International Industries v. Warren Petroleum Corp.
| Decision Date | 26 September 1957 |
| Docket Number | 12171.,No. 12170,12170 |
| Citation | 248 F.2d 696 |
| Parties | INTERNATIONAL INDUSTRIES, Inc., Appellant, v. WARREN PETROLEUM CORPORATION, Warren Maritime Corporation. INTERNATIONAL INDUSTRIES, Inc., v. WARREN PETROLEUM CORPORATION, Warren Maritime Corporation, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
COPYRIGHT MATERIAL OMITTED
Aaron Finger, Wilmington, Del. (Richards, Layton & Finger, Wilmington, Del., Warren M. Sparks, Tulsa, Okl., on the brief), for Warren Petroleum Corp. and Warren Maritime Corp.
John H. Poe, Tulsa, Okl. (David F. Anderson, Berl Potter & Anderson, Wilmington, Del., Poe, Murdock & Langford, Tulsa, Okl., on the brief), for International Industries, Inc.
Before MARIS, STALEY and HASTIE, Circuit Judges.
Questions involving the appropriate equitable relief to be granted for the alleged breach of trust in the appropriation of certain trade secrets are presented in these appeals.
The defendants, Warren Petroleum Corporation and its wholly-owned subsidiary, Warren Maritime Corporation, will be treated for our purposes as one entity. Defendant Warren produces and markets liquefied petroleum gas, known to the industry as LPG. This gas is delivered to distribution and marketing points either by rail or water. Plaintiff had compiled an economic study explanatory of the factors to be considered in the water transportation of LPG and possessed plans and specifications for the conversion of a dry cargo vessel into one which might be used in the transportation of the liquid gas. The plans for the conversion were known as the "Sharp Plans." Plaintiff alleged that the economic study and the plans and specifications contained novel ideas and were trade secrets. Plaintiff further alleged that these secrets were revealed to defendant under circumstances creating a confidential relationship, and that defendant appropriated the trade secrets in violation of the trust reposed in it.
Upon the merits of the case, the district court found in favor of plaintiff, deciding that it was entitled to equitable relief against defendant because of defendant's wrongful appropriation of the trade secrets relating to the marine transportation of LPG, and that in so doing, defendant violated the trust and confidence created by the circumstances surrounding the revelation of the plans. D.C.Del.1951, 99 F.Supp. 907. Plaintiff had requested an injunction in addition to an accounting of the benefits derived from the use of the trade secrets. A sealed affidavit of Mr. Brennan, an official of defendant Warren, convinced the district court that injunctive relief would not be in the public interest, and in the denial of the injunction the district court held that plaintiff could be compensated by a monetary award. See E. I. DuPont de Nemours & Co. v. Temple, 4 Cir., 1921, 272 F. 456, and 1 Pomeroy, Equity Jurisprudence § 237e, pages 400, 441. The district court thereupon referred the question of damages to a special master.
The appeal of Warren attacking the findings of the district court that there had been a tortious appropriation of trade secrets need not long detain us. That appeal goes to the findings of fact of the district court. A careful study of the record makes it abundantly clear that there is ample evidence to support those findings. It is not necessary for us to add anything to the district court's careful and well-reasoned opinion which contained adequate record references indicating the evidence upon which the findings were based. We will affirm the district court's finding that defendant tortiously appropriated trade secrets of plaintiff.
The report of the special master as to the damages can best be understood against the backdrop of a fuller discussion of the facts. Defendant Warren has been since 1922 a manufacturer and marketer of LPG. Looking for new outlets, in 1944 it commenced investigating the possibility of water transportation of the liquid gas from its source of origin in the Texas fields. The trade secrets appropriated by defendant enabled it to have converted a dry cargo vessel into one outfitted for the marine transportation of LPG. This vessel was the Natalie O. Warren. Prior to the construction and use of the vessel, defendant sold its product f. o. b. the several points of production in Texas. This, of course, precluded its enjoyment of the vast market of the East and the Eastern Seaboard. After the acquisition of the Natalie O. Warren, defendant sold its product f. o. b. Newark, New Jersey. This was accomplished by transporting the product from the source of supply to a terminal at Norsworthy, Texas, where it was gathered, stored, and loaded aboard the Natalie O. Warren. It was then taken by water to a like terminal facility at Newark, where it was sold to customers f. o. b. Newark.
The special master, after lengthy hearings on the question of damages, issued a report which the district court adopted and made the basis of its judgment. D. C.Del.1956, 146 F.Supp. 157.
Both plaintiff and defendant seem to agree that the proper measure of damages in the case of a trade secret appropriation is to be determined by reference to the analogous line of cases involving patent infringement, just as patent infringement cases are used by analogy to determine the damages for copyright infringement. Sheldon v. Metro-Goldwyn Pictures Corp., 1940, 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed. 825.1 Damages are allowed in trade secret cases, not upon the theory of the taking of property, but rather upon the theory of a breach of a confidential relationship. E. I. DuPont de Nemours Powder Co. v. Masland, 1917, 244 U.S. 100, 37 S.Ct. 574, 61 L.Ed. 1016; Restatement, Torts § 757 and comment a (1939). The appropriate measure of damages, by analogy to patent infringement, is not what plaintiff lost, but rather the benefits, profits, or advantage gained by defendant in the use of the trade secret. See Tilghman v. Proctor, 1888, 125 U.S. 136, 146, 8 S.Ct. 894, 31 L.Ed. 664, and In re Cawood Patent, 1877, 94 U.S. 695, 710, 24 L.Ed. 238. The advantage enjoyed by defendant is to be measured by the standard of comparison method. This method contemplates the comparison of the cost of transportation by means of the use of the trade secret with a method of accomplishing the same result which would have been open to defendant had he not appropriated the trade secret. Gordon Form Lathe Co. v. Ford Motor Co., 6 Cir., 133 F.2d 487, affirmed 1943, 320 U.S. 714, 64 S.Ct. 257, 88 L.Ed. 419. The master found that the proper standard with which to compare the marine transportation of LPG was that of railroad transportation.
Although Warren attacks this choice as improper, we are satisfied that it was appropriate as a standard because it was a method available at the time of the appropriation. See Gordon Form Lathe Co. v. Ford Motor Co., 133 F.2d at page 497. Parenthetically, it should be noted that the findings of the master's report should not be set aside unless they evidence clear error. Tilghman v. Proctor, 125 U.S. at pages 149-150, 8 S.Ct. at page 901; Gordon Form Lathe Co. v. Ford Motor Co., 133 F.2d at page 498. Having adopted rail transportation as the standard, the special master compared the total cost of all means of transportation from the source of the product to the ultimate consumer, with the following results:
Costs with the use of the Natalie O. Warren
"(1) Transportation cost from plants to Norsworthy
Terminal Defendants' Exh. 561
revised including subtraction of $3,766.18
being the amount of additional mileage
earnings based on readjusted number of
miles $ 763,891.20 (1)
(2) Norsworthy operating expenses, including
depreciation (Plaintiff's Exh. BB) 496,885.21 (2)
(3) Interest on investment Norsworthy Terminal
(Plaintiff's Exh. JJ) 189,972.06 (3)
(4) Tanker operating costs (Plaintiff's Exh
DD, adjusted as to accrual account) 3,032,174.65 (4)
(5) Interest on Investment, Tanker (Plaintiff's
Exh. JJ) 494,970.54 (5)
(6) Cost of Operating Newark Terminal
(Plaintiff's Exh. EE) 783,488.67 (6)
(7) Interest on Investment, Newark Terminal
(Plaintiff's Exh. JJ) 291,346.92 (7)
(8) Tulsa Direct Office expenses (Plaintiff's
Exh. EE) 15,646.29 (8)
(9) Tulsa office overhead
(a) Tanker 114,583.33 (9a)
(b) Terminals 114,583.33 (9b)
(10) Product Lost in Transit
(Defendants' Exh. 530) 52,099.77 (10)
(11) Transportation, Newark to customers
(Defendants' Exh. 530, adjusted) 2,811,726.27 (11)
_____________
(12) Total Transportation costs $9,161,368.24 (12)"
The master found that the cost of all rail transportation for the same period and for the same quantity of LPG would have been $8,712,231.49. This figure takes into account the master's finding that if the transportation costs were compared, with delivery to the ultimate consumer in each method of carriage, neither the Norsworthy nor the Newark terminals would be used in rail transportation. Having found that there was no benefit to defendant by the use of water transportation as compared to rail transportation, the master allowed a reasonable royalty to plaintiff of $75,000, and $20,000 as plaintiff's apportioned share of a fee of $50,000, known in the litigation as the Ligasco fee, which defendant got from third persons, for furnishing the plans for the construction of vessels...
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