Sun Dial Corp. v. Rideout

• Decision Date: 06 January 1954
• Docket Number: No. A--532,A--532
• Citation: 29 N.J.Super. 361,102 A.2d 90
• Parties: SUN DIAL CORP. v. RIDEOUT et al.
• Court: New Jersey Superior Court — Appellate Division

Page 361

29 N.J.Super. 361

102 A.2d 90

SUN DIAL CORP. v. RIDEOUT et al.

No. A--532.

Superior Court of New Jersey

Appellate Division.

Argued Oct. 5, 1953.

Decided Jan. 6, 1954.

Ira Milton Jones, Milwaukee, Wis., of the Wisconsin Bar, admitted pro hac vice, argued the cause for appellant (Davidson & Miniutti, Jersey City, attorneys).

Walter D. Van Riper, Newark, argued the cause for respondents (Van Riper & Belmont, Newark, attorneys).

Before Judges CLAPP, GOLDMANN and EWART.

The opinion of the court ^* was delivered by

GOLDMANN, J.A.D.

Plaintiff brought this action for an injunction to restrain the individual defendants, who were its former employees, and the corporate defendant which they had formed, from using or disclosing to others certain secret methods, processes and information which they had learned and acquired while in plaintiff's employ. An accounting, award of profits and other proper relief were also sought. The Chancery Division dismissed the complaint for the reasons that plaintiff's process was not a secret one, plaintiff did not tell defendants it was secret, and there was no confidential relation between plaintiff and defendants during their period of employment as to their use and operation of the processes. Sun Dial Corp. v. Rideout, 25 N.J.Super. 591, 96 A.2d 788 (Ch.Div.1953).

Plaintiff corporation was organized in 1943 by William J. Williams, Jr., its president, for the purpose of manufacturing precision dials and panels by means of a secret process alleged to have been developed by him. Williams had previously worked for Linotone Corporation, a company that made similar products. Plaintiff's plant is presently located at Caldwell, New Jersey, in a new building first occupied in October 1948. The individual defendants had all been employed by plaintiff before leaving it in a group to establish defendant corporation in 1951. That company immediately began to manufacture dials in competition with plaintiff. Many of its employees were formerly employed by plaintiff. Defendants admitted having acquired their knowledge of dialmaking while in plaintiff's employ, and that the process they are using is like the Sun Dial process in all material respects, differing only in insignificant details. The court found as a fact that defendants are using plaintiff's process. There were no written agreements between Sun Dial and the individual defendants by which the latter agreed to refrain from using plaintiff's methods and process and not to disclose them to others.

Generally, the law implies from the relationship of employer and employee an obligation on the part of the employee not to disclose to others or use to his own advantage and to the detriment of his employer any secret process, trade secret or confidential information concerning his employer's business which has been disclosed to him or of which he has gained knowledge in the course of his employment. And that is true regardless of the existence of any express agreement. 35 Am.Jur., Master and Servant, § 97, p. 525; 4 Restatement, Torts (1939), § 757, pp. 1 et seq.

We must first determine whether there was in fact a trade secret owned and used by plaintiff. Stone v. Grasselli Chemical Co., 65 N.J.Eq. 756, 55 A. 736, 63 L.R.A. 344 (E. & A. 1903); Vulcan Detinning Co. v. American Can Co., 72 N.J.Eq. 387, 67 A. 339, 12 L.R.A., N.S., 102 (E. & A. 1907); Boost Co. v. Faunce, 17 N.J.Super. 458, 86 A.2d 283 (App.Div. 1952). There is no absolute way of determining whether something is or is not a trade secret. Some factors to be considered are the extent to which the information is known outside of the business, the extent to which it is known by employees and others involved in the business, the extent of measures taken to guard the secrecy of the information, the value of the information to plaintiff and its competitors, the amount of effort or money expended in developing the information, and the ease or difficulty with which the information could properly be acquired or duplicated by others. 4 Restatement, Torts, § 757, pp. 5 et seq. A trade secret may consist of a plan, process, formula, device or compilation of information used in one's business and which affords an opportunity to obtain an advantage over competitors who do not know or use it. There must be employed creative faculties in originating it, amounting to a meritorious discovery. Boost Co. v. Faunce, above. The trade secret need not, however, be patentable. A. O. Smith Corp. v. Petroleum Iron Works Co., 73 F.2d 531 (C.C.A.6 1934). It 'may be a device or process which is clearly anticipated in the prior art or one which is merely a mechanical improvement that a good mechanic can make. Novelty and invention are not requisite for a trade secret as they are for patentability.' 4 Restatement, Torts, § 757, p. 6.

In our view the subject matter of plaintiff's process was such as to constitute a trade secret. The defense tried to prove that the Sun Dial process was Basically the same as the Linotone process, known to Williams in his former employment. 'Basically' is found throughout the whole record, in the opinion below, and in defendants' brief. We find its use ambiguous and confusing. Defendants' contention falls when one considers the specific differences between the Sun Dial and Linotone methods. * * * Linotone's method is characterized by etching the metal surface, as contrasted with Sun Dial's surface relieving--etching cannot be done on plastic material.

Certain elements in the process followed by plaintiff should be stressed * * *. It required long and expensive research to perfect the machine, the several process operations, and the materials which are essential to the Sun Dial method. There is the instance of the paint; over $15,000 and many months were spent in research to discover a paint which would meet certain defense contract specifications. Eventually, through a fortuitous inquiry at United States Radium Co., it turned out that the answer to the problem was a proprietary product, but the use plaintiff made of it was otherwise unknown in the industry. Actually, that use would run contrary to the recommendation of the manufacturer.

These admitted and uncontradicted facts impress us and lead to the conclusion that the Sun Dial process is of a character which, in appropriate cases, should be protected by our courts as a trade secret. The fact is that none of plaintiff's competitors could achieve the high degree of accuracy and fine technical finish on dials and panels that it did, even after they had gone through the plant and though they had before them the so-called Bendix specifications, much referred to in the testimony, and a certain article written by Williams for Plastics magazine, outlining plaintiff's process in a general way, but without sufficient detail to enable them to duplicate that process.

The fact that individual process steps are known to industry, and the further fact that every product used by plaintiff * * * can be bought in the open market, does not weaken the conclusion we reach. Williams, president of plaintiff corporation, was able to devise a combination of products and methods which resulted in preeminently fine dial and panel work--much much like a fine chef who achieves an outstanding culinary product by a sequence of blending ingredients and by timing achieved through a long period of trial and error. Cf. Stone v. Grasselli Chemical Co., 65 N.J.Eq. 756, 55 A. 736, 63 L.R.A. 344 (E. & A.1903).

The question whether plaintiff exercised such care to keep its process confidential as warrants a finding that the process constituted a trade secret presents a somewhat more difficult question. The trial court in its opinion said: 'The employer must present a very strong case in order to secure relief by injunction * * *,' citing Haut v. Rossbach, 128 N.J.Eq. 77, 15 A.2d 227 (Ch.1940), affirmed 128 N.J.Eq. 478, 17 A.2d 165 (E. & A.1941), and Boost Co. v. Faunce, 13 N.J.Super. 63, 80 A.2d 246 (Ch.Div.1951) , affirmed 17 N.J.Super. 458, 86 A.2d 283, 285 (App.Div.1952). The first case was one where the court refused to restrain an ex-employee from selling to plaintiff's customers where he sold to a class whose identity was readily ascertainable, and in the second the purported secret formula was for a soft drink which could very readily be determined from analysis by those engaged in the soft drink business. The court in the Boost case said that in the absence of an agreement there must be a 'strong case' before it would enjoin 'the use of information honestly obtained,' but the language refers to the subject matter of the secret itself and not to the precautionary measures taken to guard the secret. Here, plaintiff's alleged secret process was in nowise disclosed by the finished article itself when it appeared upon the market, as in the Boost case and in Carver v. Harr, 132 N.J.Eq. 207, 27 A.2d 895 (Ch.1942).

As to the degree of secrecy required, the Restatement of the Law of Torts, § 757, pp. 5--6 states:

'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. * * *'

Absolute secrecy is not required, but...