Course No. 9200-704 (and 804)-801
ID No. 16545
MW 3:00 - 4:30 p.m.
Room 231D (IP Alcove)
|Copyright © 2000, 2002, 2003, 2006, 2008 Jay Dratler, Jr. For permission, see CMI.|
K-2 Ski Co. v. Head Ski Co.506 F.2d 471, 183 U.S.P.Q. (BNA) 724 (9th Cir. 1974)
Before Merrill and Wallace, Circuit Judges, and Skopil, * District Judge.
K-2 Ski Company (K-2), a Washington corporation with its principal place of business in Washington, brought this action based upon diversity jurisdiction against Head Ski Company (Head), a Delaware corporation with its principal place of business in Maryland, and William Crocker, a citizen of Maryland, seeking damages and injunctive relief. K-2 alleged that subsequent to his employment by K-2, Crocker began working for Head and disclosed trade secrets. The district court issued a preliminary injunction against Head and Crocker in April, 1970. That action was reversed by us in July 1972. In the interim, the [*473] district court had appointed a special master to hear this case. The master made detailed findings of fact and concluded that Head had unlawfully used K-2 trade secrets. Accordingly, the district court issued a permanent injunction barring Head from using one of the K-2 trade secrets for one year and another secret for two years.
Head appeals contending (1) that K-2 is barred from claiming trade secret protection because it failed to take reasonable precautions to maintain secrecy, (2) that the duration of the injunction was excessive, (3) that the district court erred in awarding attorney's fees to K-2 and (4) that the district court erred in taxing the special master's fees against Head. K-2 cross-appeals contending that the court erred (1) in not finding the entire K-2 ski to be a trade secret and (2) in not awarding damages to K-2. We reverse the award of attorney's fees, remand the injunction and damage issues and affirm the remainder of the case.
Head and K-2 are competing ski manufacturers. In the early 1960's, Head's metal-laminated skis dominated the quality ski market. By 1967, the new K-2 fiberglass skis had been marketed and the demand for the K-2 skis had grown significantly. Crocker was employed by K-2 from May, 1967, to February 13, 1970. Prior to Crocker's employment with K-2, he had no knowledge of the construction or production of skis nor had he had any background in engineering, manufacturing, shop practice or purchasing. Crocker had majored in political science in college and had been primarily involved in appliance and furniture retailing prior to joining K-2. By January 1, 1968, Crocker had advanced to the position of general superintendent of the K-2 manufacturing operations. In that position, he supervised all aspects of the production of skis, purchased all the materials and hired and fired employees. In July, 1969, Crocker's responsibilities were transferred to another employee and by the end of 1969, Crocker had become dissatisfied with his job at K-2 and contacted Head concerning employment. On January 26, 1970, after visiting the Head plant in Maryland, Crocker was offered a job at Head. Coupled with the offer of a base salary was a bonus which was contingent upon production of 5,000 skis with a wet-wrap process by the end of 1970. Crocker joined Head on February 16, 1970, but did not disclose to K-2 the name of his new employer. This action was filed on March 23, 1970.
Head argues that K-2 cannot claim trade secret protection because K-2 failed to take reasonable precautions to maintain the secrecy of its method of manufacturing its skis. In this diversity action we must look to state law for the substantive law of trade secrets. Since there is no Washington law on the issue before us and Maryland law relies on the Restatement of Torts § 757, . . . [W]e agree with the district court that there is no choice of law problem and the general common law and section 757 of the Restatement of Torts should apply.
* * * The better view, and the one we think both Washington and Maryland would espouse, is [*474] the majority view of relative secrecy which has been adopted by the Restatement of Torts § 757. . . . This view requires a substantial element of secrecy, . . . and that reasonable measures under the circumstances be taken to protect the secret. . . . The necessary determination of whether such a degree of secrecy existed in a particular case is a question of fact, . . . and the trier of fact must consider the entirety of circumstances surrounding use of the secret. . . . Thus, the clearly erroneous standard of review applies to this issue. Fed.R.Civ.P. 52(a).
Two particular instances which Head cites as examples of the lack of secrecy by K-2 merit brief attention. The Pellon Corporation, which supplied K-2 with a material which was vital to the production of K-2 skis, sought to exhibit K-2 skis in its display at a conference in Washington, D.C. Crocker agreed to send the skis. The conference was held the same month Crocker left K-2 to go to work for Head. K-2 sent a "competition" model ski which was intact and a "holiday" model which had been cut lengthwise. None of the Head personnel attended the conference and there is no evidence of attendance by any other ski manufacturer. The district court found that this did not constitute a public disclosure and this finding is not clearly erroneous. . . .
Occasionally, limited tours of the K-2 plant were conducted but personnel from competitor ski manufacturers were not permitted to view the ski manufacturing operation. The district court found that during these tours it was impossible to discover the K-2 procedure. The district court also found that even though the security at the plant was not tight, this did not destroy secrecy because the plant was located in a remote area. None of these findings are clearly erroneous.
The district court found that K-2 had established two trade secrets and that Head had unlawfully utilized them in its production of skis. Relying upon Winston Research Corp. v. Minnesota Mining & Manufacturing Co., 350 F.2d 134, 141-42 (9th Cir. 1965), and Plant Industries, Inc. v. Coleman, 287 F. Supp. 636, 645 (C.D. Cal. 1968), the district court enjoined Head from using the base subassembly trade secret for two years and the surfacing veil secret for one year. We are satisfied that the appropriate duration for the injunction should be the period of time it would have taken Head, either by reverse engineering or by independent development, to develop its ski legitimately without use of the K-2 trade secrets.(1) The district court properly determined the period for injunctive relief but, in issuing [*475] its permanent injunctions, apparently did not take into account the period of time that Head had already been under the preliminary injunction.
Head argues that since the preliminary injunction lasted for 27 months, the two- and one-year injunctions are barred because Head has already been enjoined beyond the appropriate period of time necessary to deprive it of the benefits of using the K-2 trade secrets. This issue was not raised before the trial judge. . . . [T]he general rule prohibits an appellate court from considering issues not urged before the lower court . . . .
* * * Because the record does not contain any transcript of proceedings before the special master, we do not know whether Head argued there that the permanent injunctions should not issue because the preliminary injunction had already been in effect for over two years. The record does reflect that the trial judge read the master's report.
* * * We remand this issue to the trial court to consider the effect of the twenty-seven-month preliminary injunction on the one- and two-year permanent injunctions. In its determination, the trial court should consider whether the preliminary injunction served the same purpose as the permanent injunctions and whether it properly deprived Head of the benefits reaped by the use of the K-2 trade secrets. If the preliminary injunction had the same effect or accomplished the same result as the permanent injunctions would have, then the permanent injunctions may have been improper. On the other hand, if the preliminary injunction did not serve the same purpose and did not deprive Head of any benefits, then the permanent injunctions may have been the proper way to compensate K-2 for the unlawful use by Head of the K-2 trade secrets. This issue is more appropriate for a trial court determination because K-2 has argued that Head did not comply with the preliminary injunction and the trial judge is in a better position to resolve this conflict and the question of whether the preliminary injunction accomplished the same result as the permanent injunctions.
The Supreme Court recently summarized the law of granting attorney's fees in federal court:
The special master recommended that each party bear its own attorney's fees. The trial judge, however, decided to award K-2 $25,000 in attorney's fees. Although the trial judge disagreed with the special master on this issue, he did not make any findings of fact in relation to this award. The master, however, found that there was no wrongful inducement of Crocker by Head and that Head did not solicit the trade secrets from Crocker. Neither the district court's findings of fact nor the record reflects that in these instances Head acted "in bad faith, vexatiously, wantonly, or for oppressive reasons." Accordingly, the award of attorney's fees must be reversed.
The order appointing the special master provided that each party would pay one-half of the fee and that the prevailing party could tax the entire expense as costs. Head argues that the court erred in assessing all of the costs of the master against Head.
The compensation of a master is fixed by the court and paid as the court may direct. Fed.R.Civ.P. 53(a). The prevailing party has a right to recover moneys paid for the master "as a part of its recoverable costs . . ." 9 C. Wright & A. Miller, Federal Practice and Procedure § 2608, at 798 (1971), accord, 6 J. Moore, Federal Practice ¶ 54.77, at 1718 (2d ed. 1974). Federal Rule of Civil Procedure 54(d) provides that "costs shall be allowed as of course to the prevailing party unless the court otherwise directs . . ." Thus, the awarding of these costs is discretionary with the trial [*477] judge, . . . and we will not overturn his decision unless it has been abused.
Head contends that since K-2 prevailed on only two of its 12 alleged trade secrets and that since considerable expense of the master was spent in establishing the contentions of both parties, the cost should be divided by the parties.
K-2 was the prevailing party in this action and the district court did not abuse its discretion in allowing the master's compensation to be taxed as costs.
In its cross-appeal, K-2 argues that the trial court erred in not finding that the entire process for making the K-2 ski is a trade secret. K-2 urges that Head be enjoined from producing this type of ski for the period of time it would have taken Head to have developed it independently without the use of the K-2 trade secrets. Citing Head Ski Co., Inc. v. Kam Ski Co., Inc., 158 F. Supp. 919 (D. Md. 1958), and ILG Industries, Inc. v. Scott, 49 Ill.2d 88, 273 N.E.2d 393 (1971), K-2 argues that the injunction should cover the entire ski and not merely some of its component parts.
The question of whether the entire process is a trade secret is a factual determination. Thus, K-2's argument would have been more appropriately directed to the trier of fact. On appeal we are limited to determining whether the findings of fact are clearly erroneous. Fed.R.Civ.P. 52(a). K-2 has not argued that the findings are clearly erroneous and, upon our review of the record, we conclude that they were not. The trial court did not err in failing to find that the entire process for making the K-2 ski was a trade secret.
K-2 contends that the trial court erred in not awarding damages
for skis manufactured by Head using the K-2 trade secrets. Head
has not responded to this argument. K-2 asked for both injunctive
relief and damages in its complaint. Either or both forms of relief
may be awarded in a trade secret case. . . . K-2 asserts that
the special master refused to let them go into this area during the
trial and that this issue should be remanded for a determination of
damages. We agree.
1. [court's footnote 3] Head has argued
that Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 11 L. Ed.
2d 661, 84 S. Ct. 784 (1964), Compco Corp. v. Day-Brite Lighting, Inc.,
376 U.S. 234, 11 L. Ed. 2d 669, 84 S. Ct. 779 (1964), and Lear, Inc.
v. Adkins, 395 U.S. 653, 23 L. Ed. 2d 610, 89 S. Ct. 1902 (1969),
enunciate a federal policy that state unfair competition laws cannot protect
unpatented ideas. That argument has been dispelled by the Court.
Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S. Ct. 1879,
40 L. Ed. 2d 315 (1974). In Winston we said that Sears
"preclude[d]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."
350 F.2d at 138 (footnote omitted). We are not persuaded that Kewanee
Oil affects the proper injunctive period as described in Winston.
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