Sigma Chemical Co. v. Harris

• Decision Date: 30 April 1984
• Docket Number: No. 84-529C(1).,84-529C(1).
• Citation: 605 F. Supp. 1253
• Parties: SIGMA CHEMICAL COMPANY, Plaintiff, v. Foster HARRIS, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

605 F. Supp. 1253

SIGMA CHEMICAL COMPANY, Plaintiff, v. Foster HARRIS, Defendant.

No. 84-529C(1).

United States District Court, E.D. Missouri, E.D.

April 3, 1985.

On Motion to Alter or Amend April 30, 1984.

Alan C. Kohn, St. Louis, Mo., for plaintiff.

Theodore F. Schwartz, Clayton, Mo., for defendant.

MEMORANDUM

NANGLE, Chief Judge.

This case was tried to this Court sitting without a jury. This Court having considered the pleadings, the testimony of the witnesses, the documents in evidence, and the stipulations of the parties, and being fully advised in the premises, hereby makes the following findings of fact and conclusions of law, as required by Rule 52 of the Federal Rules of Civil Procedure. Fed.R.Civ.P. 52.

A. FINDINGS OF FACT

1. Sigma Chemical Company (hereinafter "Sigma"), plaintiff herein, is a Missouri corporation having its principal place of business in the City of St. Louis, State of Missouri. Sigma is in the business of selling 16,000 esoteric or fine chemicals used in research, production and analysis in laboratories, universities and hospitals all over the United States and in 140-160 foreign countries. It sells primarily by the use of a catalogue. Of these 16,000 chemicals, 10,000 are purchased from suppliers in the United States and all over the world. The remaining 6,000 are manufactured by Sigma. The items purchased by Sigma for resale are analyzed upon receipt, re-packaged in small units and then sold. Purchases are made from 2,300 suppliers, many of whom are small "mom and pop" operations. The heart of Sigma's business is matching the right supplier with the product sold by Sigma. Although Sigma's suppliers send out catalogues and advertisements to many buyers, including Sigma's competitors, and although the chemicals and their names are in the public domain, Sigma's knowledge of which supplier sells a particular chemical of a certain quality that satisfies a particular purpose at the right price is not in the public domain. The chemicals sold by Sigma are often used for advanced pharmaceutical research and for the detection and analysis of disease. The exact nature and constituent parts of the chemicals it sells are often unknown. For example, it purchases and then resells a certain constituent part of milk. While two or more suppliers may offer that item for sale, all but one of them have purified the chemical so well that the active ingredient used for research has been purified out. The result is that Sigma uses only the one supplier which has not removed the one impurity that makes the product usable for research.

2. Foster Harris (hereinafter "Harris"), defendant herein, is a former employee of Sigma. Harris, formerly of St. Louis, Missouri, now resides permanently in California. Harris was employed by Sigma as a purchasing agent or chemical buyer.

3. Sigma employs approximately 900 individuals. Approximately 100 of these indivduals are employed in the quality control department. Sigma analyzes or assays every chemical or shipment of chemicals that it purchases. Each chemical is subjected to nine different tests to determine whether it complies with the seller's specifications, Sigma's standards and the needs of Sigma's customers. Sigma even tests new shipments from previously tested lots. On the average, Sigma rejects approximately 15% of the items that it purchases because said items fail to meet the seller's, Sigma's, or the customer's specifications. Sigma frequently does not return rejected products, especially where a rejected product was purchased from a competitor, because they do not wish to advise its suppliers of what is wrong with their products. Jerry Annunciato, Manager of K & K Chemicals, testified that his firm does not do any quality testing of the chemicals that it sells and that he occasionally receives complaints from customers. Thus, although a seller's catalogue will contain a statement of the chemical's specifications and a certificate of analysis which may accompany the chemical purchased, the product does not always meet either the seller's catalogue's specifications or the certificate of analysis.

4. Sigma deals with approximately 2,300 suppliers. However, there are literally thousands of potential suppliers and there is often more than one supplier for many items. Quality is a major criteria in choosing a particular supplier for a particular product. This is one of the reasons that Sigma employs a significant proportion of its work force in the area of quality control. One of the keys to Sigma's success has been its ability to sell chemicals which are high in quality and which satisfy its customers' sometimes specific needs.

5. The President of Sigma, Dr. Thomas Cori, testified that finding the supplier who can supply a particular chemical with particular quality attributes at a particular price is akin to "finding a needle in a haystack". This Court credits Dr. Cori's testimony.

6. Sigma maintains a great deal of information about the products that it purchases for resale. This information is kept primarily in product files and vendor files. These files are maintained in the purchasing department at Sigma. These files have been developed by Sigma over a period of 40 years at a significant cost. A typical product file contains the name of the product, information regarding Sigma's source or sources for that product, quality control testing information, price and purchasing history information, and complaints, if any, from customers. A typical vendor file consists of the supplier's name, and price and quality information regarding products purchased from that vendor. Some of the individual items in these files are in the public domain. For example, many files contain excerpts from suppliers' published catalogues and sales materials. The knowledge of which supplier's catalogue is in a particular product is not in the public domain. The files also contain other information that is not public and is, in fact, kept secret. The types of information that are secret include the following: 1) Sigma's particular source for a particular product; 2) the negotiated price that Sigma pays for a particular product; 3) the results of Sigma's quality control tests, i.e., which supplier's products fail to meet Sigma's specifications; 4) the quantities in which plaintiff purchases particular products; and 5) sales and purchasing history for a given product.

7. Taken as a whole, the information maintained by Sigma in its product and vendor files constitutes confidential and highly valuable proprietary information. Sigma has approximately 60 to 70 competitors in the fine and esoteric chemical business. Sigma and its competitors are inundated with suppliers' marketing information on a daily basis. One of defendant's witnesses, Jerry Annunciato, testified that abstracting such information is a full time job. Mr. Annunciato testified that his firm, K & K Laboratories, a division of ICN, has developed an index consisting of 200,000 3" × 5" cards, which index relates to potential sources of chemicals, and that it has taken 27 years to compile said index. Moreover, the primary basis of competition between Sigma and its competitors is price and quality. Success is based in large part on a competitor's ability to determine which supplier, among many, provides an item of a particular quality at the right price. The identity of the seller for that price and that quality is valuable to a competitor in Sigma's business. Two (2) of defendant's witnesses, Jerry Annunciato and Robert Beatty, an officer with ICN Cleveland, a major competitor of Sigma, testified that they maintain the confidentiality of the price paid by their respective firms to their suppliers and the identity of their firms' respective suppliers and would not divulge said information to one of their competitors. Thus, Sigma's competitors treat such information as valuable. This Court also credits Dr. Cori's testimony that Sigma's competitors do not keep records as detailed or as complete as Sigma does. This Court also credits Dr. Cori's testimony that prior price and purchasing information can be useful in price negotiations and that Sigma negotiates nearly all of the prices that it pays for the products that it purchases. The confidential product and vendor files maintained by Sigma would be valuable to a competitor and would be extremely difficult to reproduce, given the number of items that Sigma offers and the large volume of supplier information that exists.

8. Sigma takes several measures to guard and maintain the confidentiality and secrecy of the information contained in its product and vendor files. First, there is only one entrance to the building where the purchasing department is located and that entrance is guarded by an armed guard 24 hours a day, seven days a week. Second, each employee must wear an identification badge with his or her photograph on it. The badges are colorcoded by department so that it is obvious if an employee is in a department where he or she is not authorized to be. Third, said files are not supposed to be removed from the purchasing department. Fourth, visitors may not enter the purchasing department, unless escorted by an authorized employee who has identified said visitor at the front entrance.

Several former and current Sigma employees testified that they seldom wore their identification badges subsequent to entering the building. However, these employees were authorized to have access to the product and vendor files. Moreover, there was no evidence that Sigma's alleged failure to strictly enforce the identification badge rule ever resulted in unauthorized personnel gaining access to Sigma's confidential information. In addition, there was testimony that Sigma reveals certain information to shippers, airlines, and customs officials in the course of shipping and receiving the products that Sigma purchases. The information revealed thereby is limited to the name...