McKinzie v. Cline

• Decision Date: 28 January 1953
• Citation: 252 P.2d 564,197 Or. 184
• Parties: , 96 U.S.P.Q. 356 McKINZIE et al. v. CLINE et al.
• Court: Oregon Supreme Court

Page 564

252 P.2d 564

197 Or. 184, 96 U.S.P.Q. 356

McKINZIE et al. v. CLINE et al.

Supreme Court of Oregon.

Argued and Submitted Jan. 7, 1953.

Decided Jan. 28, 1953.

O. C. Roehr, Portland, for appellants. On the brief were Caldwell & Roehr, of Portland.

Carlton R. Reiter, Portland, for respondents. On the brief were Stern, Reiter & Day, of Portland, and Leon V. Olmstead, of Portland.

Before LATOURETTE, C. J., and WARNER, BRAND, TOOZE and PERRY, JJ.

LATOURETTE, Chief Justice.

This is an appeal by defendants from a decree which, inter alia, restrains and enjoins defendants from manufacturing, selling or distributing the Cline 90~ Gun Swivel and orders them to an accounting.

One of the plaintiffs, Preston McKinzie, invented a gun swivel known as the 'McKinzie Quick Detachable Gun Sling Swivel', and thereupon filed his application with the patent office for a patent on such swivel. Preston McKinzie granted to Roland B. McKinzie and Everett K. McKinzie the sole and exclusive rights to distribute the aforementioned device which was a contrivance enabling one to attach a leather sling strap to the butt end and barrel of a gun, thus permitting him to carry the gun by placing the sling strap over the shoulder. After the plaintiffs had perfected the swivel, they manufactured a number of them, whereupon they called on a Mr. Dayton, a machinist, for the purpose of having him manufacture the swivels for them. Mr. Dayton referred them to a Mr. Clark who was also a machinist and who occupied his building jointly with the defendants, who likewise were machinists. Mr. Clark, being unable to take care of the work for plaintiffs, introduced them to the defendants Cline. The plaintiffs had a model of the swivel intact and one broken down so that the working parts of the swivel could be seen and understood. Up to that time the defendants had never seen the innermost workings of a gun swivel and what knowledge they had of the same was obtained from an inspection of plaintiffs' swivel. The mechanism was rather intricate, consisting of three working parts, a base, the main body and the plunger. An arrangement was entered into between the parties whereby the defendants agreed to manufacture for plaintiffs the parts of the swivel in question.

It was necessary for defendants to procure certain tools for the manufacture of such parts, for which plaintiffs paid to defendants the cost thereof.

Defendants proceeded to the manufacture of the parts constituting plaintiffs' product, and upon the delivery of the same to the plaintiffs they assembled them into the finished product and put them on the market for sale. At the expiration of four months, trouble arose between the parties, whereupon defendants placed the swivel, with slight deviations, on the market for their own account under the name of the 'Cline 90~ Swivel'. They thereupon applied for a patent for the product they were manufacturing, but at the time of the trial no patent had been issued to them. In connection with the sale thereof, defendants indulged in national advertising of their product at a price under that charged by the plaintiffs for their swivel.

It is the plaintiffs' contention that their swivel was a trade secret, and, therefore, defendants, in the manufacturing of such swivel even with deviations, violated the trust and confidence reposed in them to the detriment and irreparable damage of plaintiffs.

Defendants argue that no confidential relationship was created by the agreement between the parties since defendants were independent contractors in the manufacture of the article, and, secondly, that plaintiffs' swivel was not a trade secret because it was sold to the public and generally known prior to the agreement between the parties.

The first question to be determined is whether or not a confidential or fiduciary relationship existed between the parties. The law books are replete with cases dealing with fiduciary relations between master and servant, but few have been called to our attention, nor have we been able to discover many which deal with a situation such as we have here. This, therefore, presents a novel case in Oregon.

We read in Restatement, Torts, 4, § 757, as follows:

'* * * The suggestion that one has a right to exclude others from the use of his trade secret because he has a right of property in the idea has been frequently advanced and rejected. The theory that has prevailed is that the protection is afforded only by a general duty of good faith and that the liability rests upon breach of this duty; that is, breach of contract, abuse of confidence or impropriety in the method of ascertaining the secret.' And further, on p. 8:

'One who has a trade secret may be harmed merely by the disclosure of his secret to others as well as by the use of his secret in competition with him. A mere disclosure enhances the possibilities of adverse use. The persons to whom the disclosure is made may or may not be liable under Clause (c) for the subsequent use (see also § 758). Since a trade secret is vendible and since its sale value depends in part upon its secrecy, a mere disclosure may reduce the vendibility or sale value of the secret. The rule stated in this Section protects the interest in a trade secret against both disclosure and adverse use.

'The duties not to disclose and not to use another's trade secret are not, however, necessarily concomitant, though they are frequently found together. Thus, a former employe to whom the secret was communicated in the course of his employment may be under both duties (see Restatement of Agency, §§ 395 and 396.) On the other hand, a manufacturer who is permitted by the owner of the secret to use it in his manufacturing may be subject only to a duty not to disclose the secret to third persons. Or the manufacturer may be permitted to use the secret only in the manufacture of products for the owner, with a duty not to disclose the secret or use it in the manufacture of products on his own account or for others.' (Italics added).

The above principle is well stated in Du Pont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S.Ct. 575, 576, 61 L.Ed. 1016, wherein Mr. Justice Holmes said:

'* * * The word 'property' as applied to trademarks and trade secrets is an unanalyzed expression of certain secondarv consequences of the primary fact that the law makes some rudimentary requirements of good faith. Whether the plaintiffs have any valuable secret or not the defendant knows the facts, whatever they are, through a special confidence that he accepted. The property may be denied, but the confidence cannot be. Therefore the starting point for the present matter is not property or due process of law, but that the defendant stood in confidential relations with the plaintiffs, or one of them. These have given place to hostility, and the first thing to be made sure of is that the defendant shall not fraudulently abuse the trust reposed in him. It is the usual incident of confidential relations.' See Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 25 S.Ct. 637, 49 L.Ed. 1031.

In the case of Consolidated Boiler Corp. v. Bogue Electric Co., 141 N.J.Eq. 550, 58 A.2d 759, 769, the boiler company sought an injunction against and an accounting of profits from the defendant. It appears that the parties entered into a contract whereby the electric company was to manufacture for the boiler company certain domestic heating boilers which the boiler company had invented. An injunction suit was filed to restrain the electric company from manufacturing and selling like boilrs to third parties. This law suit was settled and culminated in a written contract between them wherein the electric company covenanted that it would not manufacture, sell or deliver to any person other than to the boiler company the boilers in question. Trouble later arose between the parties, and the electric company sold to the other parties not only some of the boilers manufactured for the boiler company, but additional boilers of the same kind. Thereafter, another injunction suit was filed. The additional boilers sold by the electric company were basically the same as the boiler company's, with a few minor differences. One of the principal questions involved in the case was whether or not there existed a confidential relationship between the parties. It is true that there was a promise for secrecy and that there was a covenant not to manufacture for others, but the court said:

'* * * Even if the promise had not been given, the disclosure of it to the defendant was one in confidence and for the very limited purpose of having the defendant manufacture the boiler for complainants alone. Bogue and its president were fiduciaries of that secret and were not free to disclose it or to utilize it for their own advantage. Bogue's covenant not to manufacture that boiler for others was merely declaratory of the legal disability that it was under, not to utilize for itself the trade secret of another, confidentially entrusted.'

The court decreed an injunction and an accounting.

Hopkins on Trademarks (4th ed.), 259 § 109, states:

'The principles under consideration extend beyond the relationship of master and servant. In fact, throughout all of this book that relates to equitable remedies we are but dealing with the application of those remedies which has been made upon specific forms of fraud. The cases analogous to trade secrets are many, and the language of Vice-Chancellor Turner in the leading case of Morrison v. Moat is applicable to all of them: 'Different grounds have been assigned by the exercise of the jurisdiction. In some cases it has been referred to property, in others to contract, and in others again, it has been treated as founded upon trust or confidence, meaning, as I conceive, that the court fastens the obligation on the conscience of the party, and enforces it against him in the same manner as it enforces against a party...