Drill Parts & Service Co., Inc. v. Joy Mfg. Co.
| Decision Date | 23 September 1983 |
| Citation | 439 So.2d 43 |
| Court | Alabama Supreme Court |
| Parties | DRILL PARTS & SERVICE COMPANY, INC., on its own behalf and on behalf of its agents, servants, and employees, and Carlton Montgomery v. JOY MANUFACTURING COMPANY. 82-265. |
Charles Cleveland of Gordon, Silberman, Loeb, Cleveland & Gordon and Frederick A. Erben of Beddow, Fullan & Vowell, Birmingham, for appellants.
Jasper P. Juliano and William J. McDaniel of McDaniel, Hall, Parsons, Conerly, Scott & Lusk, Birmingham, for appellee.
This is a case of first impression. There are basically three major issues to be addressed: whether Alabama recognizes the trade secrets doctrine, the scope of the doctrine, and what is the appropriate standard of appellate review when a preliminary injunction has been issued which prohibits the use of a trade secret. We hold that Alabama does recognize the doctrine, and affirm.
The essential facts are as follows:
Robbins, Inc. began manufacturing rotary drilling equipment (the subject matter of the trade secret) in the early 1950's. In 1971, Joy Manufacturing Company (hereafter Joy) purchased the assets of Robbins, Inc. and established the Robbins Division of Joy. These "Robbins Drills" are mounted on wheels or crawlers and are used to drill holes in the earth for the placement of explosives. The construction and mining industries are the primary customers for the drills. There are nine models which range in price from $150,000 to $1,000,000. There are several thousand parts for each drill, some of which are standard and can be purchased from over one hundred suppliers and some of which are specifically designed and manufactured by the Robbins Division for the drills. Joy sells both types of replacement parts to its customers. There are several companies competing with Joy which sell replacement parts for Robbins Drills. The defendant Drill Parts and Service Company, Inc. (hereafter Drill Parts) is one of these competing companies and defendant Carlton Montgomery is its president. Drill Parts' primary business and income is from the sale of these parts. Montgomery worked for Joy as a salesman from 1972 until 1977, when he left Joy to form Drill Parts.
The evidence from which the trial court could have made its findings to support the issuance of an injunction are as follows: Before manufacture of the drills can begin, Joy's engineers design the drills and make an engineering drawing for each part used in the drill. The drawings of the specially manufactured parts are detailed and contain technical data such as allowable tolerances, metal to be used, the heat treatment to be applied, etc. Testimony was offered to show that it takes approximately two years to develop and design a new model drill from the initial design concepts to the finished model. The evidence further indicated that ten to twenty thousand engineering man-hours go into the design and development of a drill model. Testimony was offered to show that much of the information contained in the drawings could not be obtained by "reverse engineering," that is from the study of an actual part. For example, tolerances could not be determined by merely measuring the dimensions of an individual part. The establishment of tolerances for a particular part is a function of the tolerances, heat treatment, metal, etc. of other parts with which the part comes in contact. Testimony was also offered to show that Drill Parts had no engineers in its employ who were capable of reverse engineering. The only testimony about the possibility of reverse engineering was by one Bannister, a subcontractor of Joy, who had manufactured parts for Drill Parts by using the drawings of Joy. The evidence was in dispute as to whether Joy actually had knowledge of Drill Parts' use of the drawings. There is no dispute that Joy did not give express consent to Drill Parts for the use of the drawings.
In addition to technical data, each drawing contains a legend which reads:
The evidence was in dispute as to security procedures used by Joy to prevent the drawings from being published to competitors. It was not disputed that Joy has a paper shredder in the offices where the designs are made and that subcontracts have been made by Joy with approximately ten different machine shops to manufacture various parts of drills, using drawings supplied by Joy. Copies of the drawings are sent to the subcontractors who submit bids to Joy to manufacture the parts. Joy has dealt with each of these shops for several years. After a bid is accepted by Joy, a purchase order is sent to the subcontractor machine shop. On each purchase order, the following is printed:
The same subcontractor (Bannister) who had manufactured Robbins drill parts for the defendant, using Joy's drawings without express consent, and who testified about the possibility of reverse engineering, also testified about an incident in 1978 wherein Montgomery, president of Drill Parts, obtained many copies of Joy drawings used by the subcontractor. The subcontractor (Bannister) telephoned Joy and informed agents of Joy, and asked permission to discard many drawings he was no longer using. According to the testimony, Montgomery, whose offices are directly across the street from the subcontractor, later observed the drawings in a trash bin outside the building and asked the subcontractor if he could remove them. The subcontractor testified that he gave his permission without consulting Joy.
In addition to getting the drawings, Montgomery had an arrangement whereby he received scrap from Joy's machine shop. Joy had a contract with a scrap dealer to dispose of metal refuse from the manufacture of machine parts. This included such things as metal shavings, parts improperly machined and other discarded metal products. There was testimony that paper material was often discarded along with the metal scrap. The scrap dealer did not know what was on the papers. Joy did not know of this agreement between the scrap dealer and Montgomery to sell Montgomery this scrap.
In addition to using the drawings in manufacturing, Montgomery also, on October 19, 1982, sold sixty-four copies of engineering drawings of Robbins drills to an undercover police officer for $18,000 cash. Several of the drawings had paper flaps taped over the restrictive language. The Birmingham police officer was assigned to the Leviticus project, a seven-state cooperative of police departments investigating industrial espionage in the coal industry. This officer had contacted Montgomery in the middle of 1982 after an investigation was begun on Drill Parts. Using an assumed name, the officer informed Montgomery that he wished to purchase plans for the manufacture of replacement parts to Robbins drills to be sold in Mexico. On October 18, 1982, the officer and Montgomery met at the Airport Inn and exchanged the money for the drawings. During these conversations, Montgomery admonished the officer not to disclose the source of the drawings to anyone. After the exchange, Montgomery was placed under arrest. No criminal charges had been brought against Montgomery as a result of that incident as of the time of trial of this case.
The plaintiff, Joy, brought suit on November 1, 1982, alleging that its engineering design technology as embodied in its engineering drawings had been improperly obtained and used by Montgomery and Drill Parts and requested the trial court to enjoin the defendants from further use of the drawings. A hearing was held on November 22, 1982, and on December 2, 1982, the trial judge entered an order finding the engineering drawings were "confidential, trade secrets and proprietary items of property owned by Joy" and enjoined the defendants as follows:
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