Herold v. Herold China & Pottery Co.

• Decision Date: 07 February 1919
• Docket Number: 3155.
• Citation: 257 F. 911
• Parties: HEROLD et al. v. HEROLD CHINA & POTTERY CO.
• Court: U.S. Court of Appeals — Sixth Circuit

257 F. 911

HEROLD et al. v. HEROLD CHINA & POTTERY CO.

No. 3155.

United States Court of Appeals, Sixth Circuit.

February 7, 1919

Charles Koonce, Jr., of Youngstown, Ohio, and Fred L. Rosemond, of Cambridge, Ohio, for appellants.

Ezra Keeler, of Denver, Colo., for appellee.

Before WARRINGTON and KNAPPEN, Circuit Judges, and COCHRAN, District judge.

KNAPPEN Circuit Judge.

Appeal from a decree enjoining the disclosure or use of alleged secret formulas, and for an accounting.

Horold a skilled potter of ten or more years' experience in Ohio, went to Colorado in the year 1909, on account of a tubercular affection, and there erected a small factory for making high-grade chinaware. He lacked capital, and after about three years' effort turned over his entire plant and formulas to the plaintiff company, in consideration of his employment and certain stock to be given him. It was at first thought that but little capital would be required, but the requirements increased from time to time until about $47,000 had been contributed by the Golden parties by way of stock subscriptions and $26,000 in the form of loans. In 1914 the Golden product had acquired a high reputation. Professor Fleck, of the Colorado School of Mines, located at Golden, had found its chemical or laboratory ware equal to Royal Berlin ware, and had substituted the former for the latter. It seems to have been recognized, so far as it was known, as the highest grade of porcelain ware commercially made in America, and Herold as the expert maker of it.

The Guernsey Company had a large plant at Cambridge, Ohio, and was a wealthy and prosperous concern. It had successfully made highfired china, especially that used for baking, such as casseroles, in which a red or brown body is lined with porcelain; the entire dish being then covered within and without with a glaze. It had also been for some time actively experimenting with white china and laboratory porcelain bodies, and had made some samples. It was perhaps close to the line of success, but seems not to have crossed it, at least so far as commercial production is concerned. In December, 1914, it employed one Frauenfelter, before then employed in a pottery at Roseville, Ohio. Frauenfelter seems to have recommended the employment of Herold, with whom Frauenfelter had been associated at Roseville before Herold went to Colorado. Herold had become dissatisfied with his relations with the plaintiff company; and, after finding that his resignation as general manager was satisfactory to plaintiff, and being given the position merely of modeler designer, and decorator, although at the same salary, he in December, 1914, came to the Guernsey Company as factory superintendent, in complete charge of manufacturing, but without impairing the authority of the general manager. At the end of five years' performance Herold was to have 20 shares of the Guernsey Company's common stock, dividends thereon to be meanwhile paid him in addition to his salary which was 60 per cent. larger than paid by plaintiff. There came with, or followed, Herold from Golden two or more of plaintiff's other skilled employes. Herold stayed with the Guernsey Company until the following May, when he retired and went to a pottery at Zanesville, Ohio, where Frauenfelter also went. On retiring, he conveyed to the Guernsey Company, for an expressed new consideration of $500, a so-called 'Semmler' formula for making porcelain ware, which defendants claim Frauenfelter had obtained from one Semmler, of Derry, Pa., and had given to Herold while the latter was in the Guernsey Company's employ.

This suit was begun January 27, 1915. It was heard, not only on depositions taken in different parts of the United States, but on oral testimony consuming five days. The prominent issues were, first, whether the secret formulas and processes used at Golden belonged exclusively to plaintiff, and thus could not be lawfully disclosed by Herold; and, second, whether such disclosure had been made. The District Court found in favor of plaintiff on both propositions, and permanently enjoined defendants from disclosing or using 'the whole or any part of the formulae for manufacturing and producing either fireproof china cooking ware, or fireproof china or porcelain laboratory ware, or any knowledge or information relating thereto or connected therewith belonging to plaintiff, and which was developed and perfected by said Herold and became the property of and was used by the plaintiff. ' The injunction also ran against the use of the 'Semmler formula in the form in which it was when communicated, surrendered, and delivered by said Herold to * * * the Guernsey Earthenware Company, and as it has since been perfected and improved upon, and as it existed at any stage when it was being tested and adapted by said Herold,' as well as against making and selling 'any fireproof china cooking ware or fireproof china or porcelain laboratory ware manufactured and produced by plaintiff from said Semmler formula, or any of the formulae, so owned or used by the plaintiff'; also from representing or advertising that the Guernsey Company was making the same fireproof cooking and porcelain laboratory ware as made by plaintiff.

1. Plaintiff's secretary testified that, as part of the contract whereby Herold's plant was turned over to plaintiff, the former agreed to give to the latter, as its exclusive property, all his secret processes and formulas obtained by previous experimentation, as well as those he might thereafter discover while with plaintiff company. This testimony was taken in open court. There was other testimony more or less corroborative. The secretary also testified that in the month preceding Herold's employment by the Guernsey Company he informed that company's manager, Mr. Casey, of Herold's relations to plaintiff and the acquisition by the latter of Herold's secret processes and formulas. This testimony was doubtless believed by the District Judge, and we see no reason to question his conclusion on this feature of the case. A contract for plaintiff's exclusive ownership of the formulas and processes was, under the existing circumstance, not unnatural.

The rule is well settled that secret formulas and processes, such as are claimed to be involved here, are property rights which will be protected by injunction, not only as against those who attempt to disclose or use them in violation of confidential relations or contracts express or implied, but as against those who are participating in such attempt with knowledge of such confidential relations or contract, though they might in time have reached the same result by their own independent experiments or efforts. The following are among the leading cases supporting this rule: Morrison v. Moat, 9 Hare, 241; Peabody v. Norfolk, 98 Mass. 452, 96 Am.Dec. 664; O. & W. Thum Co. v. Tloczynski, 114 Mich. 149, 72 N.W. 140, 38 L.R.A. 200, 68 Am.St.Rep. 469, and cases there cited; Eastman Co. v. Reichenbach (Sup.) 20 N.Y.Supp. 110; Stone v. Grasselli Co., 65 N.J.Eq. 756, 55 A. 736, 63 L.R.A. 344, 103 Am.St.Rep. 794, and citations therein; Macbeth Co. v. Schnelbach, 239 Pa. 76, 86 A. 688. And see Pomeroy Ink Co. v. Pomeroy, 77 N.J.Eq. 293, 298, 299, 78 A. 698. We think the case made falls within the principle just stated. It follows that Herold had no right to disclose to the Guernsey Company the secret formulas and processes covered by the contract, and that, if he did make or threaten to make such disclosure, plaintiff was entitled to relief with respect thereto.

2. The question of disclosure presents greater difficulty. The circumstances immediately attending Herold's employment by the Guernsey Company strongly suggest such disclosure. Immediately upon his employment by that company, Herold was advertised as a great find, a man with a national reputation as a ceramist. Simultaneously one of plaintiff's most important customers, which had given plaintiff a large order for porcelain ware, was applied to by the Guernsey Company for orders for the same kind of ware, and, on being told that it would be time enough to give orders when the Guernsey Company's samples were approved, replied that there was no question about production, that 'Herold knows regarding costs and is familiar with the details of manufacture. ' Plaintiff accordingly lost the order. Plaintiff would seem to have been justified at the time it filed its bill in believing that Herold, who was by that time entirely out of harmony with, if not positively antagonistic to, plaintiff, had disclosed or was about to disclose its manufacturing secrets.

It developed on the trial that in his contract of employment with the Guernsey Company Herold had agreed to 'constantly endeavor to improve the product and enlarge the variety of product in accordance with the policy of the company,' and upon request, from time to time, to 'communicate and demonstrate the formulas for any or all ware made in said factory, or known to or discovered or originated by him that may be available for said company, and keep a written record of all such formulas, and that such formulas and record (to) be a part...