Boeing Co. v. Sierracin Corp.

• Decision Date: 30 April 1987
• Docket Number: LIBBEY-OWENS-FOR,Nos. 52649-4,52884-5 and 52937-0,A
• Citation: Boeing Co. v. Sierracin Corp., 108 Wn.2d 38, 738 P.2d 665 (Wash. 1987)
• Parties: , 1987-1 Trade Cases P 67,572, 4 U.S.P.Q.2d 1417 The BOEING COMPANY, Appellant, v. SIERRACIN CORPORATION and Sierracin Glass Transparencies, Inc., Respondents. SIERRACIN CORPORATION and Sierracin Glass Transparencies, Inc., Respondents, v. The BOEING COMPANY, Appellant. SIERRACIN CORPORATION and Sierracin Glass Transparencies, Inc., Respondents, v.ppellant.
• Court: Washington Supreme Court

Page 38

108 Wn.2d 38

738 P.2d 665, 1987-1 Trade Cases P

67,572, 4 U.S.P.Q.2d 1417

The BOEING COMPANY, Appellant, v. SIERRACIN CORPORATION and Sierracin Glass Transparencies, Inc., Respondents.

SIERRACIN CORPORATION and Sierracin Glass Transparencies, Inc., Respondents, v. The BOEING COMPANY, Appellant.

SIERRACIN CORPORATION and Sierracin Glass Transparencies, Inc., Respondents, v. LIBBEY-OWENS-FORD, Appellant.

Nos. 52649-4, 52884-5 and 52937-0.

Supreme Court of Washington En Banc.

April 30, 1987.

Perkins, Coie, Thomas L. Boeder, M. Margaret McKeown, Heidi L. Sachs, Seattle, for appellant.

Culp, Dwyer, Guterson & Grader, Jerry R. McNaul, Diane G. Fitz-Gerald, Seattle, for respondent Sierracin Corp., et al.

Graham & Dunn, James L. Magee, Wendy D. Welkom, Seattle, for respondent Libbey-Owens-Ford Co.

DORE, Justice.

This appeal stems from a 2-month trial between the Boeing Company and Sierracin Corporation. Boeing alleged that Sierracin misappropriated its trade secrets concerning the design of airplane windows. Sierracin counterclaimed asserting that Boeing's actions to protect its designs violated Washington antitrust laws. A jury found for Boeing on its trade secrets claim and for Sierracin on its antitrust counterclaim. Both sides appeal.

We affirm Boeing's judgment on its trade secrets claim for $3,270,666, and we affirm the award of attorney fees to Boeing for $353,565.45. We set aside Sierracin's judgment on its antitrust counterclaim in its entirety and we reverse the award for attorney fees and costs to Sierracin. We uphold the trial court's dismissal of the third party defendants. Finally, we remand this case to the trial court to determine an award of reasonable attorney fees for Boeing on appeal.

FACTS

This lawsuit concerns the manufacture and marketing of replacement cockpit windows for Boeing 707's, 727's and 737's, known as Triple Seven ("7/7/7") windows. Five of these windows lie on each side of the aircraft's nose, each performing multiple critical functions such as defogging, withstanding cabin pressurization, and providing a clear range of vision. Historically, only the appellant Boeing Company held the necessary Federal Aviation Administration Parts Manufacturer Authorization (hereinafter authorization), so only Boeing or its licensee could legally sell those windows.

Boeing's drawings for the 7/7/7 cockpit windows are unique, detailed blueprints containing approximately 500 critical tolerances, dimensions, specifications and material requirements. The basic design, which played an integral role in the production of the world's first commercial jet transport, has undergone minor changes since its inception in the 1950's, each requiring FAA reauthorization.

Because these drawings are the result of Boeing's original $16 million investment, and as they constitute Boeing's "lifeblood" in the commercial airplane business, Boeing always considered them proprietary trade secrets. For protection of its trade secrets Boeing requires in a standard contract provision that Boeing's outside suppliers, who receive these drawings, agree not to use them for any purpose other than exclusive Boeing manufacture.

Prior FAA authorization is needed for every spare part sold or installed on any commercial aircraft. Outside suppliers may manufacture and sell airplane parts by either: (1) selling to a manufacturer with prior FAA design authorization (like Boeing); or (2) selling directly to airlines after obtaining their own FAA authorization by (a) independent design and testing; (b) licensing from another authorized airplane manufacturer (like Boeing); or (c) showing that their own drawings and manufacturing processes are identical to those previously authorized (identicality). In granting an identicality, the FAA does not consider where the applicant obtained its drawings or derived its manufacturing process.

The three major suppliers of aircraft windows in the United States are PPG Industries, Inc.; Swedlow, Inc.; and Sierracin. ¹ Sierracin had supplied Boeing with other products for many years. In 1982, it began manufacturing Boeing's 7/7/7 windows after acquiring the business of Libbey-Owens-Ford Company, which had previously been a supplier of those windows. Boeing helped Sierracin enter the 7/7/7 window market by providing Sierracin with FAA authorized drawings, technical assistance and tooling, and by awarding it contracts for some of Boeing's 7/7/7 window needs in 1982 and 1983.

As a supplier, Sierracin received Boeing requests for quotations, which provided that all orders were subject to its confidential terms and conditions. Sierracin signed more than 270 Boeing contracts containing the same terms and conditions without objection, and signed and accepted Boeing purchase orders with a similar provision. Sierracin accepted Boeing's terms by letter, and after performance accepted payment under the purchase orders.

In 1984 after alleged breaches of contract because of late deliveries of windows, Boeing chose not to renew contracts with Sierracin, and instead signed a 5-year 100 percent requirements contract with PPG Industries, Inc. Sierracin decided, however, to continue manufacturing windows for sale on its own in the 7/7/7 "after market" (i.e., spare parts market). A Boeing official warned Sierracin against use of Boeing proprietary data for any purpose other than manufacturing parts for Boeing. Sierracin ignored the warning and used various Boeing engineering drawings and specifications to try to obtain its own authorization from the FAA. The FAA asked Boeing to make an identicality comparison between Boeing's 7/7/7 windows and those manufactured by Sierracin. Boeing refused and accused Sierracin of copying its drawings. Sierracin denied these accusations and Boeing filed this suit.

Sierracin then submitted a second set of drawings to the FAA, but those drawings were derived from the first authorization drawings which had been copied from Boeing drawings. There was conflicting testimony as to whether Sierracin could "reverse engineer" the Boeing drawings on its own. Reverse engineering is the process of recreating the product and the drawing depicting it by use of the product itself. Sierracin claimed it would have taken only a few weeks to a few months to reverse engineer the window, while Boeing engineers testified that it would have been virtually impossible. Sierracin's subsequent efforts to reverse engineer one window were rejected by the FAA.

TRIAL AND APPEAL

Boeing's lawsuit against Sierracin alleged breach of contract, breach of confidential relationship, conversion and misappropriation of trade secrets in violation of the Uniform Trade Secrets Act, RCW 19.108. Boeing also alleged that Sierracin wrongfully copied certain tooling used by Boeing and the Air Force. The trial court dismissed this claim, ruling that the Air Force was an indispensable party.

Sierracin asserted an antitrust affirmative defense and six counterclaims. Its counterclaim alleging "sham litigation" was dismissed by the trial court. The remaining counterclaims alleged that Boeing had violated the antitrust provisions of the Consumer Protection Act, RCW 19.86, by (1) engaging in an unlawful tying arrangement; (2) entering into a contract or combination which unreasonably restrains trade; (3) attempting to monopolize the relevant market; (4) monopolizing the relevant market; and (5) engaging in unfair trade practices or unfair methods of competition. Sierracin filed a third party complaint against Libbey, alleging that when Sierracin purchased detailed information from Libbey about 7/7/7 windows, Libbey warranted that that information would not violate any contract or agreement between Libbey and third parties such as Boeing. The trial court dismissed this breach of warranty claim on a directed verdict.

The jury awarded Boeing $1,635,333 in damages against Sierracin, and Sierracin $1,062,442 in damages against Boeing. The trial court found Sierracin's misappropriation of Boeing trade secrets to be willful and malicious within the meaning of RCW 19.108.030(2), and awarded exemplary damages which doubled Boeing's award. The trial court also doubled Sierracin's antitrust damages against Boeing. Next, the court awarded fees and costs to Sierracin under RCW 19.86.090 and to Boeing under RCW 19.108.040. The trial court then entered a permanent injunction against Sierracin's use of the FAA authorization obtained using Boeing data. The trial court delayed the effective date of its injunction for 120 days.

The Court of Appeals in Boeing Co. v. Sierracin Corp., 43 Wash.App. 288, 716 P.2d 956 (1986), stayed the injunction beyond the original 120 days pursuant to RAP 8.3. Although Boeing's motion for discretionary review was denied, we accepted transfer of the entire case. On remand, the trial court in lieu of dissolving the stay on the injunction ordered Sierracin to make periodic escrow payments of 5 percent of Boeing's sales price for each 7/7/7 cockpit window sold pending appeal, and to post a $50,000 bond covering Boeing's costs and attorney fees on appeal. Boeing's motions for direct review and consolidation were granted.

At this juncture, we believe it would be helpful to set forth verbatim the jury verdict.

                 VERDICT FORM
                                 BOEING CLAIMS
                QUESTION 1:  Did Sierracin breach a confidential
                             relationship with Boeing
                             (Yes) 10                      No 2
                                   --                         -
                QUESTION 2:  Did Sierracin breach a contract
                             with Boeing
                             (Yes) 11                      No 1
                                   --                         -
                QUESTION 3:  Did Sierracin misappropriate
                             Boeing trade secrets?
                             (Yes) 11                      No 1
                                   --                         -
                QUESTION 4:  If your answer to any of the
                             foreg(o)ing questions is"yes", do
                             you find that

...