FALL 2008

Trade Secrets

 

Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
dratler@uakron.edu
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.


K & G Tool and Service Company, Inc. v. G G Fishing Tool Service

158 Tex. 594, 314 S.W.2d 782, 117 U.S.P.Q. (BNA) 54, 117 U.S.P.Q. (BNA) 471 (1958)


Mr. Justice Norvell delivered the opinion of the Court.  [*596] [**784]

This is a "trade secret" case . . .  At the conclusion of a jury trial the district court rendered judgment for $ 22,000 against defendants, G & G Fishing Tool Service and others and issued an injunction perpetually restraining [*597] defendants from wrongfully copying, making and using a magnetic fishing tool which was substantially the same as the tool devised by plaintiff, John J. Kirby, II and manufactured by his licensee and co-plaintiff, K & G Tool & Service Co., Inc.  The magnetic tool was a device for recovering parts of broken drilling bits, drill stems and other foreign metallic materials from oil wells.  The Court of Civil Appeals reversed the judgment of the trial court and rendered judgment that plaintiffs take nothing.

* * *

It appears that J. J. Kirby, II had been working upon a magnetic fishing tool for a number of years.  He secured one patent on January 30, 1951 and on August 2, 1951 he filed another application.  An amended or additional application was filed on January 30, 1952 which was described as being in part a continuation of the application of the preceding August.  The 1952 application referred to the device as a "Magnetic Fishing Tool" and described the same as follows:
    [*598] "This invention pertains to tools for removing undesired materials from a well and more particularly to a magnetic tool for fishing magnetic junk out of a hole in the earth drilled by the rotary method, from which hole oil or gas is to be produced.  * * *
    "It is the principal object of the invention to provide a magnetic fishing [**785] tool which will be more efficient in the removal of junk.  
    * * *
    "Still another object of the invention is to provide a magnetic fishing tool which will more nearly assure a one hundred percent removal of all the junk.
    "Another object of the invention is to provide a magnetic fishing tool that is more easily manufactured and repaired and maintained."  
[*599] It appears that the idea of using a magnet to remove "fish" or metallic substances from the hole of a drilling well was not new to the oil industry.  Articles concerning the use of a magnet for such purposes had appeared in technical journals prior to the date of business negotiations between the parties to this litigation.  In fact the record discloses that some five or six patents upon magnetic devices for removing foreign metallic matter from well holes had been applied for or issued prior to March of 1951.  A number of these inventions bore the same descriptive designation as that used by Kirby, namely, a "Magnetic Fishing Tool."  It further seems that the metallurgy Division of the Chemical Department of the General Electric Corporation had widely advertised a magnet made of metal which was called "Alnico."  These magnets were said to be suitable for a number of uses, such as holding necktie racks in place, providing fasteners for metal doors and removing nails from parking areas and driveways.  It appears that the Kirby tool utilized an Alnico magnet as an effective feature in its operation.  

In 1951 K & G Oil Tool & Service Co., Inc. was formed and licensed by Kirby to manufacture his magnetic tools and some of them were leased for oil field use.  In the early part of 1952 K & G entered into an agreement with G & G Fishing Tools Service whereby G & G agreed to sub-lease the K & G tool to drilling operators for twenty-five per cent of the rentals charged.  K & G also leased from G & G certain space in a warehouse located in Duncan, Oklahoma for the storage of its magnetic tools.  

The jury made a number of special issues findings as to agreements between K & G and G & G as well as actions taken by G & G in violation of such agreements.  The jury found:
    1.  That during March 1952 it was mutually agreed between Robert Garrett (representing K & G) and Cecil Bond [**786] (representing G & G) that during the time the G & G Fishing Tool Service Co., Inc. was handling the K & G magnetic fishing tool, no one was to disassemble said tool.
    2.  That, in making such agreement, it was mutually understood that the purpose of such agreement was to guard against anyone determining the internal construction of the tool by way of examining the interior thereof.
    3.  That, at some time before August 15, 1952, the G & G Fishing Tool Service, Inc., acting by or through some of its agents, servants, incorporators or directors, disassembled the [*600] K & G fishing tool for the purpose of making an examination thereof.
    4.  That such act was done for the purpose of making an examination of the interior construction of the K & G tool in question.
    5.  That a K & G magnetic fishing tool was disassembled by the G & G Fishing Tool Service, Inc., acting by or through some of its agents, servants or representatives, for the purpose of making a similar tool.
    6.  That the defendant G & G Fishing Tool Service, Inc., acting through its agents, servants or representatives, used the information obtained by disassembling the K & G magnetic fishing tool to make one substantially the same as the K & G magnetic tool.  
    7.  That the fishing tool constructed from information gained by disassembling the K & G tool is substantially the same tool that is now being used by the G & G Fishing Tool Service, Inc., G & G Fishing Magnets, Inc., and their affiliated interests in their operations.
    8.  That before March 1952 the internal construction of the K & G magnetic fishing tool was not known to persons engaged in the oil well fishing tool business.  
The defensive issues submitted and their answers were as follows:
    9.  Do you find from a preponderance of the evidence that the G & G Magnetic Fishing Tool was constructed from information obtained exclusively from sources other than the disassembly, if any, of the K & G Magnetic Fishing Tool?  Answer:  We do not.
    10.  When do you find from a preponderance of the evidence that the plaintiffs or either of them or their officers acquired knowledge that A. C. Green, Jr., (connected with G & G) was making a magnetic fishing tool?  Answer:  August, 1952.
    11.  Do you find from a preponderance of the evidence that from the date that you have stated in response to Special Issue No. 9, Sic. (10) to the date of the filing of this suit, the plaintiffs or either of them or their officers knew that the defendants [*601] were manufacturing magnetic fishing tools?  Answer:  We do.  
    12.  Do you find from a preponderance of the evidence that the plaintiffs or either of them or their officers were familiar in a general way with the cost of the manufacturing of magnetic fishing tools such as those which were being manufactured by the defendants herein?  Answer:  We do.  
    13.  Do you find from a preponderance of the evidence that the plaintiffs or their representatives, either before or during the use of the warehouse at Duncan, Oklahoma by the K & G Oil Tool and Service Company, Inc., ever disclosed to any person, other than employees or others in a confidential relationship, the internal construction of the K & G magnetic fishing tool?  Answer:  We do not.  
    14. Do you find from a preponderance of the evidence that the internal construction of the K & G magnetic tool can be determined by an examination of the tool without disassembling it, to the extent that another tool can [**787] be constructed that would perform the same function by substantially the means employed in the K & G magnetic tool?  Answer:  We do.
    * * *
The trial judge upon motion disregarded the jury's answer to Special Issue No. 14 on the ground that there was no evidence to raise such issue or to sustain the finding of the jury thereon and because such interrogatory did not constitute an ultimate fact issue in the case.  Judgment was accordingly rendered for petitioner-plaintiffs.  

The Court of Civil Appeals was of the opinion that petitioners' magnetic fishing tool was not subject to protection as a "trade secret," primarily because of the jury's answer to Special Issue No. 14.  There were witnesses who testified that they could reconstruct the Kirby tool without first disassembling it.  It may be that they could, but this hardly reaches the controlling point or issue in the case.  According to the jury's findings, where they were not attacked, G & G did not learn how to make the Kirby tool or a device similar thereto by observing it in an assembled or unbroken condition but learned of its internal proportions, qualities and mechanisms by taking it apart despite an agreement that it would not do so.  We have here the violation of a confidence and the breach of a contract.  Under such [*602] circumstances, the injured party is entitled to full relief, both legal and equitable, unless there exists some compelling reason of public policy or practicability which directs the withholding of such relief.

* * *[*605] * * * [**790] * * *

The record in the present case indicates that the K & G tool is no simple device, the construction of which is ascertainable [*606] at a glance.  The use of a magnet to attract metallic substances is of course devoid of novelty.  The making of a tool embodying this principle which is effective in meeting the needs of the industry in clearing well holes of deleterious metal particles is another matter.  The record shows numerous patents have been issued for "magnetic fishing tools" and that much work and ingenuity has been applied to the development of a practical and successful device.  The evidence indicates that the K & G tool was successful and hence the owners of the device and manufacturing process should be protected in the fruits of their engenuity against those who, according to the jury's findings, are attempting to deprive them of such advantages by a breach of confidence and a failure to abide by their contractual obligations.  

In the law of trade secrets, embracing mechanical engines, chemical formulae, confidential lists and the like, matters ranging from sugar in tea for sweetening purposes to the most complicated machines will be encountered.  Questions as to classification will arise and their solution may not always be free from difficulties.  Examples may be more helpful than definition or attempted redefinition.  In our opinion the K & G tool cannot be classified as a simple and obvious device belonging in the same category as [a] combination fishing rod and walking stick . . . and [an] aluminum foil oven lining.

This being true, injunctive relief cannot be considered a futile thing like enjoining one from make use of knowledge that is common to all.  Nor does the injunction run counter to a public policy which discourages contracts which tend to lessen competition.  The protection of a trade secret is a well-recognized objective of equity . . . .

* * * [*607] * * * [**791]

Respondents' complaint as to the form of the injunction will [*608] not warrant a reversal.   There are a number of ways in which a decree may be worded in cases such as this, and certain methods may be superior to others.  The trial judge in the present case summarized the jury's finding and recited in the decree that respondents in breach of a confidential relationship had copied the magnetic fishing tool of petitioners "and after copying same did manufacture, lease, operate, use, and distribute for use by others, said magnetic fishing tool and did so from at least August 1952, and have so engaged down to the present time" and will continue to do so, unless restrained

    "to the irreparable injury of plaintiffs herein because of the inability of plaintiffs to trace each and every such tool and determine how much loss of revenue would result to plaintiffs from such illegal and unlawful use of the copied tool, and particularly since the magnetic fishing tool so manufactured, used, leased, and distributed and operated by defendants is substantially the same as the magnetic fishing tool of plaintiffs and works in substantially the same fashion, so that person using the magnetic fishing tool of defendants would in large measure fail and refuse to hire and use plaintiffs' magnetic fishing tool; * * *."
Based upon such findings and recitals, respondents were ordered to
    "desist from making, using, leasing, selling, manufacturing, operating, copying or otherwise representing them selves to be the makers, manufacturers, lessors of magnetic fishing tools substantially the same as that of the plaintiffs (petitioners) herein, and from using in any way the confidential information obtained by defendants (respondents) from an examination of plaintiffs' magnetic fishing tool."

Future problems of enforcement applicable to most every type or form of injunction may be imagined.  The decree is, however, to be interpreted in the light of its recitals and findings.  It was found that respondents were wrongfully making a tool substantially the same as that of petitioners.  They were ordered to desist.  The decree is sufficiently definite to be enforced.

The judgment of the Court of Civil Appeals is reversed and that of the trial court affirmed.

 

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