Ingersoll-Rand Co. v. Ciavatta

• Decision Date: 08 April 1987
• Docket Number: INGERSOLL-RAND
• Citation: 524 A.2d 866,216 N.J.Super. 667
• Parties: , 55 USLW 2679, 2 IER Cases 463, 3 U.S.P.Q.2d 1120 COMPANY, a New Jersey Corporation, and Ingersoll-Rand Research, Inc., a Delaware Corporation, Plaintiffs-Respondents, v. Armand CIAVATTA, a resident of New Jersey, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 667

216 N.J.Super. 667

524 A.2d 866, 55 USLW 2679, 2 IER

Cases 463, 3 U.S.P.Q.2d 1120

INGERSOLL-RAND COMPANY, a New Jersey Corporation, and Ingersoll-Rand Research, Inc., a Delaware Corporation, Plaintiffs-Respondents, v. Armand CIAVATTA, a resident of New Jersey, Defendant-Appellant.

Superior Court of New Jersey Appellate Division.

Argued Feb. 25, 1987.

Decided April 8, 1987.

Charles J. Walsh and Stuart M. Feinblatt, Newark, for appellant (Sills, Beck, Cummis, Zuckerman, Radin, Tischman & Epstein, Attorneys; Charles J. Walsh, of counsel and on the brief; Stuart M. Feinblatt, on the brief).

Mark Anderson, Somerville, and James M. Rhodes, Jr., New York City, pro hac vice, of the New York Bar, for respondents (Woolson, Guterl, Sutphen, & Anderson, Attorneys; Mark Anderson, Somerville, on the brief; James M. Rhodes, Jr., New York City, of counsel).

Before Judges DREIER, SHEBELL and STERN.

The opinion of the court was delivered by

DREIER, J.A.D.

Defendant, Armand Ciavatta, has appealed from a Chancery Division judgment enforcing a contractual obligation contained in an "Agreement Relating to Proprietary Matter" he signed while an employee of plaintiffs, Ingersoll-Rand Company and Ingersoll-Rand Research, Inc. (hereafter collectively called "plaintiff" or "Ingersoll-Rand"). The trial judge in a comprehensive opinion reported at 210 N.J.Super. 339, 509 A.2d 821 (Ch.Div.1986) made extensive factual determinations which need only briefly to be reviewed here, since we accept these determinations which are amply supported by the record. Rova Farms Resort Inc. v. Investors Insurance Co., 65 N.J. 474, 483-484, 323 A.2d 495 (1974).

In October 1974, after two years' employment with another of plaintiff's subsidiaries defendant was hired as a program manager by Ingersoll-Rand Research. As a condition of his employment he signed an agreement assigning to his employer

... my entire right, title and interest in and to all inventions, copyrights and/or designs I have made or may hereafter make, conceive, develop or perfect, either solely or jointly with others either,

* * *

* * *

(c) Within one year after termination of such employment if conceived as a result of and is attributable to work done during such employment and relates to a method, substance, machine, article of manufacture or improvements therein within the scope of the business of the COMPANY or any of its affiliates.

The products relevant to this litigation are a new type of friction stabilizer, developed by defendant, and a split-set friction stabilizer, manufactured and distributed by plaintiff. Both devices are used in the mining industry to prevent the separation of rock strata in mine roofs. Plaintiff, through sales of its patented split-set, has established a dominant position in the market with sales projected through the trial year at 3,000,000 units a year at approximately $3 a unit. Although not then assigned to the manufacture of stabilizers, defendant submitted five proposals through 1975 for devices to support or stabilize mine roofs. Four of the five were not friction stabilizers, but one was an improvement to plaintiff's split-set.

From 1974 to March 1978 defendant worked in research capacities on products other than those relevant to this litigation. At the latter date he was promoted to manager of the friction stabilizer manufacturing unit dealing with the various outside manufacturing concerns fabricating the split set. He was fired on June 22, 1979 because of a conflict with his superior. He alleged that he left with no thought of developing a competing product, and no proof was offered to the contrary. Although he sought employment with other Ingersoll-Rand divisions, he was unsuccessful and then began a lengthy process of attempting to find other employment. Seven months later he found employment out of the industry with a firm which was experiencing serious financial difficulties, but that employment lasted only five months.

Defendant formulated his initial ideas concerning the new friction stabilizer while repairing a light fixture in his house approximately two months after he was fired. He filed his patent application nine months after termination and an improvement patent application a year after the initial filing. In February and March 1982 he was issued patents which the trial judge determined were encompassed by the agreement and must be assigned to plaintiff.

The trial judge made detailed factual findings establishing the basis for his determination that defendant's inventions were not based upon trade secrets or other confidential information of plaintiff. We need not recount the tribulations of defendant in achieving financing and his initial distribution of his product insofar as it relates to any claim of estoppel, laches, or unclean hands. We accept the determination of the trial judge concerning these issues. 210 N.J.Super. at 357-358 ¹, 509 A.2d 821.

Post-employment restrictive agreements are enforceable in New Jersey but, in recognition of the difference in bargaining power of the parties, are subject to the scrutiny of the courts to balance the competing interests of the employer and employee. Such an agreement may be found "reasonable if it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public." Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 32-33, 274 A.2d 577 (1971); Solari Indus., Inc. v. Malady, 55 N.J. 571, 576, 585, 264 A.2d 53 (1970). The trial judge here determined that a post-employment contractual duty to assign to one's former employer any invention conceived within one year after termination of employment "would not necessarily have a direct impact on an employee's ability to seek and accept other employment." 210 N.J.Super. at 351, 509 A.2d 821. He found merely a "potential for a substantial indirect deterrent to alternative employment," insufficient to preclude enforcement of "holdover assignment agreements despite the inability of an employer to prove that a trade secret or confidential information has been pirated and utilized." Id. at 352, 509 A.2d 821. The judge found the Solari and Whitmyer test inapplicable to this situation.

We disagree with the trial judge insofar as he would apply a test other than the one of reasonableness enunciated in Solari and Whitmyer and their progeny. See Karlin v. Weinberg, 77 N.J. 408, 390 A.2d 1161 (1978); A.T. Hudson & Co. Inc. v. Donovan, 216 N.J.Super. 426, 524 A.2d 412 (App.Div.1987); Dwyer v. Jung, 133 N.J.Super. 343, 336 A.2d 498 (Ch.Div.1975), aff'd o.b. 137 N.J.Super. 135, 348 A.2d 208 (App.Div.1975); Mailman, Ross, Toyes & Shapiro v. Edelson, 183 N.J.Super. 434, 444 A.2d 75 (Ch.Div.1982). If the post-employment requirement to assign inventions is merely a specialized type of anti-competition agreement, we do not believe that under the facts of this case it can satisfy these tests. See Whitmyer, 58 N.J. at 33, 274 A.2d 577. It must, however, be reviewed as to its reasonableness, with an awareness of the practical realities of the business and employment world. An engineer in his 50's who for one year is required to assign to his former employer any inventions which might be conceived by him "as a result of and attributable to work done during his former employment relating to any method, substance, machine, article of manufacture or improvements therein" within the scope of his former business or any of its affiliates, most probably will remain unemployed in the same field for the proscribed period. Plaintiff's suggestion that defendant could have found employment in another field and avoided this problem adds little to the analysis. The effect of such a post-employment restriction is to lessen competition and keep potentially competitive products from the market. We, therefore, approach this question by applying legal principles different than those enunciated by the trial judge, but drawing upon his factual analysis of the status of plaintiff, defendant, the invention and the industry.

We first briefly focus upon the third prong of the Solari test. Although it is arguable that the public might obtain a safer or less expensive product if plaintiff's claim were rejected, we cannot, in light of the trial judge's findings concerning the friction stabilizer, determine that there would be such an adverse public impact if this covenant were enforced that we would invalidate it on the public interest ground standing alone ².

This case principally turns upon the first two parts of the Solari test, focusing upon the recognition of the legitimate interests of the employer, and the undue hardships of the employee which might require protection. There appear to be but two other reported New Jersey cases concerning a required post-employment assignment of an invention. Neither treats the questions presented here. See J.A. Migel Inc. v. Bachofen, 96 N.J.Eq. 608, 126 A.2d 396 (E. & A.1924), and Andreaggi v. Relis, 171 N.J.Super. 203, 408 A.2d 455 (Ch.Div.1979). Many years prior to the enunciation of the Solari test, the court in J.A. Miegel Inc. v. Bachofen balanced the interests of employer and employee in deciding what basically was an estoppel issue. Noting the apparent disinterest of the former employer and substantial expenditure by the employee to develop his invention, the court refused to order the assignment. 96 N.J.Eq. at 611, 126 A.2d 396. In Andreaggi, the invention was conceived and substantially concluded during employment, but a model was made and patent obtained thereafter; defendant was required to assign his rights to plaintiff. 171 N.J.Super. at 219-220, 228, 408 A.2d 455.

The initial focus of the Solari test is upon the protection of the employer's legitimate interests. In Solari the court first distinguished between a noncompetitive covenant designed to protect the good will of a business for a buyer against a seller, which is "freely enforceable...