Composite Marine Propellers, Inc. v. Van Der Woude

• Decision Date: 28 May 1992
• Docket Number: Nos. 91-1724,91-1813,s. 91-1724
• Citation: 962 F.2d 1263,22 USPQ2d 1568
• Parties: COMPOSITE MARINE PROPELLERS, INC., Plaintiff-Appellee, Cross-Appellant, v. Gerbrig VAN DER WOUDE, et al., Defendants-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1263

962 F.2d 1263

22 U.S.P.Q.2d 1568

COMPOSITE MARINE PROPELLERS, INC., Plaintiff-Appellee, Cross-Appellant, v. Gerbrig VAN DER WOUDE, et al., Defendants-Appellants, Cross-Appellees.

Nos. 91-1724, 91-1813.

United States Court of Appeals Seventh Circuit.

Argued Oct. 30, 1991.

Decided May 4, 1992.

Rehearing and Rehearing En Banc Denied May 28, 1992.

Douglas R. Dalgleish (argued), Daniel M. Dibble, Thomas S. Stewart, Lathrop, Norquist & Miller, Kansas City, Mo., John L. Vratil, William G. Howard, Lathrop, Koontz & Norquist, Overland Park, Kan., for plaintiff-appellee.

John V. Patton, Bozeman, Neighbour, Patton & Noe, Moline, Ill., Keith V. Rockey (argued), Rockey & Rifkin, Chicago, Ill., for defendants-appellants Gerbrig Van Der Woude, Charles H. Whitmore, Vanderwoude Plastics Corporations, Advanced Plastics Partnership, Advanced Plastics Technology, Ltd., T.S. Moore & Associates, Inc. and Paul F. Lancour.

Before EASTERBROOK, RIPPLE, and KANNE, Circuit Judges.

PER CURIAM.

Composite Marine Propellers, Inc. (CMP) designed and sold marine propellers made of a metal-plastic composite. Injection Structural Plastics, Ltd. (ISPL) was its principal supplier. ISPL signed a contract promising not to compete with CMP and to refrain from using CMP's trade secrets, and to obtain similar pledges from its employees. ISPL did not, however, obtain no-competition promises from its workers, and CMP did not check to see what steps ISPL had taken to protect its intellectual property.

Several of ISPL's key employees quit and set up their own corporation, which began to make marine propellers out of plastic, without the metal hubs of CMP's propellers. Gerbrig Van Der Woude obtained a patent covering an all-plastic propeller. CMP has not challenged in this litigation the validity of this patent, and Van Der Woude has filed a separate suit charging CMP with infringement. Nonetheless, CMP contends in this diversity litigation that defendants are using its trade secrets in making and selling the patented propeller--and that even if they are not, they should be barred from competition because of the CMP-ISPL contract. CMP also argued that ISPL's employees were bound by common law principles of fiduciary duty and unfair competition not to become its business rivals.

The district judge granted judgment to the defendants on CMP's claims based on express and implied contract. A jury returned a verdict in CMP's favor and awarded compensatory damages of $98,000 plus a total of $225,000 in punitive damages on the remaining claims. The district court granted judgment notwithstanding the verdict to Paul F. Lancour on the punitive damages question but entered judgment on the remainder of the verdict. Everyone appeals.

I

The district court dismissed all claims based on the CMP-ISPL contract because ISPL is not a party. ISPL is the only entity in a contractual relation with CMP. The duties of the defendants ran to ISPL (their employer) and not to CMP. Illinois, whose law governs this case, respects the corporate form. Sea-Land Services, Inc. v. Pepper Source, 941 F.2d 519 (7th Cir.1991) (discussing Illinois law). CMP and Cray well knew that they were dealing with ISPL and not with its owners or employees. Corporate obligations do not attach to a firm's investors or employees.

Claims based on unfair competition and breach of fiduciary duty stand or fall with those based on contract. Like other states Illinois allows competition between a departing employee and his former employer in the absence of a contractual promise to refrain from such competition. Radiac Abrasives, Inc. v. Diamond Technology, Inc., 177 Ill.App.3d 628, 636-37, 126 Ill.Dec. 743, 748, 532 N.E.2d 428, 433 (2d Dist.1988). A person free to compete against his ex-master may compete against the master's customers too. None of the defendants promised to refrain from competition with either ISPL or CMP. "Fiduciary duty" adds nothing, because there is no basis for such a duty other than the contract. ISPL may be liable to CMP for inadequate diligence in protecting CMP's interests, and may have remedies against the departing employees, but ISPL is not a party. CMP essentially wanted the district court to pierce ISPL's corporate form and treat its obligations as running directly from ISPL's employees to CMP. The district court properly rejected that request, for reasons with which we agree (and on which we therefore do not elaborate further).

One ground other than the CMP-ISPL contract might supply a footing for unfair competition and fiduciary duty claims: defendants' use of CMP's secret information. Yet Illinois has abolished all common law theories of misuse of such information. Ill.Rev.Stat. ch. 140 p 358(a). Unless defendants misappropriated a (statutory) trade secret, they did no legal wrong. We therefore turn to CMP's claim under the statute.

II

The district judge submitted to the jury eight possible trade secrets that the defendants might have appropriated. The jury returned a general verdict, so if the evidence supports any one of them, the verdict must be sustained. Cf. Griffin v. United States, --- U.S. ----, 112 S.Ct. 466, 116 L.Ed.2d 371 (1991). We take the evidence together with all reasonable inferences in the light most favorable to CMP. Indeed, we shall take the evidence according to the testimony of Thomas Cray, CMP's founder and guiding light. Despite giving CMP the benefit of all inferences, we conclude that the evidence does not establish that defendants used any of CMP's trade secrets.

Briefly, the eight pieces of information that CMP contends are secret, and appropriated by the defendants, are: (1) propeller blade flex; (2) marketing plans and strategies; (3) gas counter backpressure in molding; (4) water line configuration in the molds; (5) hub cooling methods in molding; (6) secondary sprue trimming; (7) material characteristics; (8) test data. Nothing turns on whether we call these "trade secrets" or, as CMP prefers, "trade secret, proprietary or confidential information." For simplicity we use "trade secret." No matter what the name, CMP must establish that these pieces of information were (i) secret (that is, not generally known in the industry), (ii) misappropriated (that is, stolen from it rather than developed independently or obtained from a third source), and (iii) used in the defendants' business. Ill.Rev.Stat. ch. 140 p 352(d) (Uniform Trade Secrets Act definition of trade secret); American Antenna Corp. v. Amperex Electronic Corp., 190 Ill.App.3d 535, 538, 137 Ill.Dec. 417, 420, 546 N.E.2d 41, 44 (2d Dist.1989) (defining misappropriation); Service Centers of Chicago, Inc. v. Minogue, 180 Ill.App.3d 447, 453, 129 Ill.Dec. 367, 371, 535 N.E.2d 1132, 1136 (1st Dist.1989) (defining secrecy). It is not enough to point to broad areas of technology and assert that something there must have been secret and misappropriated. The plaintiff must show concrete secrets. AMP Inc. v. Fleischhacker, 823 F.2d 1199, 1203 (7th Cir.1987) (Illinois law).

Specificity is especially important when a defendant holds a patent on the product, as Van Der Woude does for the all-plastic propeller. It would substantially diminish the scope of patent protection to allow an award of damages for making and selling a product on which you have a patent, just because of vague overlaps between the patented product and another firm's technology. As we shall see, CMP's claims are of an exceedingly general sort. We take them one by one.

1. Propeller blade flex: The efficiency with which a propeller translates energy from rotation to propulsion depends in part on the degree to which it bends under pressure. CMP was originally called Flextech because the designer of its propeller believed that additional flex was beneficial. Cray undertook research and discovered that the old blades not only did not bend the amount they were supposed to do, but also that the design called for too much flex, which CMP reduced. Cray testified that the optimal degree of flex, discovered by dint of this research, is CMP's trade secret. The jury was entitled to credit Cray's submission that the flex of a CMP propeller is a valuable secret of CMP. We could not find in the record, however, any evidence that defendants used this knowledge. It is undisputed that the patented Van Der Woude propeller (which defendants market as the "Phantom") uses a flex that differs from CMP's products.

CMP could have replied (a) that defendants learned from CMP's experiments just which differences would be improvements, or (b) that the differences in flex between the propellers were not important--for example, that the optimal flex is some number plus or minus a tolerance, and that defendants' products fall within that tolerance. CMP's brief does not make either of these claims. Although CMP says that the Phantom propeller was "similarly designed to have a very low degree of flex", CMP does not specify the optimal flex, identify a range that the trade secret occupies, or show that the Phantom comes within such a range. Our independent review of the record did not turn up any evidence for proposition (a) or (b). We therefore hold that although the record supports a conclusion that the flex of CMP's product is CMP's trade secret, it does not permit a conclusion that defendants used this information in making their Phantom propeller.

2. Marketing plans and strategies: CMP contended that its marketing channels, plus its choice of a line of products, are confidential business information. Both CMP's brief in this court and Cray's testimony at trial are vague about the nature of these secrets. Cray does not accuse defendants of making off with customer lists, the usual focus of claims of this flavor. Instead Cray concentrated on CMP's decisions about appropriate products to make. Surely, however, CMP cannot mean that the idea of making marine propellers and selling them through the usual channels in the boating...