Rockwell Graphic Systems, Inc. v. DEV Industries, Inc.

• Decision Date: 11 February 1991
• Docket Number: No. 90-1499,90-1499
• Citation: 925 F.2d 174
• Parties: , RICO Bus.Disp.Guide 7679, 17 U.S.P.Q.2d 1780 ROCKWELL GRAPHIC SYSTEMS, INCORPORATED, Plaintiff-Appellant, v. DEV INDUSTRIES, INCORPORATED; Press Machinery Corporation; and Robert Fleck, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 174

925 F.2d 174

59 USLW 2560, RICO Bus.Disp.Guide 7679, 17

U.S.P.Q.2d 1780

ROCKWELL GRAPHIC SYSTEMS, INCORPORATED, Plaintiff-Appellant, v. DEV INDUSTRIES, INCORPORATED; Press Machinery Corporation and Robert Fleck, Defendants-Appellees.

No. 90-1499.

United States Court of Appeals Seventh Circuit.

Argued Jan. 11, 1991.

Decided Feb. 11, 1991.

Michael O. Warnecke, William P. Oberhardt, Deborah S. Ruff, John M. Augustyn, Neuman, Williams, Anderson & Olson, Chicago, Ill., Richard A. Speer, Pittsburgh, Pa., R. Paul Eck, Cicero, Ill., for plaintiff-appellant.

Louis B. Garippo, Lydon & Griffin, Stephen P. Carponelli, James E. Hussey, Carponelli, Krug & Adamski, James J. Flynn, Quinn, Jacobs, Barry & Miller, Chicago, Ill., for defendants-appellees.

Lawrence S. Wick, Leydig, Voit & Mayer, Chicago, Ill., Frederick T. Stocker, Manufacturers' Alliance for Productivity and Innovation, Inc., Washington, D.C., for amicus curiae Manufacturers' Alliance for Productivity and Innovation, Inc.

Before CUMMINGS, POSNER, and FLAUM, Circuit Judges.

POSNER, Circuit Judge.

This is a suit for misappropriation of trade secrets. Rockwell Graphic Systems, a manufacturer of printing presses used by newspapers, and of parts for those presses, brought the suit against DEV Industries, a competing manufacturer, and against the president of DEV, who used to be employed by Rockwell. The case is in federal court by virtue of the RICO ("Racketeer Influenced and Corrupt Organizations") statute. 18 U.S.C. Secs. 1961 et seq. The predicate acts required for liability under RICO are acts of misappropriation (and related misconduct, such as alleged breaches of fiduciary duty) committed by the individual defendant, Fleck, and by another former employee of Rockwell and present employee of DEV, Peloso. These acts are alleged to violate Illinois law, and in pendent counts Rockwell seeks to impose liability for them directly under that law as well as indirectly under RICO. The district judge granted summary judgment for the defendants upon the recommendation of a magistrate who concluded that Rockwell had no trade secrets because it had failed to take reasonable precautions to maintain secrecy. Therefore there had been no misappropriation, which in turn was the foundation for the predicate acts; so the RICO count had to be dismissed. With the federal claim out of the case, the district judge relinquished jurisdiction over the pendent counts, resulting in a dismissal of the entire case. 730 F.Supp. 171 (N.D.Ill.1990).

When we said that Rockwell manufactures both printing presses and replacement parts for its presses--"wear parts" or "piece parts," they are called--we were speaking approximately. Rockwell does not always manufacture the parts itself. Sometimes when an owner of one of Rockwell's presses needs a particular part, or when Rockwell anticipates demand for the part, it will subcontract the manufacture of it to an independent machine shop, called a "vendor" by the parties. When it does this it must give the vendor a "piece part drawing" indicating materials, dimensions, tolerances, and methods of manufacture. Without that information the vendor could not manufacture the part. Rockwell has not tried to patent the piece parts. It believes that the purchaser cannot, either by inspection or by "reverse engineering" (taking something apart in an effort to figure out how it was made), discover how to manufacture the part; to do that you need the piece part drawing, which contains much information concerning methods of manufacture, alloys, tolerances, etc. that cannot be gleaned from the part itself. So Rockwell tries--whether hard enough is the central issue in the case--to keep the piece part drawings secret, though not of course from the vendors; they could not manufacture the parts for Rockwell without the drawings. DEV points out that some of the parts are for presses that Rockwell no longer manufactures. But as long as the presses are in service--which can be a very long time--there is a demand for replacement parts.

Rockwell employed Fleck and Peloso in responsible positions that gave them access to piece part drawings. Fleck left Rockwell in 1975 and three years later joined DEV as its president. Peloso joined DEV the following year after being fired by Rockwell when a security guard caught him removing piece part drawings from Rockwell's plant. This suit was brought in 1984, and pretrial discovery by Rockwell turned up 600 piece part drawings in DEV's possession, of which 100 were Rockwell's. DEV claimed to have obtained them lawfully, either from customers of Rockwell or from Rockwell vendors, contrary to Rockwell's claim that either Fleck and Peloso stole them when they were employed by it or DEV obtained them in some other unlawful manner, perhaps from a vendor who violated his confidentiality agreement with Rockwell. Thus far in the litigation DEV has not been able to show which customers or vendors lawfully supplied it with Rockwell's piece part drawings.

The defendants persuaded the magistrate and the district judge that the piece part drawings weren't really trade secrets at all, because Rockwell made only perfunctory efforts to keep them secret. Not only were there thousands of drawings in the hands of the vendors; there were thousands more in the hands of owners of Rockwell presses, the customers for piece parts. The drawings held by customers, however, are not relevant. They are not piece part drawings, but assembly drawings. (One piece part drawing in the record is labeled "assembly," but as it contains dimensions, tolerances, and other specifications it is really a piece part drawing, despite the label.) An assembly drawing shows how the parts of a printing press fit together for installation and also how to integrate the press with the printer's other equipment. Whenever Rockwell sells a printing press it gives the buyer assembly drawings as well. These are the equivalent of instructions for assembling a piece of furniture. Rockwell does not claim that they contain trade secrets. It admits having supplied a few piece part drawings to customers, but they were piece part drawings of obsolete parts that Rockwell has no interest in manufacturing and of a safety device that was not part of the press as originally delivered but that its customers were clamoring for; more to the point, none of these drawings is among those that Rockwell claims DEV misappropriated.

The distinction between assembly and piece part drawings is not esoteric. A.H. Emery Co. v. Marcan Products Corp., 268 F.Supp. 289, 300 (S.D.N.Y.1967), aff'd, 389 F.2d 11, 16 (2d Cir.1968), marks it, and along with other cases declares--what is anyway obvious--that a firm's act in making public some of its documents (or part of a document) does not destroy the status as trade secrets of information contained in other documents (or another part of the same document). Alexander & Alexander, Inc. v. Drayton, 378 F.Supp. 824, 833 (E.D.Pa.1974), aff'd without opinion, 505 F.2d 729 (3d Cir.1974); Ecolaire Inc. v. Crissman, 542 F.Supp. 196, 206 (E.D.Pa.1982); Laser Industries, Ltd. v. Eder Instrument Co., 573 F.Supp. 987, 991 (N.D.Ill.1983). It is immaterial that Rockwell affixed the same legend enjoining the user to confidentiality to its assembly drawings as it did to its piece part drawings. Perhaps thinking of the doctrine of patent misuse (on which see USM Corp. v. SPS Technologies, Inc., 694 F.2d 505, 510-12 (7th Cir.1982), and cases cited there), DEV suggests that if a firm claims trade secret protection for information that is not really secret, the firm forfeits trade secret protection of information that is secret. There is no such doctrine--even the patent misuse doctrine does not decree forfeiture of the patent as the sanction for misuse--and it would make no sense. This is not only because there are any number of innocent explanations for Rockwell's action in "overclaiming" trade secret protection (if that is what it was doing)--such as an excess of caution, uncertainty as to the scope of trade secret protection, concern that clerical personnel will not always be able to distinguish between assembly and piece part drawings at a glance, and the sheer economy of a uniform policy--but also because it would place the owner of trade secrets on the razor's edge. If he stamped "confidential" on every document in sight, he would run afoul of what we are calling (without endorsing) the misuse doctrine. But if he did not stamp confidential on every document he would lay himself open to an accusation that he was sloppy about maintaining secrecy--and in fact DEV's main argument is that Rockwell was impermissibly sloppy in its efforts to keep the piece part drawings secret.

On this, the critical, issue, the record shows the following. (Because summary judgment was granted to DEV, we must construe the facts as favorably to Rockwell as is reasonable to do.) Rockwell keeps all its engineering drawings, including both piece part and assembly drawings, in a vault. Access not only to the vault, but also to the building in which it is located, is limited to authorized employees who display identification. These are mainly engineers, of whom Rockwell employs 200. They are required to sign agreements not to disseminate the drawings, or disclose their contents, other than as authorized by the company. An authorized employee who needs a drawing must sign it out from the vault and return it when he has finished with it. But he is permitted to make copies, which he is to destroy when he no longer needs them in his work. The only outsiders allowed to see piece part drawings are the vendors (who are given copies, not originals). They too are required to sign confidentiality agreements, and in addition each drawing is stamped with a legend stating that it contains proprietary material. Vendors, like Rockwell's own engineers, are allowed to make copies for internal working...