Extrin Foods v. Leighton

• Decision Date: 28 May 1952
• Citation: 202 Misc. 592
• Parties: Extrin Foods, Inc., Plaintiff,<BR>v.<BR>Herman Leighton et al., Defendants.
• Court: New York Supreme Court

202 Misc. 592

Extrin Foods, Inc., Plaintiff,

v.Herman Leighton et al., Defendants.

May 28, 1952.

Henry Kroll for plaintiff.

Benjamin Glass for defendants.

HART, J.

Plaintiff here seeks an injunction restraining defendants from manufacturing and distributing certain flavoring products with the use of alleged secret formulae and processes claimed to be plaintiff's property, and from aiding anyone in the manufacture and distribution of these products. The prayer for relief requests that defendants be also enjoined from imitating plaintiff's "seal, script, layout, trade names, claims or simulations thereof." Plaintiff as incidental relief seeks an accounting of profits and to recover damages.

The court finds the facts established by the proof as follows: Plaintiff corporation was organized in 1942 as successor to a partnership created in 1938 and known as Extrin Laboratories. The partners were individuals named Kugelman, Fontana and Sweet. Kugelman had developed formulae and processes for synthesizing a butter flavor to be imparted primarily to baked goods and confectioneries. These formulae and processes were assigned by the partnership to plaintiff. Defendant Ciconte had been hired by plaintiff in 1943 as an errand boy and general helper. He eventually became the production manager. Defendant Leighton was hired as a chemist in 1946 to establish a laboratory for plaintiff. His duties included the mixing of the flavoring ingredients, improving existing products and the development of new ones. Under the practice existing in the plaintiff organization the flavoring ingredients were prepared by the chemist in a part of the building separate from the production room where they finally were blended with other ingredients into the finished product.

The original Extrin product was in the form of a powder. Prior to Leighton's employment Kugelman had prepared a formula of the ingredients for the butter flavor in paste form which bears the trade-mark "Extrin-AA."

One of the most important assignments given to Leighton by plaintiff was the development of a product containing the butter flavor in the form of a free flowing fluid. As the result of many months' experimentation and research by Leighton under the supervision and with the assistance of Kugelman a formulation of an emulsion was developed. The process of manufacture was established in the production room by Leighton and Kugelman with the assistance of Fontana and defendant Ciconte. The resulting product became known as Extrin's "Creme Royale."

Basically the "Creme Royale" and the paste "Extrin-AA" in regard to the flavoring elements are the same with respect to their ingredients which vary quantitively in the paste and the emulsion. The ingredients required to establish the flavor were blended together by the chemist pursuant to the formula developed by Kugelman and is referred to as the "K Special." The chief difference between the paste and emulsion is the medium by which the flavor is carried. Defendant Leighton helped to a great extent, after exhaustive experiments at plaintiff's expense to develop the emulsion. He claims that he also improved the "K Special." He prepared for plaintiff a Madeira flavor under the trade name of "Revelex." Ciconte was given the formulae for the blending of each product but not the "K Special." It therefore appears that Ciconte and Leighton thus in their respective capacities learned and knew the ingredients and the quantities and methods of production of each of plaintiff's products, including the flavoring elements.

In 1949 or 1950, the original founders of plaintiff corporation fell out among themselves. Litigation ensued. As a result Fontana and Kugelman sold their interests and Sweet alone remained. Fontana went into business as Nutrin Laboratories.

On September 18, 1950, defendants Leighton and Ciconte left plaintiff's employ and became associated with Nutrin. Within a month thereafter they became sole stockholders and directors of Nutrin Foods, Inc., and Fontana severed his connection with the corporation. In the interim, within a few weeks after terminating their employment with plaintiff, defendants were producing competitive products. Defendant Leighton, when he terminated his employment with plaintiff, appropriated about one hundred fifty cards which showed the results of various baking tests. Though at first denying that he had misappropriated them, they were subsequently returned to plaintiff through defendant's counsel. At the time of the commencement of business by defendant, Nutrin Foods, Inc., simulated plaintiff's trade-mark and labeling. After the instant action was commenced, so as to avoid the charge of imitation of plaintiff's trade-mark and label, defendants changed theirs. The defendant corporation was reorganized and the name changed to Nutrol Laboratories, Inc.

Upon the trial it was agreed by the parties that Nutrol Laboratories, Inc., be joined as a defendant to the action; that defendants' counsel appear for it and adopt on its behalf the answer interposed by the defendants. The judgment to be entered herein is to direct that the title be amended accordingly.

The preponderating evidence satisfies the court that the defendants' emulsion is substantially the same as plaintiff's "Creme Royale". Defendants concede that the ingredients of their product are substantially the same as plaintiff's, though they claim that the products themselves were different since the flavoring ingredients differ. Defendants claim their product is dissimilar since their flavoring is based on butter derivatives (esters and organic acids purchased commercially) whereas plaintiff's main flavoring ingredient is diaceytil. A chemical analysis by a competent chemist establishes that the products are substantially identical chemically and in taste, odor, appearance and consistency. From the court's own observation the products are substantially identical as to color, odor and consistency. Plaintiff established upon the trial that Ciconte, as president of defendant corporation, shortly after the commencement of business, wrote to a former salesman of plaintiff, offering him employment and representing that defendants manufactured the same product. Two of plaintiff's customers testified (and were not contradicted) that Leighton, in soliciting their business, told them that he had been Extrin's former chemist and was manufacturing exactly the same products as Extrin. All of the foregoing satisfies the court that with regard to the "Creme Royale," defendants' emulsion is substantially identical. With respect to the paste, however, plaintiff failed to prove the similarity of their products or their ingredients.

The issues upon the trial were by agreement of the parties limited to (1) whether plaintiff's formulae and processes were secret and whether they were appropriated wrongfully by defendants and (2) whether plaintiff was applying for equitable relief with "clean hands".

(1) As between the parties, are the formulae and processes secret? If so were they unlawfully appropriated by defendants?

In resolving this issue the court is first required to define the term "secret" as applied to a formula. The term "trade secret" is defined in the Restatement of Torts (§ 757, p. 5) as follows: "b. Definition of trade secret. A trade secret may consist 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. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. * * * A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article." (See, also, 1 Nims on Unfair Competition and Trade-Marks [4th ed.], p. 403; Kaumagraph Co. v. Stampagraph Co., 235 N.Y. 1, 7, and Fairchild Engine & Airplane Corp. v. Cox, 50 N. Y. S. 2d 643, 656.)

The mere fact that the constituent ingredients of plaintiff's product are on its label does not preclude the existence of secret formulae. As expressed by plaintiff's expert:

"THE WITNESS: I would call both of them or either of them a product resulting from a secret formula for the reason that while ingredients are declared on the label, the proportions in which they are present and the method of compounding the product is not revealed either on the label or is it revealed in any standard or any definition which applies to such products.

"THE COURT: In other words, among chemists a formula is still secret even though the component parts are known if the method of preparation is not known and may only be ascertained as a result of experimentation; is that correct?

"THE WITNESS: That is correct."

Nor is it of great moment that plaintiff's formula can be revealed after examination of its labels, experimentation and analysis by a competent chemist. As expressed in Schavoir v. American Re-bonded Leather Co. (104 Conn. 472, 476) in an action against one violating a secret given in confidence, the court stated: "But this does not mean that the possibility of its discovery, by chemical analysis or experimentation, will itself put an end to the rights of the originator, and so long as the method of its production remains a secret, the law is not much concerned with its nature or the elements which go to make up the composition." Further authority for this conclusion may be found in the opinion in Tabor v. Hoffman (118 N.Y. 30, 36): "But, because this discovery may be possible by fair means, it would not justify a discovery by unfair means, such as the bribery of a clerk, who in course of his employment had aided in compounding the medicine, and had thus become familiar with the formula. The courts have frequently restrained persons,...