Kadant, Inc. v. Seeley Machine, Inc.

• Decision Date: 30 January 2003
• Docket Number: No. 02-CV-1568 (DNH/RFT).,02-CV-1568 (DNH/RFT).
• Citation: 244 F.Supp.2d 19
• Parties: KADANT, INC., Plaintiff, v. SEELEY MACHINE, INC., Auxiliary Process Equipment, Inc., individually and d/b/a Auxiliary Process Systems, a Division of Seeley Machine, Inc., and Stephen Corlew, Defendants.
• Court: U.S. District Court — Northern District of New York

244 F.Supp.2d 19

KADANT, INC., Plaintiff, v. SEELEY MACHINE, INC., Auxiliary Process Equipment, Inc., individually and d/b/a Auxiliary Process Systems, a Division of Seeley Machine, Inc., and Stephen Corlew, Defendants.

No. 02-CV-1568 (DNH/RFT).

United States District Court, N.D. New York.

January 30, 2003.

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Segel, Goldman, Mazzotta & Siegel, P.C., Attorneys for Plaintiff, Albany, Paul A. Feigenbaum, Esq., Ralph Cohn, Esq.

Schmeiser, Olsen & Watts, Attorneys for Defendants, Latham, Sander M. Rabin, Esq., Of Counsel.

MEMORANDUM-DECISION and ORDER

HURD, District Judge.

I. INTRODUCTION

On December 18, 2002, Plaintiff, Kadant, Inc. ("Kadant" or "plaintiff), filed a complaint and an application for an order to show cause with a temporary restraining order against defendants, Seeley Machine, Inc. ("Seeley" or "defendants"), Auxiliary Process Equipment, Inc. ("APE" or "defendants"), individually and doing business as Auxiliary Process Systems ("APS" or "defendants"), a division of Seeley, and Stephen Corlew ("Corlew" or "defendants"). The complaint alleges six causes of action: 1) unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a); 2) trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114(a); 3) unfair competition and theft of trade secrets in violation of New York common law; 4) violation of New York General Business Law § 360-1; 5) as against Corlew, breach of contract in violation of New York common law; and 6) as against Corlew, breach of fiduciary duty in violation of New York common law. On December 23 2002, the order to show cause was granted and a temporary restraining order was put into effect upon the posting of a $100,000 bond on plaintiffs behalf. The order to show cause was returnable on January 3, 2003.

Plaintiffs motion is for a preliminary injunction to enjoin defendants "from engaging in unfair competition, infringing plaintiffs trademarks, using plaintiffs technical and customer trade secrets and as to Corlew, from breaching his contractual and legal duties not to disclose plaintiffs trade secrets." (Memorandum of Law in Support of Plaintiffs' Motion for a Preliminary Injunction, Docket No. 3, p. 1) ("PI. Memo, at ___"). Moving and opposition papers were submitted, and, upon consent of the parties, oral argument was adjourned and then heard on January 24, 2003, in Albany, New York. Decision was reserved.

II. FACTS

Kadant is a publicly traded corporation with yearly sales eclipsing $100 million. Kadant AES ("AES") is a division of Kadant located in Queensbury, New York. For twenty-eight years, AES has manufactured and sold to customers worldwide products that clean and condition papermaking machines and filter water used in the papermaking process. "There are three main products areas of the business of AES: shower and spray devices and nozzles; foil blades to remove water from the paper during the papermaking process; and structures that hold foils and filters for straining water utilized in the papermaking process so that it can be reused." (PI. Memo, at 2). In 1974, the acronym "AES" was registered as a trademark, and AES adopted both it and "a circular bullet logo for the purpose of distinguishing its products in commerce from those made and sold by others." (Id.). Plaintiff occupies a dominant place in the national papermaking market.

Corlew was hired by AES in July of 1995 as a machinist. Nearly three years later, in April of 1998, he was promoted to a position in the engineering department. In that capacity, Corlew would be provided with a refined customer order, made by an AES engineer and a customer, and it was his job to create a "manufacturing drawing (with instructions and a bill of materials — i.e., the `recipe') for the order." (Id. at 3). In order to create such a drawing, Corlew used a computer assisted drawing machine. The computer assisted drawing machine contained "the recipes for the AES products and generate[d] drawings and bills of materials." (Id.). Plaintiff contends that AES took steps to protect the secrecy of the information contained in the computer assisted drawing machine. In June of 1999, Corlew was promoted again and now had the responsibility to assist the engineers in designing customer orders. Corlew was terminated in the summer of 2001.

During his tenure at AES, Corlew had access to plaintiffs "recipes" ("design specifications") for its products and to plaintiffs computerized database of prospective customers, which includes "names, addresses, and e-mails for all potential customers in the papermaking industry, including the names of individuals key to these companies' purchasing orders." (Id. at 4). Plaintiff contends that one of Corlew's final assignments while at AES was to coordinate this database with the database containing information on all current AES customers and their purchasing histories. Corlew had access to AES's entire computer system, which apparently included both databases as well as the computer assisted drawing machine containing the design specifications. At the end of his employment, Corlew's access to AES's computer system was terminated, and his laptop was wiped clean of AES information, and/or access thereto. Throughout his employment with AES, Corlew was subject to a signed confidentiality agreement, in which he agreed not to disclose or use to his benefit any confidential information, including information about AES customers.

Following his termination, Corlew formed APE "to outsource the manufacture of his own line of products for sale to the pulp and papermaking industry." (Memorandum of Law in Opposition to Plaintiffs' Motion for a Preliminary Injunction, Docket No. 12, p. 7) ("Def. Memo, at —"). According to defendants, APE was not a successful venture, forcing Corlew to begin working for Cambridge Valley Machine, Inc. ("CVM"). In April or May of 2002, Corlew resigned from CVM. Defendants contended in their moving papers that, as a condition of his resignation, Corlew was required to relinquish the rights to the name APE to CVM.

Near the end of April of 2002, Corlew began working for Seeley, "developing and marketing a new line of Seeley products for sale to the pulp and papermaking industry." (Id. at 7). According to defendants, "[t]he products comprising this new line were reverse-engineered from existing products, freely available in the public domain and unprotected by published patent applications, in-force patents or trade secrets." (Id.). According to plaintiff, the only way defendants could have developed and put out for sale this new line of products in so short of time is not by reverse engineering, which it alleges is time consuming, expensive, and requiring technical skill, but by Corlew's theft of AES's trade secrets — its design specifications and the customer databases — and infringement of its trademark.

Specifically, claims plaintiff, using as a frame of reference defendants' own expert, it would take defendants 1.7 years to reverse engineer all of plaintiffs nozzles. Defendants maintain, however, that only a small fraction, not all, of plaintiffs products were reverse engineered. The parties also dispute how much time would be associated with the manufacturing process.

Plaintiff claims Corlew changed the name of his company to APS in May of 2002, and then entered into an agreement to operate as a division of Seeley. Defendants claimed in their moving papers that this new division could not be called APE because CVM held the rights to that name. However, at oral argument, it seemed to come to light that Corlew was/is, in fact, permitted to use the acronym "APE." ¹ Defendants decided to call the new division of Seeley "Auxiliary Process Systems." Whatever the actual sequence of events, it is not disputed that APS, in marketing and selling this allegedly new line of products, thereafter used a circular bullet logo bearing the letters "APS" inside the bullet. Plaintiff has submitted evidence showing that APS used product numbers identical to those used by AES for the same, or same type of, products.

In August of 2002, counsel for plaintiff contacted defendants by letter demanding that defendants cease and desist from using the circular bullet logo and APS name because such use "infringe[d] on AES's trademark and bullet logo." (Pl. Memo, at 5). Two weeks later, counsel for Seemly advised plaintiff that Seeley would change the circular bullet logo, but that Seemly was within its rights to use the acronym "APS." Seemly thereafter removed the circular bullet logo from its website and all Seemly printed materials.

III. DISCUSSION

Plaintiff has moved for preliminary injunctive relief pursuant to Fed.R.Civ.P. 52(a). A trial court must state explicitly its findings of fact, see supra, and conclusions of law, see infra, when granting or denying a preliminary injunction. See Fair Housing in Huntington Committee Inc. v. Town of Huntington, 316 F.3d 357 (2d Cir.2003) (citations omitted). Such findings and such conclusions, while obviously saddled by the fact that the proceedings are at a preliminary stage, must nonetheless provide some clear basis for the decision. Id.

In order for plaintiff to successfully move for a preliminary injunction, it must demonstrate: 1) a likelihood of irreparable harm if the injunction is not granted; and 2) either a likelihood of success on the merits of its claims, or the existence of serious questions going to the merits of its claims plus a balance of the hardships tipping decidedly in its favor. Bery v. City of New York, 97 F.3d 689, 693-94 (2d Cir.1996). Because the issuance of a preliminary injunction is a drastic remedy, plaintiff is required to make a "clear showing" of these requirements. See Mazurek v. Armstrong, 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997). In this case, independent application of the preliminary injunction analysis to...