Winston Research Corp. v. Minnesota Min. & Mfg. Co.

• Decision Date: 18 August 1965
• Docket Number: No. 19409.,19409.
• Citation: 350 F.2d 134
• Parties: WINSTON RESEARCH CORPORATION, Charles S. Tobias and Wayne R. Johnson, Appellants, v. MINNESOTA MINING AND MANUFACTURING COMPANY, a corporation, Appellee. MINNESOTA MINING AND MANUFACTURING COMPANY, a corporation, Cross-Appellant, v. WINSTON RESEARCH CORPORATION, Charles S. Tobias and Wayne R. Johnson, Cross-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

350 F.2d 134 (1965)

WINSTON RESEARCH CORPORATION, Charles S. Tobias and Wayne R. Johnson, Appellants, v. MINNESOTA MINING AND MANUFACTURING COMPANY, a corporation, Appellee.

MINNESOTA MINING AND MANUFACTURING COMPANY, a corporation, Cross-Appellant, v. WINSTON RESEARCH CORPORATION, Charles S. Tobias and Wayne R. Johnson, Cross-Appellees.

No. 19409.

United States Court of Appeals Ninth Circuit.

July 9, 1965.

Rehearing Denied August 18, 1965.

COPYRIGHT MATERIAL OMITTED

Keith D. Beecher, Los Angeles, Cal., Wm. Douglas Sellers, Pasadena, Cal., Laurence B. Dodds, Little Neck, N.Y., for appellants-cross appellees.

William H. Pavitt, Jr., Ellsworth R. Roston, Charles H. Schwartz, Smyth, Roston & Pavitt, Los Angeles, Cal., for appellee-cross appellant.

Before JERTBERG and BROWNING, Circuit Judges, and FOLEY, District Judge.

BROWNING, Circuit Judge:

The Mincom Division of the Minnesota Mining and Manufacturing Company developed an improved precision tape recorder and reproducer. Somewhat later, Winston Research Corporation developed a similar machine. Mincom alleged that the Winston machine was developed by former employees of Mincom, including Johnson and Tobias, by using confidential information which they had acquired while working on the Mincom machine, and sued for damages and an injunction. The district court granted Mincom an injunction, but denied damages. Both sides appealed.

I

Some background is required for an understanding of the issues.

For some uses of precision tape recorder/reproducers, the time interval between coded signals must be recorded and reproduced with great accuracy. To accomplish this, the tape must move at as constant a speed as possible during both recording and reproduction, and any changes in tape speed during recording must be duplicated as nearly as possible during reproduction. The degree to which a particular tape recorder/reproducer accomplishes, this result is measured by its "time-displacement error."

An electronic device known as a "servo" system is commonly used to reduce time-displacement error by detecting fluctuations in tape speed and immediately adjusting the speed of the motor. Machines prior to the Mincom machine employed a flywheel to inhibit fluctuation in tape speed by increasing the inertia of the system. However, the flywheel reduced the effectiveness of the servo system since the increased inertia prevented rapid adjustments in the speed of the motor.

The effectiveness of the servo system in prior machines was also reduced by resonances created by the moving parts. The range of sensitivity of the servo system was limited to exclude the frequencies of the interfering resonances. This had the disadvantage of limiting the capacity of the servo system to respond to a full range of variations in the speed of the tape.

To solve these problems Mincom eliminated the flywheel and reduced the mass of all other rotating parts. This reduced the inertia of the tape transport system, permitting rapid adjustments in tape speed. Interfering resonances were eliminated by mechanical means. This permitted use of a servo system sensitive to a wide range of frequencies, and hence capable of rapid response to a wide range of variations in tape speed. After four years of research and development based upon this approach, Mincom produced a successful machine with an unusually low time-displacement error.

In May 1962, when Mincom had substantially completed the research phase of its program and was beginning the development of a production prototype, Johnson, who was in charge of Mincom's program, left Mincom's employment. He joined Tobias, who had previously been discharged as Mincom's sales manager, in forming Winston Research Corporation. In late 1962, Winston contracted with the government to develop a precision tape reproducer. Winston hired many of the technicians who had participated in the development of the Mincom machine to work on the design and development of the Winston machine.

In approximately fourteen months, Winston completed a machine having the same low time-displacement error as the Mincom machine.

II

Conflicting policy considerations come into play in deciding what limitations should be imposed upon an employee in the use and disclosure of information acquired in the course of a terminated employment relationship — or, conversely, what protection should be extended to the former employer against use and disclosure of such information.¹

On the one hand, restrictions upon the use and disclosure of such information limit the employee's employment opportunities, tie him to a particular employer, and weaken his bargaining power with that employer. Such restrictions interfere with the employee's movement to the job in which he may most effectively use his skills. They inhibit an employee from either setting up his own business or from adding his strength to a competitor of his employer, and thus they diminish potential competition. Such restrictions impede the dissemination of ideas and skills throughout industry. The burdens which they impose upon the employee and society increase in proportion to the significance of the employee's accomplishments, and the degree of his specialization.

On the other hand, restrictions upon an employee's disclosure of information which was developed as a result of the employer's initiative and investment, and which was entrusted to the employee in confidence, are necessary to the maintenance of decent standards of morality in the business community. Unless protection is given against unauthorized disclosure of confidential business information by employees, employee-employer relationships will be demoralized; employers will be compelled to limit communication among employees with a consequent loss in efficiency; and business, espionage, deceit, and fraud among employers will be encouraged.

An additional argument is sometimes made in favor of protecting confidential but unpatented matter from disclosure, but we think the rationale of Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964), precludes us from giving it weight. We refer to the contention that the results of research and development must be accorded reasonable protection from disclosure or private investment in such activities will be inhibited and progress will be slowed, with consequent loss to both employers and public. The patent laws, it is argued, do not afford adequate protection because excessive time is required to process a patent application, and because a high standard of invention must be met to obtain a patent, or at least to sustain a patent once issued. However, we are satisfied that the rationale of Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, supra, precludes judicial recognition of a legally protectible interest in the secrecy of industrial information as such, as distinguished from an interest in the integrity of confidential employer-employee relationships.²

III

We turn to the issues.

The district court found, and Winston concedes, that Johnson and the other former Mincom employees based Winston's development program upon the same approach to the problem of achieving a low time-displacement error as they had pursued in developing the Mincom machine. The district court further found that this general approach was not a trade secret of Mincom's. Finally, the district court found that the particular embodiment of these general concepts in the Mincom machine was Mincom's trade secret, and had been improperly utilized by the former Mincom employees in developing the Winston machine.

Mincom contends that the court defined Mincom's trade secrets too narrowly; Winston, that the court's definition was too broad.

In describing Mincom's trade secrets in the judgment, the district court first outlined the general approach which both Mincom and Winston followed in the development of their machines, closing with the phrase, "as accomplished and adopted by" Mincom. The court then set out the detailed specifications of the various elements of the Mincom machine. Winston reads the court's initial outline of the general approach as a determination that this was itself a Mincom trade secret, and then vigorously attacks this supposed determination.

We read the initial description of the general approach as merely introductory to, and limited by, the detailed specifications which follow. We think the district court rejected Mincom's contention that the general approach itself was a Mincom trade secret — and properly so. There was expert testimony that if a technician in the field were asked to design a machine having the time-displacement error achieved by the Mincom machine he would adopt the general approach of reducing the inertia of rotating parts and utilizing a wide band servo system — that this approach was dictated by well known principles of physics. It was therefore not protectible under accepted trade secret doctrine. It was not "secret," for it consisted essentially of general engineering principles in the public domain and part of the intellectual equipment of technical employees. Its disclosure could not be treated as betrayal of a confidence placed by Mincom in its technical employees.

Winston points out that the basic mechanical elements of the Mincom machine were found in various publicly known recorder-reproducers, and that all of them were disclosed in a patent issued to Johnson and assigned to Mincom in 1961. But there was substantial evidence that the specifications of these basic mechanical elements and their relationship to each other embodied in the Mincom machine and detailed in the district court's judgment were not publicly known, and were arrived at by Mincom only after painstaking research and extensive trial and error.

As we read the findings and judgment, it was these specifications and relationships which the court found to constitute Mincom's trade secret, and not...