Sperry Rand Corporation v. Rothlein

• Decision Date: 14 October 1964
• Docket Number: Civ. A. No. 7880.
• Citation: 241 F. Supp. 549
• Parties: SPERRY RAND CORPORATION, Plaintiff, v. Bernard J. ROTHLEIN et al., Defendants.
• Court: U.S. District Court — District of Connecticut

241 F. Supp. 549

SPERRY RAND CORPORATION, Plaintiff, v. Bernard J. ROTHLEIN et al., Defendants.

Civ. A. No. 7880.

United States District Court D. Connecticut.

October 14, 1964.

James P. Gregory, Raymond E. Hackett, John S. McGeeney, Francis J. McNamara, Cummings & Lockwood, Stamford, Conn., John A. Huston, Counsel, Richard B. Leather, Co-Counsel, Sperry Gyroscope Co., Division of Sperry Rand Corp., New York City, for plaintiff.

Donald F. Keefe, New Haven, Conn., Durey, Pierson & Jamieson, Stamford, Conn., for defendants.

ANDERSON, Circuit Judge (sitting by designation).

This is a diversity action in which the plaintiff seeks an injunction and damages against the defendants, its former employees, for breach of fiduciary duty in making wrongful use of the plaintiff's trade secrets.

FINDINGS OF FACT:

1. This is a diversity action in which the plaintiff, Sperry Rand Corporation, organized and existing under the laws of the State of Delaware, is a citizen of that State; and in which the defendants, Bernard J. Rothlein, Edward N. Clarke, Joseph J. Gruber, Milton Schneider, Robert L. Hopkins, Robert L. Hoch, Richard N. Rau and Arthur V. Siefert, are all residents and citizens of the State of Connecticut.

2. The amount in controversy exceeds $10,000, exclusive of interests and costs.

3. The business of the plaintiff is predominantly in the field of electronics. The Sperry Gyroscope Company Division, located in Great Neck, New York, is a division of the plaintiff specializing in such areas of electronics as radar, fire control equipment, and electrical components. The majority of its work is for the United States Government.

The Sperry Semiconductor Division is located in Norwalk, Connecticut, and its business is the manufacture of semiconductor devices, such as diodes and transistors, which are used in a variety of electronic applications, including missile and national defense applications.

While the Sperry Semiconductor Division is a division of the plaintiff, the Sperry Gyroscope Company Division has managerial control and direct cognizance of the Sperry Semiconductor Division in Norwalk under Vice President Arthur Weckel.

4. As of May 25, 1959 and for a considerable time prior thereto, the defendants were employed by the plaintiff, Sperry Semiconductor Division, in the following positions:

Bernard J. Rothlein, technical director; Edward N. Clarke, group head for research and development; Joseph J. Gruber, group head for transistor engineering; Milton Schneider, group head for diode rectifier product engineering; Robert L. Hopkins, engineer in charge of Materials preparation; Robert L. Hoch, product engineer for diodes; Richard N. Rau, engineer for research and development; and Arthur V. Siefert, research and development engineer.

5. Prior to 1955 the defendant Rothlein had been employed in the semiconductor field by Sylvania Electric Products Corporation, the United States Army Signal Corps Laboratories at Bellmar, New Jersey, and the Bulova Watch Company, in that order.

6. In 1953, after he was no longer connected with the Bulova Watch Company and while he was not employed by any company, he endeavored to persuade the plaintiff to go into the semiconductor business, which it had not entered up to that time.

7. The plaintiff thereupon hired Rothlein in early 1953 to investigate the advisability of the plaintiff's entering the semiconductor field. About two months later Rothlein made a written report to the plaintiff recommending that it go into this field. In general, his recommendations were adopted by the plaintiff.

8. The defendant Rothlein was placed in charge of the Sperry Semiconductor group and personally hired each of the other seven defendants, most of whom he had known and worked with previously in the semiconductor industry.

9. Although each of the defendants was skilled as a scientist or engineer with special skills and experience in research and development in the semiconductor field, none had any significant experience in the manufacture or production of semiconductor devices, including silicon alloy junction transistors, for sale in the the open market.

10. A semiconductor is one of a class of materials (such as silicon) whose electrical conductivity falls between that of a conductor (metal) and that of an insulator.

11. A transistor is a semiconductor device with three electrodes — called emitter, collector, and base region. It performs most of the functions of a vacuum tube with the added advantages of longer life, ruggedness, and small size. Its typical uses are as an amplifier and as an electrical switch.

12. An alloy junction is a junction formed by alloying (fusing) one or more impurities into a semiconductor.

13. In particular, a silicon alloy junction transistor is a transistor which has been fabricated by means of alloying impurities into a silicon die and, therefore, contains two alloy junctions (emitter and collector) with a mutual base region of silicon in between.

14. Pursuant to the plan invisioned in Rothlein's report, a small development staff was set up at Great Neck, Long Island, and research was commenced with Rothlein in charge. The defendant Schneider was the first to be added to the group and he was followed by the defendant Siefert; both were engineers.

15. In 1954 semiconductor devices were being made, in the trade generally, from germanium. Germanium devices had a high temperature limitation and, although they were still being used by the Armed Forces in 1955, the Armed Forces' long range objectives called for devices with higher temperature capabilities.

16. With this in mind, Rothlein decided that Sperry should concentrate on the development of silicon devices rather than germanium devices. He also decided that the semiconductor group should first produce a diode, which is a simpler semiconductor device, and then use the experience gained with diodes to produce the more complicated transistor.

17. Rothlein formulated the policy of making it the objective of Sperry to produce the higher temperature devices to meet the growing demand of defense requirements and seize the opportunity for greater profits.

18. Toward the end of 1954 Schneider and Siefert commenced growing silicon crystals at Sperry and this activity continued into 1955. Under Rothlein's supervision the group was producing silicon crystal material to make diodes which continued during the entire time the section was at Great Neck.

19. The defendant Hoch joined Sperry in October of 1955 and was assigned to work on the diode at Great Neck. When he came the semiconductor facilities were simply a pilot operation, hand operated.

20. The defendant Hopkins joined Sperry in April of 1956 and he was assigned responsibility for the crystal growing operation. Gruber also joined Sperry in April of 1956. By this time work had commenced on the development of the transistor and Gruber joined Siefert in this phase of the project.

21. The defendant Clarke also joined the group in April of 1956 and became group head for research and development under Rothlein.

22. In October 1955 Samuel M. Grafton of Sperry was assigned to discuss with Rothlein the future of the semiconductor group.

23. Following these discussions Grafton became associated with the semiconductor group and assumed charge of administrative matters and, as such, was on the same official level as Rothlein, who was the technical director responsible for the technical effort.

24. In late 1955 Rothlein and Grafton collaborated in preparing a report to assist the officers of the company to establish whether the semiconductor activity would be a profitable operation for the company to pursue.

25. Grafton concurred in Rothlein's proposed objective to seek to supply the limited market for a very high quality product rather than to go into the low quality field with so-called entertainment devices for things such as radio, television sets and hi-fidelity phonographs.

26. The Rothlein-Grafton report was presented in the form of a five year forecast. It informed management what would be needed to secure a particular result. It made reference to several types of diodes and transistors and referred to the amount of space, financial investment and personnel which would be needed for this effort up to 1960. Management ultimately decided to go forward with the production of the high quality product.

27. On July 16, 1956, the semiconductor group became an autonomous division of the plaintiff and was thereafter known as the Sperry Semiconductor Division of Sperry Rand Corporation.

28. An organizational chart was set up for the division. At Norwalk, Grafton was responsible for all of the administrative, manufacturing and personnel functions except as these applied to members of the technical staff. The technical staff was the responsibility of Rothlein. He was entirely in charge of hiring and assigning work to members of that staff.

29. With respect to such things as capital equipment, types of devices to be made, parameters of devices to be utilized and various types of studies to be made, all decisions were made by the technical engineering staff. These basic technical decisions were the responsibility of and were always made by Rothlein and his staff, which consisted of the other defendants.

30. While the emphasis between 1955 and the early fall of 1957 was the development and production of silicon diodes, work commenced on the fabrication of the silicon alloy junction transistor in the latter part of 1955. Silicon diodes were produced at Great Neck prior to the move to Norwalk, but there was no production of silicon transistors. After the move to Norwalk, Gruber devoted almost his entire time, with the assistance of Siefert, to developing the silicon alloy junction transistor. During the first year in Norwalk, from the summer of 1956 to the mid-summer of 1957, more and more research and development activity was directed toward the...