FMC Corp. v. Spurlin

• Citation: 596 F. Supp. 609
• Decision Date: 30 August 1984
• Docket Number: Civ. A. No. 83-906.
• Parties: FMC CORPORATION, a Delaware Corporation, Plaintiff, v. William V. SPURLIN, Syn-Energy Inc., a Pennsylvania Corporation, and Eriez Manufacturing Co., a Pennsylvania Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

596 F. Supp. 609

FMC CORPORATION, a Delaware Corporation, Plaintiff, v. William V. SPURLIN, Syn-Energy Inc., a Pennsylvania Corporation, and Eriez Manufacturing Co., a Pennsylvania Corporation, Defendants.

Civ. A. No. 83-906.

United States District Court, W.D. Pennsylvania, Pittsburgh Division.

August 30, 1984.

COPYRIGHT MATERIAL OMITTED

Gerald D. Hosier, Thomas G. Scavone, Hosier, Niro & Daleiden, Ltd., Chicago, Ill., R. Dennis Osterman, Berkman, Ruslander, Pohl, Liber & Engel, Pittsburgh, Pa., for plaintiff.

James R. Walczak, Edward W. Goebel, Jr., MacDonald, Illig, Jones & Britton, Erie, Pa., for Eriez.

Walter J. Blenko, Jr., Buell, Blenko, Ziesenheim & Beck, Pittsburgh, Pa., for Spurlin/Syn-Energy.

OPINION

SIMMONS, District Judge.

I. Background.

This case involves the protection of intellectual property: a trade secret. The plaintiff is FMC Corporation. Through its predecessor companies and its Material Handling Division (MHE), located in Homer City, Pennsylvania, FMC has been engaged in the business of designing, manufacturing and selling vibratory feeding equipment¹ since the 1930s.

The defendant, William V. Spurlin, is a former employee of FMC. Hired on June 3, 1946, Spurlin worked in numerous engineering positions and was the Manager of the Engineering Department of the MHE Division when he voluntarily retired on July 1, 1976. Shortly after his retirement, Spurlin began to develop vibratory feeder equipment and to provide consultation services. In early 1977, Spurlin formed the defendant Syn-Energy, a Pennsylvania corporation with its principal place of business in Indiana, Pennsylvania. Spurlin is president and principal shareholder of Syn-Energy.

On December 29, 1977, Spurlin filed a patent application for the "Spurlin Feeder." The application was granted by the United States Patent Office on August 26, 1980. Through Syn-Energy, Spurlin began to market the Spurling Feeder in late 1977 and early 1978. Because Syn-Energy lacked the facilities to produce the Spurlin Feeder on a commercially feasible basis, Spurlin entered into arrangements to have the Spurlin Feeder manufactured and marketed through a local company.

In 1982, Spurlin and Syn-Energy entered into a licensing agreement with the defendant Eriez Manufacturing Company, a Pennsylvania Corporation. Under the licensing agreement, Eriez agreed to manufacture and sell the Spurlin Feeder domestically and in parts of the world not covered by a licensing agreement Spurlin had previously entered in 1980 with a Japanese Company, which sells the Spurlin Feeder in Japan and other Asian countries.

The crux of FMC's claim is that, Spurlin, after his retirement from FMC in 1976, pirated and misappropriated FMC trade secrets to build a new vibratory feeder, the so-called "Spurlin Feeder", which was manufactured and sold by Syn-Energy and Eriez in competition with FMC's vibratory feeders. Following a protracted discovery period, the parties filed cross-motions for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. By its motion, FMC seeks partial summary judgment on the liability issue of its misappropriation claim. The defendants, Spurlin, Syn-Energy and Eriez, assert that the undisputed facts establish that FMC has no actionable trade secret and move for judgment on that ground. Assuming that the FMC trade secret claim is actionable, the defendants further contend that FMC is barred from recovery by laches and estoppel. In addition, Eriez claims that FMC is barred from relief against it because, assuming FMC's trade secret were pirated by Spurlin, Eriez was a bona fide purchaser for value.

II. Discussion.

a. Misappropriation of Trade Secret.

At the outset, this Court rejects several theories assailing the proprietary nature of the FMC Design Manual advanced by the defendants. FMC claims that its design manual is the compilation and distillation of extensive research and development performed by it over many years. FMC stresses that the FMC Design Manual, which consists of information not generally known to the trade in its assembled form, aids FMC in the design of feeding equipment to meet the specific needs of a particular customer's application and thus gives it a competitive edge in the feeder equipment industry.

The defendants argue that since the FMC Design Manual admittedly contains universally known equations and formulas, and because substantial portions of the manual derive from public sources, the FMC Design Manual cannot constitute a trade secret. The defendants further contend that since the claimed trade secret is the design manual "as a whole", FMC cannot make out a misappropriation claim, as a matter of law, because the defendants have not taken or used the FMC Design Manual "as a whole".

It is undisputed that many segments of the FMC Design Manual derived from public sources and some of its contents is in the public domain and therefore generally known within the trade. This, FMC cannot dispute. FMC contends, however, that its design manual is a "cookbook" which enables it to design products with optimum operating efficiency for specific customer application and that no other source in the industry shows how to combine the data contained in the FMC Design Manual to produce a superior product.

Under the Restatement of Torts definition of a trade secret, which Pennsylvania and other courts have adopted:

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.

Restatement of Torts § 757 comment b (1939) (emphasis supplied). See also Rohm and Haas Co. v. ADCO Chemical Co., 689 F.2d 424, 431 (3d Cir.1982).

Applying the Restatement's definition of a trade secret, several courts have expressly rejected the defendants' theory that simply because many or all elements of a process or compilation of information is long and widely known in the trade, it cannot be the subject of a trade secret. In this regard, the Third Circuit noted in the Rohm and Haas Co. case that "even though each and every element of plaintiff's Process is known to the industry, the combination of these elements may be a trade secret if `it produces a product superior to that of competitors.'" Id. at 433, citing, Sun Dial Corp. v. Rideout, 16 N.J. 252, 257-58, 108 A.2d 442, 445-46 (1954); Anaconda Co. v. Metric Tool & Die Co., 485 F.Supp. 410, 422 (E.D.Pa.1980); Belmont Laboratories v. Heist, 300 Pa. 542, 550-51, 151 A. 15, 18 (1930).

In this case, the compilation of well known formulas, equations and other useful information into the form of a design manual, is to be accorded no less protection as intellectual property than the proprietary process used to produce latex paint products in the Rohm and Haas Co. case, or the process by which profile and winding machines were engineered and built for producing telephone cord armour in the Anaconda Co. case.

While many or all of the components of the FMC Design Manual may have derived from basic engineering principals that are well known in the industry, this Court holds as a matter of law, that if the FMC Design Manual is a unique combination of information which affords FMC a competitive advantage, it is a protectable trade secret.

This holding in no way diminishes FMC's burden of proving by a preponderance of the credible evidence that its design manual is an advance over common knowledge and practice in the art, Greenburg v. Croydon Plastic Co., 378 F.Supp. 806 (E.D. Pa.1974), and that the design manual gave it a competitive edge in the feeder equipment industry. Imperial Chemical Industries, LTD v. National Distillers and Chemical Corp., 342 F.2d 737, 742 (2d Cir. 1965). Nor does this holding limit the defendants from demonstrating the contrary.

This Court also finds no merit in the defendants' argument that FMC cannot make out an actionable misappropriation claim because the defendants have not taken or used the FMC Design Manual "as a whole." In support of this theory, the defendants point out obvious differences between the Syn-Energy Design Manual and the FMC Design Manual, such as the relative number of pages of each document. The defendants also emphasize the fact that FMC can only demonstrate that sections on each page of the Syn-Energy Design Manual are identical to various sections of the FMC Design Manual, so the defendants could not have taken the FMC Design Manual "as a whole."

The defendants' theory misses the mark. Reduced to its simplest form, the defendants' argument would concede, on the one hand, that to take and use the FMC Design Manual in its entirety constitutes misappropriation, but argue on the other hand, that to take beneficial information from the FMC Design Manual and compose a new design manual is something less than misappropriation. This argument has no sound basis in law or logic.

Pointedly, it is not relevant to FMC's misappropriation claim that each formula, chart, graph or equation Spurlin took from the FMC Design Manual was widely known and in the public domain. What is relevant, is that Spurlin took and used, in whole or in part, the FMC Design Manual to create his own design manual. It is the taking and using of the "cookbook" which constitutes the piracy. That an ingredient or recipe proved useless to the pirateer, makes the claim no less actionable. The law protects the proprietary process, not the component parts, which, as a general proposition, are widely known in the industry.

FMC claims that...