Sandlin v. Johnson, 13052.

• Decision Date: 13 December 1945
• Docket Number: No. 13052.,13052.
• Citation: 152 F.2d 8
• Parties: SANDLIN et al. v. JOHNSON.
• Court: U.S. Court of Appeals — Eighth Circuit

152 F.2d 8 (1945)

SANDLIN et al. v. JOHNSON.

No. 13052.

Circuit Court of Appeals, Eighth Circuit

December 13, 1945.

Tyree G. Newbill, of Kansas City, Mo., and Reuben Singer, of Philadelphia, Pa. (W. Arnold Brannock, of Kansas City, Mo., on the brief), for appellants.

David A. Murphy, of Kansas City, Mo., (Roy E. Hamilton, John T. Harding, R. C. Tucker, and John Murphy, all of Kansas City, Mo., on the brief), for appellee.

Before WOODROUGH, JOHNSEN, and RIDDICK, Circuit Judges.

JOHNSEN, Circuit Judge.

The case is here on a second appeal. Under our previous opinion, 141 F.2d 660, we reversed a judgment for defendant because the trial court had adopted an erroneous theory and had failed properly to try the questions whether plaintiffs' improved poultry-picking device was at the time a trade secret and whether it had been revealed to defendant by way of confidential disclosure.

On a retrial, the court found that at the time plaintiffs exhibited their device to defendant they had already made a general disclosure of it commercially so that it was not a trade secret; that their demonstration of it to defendant was without any attending obligation of secrecy either express or implied; and that defendant's use of it thereafter whatever might be plaintiffs' other legal rights against defendant was not a breach of a confidential disclosure as contended by plaintiffs. See D.C., 57 F.Supp. 374, 376. The parties had limited the issue on the retrial to the questions of trade secret, confidential disclosure and breach, and on the basis of its findings the court therefore dismissed the complaint, and plaintiffs have appealed.

The controlling question here is whether the court's findings, on the evidence in the record, properly can be said to be clearly erroneous.

The device involved was an improvement of some parts in combination with a previous machine which plaintiffs had designed to remove feathers from poultry and on which they had made application for a patent. The improvements consisted in a deepening of the cuts or slashes in the solid rubber fingers by which the feather-pulling was done, and in the substitution of a clamp for a bolt with which the rubber fingers were fastened onto the revolving drum of the machine. No application had then been made for a patent on the improvements, but at the time the retrial was had plaintiffs had been granted patents on both the original machine and the improved combination.

Plaintiffs and defendant had entered into negotiations for the manufacture and sale of the improved machine by defendant on a royalty basis. They executed a preliminary memorandum in which plaintiffs agreed to give defendant "sixty days to work out the necessary details and get into production on this machine provided you notify us definitely within fifteen days that you have made satisfactory progress to guarantee us that you will actually produce and sell this machine on a royalty basis." The memorandum further made provision for the drawing up of a formal contract within 60 days "that will completely cover all points each of us will desire" and that was to give defendant the exclusive right to manufacture and sell the machine in all except four reserved states, for "a maximum of 10% royalty based on the net sales of picking machines."

Within the 15 days required by the preliminary memorandum, defendant submitted to plaintiffs a report of his progress in arranging for the manufacture and sale of the machine. Plaintiffs meanwhile, without further consultation with defendant, had had their attorney prepare a formal contract, which they transmitted to defendant for his signature but which they had left unsigned by themselves. Defendant suggested some changes and additions to the proposed contract, to which plaintiffs refused to agree. The proposed contract purported to reserve to plaintiffs one more state than was specified in the preliminary memorandum. It also provided for a royalty of 10 per cent on the "gross selling price" instead of a percentage on the net sale price as stated in the preliminary memorandum. After a fruitless exchange of correspondence, defendant signed the contract which plaintiffs had prepared, before the sixty-day period provided in the preliminary memorandum had expired, and returned it for execution by plaintiffs. Plaintiffs then refused to sign the contract. On the witness stand, one of the plaintiffs gave as the reason for their refusal that they had lost confidence in defendant.

Defendant had gone ahead during the sixty-day period, attempting to make arrangements for manufacturing and selling the machine, in accordance, so he claimed, with the original intention of the parties and with his obligation under the preliminary memorandum. He incurred substantial expenses in connection with his efforts, and he took sales orders during the sixty-day period which he contended he was legally obligated to fill. After plaintiffs refused to execute the formal contract, he proceeded with the manufacturing and selling of the machine, thinking, so he said, that plaintiffs finally would sign the instrument. Sometime later he made some changes in the design and features of the machine and applied for a patent of his own, which was granted. The question as to the validity or invalidity of any of the patents that have been referred to is not before us.

Plaintiffs contended on the retrial that, prior to their dealings with defendant and for some time after, they had kept their improved machine a secret in their own business and had made no disclosure of it; that in allowing defendant to see the machine they expressly cautioned him that it was a secret and that no disclosure was to be made of it until after they had executed a formal contract with him, to which condition defendant agreed; that under the circumstances defendant had no right to disclose the machine in any manner during the sixty-day period covered by the preliminary memorandum; and that, when plaintiffs finally decided not to execute a formal...