Forest Laboratories, Inc. v. Formulations, Inc.

• Decision Date: 15 April 1969
• Docket Number: No. 67-C-128.,67-C-128.
• Citation: 299 F. Supp. 202
• Parties: FOREST LABORATORIES, INC., Plaintiff, v. FORMULATIONS, INC. and the Pillsbury Company, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

299 F. Supp. 202

FOREST LABORATORIES, INC., Plaintiff, v. FORMULATIONS, INC. and the Pillsbury Company, Defendants.

No. 67-C-128.

United States District Court E. D. Wisconsin.

April 15, 1969.

COPYRIGHT MATERIAL OMITTED

Foley, Sammond & Lardner by James P. Brody, Milwaukee, Wis., for plaintiff.

Wherry & Wherry, Milwaukee, Wis., for Formulations, Inc.

Quarles, Herriott, Teschner, Clemons & Noelke, Adrian L. Bateman, Jr., Milwaukee, Wis., for The Pillsbury Co.

DECISION

MYRON L. GORDON, District Judge.

This is an action for improper use and disclosure of what are alleged to be the plaintiff's trade secrets. Jurisdiction is based on diversity of citizenship, and state law is to be used to determine the substantive issues. Smith v. Dravo, 203 F.2d 369 (7th Cir. 1953); Besly-Welles Corp. v. Balox, Inc., 291 F. Supp. 328 (E.D. Wis. 1968). In addition, the defendant, Pillsbury, has counterclaimed for a declaratory judgment of invalidity of the plaintiff's patent.

Formulations, Inc. was dismissed from the action during the course of the trial, pursuant to rule 41(b), Federal Rules of Civil Procedure. The plaintiff's cause of action based on the anti-trust laws was likewise dismissed under the same rule.

I. THE TRADE SECRET CAUSE OF ACTION

It is alleged that Pillsbury has illegally used and divulged the plaintiff's trade secrets for packaging effervescent sweetener tablets. Originally the allegations included a claim that Pillsbury had also violated trade secrets for the manufacture of such sweeteners, but the plaintiff abandoned that attack and proceeded at trial only with respect to the packaging techniques.

The plaintiff is a manufacturer and packager of food and drug items. It claims to have developed a successful process for packaging effervescent sweetener tablets so that their shelf life is lengthy. The production and sale of effervescent sweetener tablets is limited to a small group of companies; of the approximately 1000 tablet manufacturers in the United States, only a few produce this type of tablet.

Tidy House Corporation, the defendant's predecessor, had been interested in marketing an effervescent sweetener tablet. Prior to 1957, Tidy House had engaged several firms to manufacture tablets for this purpose. However, Tidy House experienced difficulties with each of these sources of supply, and in 1958 Tidy House learned that the plaintiff manufactured such tablets. In December, 1958, Tidy House sent its technical director, Mr. Egan, and his co-employee, Mr. Steinhauser, to observe the plaintiff's operation in New York. During that visit Mr. Lowey, the president of the plaintiff, claims to have disclosed to Mr. Egan what are alleged to be Forest Laboratories' trade secrets for packaging. Shortly thereafter, the plaintiff began to supply Tidy House with tablets in bulk; Tidy House packaged the tablets for the consumer.

In 1960, the Tidy House assets were purchased by the Pillsbury Company, and the plaintiff continued to supply the tablets to what became known as the Tidy House division of Pillsbury. This relationship continued until January, 1964, when Pillsbury engaged Formulations, Inc. as a new source of supply. Subsequently, the plaintiff brought this action, alleging that Pillsbury was using its confidential packaging secrets. In addition, the plaintiff charges that the defendant improperly disclosed such secrets to Mankato, Inc., a contract packager hired by Pillsbury in 1965.

The applicable law on trade secrets was set down in Abbott Laboratories v. Norse Chemical Corp., 33 Wis.2d 445, 147 N.W.2d 529 (1967). The court determined that the Restatement of Torts correctly states the Wisconsin law. In particular, the Abbott court ruled that there were two essential elements to a cause of action for misappropriation of trade secrets: there must be an actual trade secret and there must likewise be a breach of confidence. Each factor will be discussed in turn.

A. ARE THESE "TRADE SECRETS"?

A trade secret is defined by the Restatement as

"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 * * * process of * * * treating or preserving materials * * *." Restatement of Torts, § 757, comment (b).

The Restatement and Abbott set forth six factors to be considered in determining whether given information qualifies as a trade secret. These six factors are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

The plaintiff contended at the trial that its packaging procedure consists of the following steps: (a) the entire packaging operation must take place in a room in which the relative humidity is maintained at 40% or less; (b) before packaging, the tablets are to be tempered in a room having 40% or less relative humidity for a period of between 24 to 48 hours; (c) before packaging, the bottles into which the tablets are to be packaged are to be tempered in a room having 40% or less relative humidity for a period of between 24 to 48 hours; (d) before packaging, the bottle caps are to be tempered in a room having 40% or less relative humidity for a period of between 24 to 48 hours; (e) before packaging, the cotton used to stuff the bottles is to be tempered in a room having 40% or less relative humidity for between 24 to 48 hours; (f) the bottles should not be washed; (g) an air space should remain in the bottles after the caps are applied.

The purpose of the foregoing procedure is to make certain that the tablets and the materials are dry and that they are in a state of equilibrium with each other. By using these techniques, the plaintiff asserts that it was able to produce and package a tablet with a high degree of stability. In contrast, the testimony shows that prior to the plaintiff's association with Tidy House, the latter had had difficulties with its prior suppliers whose products on occasion exploded on store shelves or otherwise proved unstable.

Pillsbury denies that the recited techniques constitute trade secrets. To determine that issue, we will consider, seriatim, the six Abbott factors listed above.

(1) Pillsbury asserts that each step in the packaging procedure was well known in the trade, and that it cannot, therefore, qualify as secret material.

Pillsbury's expert witness, Dr. Wurster, a professor of pharmacy at the University of Wisconsin, testified that in his opinion these procedures were "just common knowledge". Professor Wurster prepared a compilation of textbook materials that he claimed set forth the procedures claimed by the plaintiff as trade secrets. (Def. exh. 1) This compilation makes references to the fact that effervescent tablets must be handled and packaged under controlled humidity conditions. Several of the articles refer to specific humidity levels; the references vary between 25% and 50%. The literature in evidence also contains admonitions that moisture must be kept out of the entire procedure. In addition, there was testimony that when Tidy House first became interested in effervescent tablets, it had been advised by The Du Pont Corporation that operations would have to be conducted under low (40%) humidity conditions to eliminate moisture.

The foregoing supports my conclusion that the industry was quite well aware of point (a) listed in the plaintiff's procedure: that packaging operations must be conducted under controlled humidity (40%) conditions. I am also convinced that steps (f) and (g), which relate to washing of the bottles and an air space above the cotton, likewise cannot be claimed to be trade secrets. There was testimony that others in the industry refrained from the practice of washing the bottles. Competitive products introduced into evidence clearly show that other producers utilized an air space above the cotton.

While Dr. Wurster thought that all of the plaintiff's procedures were well known, nothing that he said or compiled persuades me that the tempering steps, numbered (b), (c), (d) and (e) were known in the industry. On the contrary, the plaintiff's witness, Mr. Reamer, a fully qualified expert in the field, testified that the tempering steps were "new, intriguing. I think it's a break-through * * *" (Tr. 46) It was also his opinion that the defendant's compilation of literature did not set forth these procedures. (Tr. 46-47, 50)

Mr. Lowey testified that when he first became interested in effervescent tablets, he found that the literature on the subject did not teach him enough to package a stable tablet. It was only through trial and error, he averred, that he arrived at this process. As already noted, few firms engaged in packaging effervescent tablets, and those that did so often produced an inferior tablet. If proper techniques for packaging were broadly known, there would be little reason for this difficulty, unless the flaws stemmed from defective manufacturing practices.

The defendant asserts, however, that the tablet tempering stage step (b) is in the public domain because it is disclosed in the plaintiff's patent in suit. The argument is that under such circumstances plaintiff cannot claim this step as a secret. The patent (Pl. exh. 2) discloses the tablet tempering step. The general rule is that the issuance of a patent which clearly discloses all essentials of a process destroys any secrecy that previously attached to that process. Ferroline Corp. v. General Aniline and Film Corp., 207 F.2d 912 (7th Cir. 1953). However, if there is a...