General Business Services, Inc. v. Rouse, Civ. A. No. 79-2911.

CourtUnited States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
Citation495 F. Supp. 526
Docket NumberCiv. A. No. 79-2911.
PartiesGENERAL BUSINESS SERVICES, INC. v. G. Parke ROUSE, III, Titan Business Systems and Pegboard Systems, Inc.
Decision Date15 July 1980

495 F. Supp. 526

G. Parke ROUSE, III, Titan Business Systems and Pegboard Systems, Inc.

Civ. A. No. 79-2911.

United States District Court, E. D. Pennsylvania.

July 15, 1980.

495 F. Supp. 527
495 F. Supp. 528
Steptoe & Johnson by Roger E. Warin and Paul J. Ondrasik, Jr., Washington, D. C., Philip M. Hammett, Philadelphia, Pa., for plaintiff

C. Oliver Burt, III, Philadelphia, Pa., for defendants.


BECHTLE, District Judge.

Presently before the Court is the motion of plaintiff General Business Services, Inc. ("GBS"), for a preliminary injunction against defendants G. Parke Rouse, III ("Rouse"), Titan Business Systems and Pegboard Systems, Inc. (All references hereinafter to "defendant Rouse" shall pertain, collectively, to G. Parke Rouse, III, Titan Business Systems and Pegboard Systems, Inc.) For the reasons set forth below in the Court's findings of fact and conclusions of law, the motion of the plaintiff will be granted in part and denied in part.


The legal controversy presently before the Court arose out of a business arrangement between defendant Rouse and GBS that was entered into in the spring of 1973 and subsequently terminated in June of 1979. GBS, a Maryland corporation, is in the business of providing business and accounting supplies, advice and related support services to businesses throughout the United States. These products and services are dispensed by GBS through a network of some 1,000 franchised regional and field directors. In addition, GBS provides nationwide advertising and marketing promotion to effectuate the sales of their services and products. Rouse, through his wholly owned and controlled Pennsylvania corporations, Titan Business Systems and Pegboard Systems, Inc., develops and sells various business recordkeeping and accounting forms and supplies to both distributors and directly to businessmen. In this case, Rouse developed and sold to GBS various business forms and supplies at the request of GBS, in accordance with its particular needs. GBS then sold these products to its franchisees who, in turn, sold them at retail. While orders were placed with, processed, billed and collected by GBS, the systems and related supplies themselves were in many cases shipped directly by Rouse to GBS franchisees after Rouse received the materials from his printer, Eastern Systems, Inc. As a result, Rouse only maintained a limited inventory of supplies and forms. Rouse was also engaged by GBS to instruct GBS franchisees at GBS-sponsored seminars and training sessions in the use of the products and services that Rouse was furnishing.

One group of products, known as pegboard recordkeeping combination payrollcash

495 F. Supp. 529
disbursement forms and systems, is especially pertinent to this case. These systems involve the use of shingled checks and receipts affixed to a metal pegboard. When the user writes a check or a receipt, a duplicate of his entry is simultaneously made on a ledger card, or on a cash receipts or disbursements journal through the phenomenon of treated paper affixed to the metal pegboard. From 1974 until his termination in June of 1979, Rouse was the exclusive supplier to GBS of these pegboard systems and supplies


In order to determine whether a preliminary injunction should be granted, the following four factors must each be separately examined and balanced:

(1) whether the applicant has shown a reasonable likelihood of ultimate success on the merits;

(2) whether the applicant has demonstrated that irreparable injury, pendente lite, will be suffered unless injunctive relief is granted;

(3) the possibility of harm to third parties if relief is granted; and,

(4) the public interest.

Constructors Ass'n of Western Pa. v. Kreps, 573 F.2d 811, 814-815 (3d Cir. 1978).

The Court finds that the plaintiff is entitled to relief. Inasmuch as the injunctive relief sought by the plaintiff takes several forms and revolves around separate factual actions taken by defendant Rouse, all stemming from his business arrangement with GBS, the Court will discuss each claim for injunctive relief separately.

I. List of GBS Franchisees as a Trade Secret

The plaintiff claims that injunctive relief is necessary on the ground that the defendant has illegally misappropriated a trade secret from the plaintiff in the form of a listing of GBS franchisees prepared by the plaintiff and provided to the defendant while he was associated with GBS. The defendant still retains this list and is using it to contact GBS franchisees named in the list in order to solicit sales for his own products. Rouse has refused to return this list to the plaintiff after being requested to do so by GBS. The list contains the names, addresses (home and office), phone numbers and zip codes of all GBS franchisees nationally who held such positions at the time that GBS terminated its business relationship with Rouse in June of 1979. The franchisees are the primary purchasers of GBS products and services because customer sales are only made through these same franchisees. The plaintiff maintains that these lists, which are updated monthly, are only provided to persons within or associated with the GBS organization on a "need-to-know basis" and have been compiled only as an end result of GBS's extensive and expensive advertising and marketing efforts promoting the sales of its franchises.

The major judicial pronouncement by the Supreme Court of Pennsylvania in the area of misappropriation of customer lists as trade secrets, binding in this action,1 was in Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957), which held:

In many businesses, permanent and exclusive relationships are established between customers and salesmen. The customer lists and customer information which have been compiled by such firms represent a material investment of employers' time and money. This information is highly confidential and constitutes a valuable asset. Such data has been held to be property in the nature of a "trade secret" for which an employer is entitled to protection, independent of a non-disclosure contract, either under the law of agency or under the law of unfair trade practices.
495 F. Supp. 530
136 A.2d at 842 (footnote omitted). See also United Insurance Co. of America v. Dienno, 248 F.Supp. 553, 558 (E.D.Pa.1965).

There are, however, two court-created exceptions to the general rule that customer lists are trade secrets. First, customer lists are not trade secrets if they can be easily or readily obtained through some other independent source. See Van Products Co. v. General Welding & Fabricating Co., 419 Pa. 248, 213 A.2d 769, 777 (1965); Denawetz v. Milch, 407 Pa. 115, 178 A.2d 701, 704-705 (1962); Burroughs Corp. v. Cimakasky, 346 F.Supp. 1398, 1400 (E.D.Pa.1972).

The defendant contends that all GBS franchisees are required by their franchise agreement with GBS to maintain listings in area telephone directories and their failure to do so can provide reason for cancellation of their franchise. Therefore, the defendant argues that the qualifying language in Denawetz, supra, is particularly applicable in the instant action:

The customer and supplier lists did not constitute trade secrets. Equity will not protect mere names and addresses easily ascertainable by observation or by reference to directories. See Spring Steels, Inc. v. Molloy, 400 Pa. 354, 162 A.2d 370 (1960).

178 A.2d at 705. See also Van Products Co., supra, 213 A.2d at 777; Burroughs, supra, 346 F.Supp. at 1400.

The defendant attempted at the hearing to support his above assertion through the presentation of stipulated evidence that was gathered by two associates of the defendant who randomly searched nationwide telephone directories and were able to compile a list of 455 unduplicated names of GBS franchisees. This was compared to the 957 names on the list of franchisees supplied to defendant Rouse by GBS ("Rouse-GBS list"). Of the 455 unduplicated names of GBS franchisees found by Rouse's agents, 121, or 13%, were individual names of GBS franchisees and 267, or 28%, were listed by franchise name only. Therefore, of the 957 names on the Rouse-GBS list, Rouse was only able to compile in a random sampling 41 of those names after several days of full-time work in the public library. As a result of this data-gathering effort, the defendant contends that this proves that the Rouse-GBS list is not a trade secret because it can be easily duplicated through the use of telephone listings and is, therefore, not confidential but available from independent sources in the public domain.

The Court finds that the defendant's contentions are untenable for two reasons. A careful reading of the cases cited by the defendant, standing for the proposition that customer lists do not constitute trade secrets if obtainable from independent sources, suggests that this only applies if the information is "freely available" without "great difficulty," Denawetz, supra, 178 A.2d at 704; or "easily obtainable," Burroughs, supra, 346 F.Supp. at 1400. See also Edwin Wiegand v. Harold E. Trent Co., 122 F.2d 920, 924 (3d Cir. 1941); Spring Steells, Inc. v. Molloy, 400 Pa. 354, 162 A.2d 370, 372-373 (1960).

Therefore, the inquiry becomes a two-part analysis: (1) whether the information contained on the customer lists is "obtainable" in significant part; and, (2) whether it is "freely" or "easily" obtainable without "great difficulty." As to the first question, the plaintiff correctly contends that the information contained in the Rouse-GBS list was not available or obtainable in nationwide telephone books. Of the 455 GBS franchisees located through examination of telephone books, 27% of those listings were for addresses no longer occupied by GBS franchisees. Furthermore, none of the listings in the telephone directories...

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