Jet Spray Cooler, Inc. v. Crampton

Decision Date26 January 1979
Citation377 Mass. 159,385 N.E.2d 1349
Parties, 203 U.S.P.Q. 363 JET SPRAY COOLER, INC., et al. v. Gifford K. CRAMPTON et al.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

In action for misappropriation of trade secrets, judge properly allowed as a deduction from gross profits of defendants all bad debts incurred by defendants on sales of infringing products in computing damages.

Albert P. Zabin, Boston (Anne W. Yates, Boston, with him) for defendants.

Morris Michelson, Boston (Anne Hyde and Joseph T. Fahy, Boston, with him) for plaintiffs.

Before HENNESSEY, C. J., and QUIRICO, KAPLAN, WILKINS and ABRAMS, JJ.

ABRAMS, Justice.

Both the plaintiffs and the defendants appeal from a judgment of the Superior Court adopting as modified the report of a master on the issue of damages. 1 The judgment held the defendants jointly and severally liable to the plaintiffs in the amount of $282,100.83, plus interest from the date of the filing of the master's report.

The defendants appeal from the rejection of an earlier master's report (first damage master), and argue that the judge's order of reference to another master (second damage master) was based on incorrect legal principles of damage assessment in cases involving the misappropriation of trade secrets. They also appeal from certain of the judge's modifications of the second master's report.

The plaintiffs maintain that the rejection of the first damage master's report was proper, and contend that the judge's order of reference to the second damage master for the determination of damages was correct. Nevertheless, the plaintiffs also appeal from certain of the judge's modifications of the second damage master's report and from the judge's method of computing interest on the award. We agree in substance with the judgment entered. However, the judgment must be modified to correct errors arising from the transposition of certain accounting figures. As recomputed, the damages assessed should be $254,114.79. See note 16 Infra. As so modified, we affirm the judgment of the Superior Court.

This action commenced with a bill of complaint in equity filed in the Superior Court in 1964. Three years later, the Superior Court judge severed the issues of liability and damages and committed the case to a master (liability master).

After initially confirming the report of the liability master which found that the defendants had misappropriated certain trade secrets belonging to the plaintiffs, the Superior Court judge ordered the bill dismissed as to all defendants. We reversed the dismissal in Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 845, 282 N.E.2d 921 (1972). 2

Thereafter, the Superior Court judge referred the issue of damages to the first damage master in 1972. 3 The master held hearings and filed his report in 1975, including both subsidiary and general findings of fact. 4

Hearings on the claim for damages began in January, 1973. The hearings were then suspended until February. The docket entries reflect continuance of the order resuming the hearings until March, 1973. The next docket entry relating to the hearings is a motion to enlarge time for filing the master's report filed on April 15, 1975. The report itself was not filed in court until July 24, 1975, more than three years after our opinion in Jet Spray Cooler, Inc. v. Crampton, and two and one-half years after the order of reference.

Hearings before the second damage master were to begin in January, 1976. The docket entries reflect at least five continuances of the master's hearings covering a six-month period. Then there were continuances to enlarge the time for filing the master's report. The report was filed on April 20, 1977, some four years and eleven months after our 1972 opinion, and well over one and one-half years after the second order of reference.

This case has been pending in the Superior Court since 1964 and has been before three masters. It has been continued indiscriminately by numerous judges, apparently without regard to the effect excessive continuances and extensions have on court delay, as well as on the confidence of the public and litigants in the administration of justice.

The snail's pace of this litigation in our courts makes the comment of Chief Justice Vanderbilt with regard to the effect of references appropriate here. In his work, Cases and Materials on Modern Procedure and Judicial Administration (1952), he states: "There is one special cause of delay in getting cases on for trial that must be singled out for particular condemnation, the all-too-prevalent habit of sending matters to a reference. There is no more effective way of putting a case to sleep for an indefinite period than to permit it to go to a reference with a busy lawyer as referee. Only a drastic administrative rule, 5 rigidly enforced, strictly limiting the matters in which a reference may be had and requiring weekly reports as to the progress of each reference will put to rout this inveterate enemy of dispatch in the trial of cases." Id. at 1240-1241. See O'Brien v. Dwight, 363 Mass. 256, 279-280, 294 N.E.2d 363 (1973).

I. The Rejection of the Report of the First Damage Master.

The first damage master found that the defendants had incorporated information contained in the Foster-Miller report 6 into each of the visual display beverage dispensers which Crathco, the corporate defendant, sold after 1962. The first damage master also incorporated in his report the finding by the liability master "that it would ordinarily take a year for a competent engineer with the benefit of the Foster-Miller Associates Report to conceive, design and develop the Crathco dispenser, and about three months additional without the benefit of the information contained in the report."

However, the first damage master then found that taken as a whole the recommendations of the Foster-Miller report "involved no creativity, were not novel, new, unobvious or patentable, and were matters of common knowledge to a person of ordinary skill in the field of heat transfer." He further found that the only damage to the plaintiffs was the three-month head start gained by the defendants, which he characterized as having a "negligible" effect on the profits of either the plaintiffs or the defendants. Therefore, the first damage master concluded that the plaintiffs' damages should be limited to the $1,400 which the plaintiffs had originally paid for the Foster-Miller report.

The judge rejected the first damage master's report in its entirety. The defendants challenge the judge's ruling on the ground that the first damage master applied correct legal principles in his assessment of the plaintiffs' damages. 7 Moreover, the defendants contend that the first damage master's conclusions were legally correct in light of our opinion in Jet Spray Cooler, Inc. v. Crampton, supra. We disagree.

The essence of an action for the wrongful use of trade secrets is the breach of the duty not to disclose or to use without permission confidential information acquired from another. See Junker v. Plummer, 320 Mass. 76, 80, 67 N.E.2d 667 (1946); E. I. duPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S.Ct. 575, 61 L.Ed. 1016 (1917). See generally Restatement of Torts § 757 (1939); Developments in the Law Competitive Torts, 77 Harv.L.Rev. 888, 948-949 (1964). In the context of an employer-employee relationship, we have consistently held that where an employee acquires such confidential information in the course of his employment, he may be prohibited, after the termination of his employment, "from using or disclosing confidential information so acquired." Jet Spray Cooler, Inc. v. Crampton, supra, 361 Mass. at 839, 282 N.E.2d at 924, quoting from New England Overall Co. v. Woltmann, 343 Mass. 69, 75, 176 N.E.2d 193 (1961). See Eastern Marble Prods. Corp. v. Roman Marble, Inc.,372 Mass. ---, --- - ---, A 364 N.E.2d 799 (1977). Aronson v. Orlov,228 Mass. 1, 4-5, 116 N.E. 951, cert. denied, 245 U.S. 662, 38 S.Ct. 61, 62 L.Ed. 536 (1917).

The protection which we afford to trade secrets 8 against one who wrongfully uses them is grounded on principles of public policy to which we have adhered since Peabody v. Norfolk, 98 Mass. 452, 457 (1868): "It is the policy of the law, for the advantage of the public, to encourage and protect invention and commercial enterprise." 9 This encouragement and protection is afforded trade secrets because the public has a manifest interest not only in commercial innovation and development, but also in "(t)he maintenance of standards of commercial ethics." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481, 94 S.Ct. 1879, 1886, 40 L.Ed.2d 315 (1974).

Early Federal decisions are remarkably similar. In Fowle v. Park, 131 U.S. 88, 97, 9 S.Ct. 658, 662, 33 L.Ed. 67 (1889), the Supreme Court held that "(t) he policy of the law is to encourage useful discoveries by securing their fruits to those who make them." In Board of Trade of Chicago v. Christie Grain & Stock Co., 198 U.S. 236, 250, 25 S.Ct. 637, 639, 49 L.Ed. 1031 (1905), Mr. Justice Holmes said that the board had "the right to keep the work which it has done, or paid for doing, to itself. The fact that others might do similar work, if they might, does not authorize them to steal the plaintiff's." Again in Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373, 402, 31 S.Ct. 376, 382, 55 L.Ed. 502 (1911), the Court held that "(t)he complainant relies upon the ownership of its secret process and its rights are to be determined accordingly. Anyone may use it who fairly, by analysis and experiment, discovers it. But the complainant is entitled to be protected against invasion of its rights in the (secret) process by fraud or by breach of trust or contract." Further, in E. I. duPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S.Ct. 575, 576, 61 L.Ed. 1016 (1917), the Supreme Court said that an...

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