Monolith Portland Midwest Co. v. Kaiser Aluminum & C. Corp.
| Decision Date | 20 February 1969 |
| Docket Number | No. 21775.,21775. |
| Citation | 407 F.2d 288 |
| Parties | MONOLITH PORTLAND MIDWEST COMPANY, a Nevada corporation, Appellant, v. KAISER ALUMINUM & CHEMICAL CORPORATION et al., Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
COPYRIGHT MATERIAL OMITTED
James W. Geriak (argued), of Lyon & Lyon, Enright, Elliott & Betz, Los Angeles, Cal., for appellant.
William K. Rieber (argued), of Fulwider, Patton, Rieber, Lee & Utecht, Gordon Johnson of Thelen, Marrin, Johnson & Bridges, Los Angeles, Cal., for appellee.
Before BROWNING, ELY and HUFSTEDLER, Circuit Judges.
Appellant, Monolith Portland Midwest Company ("Monolith"), brought this action against the appellees, claiming misappropriation of its confidential business information and infringement of its patent. Monolith is a Nevada corporation, manufacturing cement in Laramie, Wyoming. Appellees ("Kaiser") are Kaiser Aluminum & Chemical Corporation, a Delaware corporation, Kaiser Aluminum & Chemical Sales, Inc., a California corporation, and three Kaiser employees. Kaiser supplies bricks and metal shims to cement companies such as Monolith.
After protracted discovery and an extended trial, judgment was rendered in favor of Kaiser on all counts. In addition, the District Court concluded that the case was "exceptional" within the meaning of 35 U.S.C. § 285, and Kaiser was awarded $280,000 attorney's fees.1 Monolith appeals from the judgment, contending that the court erred in rejecting its claim for relief based on misappropriation of its trade secret and in awarding attorney's fees to Kaiser. We modify the award of attorney's fees by reducing the amount from $280,000 to $70,000, and we affirm the judgment as modified.
On June 6, 1958, Monolith filed its complaint, upon various legal theories, seeking relief for alleged misappropriation of business information disclosed in confidence to Kaiser. Federal jurisdiction was based on diversity of citizenship. 28 U.S.C. § 1332. On September 8, 1959, Monolith amended and supplemented its complaint by adding a claim for patent infringement based upon the subsequent issuance to it of a patent upon the business idea described in the original complaint. Kaiser denied the allegations of the amended and supplemental complaint, raised the affirmative defense that the patent had been obtained by means of misrepresentations to the Patent Office, and asked for an award of reasonable attorney's fees.
The subject of the claimed trade secret and of the patent was the use of shortshimmed basic brick as lining for rotary cement kilns. Rotary kilns used in making Portland cement are generally lined with basic, as opposed to acid or non-basic, bricks. The portion of the bricks facing the interior of the kiln is called the "hot face," and the portion resting on the metal shell of the kiln is called the "cold face." Metal plates called "shims" are placed between the bricks to compensate for the expansion of the bricks as they are heated. Before the development of short shims, the general practice in the industry has been to place the shims in contact with the metal shell of the kiln.2 Monolith alleged that its employee Anderson invented the concept of "short shimming" about September 14, 1953. The idea was to shorten the shims to prevent their contacting the metal shell of the kiln. The claimed utility of short shimming was to reduce the amount of heat transferred from the interior of the kiln to the metal shell. Anderson claimed that short shimming not only reduced the amount of fuel necessary to operate the kiln, but also increased the production of the kiln to an extent beyond that which would be expected merely from reducing the heat transference.
In the course of supplying brick and metal shims, Kaiser frequently gave technical advice to its customers and, in turn, received ideas from them. In 1953 employees of Monolith began discussing with employees of Kaiser both the idea of short shims and the idea of using radial rather than longitudinal shims. Longitudinal shims are those which are placed between the bricks in such manner that the shims run parallel to the length of the long rotary kiln. Radial shims are those which are placed between the rings of brick in such manner that the shims are perpendicular to the length of the kiln.
The idea of short shims was first used by Monolith at its Laramie kiln in 1954. During 1955 Kaiser developed a basic brick for kilns which had a shim attached to it in a fashion which left a space between the longitudinal shim and the cold face. Kaiser called its new product "UNITAB." It is Kaiser's commercial sale of UNITAB which Monolith claimed was a misuse of confidential disclosures made by its employees to Kaiser and which it further claimed was an infringement of Monolith's patent. Also during 1955 Monolith and Kaiser discussed the possibility of Monolith's licensing to Kaiser the Anderson invention as a trade secret, or as a patent, if a patent subsequently issued. There is considerable evidence, however, that during those negotiations Kaiser thought the subject for licensing was radial shimming, not short shimming.
On February 4, 1955, the parent application for Anderson's patent was filed with the United States Patent Office, claiming the concept of short shimming. A continuation-in-part application was filed on December 26, 1956. The parent application was abandoned on July 7, 1957. Following extended proceedings in the Patent Office, the Patent Examiner rejected the patent. On April 23, 1959, the Board of Appeals overturned the Patent Examiner's decision and in the following July the patent issued on the continuation-in-part application. The written assignment to Monolith of all rights to the patent was filed in the Patent Office on December 26, 1956.3
The District Court rejected Monolith's trade-secret case on the merits and on the ground that Monolith's claims were barred by the statute of limitations. Because we hold that the trade-secret claims were barred by limitations, we do not consider Monolith's assignments of error relating to the merits of that phase of the case.
The applicable statute, as both parties agree, is subdivision 1 of section 339 of the California Code of Civil Procedure, imposing a two-year limitation upon actions "upon a contract, obligation or liability not founded upon an instrument of writing." Monolith contends: (1) its cause of action did not accrue more than two years before the complaint was filed and (2) if the action did earlier accrue, its action was upon a continuing tort, for which it may recover damages sustained during the two-year period immediately preceding June 6, 1958, the date upon which the complaint was filed.
The District Court found that on June 9, 1955, Kaiser revealed to Monolith its sales to other cement companies of UNITAB bricks, embodying the shortshimming concept. Monolith does not deny that Kaiser's initial sale of UNITAB bricks was a breach of its alleged confidential relationship. It argues that its cause of action did not then accrue because it did not discover the adverse character of those sales until the following year. In the meantime, it believed that Kaiser's uses were experimental and for the benefit of both Kaiser and Monolith. The premise of the argument is that Monolith's knowledge of the breach is an element of its cause of action. The premise is wrong. Monolith's cause of action fully matured at the moment Kaiser first made adverse use or disclosure of the trade secret in violation of its confidential relationship. Accrual of its cause of action was not postponed to the date upon which Monolith discovered the breach. (Thompson v. California Brewing Co. (1957) 150 Cal.App. 2d 469, 310 P.2d 436.)
We also reject Monolith's contention that the statute of limitations does not bar recovery because the action is upon a continuing tort. Monolith's rationale, relying primarily upon Underwater Storage, Inc. v. United States Rubber Co. (1966) 125 U.S.App.D.C. 297, 371 F.2d 950, is that the wrong is the adverse use of the secret disclosed in confidence; each use is a new wrong, and a continuing use is a continuing wrong. Underlying this theory is the concept that a trade secret is in the nature of property, which is damaged or destroyed by the adverse use. The law of the District of Columbia enunciated in Underwater Storage, Inc. is not the law in California. California law is, of course, controlling. California does not treat trade secrets as if they were property. It is the relationship between the parties at the time the secret is disclosed that is protected. (Futurecraft Corp. v. Clary Corp. (1962) 205 Cal.App.2d 279, 23 Cal.Rptr. 198.) The protected relationship, contractual or confidential, is one to which, as Mr. Justice Holmes observed, "some rudimentary requirements of good faith" are attached. (E. I. Du Pont de Nemours Powder Co. v. Masland (1917) 244 U.S. 100, 102, 37 S.Ct. 575, 576, 61 L.Ed. 1016.) The fabric of the relationship once rent is not torn anew with each added use or disclosure, although the damage suffered may thereby be aggravated. The cause of action arises but once, and recovery for the wrong is barred within two years thereafter unless the statute has been effectively tolled. (Thompson v. California Brewing Co. (1957) 150 Cal.App. 2d 469, 310 P.2d 436.) The statute was not tolled,4 and Monolith's claim for relief was foreclosed by limitations.
Monolith challenges the District Court's award of $280,000 attorney's fees to Kaiser,...
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