Electro-Craft Corp. v. Controlled Motion
| Decision Date | 06 July 1983 |
| Docket Number | C0-81-1188.,No. C7-81-894,C7-81-894 |
| Parties | ELECTRO-CRAFT CORPORATION, Respondent, v. CONTROLLED MOTION, INC., et al., Appellants. |
| Court | Minnesota Supreme Court |
Maun, Green, Hayes, Simon, Johnanneson & Brehl, Richard D. Donohoo and Garrett E. Mulrooney, St. Paul, for appellants.
Leonard, Street & Deinard, Harold D. Field, Jr., and Michael A. Nekich, Minneapolis, for respondent.
Heard, considered and decided by the court en banc.
Respondent Electro-Craft Corporation ("ECC") sued appellants Controlled Motion, Inc. ("CMI") and CMI's president, John Mahoney, (a former employee of ECC) for misappropriation of trade secrets. ECC claimed that CMI and Mahoney improperly copied the designs of ECC's electric motors. The district court found that misappropriation had occurred and also found appellants in contempt for violating a temporary restraining order. We reverse the order for judgment based on misappropriation and affirm the order finding appellants in contempt.
ECC, a Minnesota corporation, manufactures D.C. iron core motors, moving coil motors, brushless motors, and other products. ECC has four plants, three of which manufacture motors and motor parts. The total employment of those three plants is around 500.
CMI is a Minnesota corporation which manufactures moving coil motors. John Mahoney is the president and founder of CMI. Mahoney was formerly national sales manager for ECC. While at ECC, Mahoney established ECC's customer relationships with Storage Technology Company and IBM, customers for the motors involved in this lawsuit.
ECC and CMI manufacture high performance D.C. motors, called "servo" motors, which are able to start and stop at least 30 times per second. These motors are useful for such high technology applications as computer disc drives and printers and industrial robots. In this action ECC claims misappropriation of trade secrets with respect to one moving coil motor and one brushless motor.
Moving coil motors, also known in some forms as shell-type armature motors or basket armature motors, represent a major development in high performance motors. In traditional D.C. motors, the rotor (moving component) consists of an iron core with wire wrapped around it in coils; the stator (stationary component) consists of permanent magnets, which create a magnetic field through the coils, causing motion when current is passed through the coils. In a moving coil D.C. motor, the coils of wire are not wrapped around a core to form the armature or rotor; the coils themselves form the armature. The wire coils are formed into a cylindrical basket which is made rigid by a combination of adhesives and other materials such as fiberglass. Since the moving part of the motor is a hollow shell, the inertia of the motor is reduced while the torque remains high. The motor may thus start and stop quickly without fighting as much inertia as is present in the iron core motors.
Working moving coil motors have been produced for many years. However, the early motors were low performance motors because of problems in making the coil structure rigid. These problems have been solved today because of developments in adhesives.
Iron core motors and moving coil motors, described above, use brushes and commutators to transmit current to the proper coils in the rotating armature. As the armature turns, different segments of the commutator (connected to different coils) come into contact with the stationary brush; thus, different coils receive current. These brush-type motors have two major disadvantages. First, these motors involve sliding contact between the brushes and the commutator; therefore, parts tend to wear out quickly, and some arcing occurs in the commutators, causing interference. Second, heat buildup is a problem in moving coil motors. The wires, which heat up as current is passed through them, are on the inside and surrounded by magnets, which trap the heat. Thus, moving coil motors must have a complex cooling system to draw away the heat.
Brushless motors solve these two problems by having the wire coils stationary on the outside, with the magnets mounted on the rotor. Thus, the heat can easily be drawn away from the coils on the outside. Furthermore, the coils do not move, so brushes are not required to transmit current, and no sliding contact exists to cause breakdowns. The brushless motor contains a sensing device to activate the proper coils to cause rotation. Brushless motors were developed more than 20 years ago for military and aerospace projects, but these were very expensive. Until six or seven years ago, the only commercial brushless motors were low performance models.
According to Mr. Edward Kelen, president of ECC, ECC was one of only three significant producers of small moving coil motors in 1980. Also, although seven companies produced brushless servo motors, ECC had more than half of the private sector domestic market. Motors made for the producer's own use and motors produced for military or foreign markets were not included in Kelen's evaluations, but it seems clear that ECC's share of the overall servo motor market is substantial. Moreover, Kelen testified that the total brushless motor market is growing rapidly; in five years (from 1980) it was projected to grow from two million dollars to fifty or sixty million dollars per year.
ECC began work on moving coil motors in 1966. At this time Honeywell had already applied for a patent on a moving coil motor. ECC began making primitive moving coil motors in 1967; ECC developed its 1030/1040 motor to meet the needs of users of a comparable Honeywell motor, the 33 V.M. The two motors are nearly identical, and Designer Erland Persson had a 33 Honeywell V.M. in his possession when he designed ECC's 1030/1040. Persson testified that he had problems with the adhesives and supporting materials for the 1030/1040 and that it took ECC from six to eight months to develop the armature for the motor.
About 1974, Robert Schept, Engineering Manager at ECC, designed the successful ECC 1600 moving coil motor. Schept studied various other motors on the market to try to determine the best combination of dimensions for the motor. Subsequently, Schept designed the 1125 moving coil motor for ECC. He did this by scaling down the ECC 1600 while keeping its performance basically the same. Schept testified that it took four to five months to design prototypes for the 1125 and around a year to start actual production. The 1125 is now used for a variety of applications; for each application ECC produces a different model 1125 with different dimensions. The model involved in this case is the XXXX-XX-XXX, designed for a specific computer system built by Storage Technology Co.
ECC's brushless motors are of more recent origin than that of ECC's moving coil motors. Nonetheless, a long process of trial and error, using new developments in technology and costing approximately two million dollars, has been involved in the development of workable models. ECC initially sent prototypes to several customers. Finally ECC worked with IBM to develop a prototype motor for an IBM printer. This model was a very successful enterprise for ECC, since ECC became the only known source of motors for the IBM project. For around five years, ECC has also been working with Ford Motor Company on a new application for ECC brushless motors. This application involves using larger ECC motors in automated assembly lines. ECC has produced several prototypes for Ford and hopes to begin production in 1983.
In May of 1980, John Mahoney, while employed by ECC, began to explore the possibility of starting his own business. Mahoney already had many contacts in the business, including people at Storage Technology and at IBM — ECC customers for the ECC XXXX-XX-XXX and brushless motors. Mahoney had also guided development of the IBM project and the Ford project. On June 12, 1980, Mahoney hired an attorney as counsel for the proposed new business, and counsel helped Mahoney prepare a prospectus which was circulated to prospective investors. Mahoney met with several prospective investors during June and July but apparently received no investments before August 1980.
The prospectus indicates that Mahoney proposed to compete with ECC in its IBM and Ford applications. Mahoney planned to complete prototypes for IBM in twelve weeks and obtain IBM approval in another week. Mahoney planned to try eventually to enter the market for the Ford systems. The prospectus projected revenues in the third month from sales of the prototype brushless motors but projected no research and development expenses for the first few months.
In June of 1980 Mahoney met with several of his fellow ECC employees about their joining the new business. On August 6, 1980, Mahoney resigned from ECC. Mahoney and ECC's president, Kelen, met briefly regarding trade secrets and Mahoney told Kelen not to worry. On September 16, 1980, four other ECC employees resigned in order to work for Mahoney's company, now called CMI. The four employees were:
(1) William Craighill, a mechanical engineer who worked with ECC on the design of the ECC 1125 and the brushless motor for IBM. Craighill had previously worked for Control Data Corporation. At Control Data, Craighill did not design D.C. electric motors but worked on systems which he testified were similar to D.C. electric motors.
(2) James West, previously Quality Assurance Manager at ECC for electric motors. West was acting plant manager at one ECC plant for six months.
(3) William Anderson, who had worked for ECC as a technician for about two years. Anderson now works for Honeywell.
(4) Lynn Klatt, Buyer's Assistant at ECC, who was familiar with ECC's vendors and with the parts used in ECC's motors.
All of these employees, as well as Mahoney, had signed confidentiality agreements1 when hired by ECC. None...
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