Eaton Corp. v. Appliance Valves Corp.

• Decision Date: 30 April 1986
• Docket Number: No. 85-2406,85-2406
• Citation: 790 F.2d 874,229 U.S.P.Q. 668
• Parties: , 229 U.S.P.Q. 668 EATON CORPORATION, Appellant, v. APPLIANCE VALVES CORPORATION, Thomas R. Krzewina, William R. Donahue, Jr., David F. Miller, and Design & Manufacturing Corporation, Appellees. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 874

790 F.2d 874

54 USLW 2627, 229 U.S.P.Q. 668

EATON CORPORATION, Appellant, v. APPLIANCE VALVES CORPORATION, Thomas R. Krzewina, William R Donahue, Jr., David F. Miller, and Design &amp Manufacturing Corporation, Appellees.

Appeal No. 85-2406.

United States Court of Appeals Federal Circuit.

April 30, 1986.

Christopher B. Fagan, Fay, Sharpe, Fagan, Minnich & McKee, Cleveland, Ohio, argued for appellant.

David M. Mattingly, Ice Miller Donadio & Ryan, Indianapolis, Ind., Albert E. Strasser, Frost & Jacobs, Cincinnati, Ohio, and Joseph T. Bumbleburg, Ball Eggleston Bumbleburg & McBride, Lafayette, Ind., argued, for appellees. With them on brief were Michael A. Wukmer, Ice Miller Donadio & Ryan, Indianapolis, Ind., Thomas W. Eggleston, Ball Eggleston, Bumbleburg & McBride, Lafayette, Ind. and Peter D. Shaw, Shaw & Wilhote, Connerville, Ind.

Before MARKEY, Chief Judge, COWEN, Senior Circuit Judge, and ARCHER, Circuit Judge.

MARKEY, Chief Judge.

Eaton Corporation (Eaton) appeals from a judgment of the United States District Court for the Northern District of Indiana, ¹ holding its counts of misappropriation, breach of employment contract, breach of fiduciary duties, unfair trade practices, and interference with contractual relationships, unsupported by the evidence, and holding its United States Patent No. 4,387,878 to Zukausky ('878 patent) invalid for obviousness and not infringed. We affirm.

Background

1. Prior Proceedings

For a detailed description of the relationship of the parties, see the published opinion of the district court after the hearing on Eaton's motion for preliminary injunction in this case. Eaton Corp. v. Appliance Valves Corp., 526 F.Supp. 1172, 217 USPQ 371 (N.D.Ind.1981), aff'd, 688 F.2d 842 (7th Cir.1982).

Briefly, defendants Krzewina, a sales engineer, and Donohue, a supervisory engineer, both left employment with Eaton in November, 1980, to form Appliance Valves Corporation (AVC), a defendant here.

In mid-1981, Eaton sued all three defendants in federal court because of diversity. Eaton's complaint contained three state law counts: 1) misappropriation of trade secrets; 2) breach of contract not to disclose trade secrets; and 3) conspiracy to misappropriate trade secrets.

The district court denied Eaton's motion for preliminary injunction and Eaton appealed. The United States Court of Appeals for the Seventh Circuit, in an unpublished opinion, affirmed the denial of the injunction and remanded for further proceedings.

Eaton was granted leave to file an amended complaint, in which it added defendants Design & Manufacturing Corp. and David F. Miller, and added counts: 4) breach of fiduciary duty of loyalty and fidelity; 5) unfair competition; 6) conspiracy to misappropriate confidential information; 7) alleged interference with contractual relations; and 8) patent infringement. ² Defendants-appellees (collectively AVC) denied the allegations and asserted that the patent was invalid for, inter alia, obviousness under 35 U.S.C. Sec. 103. ³

The district court held for AVC on all issues. With respect to breach of fiduciary duties, the court stated that

[t]he proofs actually offered on this subject fall short of the mark under the authorities cited [in the Seventh Circuit opinion] and other cases cited.... The conduct of Krzewina and Donahue while not puristically ideal falls far short of the kind of egregious conduct found in [ABC Trans National Transport, Inc. v. Aeronautics Forwarders, Inc., 62 Ill.App.3d 671, , 379 N.E.2d 1228 (1st Dist.1978) ].... There is a simple failure of proof on this issue.

634 F.Supp. at 983-84.

Regarding misappropriation of trade secrets and confidential information, the court concluded:

The additional evidence presented at trial demonstrates that all Donahue removed from the Eaton files were clean copies of patents, i.e., patent information readily available to the public. Moreover, the actual copies of the patents delivered to [one of defendants' attorneys] for evaluation are devoid of Eaton notations or Eaton summaries for five years and the notes on the patents were not made from Eaton files. This evidence simply does not support Eaton's allegation that Donahue inspected and copied patent materials from ... Eaton.

At 984. Moreover, the court concluded that the substantial similarity between Eaton's and AVC's valves was not remarkable and was attributable to the crowded nature of the art and the necessity for applying industry standards to all valves.

On patent validity, the district court found that although the '878 patent claims 1-3 " 'reads on' the Ostrowski patent disclosure and the Singer valve," 634 F.Supp. at 981, it declined to find that "the Ostrowski ... patent fits squarely and unequivocally into a Sec. 102 mold." At 988. However, the court held that AVC carried its burden of proving facts requiring a conclusion that the Zukausky invention would have been obvious from the prior art.

The district court heard extensive testimony on infringement, specifically crediting the testimony of two defense witnesses, and concluded that no valve falling within the ambit of the '878 patent claims was made, used, or sold by AVC after the issuance of the '878 patent. At 634 F.Supp. at 989-90.

On appeal, Eaton challenges each aspect of the judgment, asserting inter alia that reversal is required because the district court refused to draw an inference from a destruction of documents, and because the district court admitted into evidence a reference not noticed in accord with 35 U.S.C. Sec. 282, third paragraph.

ISSUES

1) Whether the district court erred in concluding that a destruction of documents was harmless; and 2) whether the district court abused its discretion in admitting into evidence a prior art reference not explicitly noticed under 35 U.S.C. Sec. 282.

OPINION ⁴

Introduction

Eaton's briefs reflect a total misunderstanding of the appellate process. The district court entered a 10-page set of Findings and Conclusions in denying Eaton's motion for a preliminary injunction. Following trial, the court entered a 38-page Memorandum and Order containing its Findings and Conclusions supported by detailed discussion of the evidence and of the court's reasoning. Eaton's briefs quote carefully edited portions of the testimony, distort and misinterpret testimony, and make assertions of fact on which no evidence was presented at trial. ⁵ Eaton asks this court to disbelieve AVC's witnesses and to reweigh the evidence. Indeed, Eaton's briefs expressly request this court to make nine fact findings set forth in those briefs. Finally, Eaton requests that this court issue an injunction.

Thus, Eaton's briefs reflect the notion that an appeal is a second chance to try the case. That approach is both wrong and wasteful of judicial resources. Eaton's appeal escapes frivolity only because it raises the two issues listed above, which are of first impression in this court. Though, as we shall see, Eaton fails to show error or abuse of discretion in relation to those issues, the absence of precedent in this court on those issues is sufficient to preclude our considering the appeal entirely frivolous.

The two issues of first impression are discussed below. It is not necessary to discuss any of the many other issues raised in Eaton's briefs. With respect to those issues, we affirm on the basis of the district court's Memorandum and Order of May 3, 1985.

(1) Destruction of Documents During Discovery

The trial court correctly determined that Eaton did not carry its burden on the trade secret or confidential counts, because it did not prove that the property allegedly misappropriated was protectable either as a trade secret or as confidential. However, Eaton argues on appeal that AVC's destruction of documents raises an inference of guilt not overcome in this case by AVC.

The destruction of one or more documents was first brought to light by AVC's own counsel. In a September 16, 1981, letter to Eaton's counsel, AVC's counsel stated after some introductory remarks:

As you know, the original of the January 23, 1980 quotations to Design & Manufacturing Corporation by Circle Plastics Products, Inc. [ (a potential manufacturer of the AVC valves) ] were produced by Defendant Appliance Valves Corporation at the deposition of Thomas Krzewina on July 30, 1981, and were identified as Exhibit 13, pages 20 and 21. Copies of these documents in the Circle Plastics Products, Inc. file were improperly destroyed at the request of David Miller. Exhibit 98, which was produced at the time of the deposition of Dale Minor ... was a created document which Circle Plastics Products, Inc. placed in its files. The destruction and creation was done without knowledge of counsel for Defendants.

The district court noted the incident in its opinion, having also been informed by AVC's counsel on September 16, 1981, and did not consider the document destruction dispositive on the issue of liability.

The law with respect to inferences to be drawn from a party's act of spoliation was enunciated in S.C. Johnson & Son, Inc. v. Louisville & Nashville Railroad Co., 695 F.2d 253, 258-59 (7th Cir.1982). See A.C. Becken Co. v. Gemex Corp., 314 F.2d 839, 841 (7th Cir.), cert. denied, 375 U.S. 816, 84 S.Ct. 68, 11 L.Ed.2d 51 (1963). Eaton points out that the test is whether the court could draw "from the fact that a party has destroyed evidence that the party did so in bad faith." 695 F.2d at 258. If a court finds that both conditions precedent, evidence destruction and bad faith, are met, it may then infer that the evidence would be unfavorable to the destroying party if introduced in court. However, Eaton fails to recognize that this test can not apply in the present case, where the evidence destroyed had been produced.

Eaton argues vigorously that intentional destruction of evidence mandates reversal, but we are satisfied that the trial court reasonably determined that the effect of the...