USM Corp. v. Marson Fastener Corp.

Decision Date29 August 1979
Citation393 N.E.2d 895,379 Mass. 90
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

George T. Finnegan, Boston (John M. Harrington, Jr., Boston, with him), for plaintiff.

Robert F. Sylvia, Boston (James F. Ryan, Boston, with him), for defendants.


ABRAMS, Justice.

The USM Corporation (USM) seeks an accounting for the alleged misappropriation of a trade secret contained in a machine used in the manufacture of blind rivets. 2 In addition, USM sought relief from each of the defendants by reason of their "wrongful acts" in misappropriating confidential information.

To defeat the claim of misappropriation of a trade secret, the defendants alleged that USM had not kept its information secret. Hearings were held before a master; one of the master's conclusions was that although information embodied in the machine was "of a nature which would constitute it a trade secret if protected, (it) was not sufficiently guarded by USM to entitle USM to recover anything from the defendants." A judge confirmed the master's report, ruling that "the Master's ultimate finding with respect to the adequacy of the measures taken by USM to guard the secrecy of the USM machine is supported by the evidence before the Master, consistent with his subsidiary and other general findings and correct as a matter of law." The judge then ordered the entry of judgment dismissing the complaint with prejudice. USM appeals. We allowed USM's application for direct appellate review.

The main thrust of USM's appeal is that it did pursue a course of conduct reasonably designed to preserve the secrecy of its trade secret. USM contends that it was error to conclude from the master's subsidiary findings that its complaint should be dismissed. USM avers that in any event it was improper to dismiss the complaint since the master's report indicates that the defendants acquired the information improperly. See Restatement of Torts § 759 (1939). We have reviewed the master's report and conclude that it was error for the judge to dismiss the complaint. 3

We summarize the subsidiary findings of fact on which the master and the judge based their conclusions. Since 1950, USM has engaged in the manufacture and sale of blind rivets. In 1954, employees of USM began development of a new type of blind rivet assembly machine. Development of the machine was completed in 1959.

The USM blind rivet assembly machine ("USM machine" or "machine") is able "to provide a means of reliable and rapid assembly of mandrels and rivet bodies into rivets." USM claims that the combination and relationship of various parts of the machine, along with certain features incorporated into the machine, are the trade secrets and confidential information which the defendants have misappropriated. 4

The master ultimately found that the development of the USM machine involved considerable time, effort and expense, that the development of the machine was relatively difficult, and that its "combination (of features) was unique and effective when devised and . . . did not constitute a matter of public knowledge or of general knowledge in the industry." Therefore, the master properly concluded that the USM machine was of an appropriate nature to qualify it as a trade secret. 5

The master also found that Joe Cooper, Irving Cooper, and Louis Lewis were the officers and directors of corporations which distributed USM blind rivets for a period of approximately one year. In 1961, after being denied an exclusive distributorship, the defendants decided to manufacture blind rivets in competition with USM, but they were dissatisfied with the performance of their own blind rivet assembly machines. Eventually, the defendants were able to construct a blind rivet assembly machine like the USM machine because the defendants hired Frank Lahnston, a former junior engineer at the USM Shelton plant and provided him with "a group of about 100 (blue) prints without identifying title blocks but which Lahnston recognized as prints of USM (parts) drawings of the USM Machine." By 1964, Lahnston had succeeded in constructing for the defendants a blind rivet assembly machine which was "substantially the same as the USM Machines."

However, the master concluded that USM was not entitled to claim trade secret protection for its machine because USM had taken inadequate precautions to preserve the secrecy of the USM machine. To reach this result, the master focused on the security measures taken at the USM plant in Beverly, where the USM machine was developed, and at the USM plant in Shelton, where the USM machines were in operation. We therefore summarize the master's findings relating to USM's security measures in some detail.

Between 1954 and 1959 USM carried out the development of its machine at the Beverly plant. The Beverly plant was fenced, and employees and visitors entered the plant through guarded gates. Once inside the plant, employees were expected to remain in their immediate work areas. Supervisors questioned any employee who was discovered outside the employee's work area. While employees were not to remove objects from the plant without permission, guards did not generally inspect employees' briefcases or lunch boxes as they left the plant.

Visitors to the plant were logged in and out. They were also required to state their business and to wait in a designated reception area. At no time were visitors permitted to walk unescorted through the plant.

During the period of their development, the USM machines were located in a relatively isolated area of the Beverly plant, but USM employed no special security precautions to prevent access to the machines. At all times both during and after their development, USM treated the machines as items of factory equipment. "The term 'factory equipment' defines machines and other equipment developed or adapted by USM to be used internally in production of items to be sold to others and not themselves to be sold or otherwise made available to third persons."

All drawings and blueprints of parts for the USM machines were kept in the engineering department of the Beverly plant, along with 250,000 other drawings of factory equipment. No assembly drawings were ever made for the USM machine. Whenever a print of a particular drawing was required for work being done outside the engineering department, the employee needing the print was to complete a written production order. After receiving the work order, engineering employees stamped the print with the work order number and the phrase "for the above only" before delivering the print to the employee. However, while some USM blueprints were stamped "confidential," no drawings, blueprints, or prints of the USM machine were stamped "confidential" prior to the filing of the complaint in this action.

After USM completed the development of the USM machine, some of these machines were installed at the USM plant in Shelton, Connecticut. With a few variations, USM security precautions at the Shelton plant were similar to those in force at the Beverly plant.

Employee entrances at the Shelton plant were unguarded, and employees did not wear badges. All doors were locked during hours when the plant was not operating, and any employee entering the plant outside of regular working hours was required to have a pass and to be logged in by the watchman. 6

Visitors to the Shelton plant were always logged in and waited in a reception room which was separated from the production area by an opaque partition. Visitors entering the production area were expected to be escorted at all times.

The USM machines at the Shelton plant were located in the production area of the plant. They were not separated from other plant operations and were visible from the shipping room doors. A set of reproducible drawings for the USM machine was kept at the Shelton plant. The drawings were located in the office of the engineering department, which was separated from the production area by a lockable door.

USM conducted occasional plant tours at Shelton. The tours, however, did not open the plant to the general public and were conducted for the families of employees and for distributors of USM products. 7

All supervisory, technical, and engineering employees at the Shelton plant signed nondisclosure agreements in early 1963. 8 Similar agreements were signed by research personnel at the Beverly plant.

USM generally did not seek patent protection for any items of factory equipment and sought no such protection for the USM machine or for any of its components. There was also no written policy specifically prohibiting disclosure of information concerning factory equipment, and prior to November, 1963, no USM officer published a formal statement identifying the USM machine or its components as confidential information.

The master concluded that these security precautions did not entitle USM to claim trade secret protection for the USM machine, measured against a standard of conduct which required USM to "exercise a degree of eternal vigilance or pursue an active course of conduct sufficient to maintain the secrecy of the information embodied in the USM Machine."

USM argues that the master's subsidiary findings of fact establish that USM took reasonable precautions to maintain the secrecy of its information, and that such reasonable precautions are all that are required to entitle a plaintiff to claim trade secret protection for its information. Thus USM asserts that the defendants' use of this information constituted a misappropriation of USM's trade secrets and confidential information for which the defendants should be held liable. We agree.

One who possesses a trade secret and wishes to protect it must act to preserve its secrecy. See Peabody v....

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