Roton Barrier, Inc. v. Stanley Works

• Decision Date: 04 March 1996
• Docket Number: No. 95-1217,95-1217
• Citation: 37 USPQ2d 1816,79 F.3d 1112
• Parties: , 37 U.S.P.Q.2d 1816 ROTON BARRIER, INC. and Austin R. Baer, Plaintiffs-Appellees, v. The STANLEY WORKS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1112

79 F.3d 1112

64 USLW 2612, 37 U.S.P.Q.2d 1816

ROTON BARRIER, INC. and Austin R. Baer, Plaintiffs-Appellees, v. The STANLEY WORKS, Defendant-Appellant.

No. 95-1217.

United States Court of Appeals, Federal Circuit.

March 4, 1996.

Rehearing Denied April 22, 1996.

Appealed from United States District Court for the Eastern District of Missouri; Charles A. Shaw, Judge.

Lawrence G. Kurland, Bryan Cave LLP, New York City, argued for plaintiffs-appellees. With him on the brief were Thomas C. Walsh and David A. Roodman, St. Louis, Missouri; Veryl L. Riddle, Bryan Cave LLP, of St. Louis, Missouri, of counsel.

Stephen M. Axinn, Skadden, Arps, Slate, Meagher & Flom, New York City, argued for defendant-appellant. With him on the brief was Constance S. Huttner. Also on the brief were James D. Veltrop, Washington, DC, and Peter Costas, Pepe & Hazard, Hartford, Connecticut, of counsel.

Before RICH, Circuit Judge, NIES, Senior Circuit Judge, ^* and PLAGER, Circuit Judge.

Opinion for the court filed by Circuit Judge RICH. Additional views filed by Senior Circuit Judge NIES.

RICH, Circuit Judge.

The Stanley Works (Stanley) appeals from the judgment of the United States District Court for the Eastern District of Missouri finding trade secret misappropriation under the law of Illinois and awarding actual and exemplary damages therefor, finding willful infringement of U.S. Patent No. 4,976,008 (the '008 patent) and awarding actual and treble damages therefor, finding the invention claimed in the '008 patent to have been nonobvious, awarding prejudgment interest and attorney fees, and enjoining Stanley from disclosing any of Roton's trade secret information and from participating or otherwise engaging in the continuous pinless hinge business for four years from the date of the judgment. Roton Barrier, Inc. v. The Stanley Works, No. 4:92-CV-709-CAS (E.D.Mo. January 27, 1995).

As to the trade secret claim, we affirm the holding of trade secret misappropriation, affirm the award of actual damages, reverse the award of exemplary damages, and vacate the award of attorney fees and the injunctive relief. As to the patent claim, we reverse the holding of infringement, vacate the finding of willfulness, the award of attorney fees and the award of injunctive relief, and affirm the holding as to validity. We affirm the award of prejudgment interest. We also remand for determinations consistent with this opinion.

I. BACKGROUND

A. The Technology

In 1963, Austin R. Baer (Baer), the owner of Roton Corporation, a predecessor in interest to appellee Roton Barrier, Inc. (Roton) ¹, obtained U.S. Patent No. 3,092,870 directed to a hinge comprising two intermeshed geared hinge members, a so-called continuous pinless hinge. In 1968, Baer obtained another patent, U.S. Patent No. 3,402,422, directed to an improvement in pinless hinges in which thrust bearings are placed in recesses along the length of the hinge leaves. In 1990, Baer secured yet another patent, the '008 patent in suit, which discloses adding bearing inserts above and below each thrust bearing "for enhancing hinge performance by reducing frictional sliding contact between the hinge members" and each thrust bearing. Through the course of the years, Baer developed and refined his process for manufacturing Roton hinges and Roton became the market leader in continuous pinless hinges.

B. Contact Between Stanley and Roton

As early as 1976, Stanley was interested in manufacturing Roton-type hinges. Stanley concluded, however, that "[a]s a product, the Roton hinge does not lend itself to Stanley manufacturing capabilities" and "is limited to an extruded process requiring extremely close tolerances." In 1988, Stanley was again interested in "adding a commercial continuous hinge as a product line." At that time, Stanley estimated that "95% of all commercial continuous hinge applications are Roton" hinges.

In 1989, Stanley considered acquiring Roton. Stanley's Vice President of Marketing (Bannell) first contacted Baer and in April 1989, Roton and Stanley entered into a Confidentiality Agreement which barred the disclosure or use by Stanley of any of the "Evaluation Material" provided to it by Roton except for purposes of Stanley's evaluation of Roton for acquisition. In June of that year, Stanley's Vice President of Manufacturing (Martino), Comptroller (Gallagher), and President (Martin) inspected the Roton facility. Gallagher and Martin also reviewed Roton's financial statements and discussed the information with Roton's accountant. Various conferences took place between Stanley and Roton and there was what can be characterized as a free flow of information from Roton to Stanley seemingly concerning every aspect of Roton's business.

In July 1989, Stanley made an offer to purchase Roton, which Roton rejected. On August 1, Roton terminated negotiations with Stanley and requested the return or destruction of all confidential materials. Later that month, Stanley corresponded with Roton about a possible distributorship arrangement. During these negotiations Stanley sought to amend the Confidentiality Agreement to provide:

Notwithstanding anything to the contrary contained in this Agreement or the April 10, 1989 [Confidentiality Agreement], Stanley specifically represents to Roton that Stanley currently possesses the capability of manufacturing and selling continuous hinges for use on architectural/commercial grade exterior and interior doors. This capability was developed independently by Stanley without use of any Evaluation Material.

Baer found this proposed amendment inconsistent with his understanding of Stanley's capabilities prior to its evaluation of Roton and for this reason broke off all discussions with Stanley.

In January 1990, Roton was acquired by C. Hager & Sons Hinge Manufacturing Co. (Hager), a chief competitor of Stanley, and became Roton Barrier. When Stanley learned of Hager's acquisition of Roton, it embarked on a self-styled "aggressive project plan" in which it sought to "develop [its] own product line of continuous extruded hinges." In response to perceived "weaknesses in the life cycle of the Roton product," Stanley intended to "focus on an improved weight bearing system." As a result, Stanley introduced into the market its own continuous pinless hinge, the LS500.

C. District Court Proceedings

Roton sued Stanley for patent infringement, misappropriation of trade secrets, and breach of contract. Stanley counterclaimed seeking a declaratory judgment of patent invalidity, and unenforceability and noninfringement. The suit was tried in the district court without a jury. The court found misappropriation of trade secrets and awarded $2,791,677 in actual damages and the same amount in exemplary damages. The trial court found patent infringement under the doctrine of equivalents and awarded $129,030 in actual damages which it trebled after finding the infringement to be willful. The total damages award was $5,970,444. Attorney fees were also awarded as was prejudgment interest on the actual damages portion of the award from June 1, 1991. Additionally, Stanley was barred from participating in the continuous pinless hinge business for four years from the date of the judgment and was also permanently enjoined from using, disclosing, or otherwise disseminating any of Roton's trade secrets.

We have jurisdiction under 28 U.S.C. 1295(a)(1) (1994), including pendant jurisdiction to consider the counts of trade secret misappropriation and breach of contract. Rhone-Poulenc Specialites Chimiques v. SCM Corp., 769 F.2d 1569, 1571, 226 USPQ 873, 874 (Fed.Cir.1985).

II. TRADE SECRET MISAPPROPRIATION

A. Heightened Scrutiny

Stanley first contends that the trial court's decision should be reviewed by us with heightened scrutiny because the trial court "largely copied its trade secrets decision verbatim from plaintiffs' post-trial pleadings."

It is acceptable for a trial court to adopt "many or most of the parties' proposed findings of fact and conclusions of law, particularly if skillfully and wisely drafted." Abbott Lab. v. Mead Johnson & Co., 971 F.2d 6, 23, 23 USPQ2d 1663, 1676 (7th Cir.1992). Moreover, that the district court adopted many of Roton's proposed findings does not alter our basic standard of review.

B. Trade Secret Law

Federal courts apply the trade secret law of the appropriate state. See Water Technologies Corp. v. Calco, Ltd., 850 F.2d 660, 670, 7 USPQ2d 1097, 1105 (Fed.Cir.), cert. denied, 488 U.S. 968, 109 S.Ct. 498, 102 L.Ed.2d 534 (1988). In the case at bar, we apply the trade secret law of the State of Illinois. This case is governed by the Illinois Trade Secrets Act, enacted in 1988. 765 ILCS § 1065 (West 1995) (formerly Ill.Rev.Stat.1991, ch. 140, par. 351-59) (ITSA).

C. Roton's Trade Secrets

The first step in any trade secret analysis is a determination of whether any trade secrets exist.

1. The law

Section 2 of ITSA provides that:

(d) 'Trade secret' means information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that:

(1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and

(2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.

765 ILCS § 1065/2(d) (West 1995).

"The focus of both the common law and [ITSA] is on the secrecy of the information sought to be protected." Service Ctrs. of Chicago, Inc. v. Minogue, 180 Ill.App.3d 447, 129 Ill.Dec. 367, 371, 535 N.E.2d 1132, 1136, 11 USPQ2d 1062, 1065 (1989). "[T]he key to 'secrecy' is the ease with which information can be developed through proper means: if the information can be readily duplicated without involving considerable...