machines have been designed by many companies and have been used and patented for sixty years or more. At present, there are approximately 30 companies in the United States which manufacture some type of flexible metal hose.
P&W machines consist of 3 units: forming, winding, and hose take-up.3 In the forming unit, a metal strip of rectangular cross section is subjected to a number of rolling operations, each of which involves passing the strip through sets of specially designed rolls. These forming rolls are positioned and dimensioned so that the strip is shaped into a specific profile. The formed strip is next fed to the winding unit wherein winding heads or equivalent winding means are positioned to form the strip into a helically interlocked hose. Finally, the formed hose is led from the winding head using a guide or take-up unit. No P&W machines have been offered for sale to the metal hose industry by equipment manufacturers. Thus, companies in the industry have been required to design and build their own machines for internal use.
Starting in about 1953 Anaconda (acting through its Metal Hose Division) entered on a project to engineer and design an all-purpose full line P&W strip wound metal hose machine for use by the Division in producing a variety of metal hose products. A prototype of the P&W machine was built in 1954 and the final design for a P&W machine was settled on in about 1955. In all, over twenty man-years were devoted to the project. Anaconda's P&W machine was and is capable of producing a wide variety of strip wound metal hose from about 1/8 inch in diameter through 4 inches in diameter. By changing tooling, substituting parts and making machine adjustments, the Anaconda P&W machine could be set up to make shower hose, oil can hose, small diameter cable, telephone cord armor or a host of other metal hoses. A number of these P&W machines were built by the Metal Hose Division in the 1950's. Some were set up and operated at Waterbury, Connecticut, and others were shipped to the Division's manufacturing facility in Mattoon, Illinois. Later several machines were sent to the Division's plant in Amsterdam, Holland. A set of blueprints of the drawings have since the 1950's been held in Mattoon for servicing and maintenance purposes.
The P&W machine has many parts due to its adjustability and versatility as well as its complicated function. Over two hundred (200) drawings are required to manufacture the machine. Seventy to one hundred separate sets of tooling are held in inventory by the Division for making a variety of metal hoses as required and demanded by the Division's customers. As we have noted, Anaconda designed and built its P&W machines for its internal use in manufacturing products for sale. Competitors have been required to do likewise since no P&W machines have been offered for sale to the metal hose industry by equipment manufacturers.
The Anaconda P&W machine was specially tooled in the early 1960's to make TCA. Until Metric began manufacturing TCA, no other American manufacturer had a P&W machine capable of such production. Anaconda has manufactured TCA only in its Mattoon, Illinois, plant. Since the early 1960's, Anaconda has sold TCA to a number of customers, though its principal customer was Western Electric. Because Anaconda was its sole supplier, Western Electric attempted throughout the 1960's to develop a second supplier by forwarding product specifications and drawings to other companies, inviting them to submit samples. However, until Metric entered the business of TCA manufacture, Western was unable to find a second supplier.
While the question whether plaintiff possesses a trade secret is ultimately a question of law, there must be a factual predicate for resolving that question. We conclude, see discussion infra, that plaintiff possesses a trade secret in its P&W machine which makes TCA. As the essential factual predicate, we find that the specific items listed below in Appendix A,* which are used in combination as part of a P&W machine for the manufacture of telephone cord armor, are the trade secrets of the plaintiff. Each of the items accomplishes a useful function, directly or indirectly, in forming, guiding, and winding a metal strip to produce a finished hose.
All of Anaconda's P&W machines have been held in secrecy in the Metal Hose Division's three plants in Waterbury, Connecticut; Mattoon, Illinois; and Amsterdam, Holland. Anthony J. Porzio, manager of manufacturing and engineering of Anaconda ("Porzio") testified that none of the machines have been publicly exhibited, described in any publication, or sold. He also stated that none of the machines have been patented, thus precluding public inspection of the patent records. As we have noted, until Metric began manufacturing TCA hose no other American manufacturer had a machine capable of such production.
Since Anaconda began to produce hose on its P&W machines, it has maintained plant security against plant visitors in all of its metal hose production facilities. Porzio identified a document which he had written and placed in the standard practice instructions manual of Anaconda, relating to plant visits and the restrictions on visitors in Anaconda's plants. The instruction, which was promulgated in 1973 for the Waterbury plant, prohibited even escorted visitors from being brought to machines which were deemed proprietary in nature, including the P&W machines. Thus, to view the machines, visitors were relegated to "main aisle" tours providing only a distant view. Although plaintiff has not produced a similar document applicable to the Mattoon plant prior to 1973, no evidence presented showed company policy to be otherwise. Porzio testified that the same company policy had existed since 1952 with respect to Mattoon. We credit that testimony.
Although Anaconda's employees were never specifically...
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