Luccous v. J. C. Kinley Co., A-9744

• Decision Date: 04 March 1964
• Docket Number: No. A-9744,A-9744
• Citation: 376 S.W.2d 336,141 U.S.P.Q. 78
• Parties: John C. LUCCOUS, Sr., and John C. Lucous, Jr., Petitioners, v. J. C. KINLEY COMPANY, Respondent.
• Court: Texas Supreme Court

Page 336

376 S.W.2d 336

141 U.S.P.Q. 78

John C. LUCCOUS, Sr., and John C. Lucous, Jr., Petitioners, v. J. C. KINLEY COMPANY, Respondent.

No. A-9744.

Supreme Court of Texas.

March 4, 1964.

Lynch & Chappell, Vann Culp and John Scott, Midland, with above firm, for petitioners.

Stubbeman, McRae, Sealy & Laughlin, W. B. Browder, Jr., and Charles Tighe, Midland, with above firm, for respondent.

SMITH, Justice.

This suit was instituted by respondent, J. C. Kinley, an individual doing business as J. C. Kinley Company, hereafter referred to as plaintiff or Kinley Company, in the District Court of Midland County against John C. Luccous, Sr., and John C. Luccous, Jr., hereafter referred to as defendants or the Luccouses; Luccous Service and Equipment Company, a Texas corporation, and J. D. Whiteside, president and owner of Luccous Company.

In his first amended original petition, plaintiff alleged a breach of contract, and prayed for judgment against the above parties, jointly and severally. Plaintiff further alleged the Luccouses had breached a confidential relationship, and prayed that said defendants be enjoined from using certain tools. On July 20, 1962, after a hearing, the trial court granted a temporary injunction, in accordance with plaintiff's prayer, enjoining the Luccouses, their agents, servants, representatives and employees from using, renting or leasing any sand-line cutter tools (a) 'secured from the J. C. Kinley Co.,' or (b) 'tools copied or made substantially in accordance with such tools.' John C. Luccous, Sr., and John C. Luccous, Jr., duly perfected separate appeals, each alleging errors in the judgment of the trial court, to the Court of Civil Appeals for the Eighth Supreme Judicial District at El Paso, Texas. The judgment of the trial court was affirmed. 368 S.W.2d 827. Thereafter both defendants applied to this court for writ of error, and both writs were granted. For the purposes of this opinion, both defendants' contentions shall be considered together unless otherwise designated.

Most of the facts relevant to a determination of this case are undisputed. On January 2, 1940, a U. S. Patent was issued to M. M. Kinley on his invention of certain tools. The tools are sometimes referred to as sand-line cutters, wire-line cutters, cutters, cutting guns and cutting tools. We shall hereafter refer to them as sand-line cutters. On or about January 12, 1956, M. M. Kinley, doing business as M. M. Kinley Company, and Luccous Service and Equipment Company entered into a written license agreement whereby the Kinley Company granted to the Luccous Company a license to use the patented sand-line cutters. The essence of this agreement was as follows: Kinley agreed to supply the sand-line cutters and equipment and parts thereof necessary to perform sand-line cutting operations. In turn, Luccous Company agreed to keep and maintain proper books of account as to all charges made to customers for the operation of the sand-line cutters, and to pay over to Kinley Company, on the 15th day of each month, a tool rental including royalty of 60% of the service charges to the customers for each sand-line cutting operation run by Luccous Company. At the time of this contract, M. M. Kinley owned the M. M. Kinley Company, and defendant, John C. Luccous, Sr., owned most of the stock in Luccous Service & Equipment Company. It is undisputed that certain sand-line cutters were secured by Luccous Company from Kinley Company under and by virtue of this license agreement.

On January 2, 1957, the patent on the sand-line cutters expired. Thereafter on January 1, 1960, some of the assets of M. M. Kinley Company were sold to plaintiff, J. C. Kinley, which assets included the sand-line cutters. Under the terms of sale, plaintiff was assigned the rights and interests in the license agreement noted above. Finally, on April 27, 1961, defendant John C. Luccous, Sr., and his wife, sold and conveyed all of the shares of stock of Luccous Service and Equipment Company to J. D. Whiteside, who then became and is now its owner and president.

Plaintiff alleged that, subsequent to the above sale to Whiteside, the Luccouses continued to use sand-line cutters which they had secured from the plaintiff under the license agreement. Plaintiff further alleged that defendants were using and renting sand-line cutters which they had personally made from the information and knowledge secured from plaintiff under the licensing agreement. Both courts below have temporarily enjoined defendants from using, renting or leasing the 'secured' tools, and the sand-line cutters which they personally made from copies of plaintiff's tools. The trial court judgment, which the Court of Civil Appeals has affirmed, is reversed, and the temporary injunction is dissolved. We shall discuss the two groups of tools separately.

The 'Copied' Tools

Plaintiff contends that the Luccouses should be enjoined from using any sandline cutters which they have personally made as a result of the knowledge they gained about such tools by virtue of the licensing agreement. Plaintiff argues that the tools constituted a 'trade secret,' and that defendants gained their knowledge of this 'secret' while the confidential relationship created by the licensing agreement existed between plaintiff and defendants. Therefore, plaintiff concludes the lower court's action in enjoining defendants' use of these 'copied' tools is supported by the decisions of this court wherein it was held that the equitable remedy of injunction will lie to prevent one person from damaging another through an abuse of confidence in wrongfully appropriating trade secrets. See Hyde Corporation v. Huffines, 158 Tex. 566, 314 S.W.2d 763; K & G Oil Tool & Service Co. v. G & G Fishing Tool Service, 158 Tex. 594, 314, S.W.2d 782. On the other hand, defendants argue that these cases lend no support to the lower court's holdings because 'the evidence shows as a matter of law that if (plaintiff') tool had ever constituted a 'trade secret,' its secrecy terminated many years prior to the time when defendants obtained knowledge of it.'

The generally accepted definition of a 'trade secret' is that contained in the Restatement of Torts, § 757, p. 5, as follows:

'b. Definition of trade secret. A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers * * *. A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article.'

It is self-evident that the subject matter of a trade secret must be secret. See Wissman v. Boucher, 150 Tex. 326, 240 S.W.2d 278. It is defendant's position that when plaintiff patented the sand-line cutters in 1940, the issuance of the patent constituted such a public disclosure of the tools as to destory their trade secrecy. This being so, defendants conclude that the injunctive relief granted plaintiff is punitive and also futile in that it enjoins defendants from making use of knowledge that is common to all the world. However, plaintiff contends that it is of no consequence that defendants could have gained their knowledge of the sand-line cutters from a study of the patent. Plaintiff argues that since defendants did not so gain their information, but instead gained it as a result of the licensing agreement, plaintiff did not lose the protection the tools might have as a 'trade secret,' and an injunction will lie even though the tools in question were the subject of a patent, expired or otherwise. The cases relied upon by the Court of Civil Appeals as supporting plaintiff's position are distinguishable from the present case.

First, in Hyde Corporation v. Huffines, supra, this court held the defendant, a licensee of the plaintiff, should be perpetually enjoined from manufacturing or selling any device made substantially in accordance with any feature of an invention patented by plaintiff. The defendant, as a result of a confidential relationship, had gained knowledge of the plaintiff's in prior to its being patented, while it was still a trade secret. The defendant abused this confidential relationship, and improperly used the information gained. Under these circumstances, this court held the plaintiff's right to injunctive relief for the defendants' wrongful appropriation of trade secrets survived the disclosure of the secret in a subsequent patent. It was not held that the trade secret itself survived the complete disclosure in the patent grant. Inasmuch as the defendant and learned the secrets of the plaintiff's invention in confidence, and improperly disclosed and used them before the patent issued, it was held that the defendant should be enjoined from using that knowledge to prevent his obtaining ' a marketing advantage or head start as compared to the patentee or any manufacturer or processor licensed by him after the issuance of the patent.' In the present case, the defendants have not obtained any ...