Revere Transducers, Inc. v. Deere & Co., 97-1009

• Decision Date: 03 June 1999
• Docket Number: No. 97-1009,97-1009
• Citation: 595 N.W.2d 751
• Parties: REVERE TRANSDUCERS, INC., Appellee, v. DEERE & COMPANY, Appellant.
• Court: Iowa Supreme Court

Page 751

595 N.W.2d 751

REVERE TRANSDUCERS, INC., Appellee, v. DEERE & COMPANY, Appellant.

No. 97-1009.

Supreme Court of Iowa.

June 3, 1999.

Larry J. Cohrt and Jim D. DeKoster of Swisher & Cohrt, P.L.C., Waterloo, and Joel S. Carter of Deere & Company, Moline, Illinois, for appellant.

Timothy P. Ryan of Eckert Seamans Cherin & Mellott, L.L.C., Pittsburgh, Pennsylvania, and H. Daniel Holm, Jr., of Ball, Kirk, Holm & Nardini, P.C., Waterloo, for appellee.

Thomas J. Miller, Attorney General, Craig Kelinson, Special Assistant Attorney General, and Richard E. Mull, Assistant Attorney General, for intervenor, State of Iowa ex rel. Civil Reparations Trust Fund.

Considered by McGIVERIN, C.J., and HARRIS, LAVORATO, NEUMAN, and CADY, JJ.

McGIVERIN, Chief Justice.

Several questions are presented in this appeal and cross appeal concerning plaintiff Revere Transducers, Inc.'s action against defendant Deere & Company for tortious interference with contractual relations, misappropriation of trade secrets and civil conspiracy. The basis of Revere's claims is that Deere allegedly induced two former Revere employees, Greg Eckart and Francis Delfino, to violate an employment agreement with Revere, start a company, and develop and manufacture a draft sensor device to sell to Deere, which would replace a similar device that Revere was manufacturing and selling to Deere.

A jury returned verdicts in favor of Revere on its claims for tortious interference with contractual relations and civil conspiracy and in favor of Deere concerning Revere's claim for misappropriation of trade secrets.

On Deere's appeal and Revere's cross appeal, we affirm in part, reverse in part and remand.

I. Background facts and proceedings.

A. Establishment of relationship between Revere and Deere. Plaintiff, Revere Transducers, Inc., is a Delaware corporation with its principal place of business in California, and operates a facility in Connecticut. Revere is engaged in the manufacture, marketing and sale of devices called resistive strain gauge force transducers. A force transducer is a device which measures force. A strain gauge is an electrical conductor which measures strain and is a component part of a force transducer.

Defendant Deere & Company is a Delaware corporation with its principal place of business in Illinois. Deere is engaged in the manufacture of tractors and has a facility in Waterloo, Iowa.

In the mid-1980s Deere became interested in locating a company to develop and manufacture a draft sensor device which, when installed on its tractors, would regulate the depth of an attached plow in the ground and monitor the forces on the plow as the tractor was plowing.

In 1986, Deere contacted a number of different manufacturers of strain gauge sensing devices, including plaintiff Revere. Revere and Deere discussed the possibility of using a "Gozinta." A Gozinta is a strain gauge force sensor device developed and manufactured by Revere under the registered trademark "Gozinta."

The Gozinta is a metal capsule or cylinder-shaped device, approximately two inches long. One end of the Gozinta has a ridged or "knurled" surface, similar to the edge of a coin. The Gozinta is pressed into a hole in a member or metal strap and the knurled surface accomplishes an interference fit between the Gozinta and the receiving member. In oversimplified terms, the Gozinta measures the strain produced in the member in which it is inserted.

Inside the metal capsule is a disc with four evenly spaced holes which channel the stress toward four strain gauges mounted on the disc. The holes have a minimum diameter of one-eighth of an inch. Wire pins extend through the holes to the strain gauges and connect the strain gauges to an electric circuit board, or amplifier. The wire pins transfer the strain gauge signal or changes in resistance back through the printed circuit board or amplifier. The signal would eventually be transmitted to the tractor's computer. By drilling a hole in a hitch that attaches a plow to a tractor, and placing a Gozinta in the hole, the force on the plow can be calculated.

The concept of using Revere's Gozinta as a draft sensor in a Deere product was unique. Deere had experience using strain gauges in testing application, but had never used strain gauges in a product.

To formalize their business relationship, Revere and Deere signed an agreement entitled "Non-Disclosure Agreement for Proprietary Information" in June 1986 to protect the proprietary information of the parties.

The initial plan was that Revere would manufacture the Gozinta at its plant in Connecticut. The Gozinta would then be inserted into a Deere designed strap made of forged steel. The Deere metal strap was to be manufactured by a third party. The decision was later made that Revere would be responsible for assembling the completed device, that is, inserting the Gozinta into Deere's metal strap.

Deere was to provide the funding for the unique tooling which would be necessary for the manufacture, assembling and testing of the Gozinta. Deere agreed to purchase a fixed total quantity of Gozintas from Revere, pursuant to a blanket purchase order. The purchase order included language stating that Deere, at its discretion, could terminate the purchase order with 120 days notice. The parties estimated that production quantities of the Gozinta would increase from 5000 in 1989 to 30,000 in 1991. The original price of the Gozinta to Deere was estimated at $129.50 per part but later increased to $138.22.

Revere and Deere worked jointly on the project, and development of the Gozinta draft sensor device consumed the efforts of Deere and Revere over a three to four-year period. Each party had a team of engineers working on the project.

Francis Delfino, a manufacturing engineer, was a member of the Revere team. Delfino was responsible for designing the processes and equipment to manufacture the Gozinta and played an important role in its development. Delfino was hired by Revere on September 15, 1986.

Greg Eckart was another member of the Revere team. Eckart was not an engineer but was a product manager and was the primary contact between Revere and Deere for the Gozinta/Deere project. Eckart was hired by Revere on August 26, 1986.

At the time they were hired, Delfino and Eckart signed agreements whereby they agreed to disclose any inventions or discoveries they made during their employment to Revere and also agreed not to disclose any such inventions or discoveries to others without Revere's consent. The agreement further stated that Delfino and Eckart agreed not to disclose any inventions or discoveries relating to Revere's methods, processes, or apparatus or production of goods or materials for a period of one year following termination from Revere's employment. Delfino and Eckart also agreed to assignment of their rights to Revere in any invention or discovery made by them during their employment by Revere and agreed not to disclose to others at any time during their employment any confidential information, knowledge or data belonging to Revere without first obtaining Revere's written consent. Delfino and Eckart were not bound by any other employment agreement or noncompete agreement and thus were considered at-will employees.

B. Production problems arose. According to Revere, Deere was late in supplying the funding for the tooling which prevented Revere from proceeding with development of the Gozinta. The strap forging company chosen by Deere also was late in providing the forged steel straps to Revere. Due to these delays, Revere was forced to begin actual production of the Gozinta without an opportunity to perform preproduction testing or a pilot run.

Revere began actual production of the Gozinta in December 1988. Production was not immediately successful. Problems developed in that the Gozinta produced an excessive output signal and produced an unpredictable output of the sensor when no load was applied. Initial yields during the first few months of production were in the 17-20% range. (Yield is defined as the percentage of parts produced that passed post-production tests and were actually shipped to Deere.) Because of the low yields, Deere was forced to ship tractors to customers with a temporary part that would have to be replaced later.

Both Deere and Revere worked to solve the problems encountered in manufacturing the Gozinta. After testing and analysis, it was determined that problems with the product were related to the physical dimensions of the Deere metal strap. Deere, however, believed that some of the problems were due to the poor quality of the knurls on the Gozinta that Revere was receiving from its vendor. Deere later learned that Revere had changed suppliers for the knurl, but had not informed Deere.

While Revere and Deere were working to solve the problems associated with the Gozinta/Deere project, Revere was experiencing significant downsizing in its personnel following its purchase in 1988 by Dobson-Park, an English corporation. Several Revere employees who worked on the Gozinta/Deere project either left or were laid off.

Eckart and Delfino were concerned about their positions at Revere. Eckart was informed by his supervisor that Revere's Connecticut plant would be closed in July 1989 and that he should start looking for another job. Delfino was initially assured by his supervisor that his job was secure and that he had nothing to worry about. That particular supervisor was laid off two weeks later. In early 1989, Delfino and Eckart told David Ramsey of Deere that they were scheduled to be let go from Revere.

C. Deere's search for another sensor supplier. Although yields of the Gozinta had improved to 95% in the summer of 1989, the Revere Gozinta never completely met Deere's engineering qualification tests. Deere was also concerned about whether Revere would be a long-term viable supplier. Based on these concerns, in addition to the turnover in...