Christianson v. Colt Industries Operating Corp.

• Citation: 10 USPQ2d 1352,870 F.2d 1292
• Decision Date: 22 March 1989
• Docket Number: No. 88-2492,88-2492
• Parties: 1989-1 Trade Cases 68,527, 10 U.S.P.Q.2d 1352 Charles R. CHRISTIANSON and International Trade Services Inc., Plaintiffs-Appellees, v. COLT INDUSTRIES OPERATING CORP., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1292

870 F.2d 1292

1989-1 Trade Cases 68,527, 10 U.S.P.Q.2d 1352

Charles R. CHRISTIANSON and International Trade Services Inc., Plaintiffs-Appellees, v. COLT INDUSTRIES OPERATING CORP., Defendant-Appellant.

No. 88-2492.

United States Court of Appeals Seventh Circuit.

Argued Nov. 28, 1988.

Decided March 22, 1989.

John C. McNett, Woodard, Emhardt, Naughton, Moriarty & McNett, Indianapolis, Ind., for Spiro Bereveskos, Defendant-Appellant.

Anthony M. Radice, William, Brinks, Olds, Hofer, Gilson & Lione, Chicago, Ill., for Plaintiffs-Appellees.

Before CUMMINGS and FLAUM, Circuit Judges and FAIRCHILD, Senior Circuit Judge.

FLAUM, Circuit Judge.

Charles Christianson and his company, International Trade Services (together hereinafter referred to as "Christianson"), filed a two-count complaint against Colt Industries Operating Corp. ("Colt") alleging, in Count I, that Colt had illegally monopolized the market in M-16 parts and had successfully organized a group boycott of Christianson, an M-16 parts supplier, in violation of Sections 1 and 2 of the Sherman Act and Sections 4 and 16 of the Clayton Act. Count II alleged that Colt had tortiously interfered, under Illinois law, with Christianson's business opportunities.

Colt has defended the suit by claiming that any actions it took were justified by its interest in not divulging the information which would permit the parts to be used commercially in connection with the M-16, information which it claims was subject to state trade secret law protection. Colt also counterclaimed against Christianson, who was a former Colt employee, alleging breach of contract and a variety of other state and federal law trade violations based on Colt's proprietary interests in the parts. Christianson countered Colt's defense, and its counterclaims, by alleging that Colt no longer had any proprietary interest in the parts at issue since the patents on the parts had expired and Colt had no protectible trade secrets in the parts. According to Christianson, Colt could not claim any trade secret protection relating to the parts because the information Colt claimed to be subject to trade secret protection should have been included in Colt's patent disclosures for the parts. Specifically, Christianson alleged that Colt should have included the specifications and tolerances that would permit those parts to be interchangeable with all of the other M-16s ever produced. ¹ Alternatively, Christianson's complaint alleges that Colt lost its proprietary interests in the parts when it granted Christianson permission to sell the parts in 1976.

Both sides filed motions for partial summary judgment. Christianson moved for a declaration that Colt's trade secrets were invalid because those secrets--the specifications and tolerances for interchangeability--should have been disclosed in the patent applications and also moved for judgment in its favor on the tortious interference count. Colt asked for a declaration that its patent disclosures were adequate and also asked for dismissal of count II, the tortious interference count.

The district court agreed that the patents were invalid for nondisclosure. The court then found, based solely on its finding of patent invalidity, that Colt had no protectible trade secrets in the parts and granted Christianson's motion for partial summary judgment and denied Colt's motion. The district court also, sua sponte, entered summary judgment for Christianson on both counts of the complaint.

Colt appealed the district court's decision to the Court of Appeals for the Federal Circuit, touching off a jurisdictional exchange between the Federal Circuit and the Seventh Circuit. The Supreme Court eventually settled the jurisdictional dispute by holding that the Seventh Circuit is the proper forum for Colt's appeal. Christianson v. Colt Industries Operating Corp., --- U.S. ----, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988). Finally reaching the merits of this appeal, we reverse the district court's grant of summary judgment, find that summary judgment should be entered for Colt on the issue of the adequacy of Colt's patent disclosures, and remand for further proceedings.

I.

The basic patents which protect the M-16 were first issued to the Armalite Division of Fairchild Hiller Corporation for its "AR-10" and "AR-15" rifles. In 1959, Colt received a license from Fairchild to develop those patents and, by 1962, had successfully developed a mass-production rifle. Shortly thereafter, the United States Army adopted that rifle as its principal battlefield rifle and designated it the M-16.

Over time, Colt made improvements to various parts of the rifle and patented those improvements, although it did not always use the improvements in actual production of the rifle. Christianson contends that nine of those improvement patents, ² five of which actually found their way into production, were invalid from conception because they failed to divulge the requisite information regarding their manufacture and use.

Charles Christianson, a former Colt employee, formed International Trade Services ("ITS") and went into business selling replacement parts for the M-16. These parts were obtained from Colt's suppliers, all of whom had previously agreed with Colt not to supply anyone other than Colt or Colt's licensees. ³ In 1976, Christianson received permission from Colt to sell replacement parts, but the parties strongly disagree about whether that permission was of a continuing or a limited nature.

Springfield Armory ("Springfield"), an Illinois corporation, also entered into the business of selling M-16 replacement parts. Those replacement parts were manufactured within tolerances permitting interchangeability of the parts with existing M-16 rifles. Colt became aware of Springfield's endeavors and, in August 1983, commenced an action based on misappropriation of trade secrets and patent infringement seeking to enjoin Springfield's activities. Springfield denied that it had misappropriated Colt's trade secrets in the specifications and tolerances necessary to make the replacement parts interchangeable with existing M-16 rifles claiming instead that it had "reverse engineered" ⁴ the parts. Colt contended that to reverse engineer the parts so as to make them interchangeable with every M-16 ever produced would be a "massive task" and thus the information had to have been taken from Colt's proprietary drawings. The district court agreed with Colt and granted a preliminary injunction against Springfield. Colt sent letters to its suppliers informing them of the result and reminding them of their contractual obligation to refrain from selling M-16 parts to anyone other than Colt or Colt's licensees.

In the course of discovery in the Springfield case, Colt learned that Christianson had been among those who supplied Springfield with M-16 parts. Colt joined Christianson and ITS as defendants in the case but, after failing to receive a preliminary injunction against them, voluntarily dismissed them from the case.

Shortly after that dismissal, on May 14, 1984, Christianson filed the instant suit against Colt claiming that Colt's actions in protecting its alleged trade secrets violated Sections 1 and 2 of the Sherman Act and Sections 4 and 16 of the Clayton Act. Although the complaint was inartfully drawn, it apparently alleged that Colt--through its restrictive agreements with suppliers, the bad faith joinder of Christianson in the Springfield case, the letters Colt subsequently sent to suppliers informing them of the outcome of the Springfield case, and other specified and unspecified conduct--had monopolized the market for M-16 replacement parts and had organized a group boycott against Christianson. Christianson later added a second count alleging a state law claim of tortious interference with Christianson's business opportunities. Colt answered the complaint by denying that the actions it took to protect its trade secrets violated either the antitrust laws or the state laws against tortious interference and also cross-claimed against Christianson alleging tortious interference with its own business opportunities as well as various other trade practice violations by Christianson. Christianson countered that defense by asserting that Colt had no valid trade secrets to defend because the information alleged to be secret should have been disclosed in Colt's patent disclosures for the improvement parts in question.

Both sides filed motions for partial summary judgment. Christianson moved that Colt's trade secrets be declared invalid and asked for summary judgment on its tortious interference claim and two of Colt's counterclaims that were premised on the alleged trade secrets. Colt, in its cross-motion for summary judgment, asked the court to find that its patent disclosures were sufficient, and further asked that Christianson's tortious interference claim be dismissed.

The district court granted summary judgment for Christianson, not only as to trade secret invalidity and tortious interference, but as to all counts of the complaint. The court found that Colt's patents in the improvements at issue were invalid for failure to meet both the enablement and best mode requirements for patent validity found in 35 U.S.C. Sec. 112. ⁵ According to the district court, the patents failed to meet the enablement requirement because, given the information contained in the patents, it would still be a massive undertaking to construct the inventions so that they would be interchangeable in the M-16. Christianson v. Colt Industries Operating Corp., 609 F.Supp. 1174, 1178-79 (C.D. Ill.1985). Moreover, the court found no evidence demonstrating that the patent disclosures were sufficient to permit one skilled in the art to make the inventions for use in any rifle. Id. at 1179.

The district court also held that the patents failed to meet the best mode requirement of Sec. 112. The court believed that, given the...