Speedry Chemical Products, Inc. v. Carter's Ink Company

• Decision Date: 02 July 1962
• Docket Number: Docket 27260.,No. 244,244
• Citation: 306 F.2d 328
• Parties: SPEEDRY CHEMICAL PRODUCTS, INC. and Sidney Rosenthal, Plaintiffs-Appellants, v. The CARTER'S INK COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

306 F.2d 328 (1962)

SPEEDRY CHEMICAL PRODUCTS, INC. and Sidney Rosenthal, Plaintiffs-Appellants, v. The CARTER'S INK COMPANY, Defendant-Appellee.

No. 244, Docket 27260.

United States Court of Appeals Second Circuit.

Argued February 21, 1962.

Decided July 2, 1962.

Julius Kass, New York City (Bandler & Kass, New York City, on the brief) (Robert Sylvor, New York City, of counsel), for plaintiffs-appellants.

Whitman Knapp, New York City (Root, Barrett, Cohen, Knapp & Smith, New York City, on the brief) (Robert F. Ambrose, New York City, of counsel), for defendant-appellee.

Before MOORE, FRIENDLY and MARSHALL, Circuit Judges.

MARSHALL, Circuit Judge.

This case arises from a complaint by Speedry Chemical Products, Inc. (Speedry) and Sidney Rosenthal, its president, seeking an injunction and an accounting against The Carter's Ink Company (Carter's) and alleging unfair competition and disclosure of trade secrets by Speedry to Carter in confidence, which disclosures were allegedly illegally obtained and wrongfully used by Carter to the damage of Speedry and Rosenthal. By stipulation the case was tried by the Court without a jury. After a full trial consisting of oral testimony, depositions and hundreds of exhibits, the United States District Court for the Southern District of New York, Wham, J.¹ dismissed the complaint. We affirm.²

Plaintiff Rosenthal is a citizen of the State of New York and plaintiff Speedry is a New York corporation. Carter's is a Massachusetts corporation. Jurisdiction is, therefore, based on diversity of citizenship, 28 U.S.C.A. § 1332. For a considerable time prior to 1956 Speedry manufactured and sold in the open market a refillable capillary action hand ink marking device known as "Magic Marker," consisting of a felt writing nib which continually absorbed ink from a saturated felt sponge encased in a small glass container. Carter's had been engaged for years in the production of ink and products using ink.

Carter's, having become interested in hand ink marking devices and being convinced of the superior qualities of Magic Marker, began negotiations with Speedry in September, 1956. Carter's purpose was to obtain a satisfactory licensing agreement to market Magic Marker under Carter's label. Toward this end representatives of Carter's opened discussion with Sidney Rosenthal, sole owner and president of Speedry. Carter's was interested in a licensing contract which would enable them to put the Magic Marker with Carter's label on the market, by January, 1957. After some preliminary discussions a meeting was set up in Cambridge, Massachusetts for September 24, 1956. Mr. Rosenthal met with certain of Carter's executives, and it was agreed that the only item of discussion would be the proposed licensing agreement. A second meeting was held on October 17, 1956. Carter's representative at this meeting reported to Carter's, among other things:

In our search for the proper product to challenge this market three possibilities presented themselves:

1. Develop a product of our own.

2. Make a product like the Magic Marker but avoid their patents.

3. Secure patent rights from Speedry.

There were subsequent meetings and telephone conversations between Carter's representatives and Rosenthal. These discussions included considerable detail as to constructional features of Magic Marker and other details incidental to the proposed licensing agreement. At the morning meeting of October 29th, Speedry was represented by Rosenthal and his attorney. Carter's was represented by several of its executives and its attorneys. At this meeting discussion was continued and followed by a luncheon meeting and an afternoon meeting at Carter's plant where Rosenthal went into further detail. By this time the parties contemplated sale by Speedry to Carter's of all the material parts of the marker including the completed nib assembly, the felt, and the ink, with Carter's supplying other parts and its label and assembling the finished product.

In the meantime, Carter's patent lawyers had been studying Speedry's patent and subsequently concluded that it did not give adequate protection and, therefore, a licensing agreement would be of no use to Carter's. On January 11, 1957 Carter's notified Speedry of their conclusion.

Carter's, through research, experimentation, investigation, study and the assistance of an independent firm of design engineers, released to the general market its product "Marks-A-Lot" in April, 1958.

Appellants Speedry and Rosenthal brought this action for an injunction against, and an accounting from, Carter's, asserting unfair competition and alleged disclosure of trade secrets by appellants and subsequent use of them by Carter's. While there are precedents in this field, each case turns upon its own facts. There are, however, some guideposts. The right independently to discover and use a secret was recognized in England as early as 1743. Gibblett v. Read, 9 Mod. 459. There is a "property right" in trade secrets, which may be protected against those who acquire and use the knowledge thereof wrongfully. Ferroline v. General Aniline & Film Corp., 207 F.2d 912 (7 Cir.1953), cert. denied 347 U.S. 953, 74 S.Ct. 678, 98 L.Ed. 1098 (1954). However, the discoverer of such secrets has no exclusive right against another who uncovers the secret by fair means, or against those who acquire knowledge of it without a breach of contract or of a confidential relationship with the discoverer, American Dirigold Corp. v. Dirigold Metals Corp., 125 F.2d 446 (6 Cir.1942); Nims, Unfair Competition and Trade-Marks, 4th Ed. p. 418.

Plaintiff's claim is correctly based upon "equitable principles" Becher v. Contoure Laboratories, Inc., 29 F. 2d 31 (2 Cir.1928); affirmed 279 U.S. 388, 49 S.Ct. 356, 73 L.Ed. 752 (1929). Except for matters of assignment and other related purposes, the word "property" as applied to unpatented secret inventions, discoveries and trade secrets generally constitutes "an unanalyzed expression of certain secondary consequences of the primary fact that the law makes some rudimentary requirements of good faith" E. I. DuPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 37 S.Ct. 575, 61 L.Ed. 1016 (1917). For example, the discoverer of a new process or trade secret who attempts to keep the process or idea secret has no exclusive right to it against the public, or anyone who discovers it by fair means, or against one who in good faith acquires knowledge of it without breach of contract or of a confidential relationship with the discoverer. American Dirigold Corp. v. Dirigold Metals Corp., supra; Cheney Bros. v. Doris Silk Corp., 35 F.2d 279 (2 Cir.1929), cert. denied 281 U.S. 728, 50 S.Ct. 245, 74 L.Ed. 1145 (1930).

In an action of this type there must be a showing of a confidential relationship between the parties, the disclosure of trade secrets and the use by the defendant of this secret information. Restatement of Torts, Section 757.

Basic to any action of this type is proof of the existence of a trade secret. Restatement of Torts § 757 adequately sets forth the rule:

"Secrecy. The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to employees involved in its use. He may likewise communicate it to others pledged to secrecy. Others may also know of it independently, as for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial, element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. An exact definition of a trade secret is not possible. Some factors to be considered in determining whether given information is one\'s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others."

Speedry's Magic Marker was on the market and available to the general public. The basic elements were disclosed in United States Patent No. 2,713,176. Both the marker itself and the patent had been examined by defendant's employees and attorneys. Subject to patent restrictions defendant was free to use any knowledge gained therefrom. Cheney Bros. v. Doris Silk Corp., supra; Canfield v. Blaw-Knox Co., 98 F.2d 805 (3 Cir.1938); Ellis, Trade Secrets, p. 323.

However, plaintiff claims that defendant set up a confidential relationship by the meetings in Boston, obtained the necessary secrets and used them to manufacture its product Marks-A-Lot. Defendant contends that no trade secrets were disclosed and its Marks-A-Lot was developed by independent research on its part. A clear cut issue of fact was presented to the trial court and we have independently examined all of the testimony and the hundreds of pages of exhibits plus the Magic Marker and the Marks-A-Lot. We find ourselves in agreement with the findings, conclusions and judgment of the trial court.

During September and October of 1956 several conferences were held between officials of Speedry and Carter. These conferences were for the purpose of making out a license contract whereby Carter could put the Magic Markers on the market with Carter's label by January...