Space Aero Products Co. v. R. E. Darling Co.

• Decision Date: 12 March 1965
• Docket Number: No. 191,191
• Citation: 238 Md. 93,208 A.2d 74
• Parties: , 145 U.S.P.Q. 356 SPACE AERO PRODUCTS CO., Inc., et al. v. R. E. DARLING CO., Inc.
• Court: Maryland Court of Appeals

Page 93

238 Md. 93

208 A.2d 74, 145 U.S.P.Q. 356

SPACE AERO PRODUCTS CO., Inc., et al. v. R. E. DARLING CO., Inc.

No. 191.

Court of Appeals of Maryland.

March 12, 1965.

Joseph Sherbow, Baltimore (Edward F. Shea, Jr., Baltimore, and Rourke J. Sheehan, Rockville, on the brief), for appellants.

William H. Pattison, Jr., Bethesda (Simpson & Simpson and Joseph B. Simpson, Jr., Rockville, on the brief), for appellee.

Before PRESCOTT, C. J., and HAMMOND, HORNEY, MARBURY and OPPENHEIMER, JJ.

OPPENHEIMER, Judge.

This case involves the question of whether the court below properly enjoined the defendants from using what the appellee claims to be its trade secret in the building of oxygen breathing hoses. It also involves the scope of the injunction granted and other issues in connection with the conduct of the parties and rulings of the trial judge.

The appellee, R. E. Darling Co., Inc. (Darling) was founded as an individual business by Mr. Darling in 1948 and began the business of manufacturing oxygen breathing hoses for aircraft personnel, in Bethesda, Maryland. In 1950, Mr. Darling undertook a research and development program in the course of which small-bore miniaturized, silicone flexible breathing hoses were produced; these hoses were sold to the Douglas Aircraft Company and to the Navy, beginning in 1953; the hoses were the same general type that are now qualified and referred to in certain military specifications. The business was subsequently incorporated. Four of the defendants below, Joseph A. Jackson; Eugene E. Fasano; Douglas L. Creger and William Phillips ¹ (sometimes collectively referred to as the former employees) worked for Darling in various capacities. Each of them had been with Darling for some years; there was no formal contract of employment; each could be discharged by Darling at any time and had the right to leave at any time.

In the fall of 1960, these men decided to go into business in competition with Darling. They sought and obtained financial backing from the appellants, Norris Manufacturing Company (Norris) and William Brandenburg (Brandenburg), the president of Norris. Norris had supplied silicone products to Darling, but in 1959, the officers of Darling had formed the Materials Testing Company to make silicone compound and tubing. In late 1959 or early 1960, the United States Navy had sent a representative to Darling to discuss new proposed specifications for oxygen breathing hoses of certain types of which Darling had been the sole manufacturer and supplier. Thereafter, Military Specification H-22489 was prepared and issued in April, 1960. Darling began the study and work to qualify hose under the new specifications. On December 14, 1960, the appellant, Space Aero Products Co., Inc. (Space Aero) was incorporated by the former employees, who had resigned from Darling's employ between December 9 and December 23, 1960. Space Aero commenced business operations in Hyattsville, Maryland, in January, 1961. The first hose built by it was the same as the Darling hose and was built by some of the same people who had built the hose for Darling. Space Aero qualified its hose under Military Specification H-22489 in the middle of January, 1961; it was submitted to the Navy on February 20, 1961. Darling did not submit any hoses for qualification under this specification until April 25, 1961. The Navy accepted Space Aero's hose in May, 1961.

Darling filed its suit on February 27, 1961. The appellants filed answers denying that the appellee had a cause of action against any of them. No preliminary injunction was issued. After the protracted taking of testimony, ² Judge Pugh filed an opinion on May 27, 1964 in which, after reviewing what he regarded as the salient features of the testimony, he found from the evidence that the former employees 'learned the know-how to set up a competing business which knowledge was gained by them while in the employ of the plaintiff.' He further found that the former employees owed the duty of fidelity and trust to their employer while they were employed and had breached that duty. He found further: 'that other hose manufacturers in this Country have endeavored to produce an oxygen breathing hose which would compete successfully with the plaintiff's but had failed to do so despite their knowledge and experience but the defendants were able to do so immediately and within twenty days after the charter was granted to its corporation, all because of the knowledge they had gained during their employment by the plaintiff.' Brandenburg and Norris, the court found, had illegally entered into a conspiracy to cause the former employees to cease working for Darling. Other findings of the lower court will be referred to in the discussion which follows.

On June 10, 1964, the lower court entered an order which permanently enjoins and restrains the appellants 'from further manufacture and/or sale' of oxygen breathing hoses 'of like or similar construction to hose assemblies manufactured to the requirements of United States Military Specification Mil H-22489.' The court further ordered the appellants: 'to immediately deliver up to this Court for destruction any and all drawings, manuals, documents and other materials in their possession which describe or disclose the equipment, components, methods or techniques utilized in the manufacture of those hose assemblies.' The defendants were ordered to pay the costs, and the court retained jurisdiction for the purposes of determining Darling's rights to an accounting and for damages.

On June 10, 1964, the date of the injunction, the United States filed a statement as amicus curiae, in which it requested the court to consider the interest of the United States in the scope of the injunction to be entered, as set forth in the affidavit of Rear Admiral W. T. Hines, attached to and made a part of the statement. This affidavit states, in part: '[I]t affirmatively appears that the National Defense interest would be adversely affected in the delay resulting from any inability of Space Aero Products Co., Inc. to deliver vitally needed products under Contracts N383-85726A, N383-86598A, and ASO-82299A.' The United States asked that an injunction in the case should exclude the performance of the contracts referred to in Rear Admiral Hines' affidavit. On June 17, the appellants filed a petition for modification of the injunction, to which the appellee filed an answer. On June 30, the court below, without a hearing, signed an order denying the petition for modification.

The appellants appealed both the orders of June 10 and June 30, 1964. After the appeals, through proceedings in this Court and the lower court, the injunction was stayed upon the giving of a bond for damages.

The appellants contend that the evidence did not support a finding that the former employees violated their duty of loyalty and trust in setting up a company to go into competition with Darling; that the evidence did not support findings that the appellee did in fact possess trade secrets or knowledge proprietary to it and that the appellants wrongfully misappropriated such trade secrets or proprietary knowledge; that the broad scope of the injunction was improper; that the evidence required a finding that Darling had 'unclean hands' and should therefore be denied the aid of an equity court; and that the lower court committed reversible error in several of its rulings. We shall consider these contentions in a somewhat different order.

The Existence of a Trade Secret

A trade secret is described in Restatement, Torts, § 757, comment b, as follows:

'A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.'

In an excellent treatise by Turner on The Law of Trade Secrets (London 1962), which considers the American as well as the English cases on the subject, the learned author states:

'The subject-matter capable of protection may be an industrial secret like a secret machine, process, or formula, or it may be industrial know-how (an increasingly important ancillary of patented inventions); it may be information of any sort; it may be an idea of a scientific nature, or of a literary nature (such as the plot of a story or the theme of a television series), or it may be a slogan or suggestion for a method of advertising; lastly, the subject-matter may be the product of work, or expenditure of money, or of trial and error, or the expenditure of time. Secrecy is not necessarily a constituent of a protectable subject-matter, but when it is, different degrees of imperfect secrecy are sufficient in different circumstances to make subject-matter capable of protection.' p. 4.

Whether or not there is a trade secret and, if there is, whether its owner will be protected against persons accused of using it unlawfully, has been considered in numerous cases in federal and state jurisdictions, and in England, as well as by text writers. See inter alia, the cases cited in Mycalex Corporation of America v. Pemco Corporation, 159 F.2d 907, 913 (4the Cir. 1947). The legal principles are not in dispute; it is their application to the particular facts on which, in general, the decisions turn.

As has been done in other cases, we shall summarize what we regard as the salient facts but will not set them out in such detail as to disclose the alleged trade secret, which it is the purpose of this litigation to protect. Head Ski Company v. Kam Ski Company, 158 F.Supp. 919 (D.C.Md.1958). See also annotation, In Camera Trial of Hearing and Other Procedures to Safeguard Trade Secret or the Like Against Undue Disclosure in Course of Civil Action Involving such S...