EW Bliss Company v. Struthers-Dunn, Inc.

• Decision Date: 02 May 1969
• Docket Number: No. 19458.,19458.
• Citation: 408 F.2d 1108
• Parties: E. W. BLISS COMPANY, Appellee, v. STRUTHERS-DUNN, INC., P. G. Bartlett, L. K. Clark, D. E. Henry and J. A. Dinges, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

408 F.2d 1108 (1969)

E. W. BLISS COMPANY, Appellee, v. STRUTHERS-DUNN, INC., P. G. Bartlett, L. K. Clark, D. E. Henry and J. A. Dinges, Appellants.

No. 19458.

United States Court of Appeals Eighth Circuit.

March 28, 1969.

Rehearing Denied May 2, 1969.

William D. Hall, Washington, D. C., for appellants; Max Putnam, Des Moines, Iowa, and Ellis Dickens, Davenport, Iowa, on the brief.

James H. Tilberry, of Meyer, Tilberry & Body, Cleveland, Ohio, for appellee; Robert B. Sundheim and H. D. Cooper, Cleveland, Ohio, and Richard M. McMahon, of Betty, Neuman, McMahon, Hellstron & Bittner, Davenport, Iowa, and Isador I. Katz, of Katz, McAndrews, Durkee & Telleen, Rock Island, Ill., on the brief.

Before VAN OOSTERHOUT, Chief Judge, MATTHES and BRIGHT, Circuit Judges.

BRIGHT, Circuit Judge.

Appellants-defendants Struthers-Dunn, Inc. ("Struthers"), P. G. Bartlett, L. K. Clark, D. E. Henry and J. A. Dinges appeal pursuant to 28 U.S.C. § 1292(a) (1) from the entry of a preliminary injunction in the United States District Court for the Southern District of Iowa. The facts are reported in the trial court's memorandum opinion, at 291 F.Supp. 391, and will be restated here only insofar as necessary.

Bartlett, Clark, Henry and Dinges are all former employees of the Eagle Signal Division ("Eagle") in Davenport, Iowa, a division of appellee-plaintiff E. W. Bliss Company.¹ Eagle is a manufacturer of traffic control systems, industrial timers, and components used in systems controlling manufacturing and other industrial processes. For the purpose of converting its mechanical or electro-mechanical control systems to "solid-state",² Eagle hired Bartlett, an engineer characterized in the record as a genius in the field of solid-state electronic engineering and Clark and Henry, both recent recipients of degrees in electrical engineering. The trial court found that, while at Eagle, each of these men and Dinges, who was employed as a salesman, gained experience in solid-state engineering and had knowledge of the product developments at Eagle.

In March of 1967, Bartlett, Clark, Henry and Dinges, dissatisfied with the wage and promotion policies at Eagle, discussed leaving Eagle to form a new company in the solid-state process control field. In June of the same year, they met with representatives of Struthers, which was engaged in manufacturing process control systems but had limited experience using solid-state components and circuitry, to discuss possible financing of the enterprise. After a series of meetings with Struthers, the individual defendants decided to work for Struthers in the field of solid-state engineering at a new Systems Division which Struthers would establish in Bettendorf, Iowa, a short distance from Davenport. Between October 10 and October 13, 1967, Bartlett, Clark, Henry and Dinges each submitted their resignations to Eagle. Struthers' Bettendorf plant opened on October 15, 1967.

On December 6, 1967, Bliss filed the present action seeking injunctive relief and alleging breach of contract³ and fiduciary duty by Bartlett, Clark, Henry and Dinges and unfair competition by all the defendants.⁴

After an ex parte hearing on December 7, 1967, the district court determined that there was a likelihood of wrongful disclosure of the trade secrets of Eagle and accordingly issued a temporary restraining order enjoining the unauthorized use of Eagle's trade secrets, the employment by Struthers of the individual defendants, and the operation by Struthers of a solid-state engineering division within five hundred miles of Davenport, Iowa. This order was modified on December 19, 1967, to restrain Struthers from employment of the individual defendants or establishment of a new facility only if such activity would be "involving" the alleged trade secrets of Eagle. The order was continued in this form until September 18, 1968, when the district court entered a preliminary injunction from which this appeal is taken.⁵

The parties do not contest the trial court's finding that Iowa law controls on the question of breach of contract and fiduciary duty.

Initially, we note that in Sandlin v. Johnson, 141 F.2d 660 (8th Cir. 1944), this Court recognized and approved the general rule that a trade secret consists of any formula, pattern, device or compilation of information which is used in one's business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. See also, Restatement, Torts, § 757. The essential elements of a cause of action for appropriation of a trade secret are (1) existence of a trade secret, (2) acquisition of the secret as a result of a confidential relationship, and (3) unauthorized use of the secret. Venn v. Goedert, 319 F.2d 812, 815 (8th Cir. 1963); Sandlin v. Johnson, supra; Restatement, Torts, § 757. In general, the essence of the wrong is the obtaining of unjust enrichment and unfair competitive advantage through inequitable conduct. Servo Corp. of America v. General Electric Co., 393 F.2d 551, 555 (4th Cir. 1968); Atlantic Wool Combing Co. v. Norfolk Mills, Inc., 357 F.2d 866, 869 (1st Cir. 1966). It is well settled that an injunction may issue to prevent the unauthorized disclosure and use of trade secrets. See, for example, Imperial Chemical Industries, Ltd. v. National Distillers & Chemical Corp., 354 F.2d 459, 19 A.L.R.3d 492 (2nd Cir. 1965); Winston Research Corp. v. Minnesota Mining & Mfg. Co., 350 F.2d 134 (9th Cir. 1965); Sandlin v. Johnson, supra. This protection given to trade secrets is a shield, sanctioned by the courts, for the preservation of trust in confidential relationships; it is not a sword to be used by employers to retain employees by the threat of rendering them substantially unemployable in the field of their experience should they decide to resign. This shield is not a substitute for an agreement by the employee not to compete with his employer after the termination of employment. Basically, an employer may not restrict an employee's future employment except by an agreement embodying reasonable terms. See, for example, the opinion of Judge Learned Hand in Harley & Lund Corp. v. Murray Rubber Co., 31 F.2d 932, 934 (2nd Cir. 1929). See also, Orkin Exterminating Co. v. Burnett, 259 Iowa 1218, 146 N.W.2d 320 (1966); Baker v. Starkey, 259 Iowa 480, 144 N.W.2d 889 (1966); Mutual Loan Co. v. Pierce, 245 Iowa 1051, 65 N.W.2d 405 (1954); Universal Loan Corp. v. Jacobson, 212 Iowa 1088, 237 N.W. 436 (1931).

In the present case, there is no agreement not to compete nor is there a contract for a specific term of employment. Compare, Orkin Exterminating Co. v. Burnett, supra; Baker v. Starkey, supra. Accordingly, Bartlett, Clark, Henry and Dinges were entitled to resign from Eagle's employ for a good reason, a bad reason, or no reason at all, and are entitled to pursue their chosen field of endeavor in direct competition with Eagle so long as there is no breach of a confidential relationship with Eagle. Baker v. Starkey, supra, 144 N.W.2d at 897;⁶ Mutual Loan Co. v. Pierce, supra, 65 N.W.2d at 408; Universal Loan Corp. v. Jacobson, supra. See, Brecher v. Brown, 235 Iowa 627, 17 N.W.2d 377 (1945); H. W. Gossard Co. v. Crosby, 132 Iowa 155, 109 N.W. 483, 6 L.R.A., N.S., 1115 (1906).

It is clear that the granting or denial of a preliminary injunction is properly a matter within the sound discretion of the trial court and that the function of an appellate court is limited to determining that there has been no abuse of this discretion. Yakus v. United States, 321 U.S. 414, 440, 64 S.Ct. 660, 88 L.Ed. 834 (1944); Deckert v. Independence Shares Corp., 311 U.S. 282, 290, 61 S.Ct. 229, 85 L.Ed. 189 (1940); Baggett Transportation Co. v. Hughes Transportation, Inc., 393 F.2d 710, 714 (8th Cir. 1968), cert. denied, 393 U.S. 936, 89 S.Ct. 297, 21 L.Ed.2d 272 (1968); Holzer v. United States, 244 F.2d 562, 564 (8th Cir. 1957); Benson Hotel Corp. v. Woods, 168 F.2d 694 (8th Cir. 1948).

The trial court's entry of the preliminary injunction is, of course, subject to the dictate of Federal Rule of Civil Procedure 65(d) that:

"Every order granting an injunction and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained * * *"

In light of these principles, we shall examine, section-by-section, the order of the lower court.

Section (a) of the order reads:

"(a) All defendants separately and jointly are restrained from using or disclosing trade secrets and confidential technical information of plaintiff to any person, firm or corporation."

The findings of fact by the trial court describe certain areas of the electronics field in which Eagle claims to have trade secrets. For example, Eagle has developed "a split coil time delay relay", "a solid state traffic controller", "a device for converting binary coded decimal numbers to decimal numbers", and "a certain technique * * * for testing traffic controllers". The lower court did not find that these items were in and of themselves the trade secrets of Eagle but merely that they incorporated certain design or engineering concepts that were not prior art. These new or different concepts are not specified in the findings of fact or discernible from the context of the order and are apparently presumed as being known by all the defendants, including Struthers. The lower court appears inclined to let the defendants reach the legal conclusion that a particular design concept is a "trade secret" of Eagle. These defendants would then be able to test their legal opinion on the law of trade secrets and their technical opinion on the state of the prior art in a proceeding to show cause why they should not be held in contempt. We feel that the vagueness of the section, even when read in the context of the entire injunction, places an unduly harsh burden...