Course No. 9200-704 (& 804)-801
ID No. 85737 & 85736
Time: W 6:30 - 9:30 p.m.
Room Across from 231D (IP Alcove)
|Copyright © 2000, 2002, 2003, 2006, 2008, 2010 Jay Dratler, Jr. For permission, see CMI.|
The Boeing Co. v. Sierracin Corp.108 Wash. 2d 38, 738 P.2d 665, 4 U.S.P.Q.2d (BNA) 1417 (1987)
Before Dore, J. Pearson, C.J., and Utter, Brachtenbach, Dolliver, Andersen, Callow, Goodloe, and Durham, JJ., concur. [*40]
This appeal stems from a 2-month trial between the Boeing Company and Sierracin Corporation. Boeing alleged that Sierracin misappropriated its trade secrets concerning the design of airplane windows. Sierracin counterclaimed asserting that Boeing's actions to protect its designs violated Washington antitrust laws. A jury found for Boeing on its trade secrets claim and for Sierracin on its antitrust counterclaim. Both sides appeal.
We affirm Boeing's judgment on its trade secrets claim [*41] for $ 3,270,666, and we affirm the award of attorney fees to Boeing for $ 353,565.45. We set aside Sierracin's judgment on its antitrust counterclaim in its entirety and we reverse the award for attorney fees and costs to Sierracin. We uphold the trial court's dismissal of the third party defendants. Finally, we remand this case to the trial court to determine an award of reasonable attorney fees for Boeing on appeal.
This lawsuit concerns the manufacture and marketing of replacement cockpit windows for Boeing 707's, 727's and 737's, known as Triple Seven (7/7/7) windows. Five of these windows lie on each side of the aircraft's nose, each performing multiple critical functions such as defogging, withstanding cabin pressurization, and providing a clear range of vision. Historically, only the appellant Boeing Company held the necessary Federal Aviation Administration Parts Manufacturer Authorization (hereinafter authorization), so only Boeing or its licensee could legally sell those windows.
Boeing's drawings for the 7/7/7 cockpit windows are unique, detailed blueprints containing approximately 500 critical tolerances, dimensions, specifications and material requirements. The basic design, which played an integral role in the production of the world's first commercial jet transport, has undergone minor changes since its inception in the 1950's, each requiring FAA reauthorization.
Because these drawings are the result of Boeing's original $ 16 million investment, and as they constitute Boeing's "lifeblood" in the commercial airplane business, Boeing always considered them proprietary trade secrets. For protection of its trade secrets Boeing requires in a standard contract provision that Boeing's outside suppliers, who receive these drawings, agree not to use them for any purpose other than exclusive Boeing manufacture.
Prior FAA authorization is needed for every spare part sold or installed on any commercial aircraft. Outside suppliers may manufacture and sell airplane parts by either: (1) selling to a manufacturer with prior FAA design [*42] authorization (like Boeing); or (2) selling directly to airlines after obtaining their own FAA authorization by (a) independent design and testing; (b) licensing from another authorized airplane manufacturer (like Boeing); or (c) showing that their own drawings and manufacturing [**671] processes are identical to those previously authorized (identicality). In granting an identicality, the FAA does not consider where the applicant obtained its drawings or derived its manufacturing process.
The three major suppliers of aircraft windows in the United States are PPG Industries, Inc.; Swedlow, Inc.; and Sierracin. Sierracin had supplied Boeing with other products for many years. In 1982, it began manufacturing Boeing's 7/7/7 windows after acquiring the business of Libbey-Owens-Ford Company, which had previously been a supplier of those windows. Boeing helped Sierracin enter the 7/7/7 window market by providing Sierracin with FAA authorized drawings, technical assistance and tooling, and by awarding it contracts for some of Boeing's 7/7/7 window needs in 1982 and 1983.
As a supplier, Sierracin received Boeing requests for quotations, which provided that all orders were subject to its confidential terms and conditions. Sierracin signed more than 270 Boeing contracts containing the same terms and conditions without objection, and signed and accepted Boeing purchase orders with a similar provision. Sierracin accepted Boeing's terms by letter, and after performance accepted payment under the purchase orders.
In 1984 after alleged breaches of contract because of late deliveries of windows, Boeing chose not to renew contracts with Sierracin, and instead signed a 5-year 100 percent requirements contract with PPG Industries, Inc. Sierracin decided, however, to continue manufacturing windows for [*43] sale on its own in the 7/7/7 "after market" (i.e., spare parts market). A Boeing official warned Sierracin against use of Boeing proprietary data for any purpose other than manufacturing parts for Boeing. Sierracin ignored the warning and used various Boeing engineering drawings and specifications to try to obtain its own authorization from the FAA. The FAA asked Boeing to make an identicality comparison between Boeing's 7/7/7 windows and those manufactured by Sierracin. Boeing refused and accused Sierracin of copying its drawings. Sierracin denied these accusations and Boeing filed this suit.
Sierracin then submitted a second set of drawings to the FAA, but those drawings were derived from the first authorization drawings which had been copied from Boeing drawings. There was conflicting testimony as to whether Sierracin could "reverse engineer" the Boeing drawings on its own. Reverse engineering is the process of recreating the product and the drawing depicting it by use of the product itself. Sierracin claimed it would have taken only a few weeks to a few months to reverse engineer the window, while Boeing engineers testified that it would have been virtually impossible. Sierracin's subsequent efforts to reverse engineer one window were rejected by the FAA.
Boeing's lawsuit against Sierracin alleged breach of contract, breach of confidential relationship, conversion and misappropriation of trade secrets in violation of the Uniform Trade Secrets Act, RCW 19.108. Boeing also alleged that Sierracin wrongfully copied certain tooling used by Boeing and the United States Air Force (Air Force). The trial court dismissed this claim, ruling that the Air Force was an indispensable party.
The jury awarded Boeing $ 1,635,333 in damages against Sierracin . . . . The trial court found Sierracin's misappropriation of Boeing trade secrets to be willful and malicious within the meaning of RCW 19.108.030(2), and awarded exemplary damages which doubled Boeing's award. . . . Next, the court awarded fees and costs to . . . Boeing under RCW 19.108.040. The trial court then entered a permanent injunction against Sierracin's use of the FAA authorization obtained using Boeing data. The trial court delayed the effective date of its injunction for 120 days.
The Court of Appeals . . . stayed the injunction beyond the original 120 days pursuant to RAP 8.3. Although Boeing's motion for discretionary review was denied, we accepted transfer of the entire case. On remand, the trial court in lieu of dissolving the stay on the injunction ordered Sierracin to make periodic escrow payments of 5 percent of Boeing's sales price for each 7/7/7 cockpit window sold pending appeal, and to post a $ 50,000 bond covering Boeing's costs and attorney fees on appeal. Boeing's motions for direct review and consolidation were granted.
At this juncture, we believe it would be helpful to set forth verbatim the jury verdict. [*45]
The Uniform Trade Secrets Act, RCW 19.108.030(1), provides that a plaintiff can receive actual damages for misappropriation of trade secrets. RCW 19.108.010(2)(a) defines "misappropriation" as "[a]cquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means . . ." Ample evidence was presented to the jury which indicated that Sierracin's actions in using the Boeing drawings to manufacture 7/7/7 windows for direct sales to other airlines, as well as to gain independent FAA authorization, violated this statute. Moreover, the jury also found that Sierracin breached its contract with Boeing and breached the confidential relationship between the two parties. As substantial evidence exists which supports all three of these claims, we affirm the jury verdicts. [*47]
Sierracin signed over 270 contracts with Boeing, each containing the following proprietary language:
Similar proprietary language was affixed to Boeing drawings which Sierracin received:
Despite this contractual language and warnings on the drawings indicating that this information was confidential, Sierracin asserts that the jury erred in finding for Boeing on its breach of contract, breach of confidential relationship, and misappropriation of trade secrets claims. Sierracin raises the following arguments in support of its assertion: (1) Boeing's claims should have been consolidated; (2) Boeing's trade secrets claim is preempted by federal law; (3) even if not preempted, Boeing had no "secrets" because the "secrets" were ascertainable from common tooling; and (4) if Boeing did have "secrets", they were lost into the public domain upon submission to the FAA at time of licensure, or were otherwise "published" through confidential disclosure of drawings to Libbey, and by use of exhibits at trial. All these arguments lack merit.
The jury found that Sierracin had breached a contractual and confidential relationship with Boeing, and had misappropriated [*48] Boeing trade secrets. Sierracin argues that the trial court erred by not consolidating all of these claims into one for misappropriation under the Uniform Trade Secrets Act, RCW 19.108.
We reject this argument. RCW 19.108.900 specifically provides, in part:
The United States Supreme Court has held that proof of trade secrets is not required for breach of confidentiality claims, which may be brought independently of trade secrets claims. E.I. Du Pont De Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S.Ct. 575, 61 L.Ed. 1016 (1917) . . . . A confidential relationship alone is enough to prohibit disclosure. Island Air, Inc. v. LaBar, 18 Wash. App. 129, 138-39, 566 P.2d 972 (1977). Furthermore, a contractual provision designed to protect against disclosure would also not be subject to displacement by the Uniform Trade Secrets Act. RCW 19.108.900(2)(a). The Committee specifically dealt with this question and decided as follows:
The trial court did not err in refusing to consolidate Boeing's claims. [*49]
Sierracin argues that federal law preempts Boeing's claims and that Washington law is inapplicable. This assertion is properly before us, as subject matter jurisdiction may be raised at any time. . . . While it is true that all state legal and equitable rights equivalent to copyright are preempted by federal law, we do not believe that federal copyright law preempts state trade secrets claims.
State law extends protection beyond copyright. Copyright does not protect an idea itself, only its particular expression. Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, 1163 (9th Cir. 1977). By contrast, trade secrets law protects the author's very ideas if they possess some novelty and are undisclosed or disclosed only on the basis of confidentiality. Warrington Assocs. v. Real-Time Eng'g Sys., 522 F. Supp. 367, 368 (N.D. Ill. 1981). It is not just "drawings" which Boeing seeks to protect, but the information contained thereon, without which it is impossible to manufacture 7/7/7 windows. Until Sierracin is able to reverse engineer the windows, that information possesses some novelty as yet disclosed only on the basis of confidentiality. Hence the information should be characterized as trade secrets, and state law applies.
A plaintiff seeking to establish a trade secrets claim under the uniform act has the burden of proving that legally protectable secrets exist. . . . For trade secrets to exist, they must not be "readily ascertainable [*50] by proper means" from some other source, including the product itself. RCW 19.108.010(4)(a). . . .
Sierracin argues that Boeing could not establish that its 7/7/7 drawings and data were secrets, and that the trial court erred in excluding certain evidence regarding "common tooling" and reverse engineering. Sierracin points to the fact that the tooling needed to produce 7/7/7 windows and the tooling the Air Force used to make KC 135 military planes were in some respects identical. Because the data and design of the windows could be to some extent ascertained from this "common tooling", Sierracin asserts that the design of the 7/7/7 was in the public domain, and that the trial court erred in excluding evidence that the "secret drawings" could be obtained from the common tooling. We disagree. We note that the common tooling did not provide all the information necessary to construct a 7/7/7 window. By its very nature, the common tooling did not contain the complete and detailed specifications and tolerances necessary for FAA authorized commercial 7/7/7 window engineering drawings.
A trade secrets plaintiff need not prove that every element of an information compilation is unavailable elsewhere. . . . Such a burden would be insurmountable since trade secrets frequently contain elements that by themselves may be in the public domain but together qualify as trade secrets. . . . Sierracin's argument that certain information contained in the drawings could be derived from common tooling, which the Air Force possessed, is therefore without merit. Hence the court did not err by excluding Sierracin's testimony that Boeing's "secrets" in the drawings could be derived from common tooling.
The court also did not err by excluding the testimony of Sierracin's engineer, who purported to have disassembled a [*51] 7/7/7 window, taken measurements and prepared a drawing. The record indicates that: (1) the engineer had almost no experience with reverse engineering of the type needed; (2) Sierracin failed to report reverse engineering efforts until long after discovery cutoff, several weeks into trial and more than a month after Boeing had deposed the engineer, although Boeing had requested information about reverse engineering in interrogatories and other discovery requests; (3) Sierracin's attempts were only hypothetical as to whether an FAA authorized drawing would result; and (4) the trial court thought it too easy to merely announce the simplicity of reverse engineering without a solid basis. Admission of testimony is discretionary with the trial court. . . . There was no abuse of discretion here.
Sierracin further argues that if Boeing had secrets, they were lost by passage into the public domain upon submission of drawings to the FAA at time of licensure, through confidential disclosure of drawings to Libbey, or by use of exhibits at trial. We disagree.
If Boeing automatically lost trade secrets upon submission to the FAA, it could never have them, because FAA submission is required before manufacture of a single airplane. Submission of confidential data to the FAA does not mean that the information is available to the public upon demand. On the contrary, such information is exempt from public disclosure because it could substantially harm the competitive position of the entity which was required to submit the [**676] information. Air Line Pilots Ass'n, Int'l v. FAA, 552 F. Supp. 811, 814 (D.D.C. 1982).
Boeing did not lose its secrets through confidential disclosure of drawings to Libbey. The secrets were preserved by first Libbey's and then Sierracin's promise to keep the information confidential. Upon transmission of Boeing drawings to Sierracin at the time of the Libbey sale, the contract between Sierracin and Libbey provided that the practice of Libbey's "Know-how" by Sierracin would not violate any contract or agreement between Libbey and third parties. "Know-how" was defined to include "parts lists, layouts, assembly and detail drawings, specifications, procurement data, design data and engineering data . . ." The contract also provided that "Sierracin will not knowingly disclose to others the Know-How communicated to it by LOF either prior to or after the date of this agreement", and "Sierracin shall use every effort to ensure that no unauthorized disclosure by its employees, agent, contractors, or affiliates occurs."
Boeing claimed the misappropriation of only the updated drawings in Sierracin's possession. Sierracin's own engineer [*53] said he routinely threw away all previous title block drawings when he received Boeing updates. The Libbey drawings were not those upon which Boeing claimed secrets in this lawsuit, since they were not the current FAA authorized drawings needed to manufacture the windows.
Finally, Boeing did not lose its trade secrets through publication of exhibits at trial. Prior to trial Boeing moved to exclude the general public from the courtroom during presentation of certain testimony and evidence. Sierracin vigorously opposed Boeing's motion, remarking that any courtroom visitors would not likely be able to review the evidence. Sierracin's argument comes too late. The parties had specifically stipulated to protect confidential data at trial, and the trial court was mindful of this when denying Sierracin's motion to terminate the injunction.
Furthermore, the trial court was justified in sealing the record. RCW 19.108.050 allows for this procedure as it is obvious that otherwise trade secrets holders would be prevented from defending their rights in court. The same reasoning applies to use of exhibits at trial. As a trade secrets holder who in good faith sought legal remedy to protect its rights, Boeing did not thereby "publish" and lose its secrets at trial.
Prior to trial, the parties agreed that the court would decide the issue of punitive damages. RCW 19.108.030(2) allows the court to award up to twice the amount of actual damages as punitive damages. The decision to award these damages is discretionary with the trial court and the [*62] amount of award will not be reversed unless clearly erroneous. . . .
The record indicates that Sierracin knew its actions to be of dubious legality, and engaged in a massive effort to disguise its copying of Boeing's drawings. The trial court did not believe that Sierracin ever entertained any honest doubt as to the legality of its conduct, but took a calculated risk and lost. The evidence in the record justifies this conclusion. The trial court's decision that Sierracin's actions were willful and malicious is not erroneous and the award of punitive damages is affirmed.
RCW 19.108.020(1) provides in part that "[a]ctual or threatened misappropriation may be enjoined." The trial court enjoined Sierracin from future use of Boeing 7/7/7 cockpit window drawings and information derived from those drawings, with a limited grace period to allow Sierracin to complete some of its contractual obligations. Sierracin objects to this injunction on the grounds that the trial court made no finding of irreparable harm, the injunction is too vague, and that the injunction is perpetual and punitive. To the extent that Sierracin argues that the injunction should not be allowed because of Boeing's antitrust violations, we do not consider the argument, having found that no such violations occurred.
Sierracin argues that a finding of irreparable harm must be entered in order to support the trial court's injunction. We disagree. Neither the Uniform Trade Secrets Act nor the civil rules about injunctions require such a finding. RCW 19.108.020(1); CR 65(d). To allow Sierracin in this case to continue to manufacture cockpit windows after deciding that it had misappropriated the information from Boeing would permit Sierracin to profit from its own wrongful conduct. The trial judge found that an injunction would not be unreasonable (finding of fact 10), and we agree. No finding of irreparable harm need be found to [*63] support this decision.
Sierracin also challenges as vague the prohibition against using information or materials derived from Boeing drawings, tooling and Sierracin FAA authorized drawings, and against employing those who "reviewed or had knowledge" of Boeing drawings, tooling, or derivative information. Seirracin asserts that it cannot determine what information was derived from Boeing's drawings, and unless the term "derived from" is defined, the injunction is too vague and compliance impossible. Nevertheless, 6 months after trial, Sierracin employees signed affidavits certifying compliance with the injunction, both as to information derived from Boeing drawings and as to engineers knowledgeable about them. Furthermore, RCW 19.108.010(2)(b)(ii)(A) uses the words "derived from" in the definition section of the Uniform Trade Secrets Act, indicating that the term is not inherently vague. The injunction is sufficiently definite for Sierracin's compliance.
In its findings of fact the trial court rejected Sierracin's argument that the injunction is "perpetual and punitive." The court found that to allow a 4-month, 5 percent royalty and subsequent free use of the secrets would be "wholly inequitable," allowing Sierracin "to get, by Court order, what it couldn't get by negotiation with Boeing, and get it cheap at that."
The duration and scope of an injunction are decided on the facts of each case at the trial court's discretion. . . . An injunction will be reversed only where the trial court fails to set forth any reasons for it and fails to include findings or conclusions. . . .
Such is not the case here. The potential harm to Boeing as trade secrets holder extends beyond a mere calculation of monetary damages. Failure to enjoin present and future copying would be inequitable, allowing Sierracin to profit from use of its ill-gotten gains. Such failure would also [*64] subject Boeing to repeated pirating of its trade secrets. An injunction is necessary to prevent misappropriation by Sierracin and others, and therefore we uphold the trial court's order. Although the injunction was stayed pending appeal, we have previously lifted the secondary stay so that the subject injunction can take effect.(1)
We note in passing that Sierracin's final claim that the injunction is perpetual is untrue. RCW 19.108.020(1) specifically allows Sierracin to apply to the superior court to have the injunction lifted when Boeing's trade secrets cease to exist.
Boeing is entitled to its attorney fees, both at trial and on appeal. The trial court found that Sierracin's misappropriation of Boeing trade secrets was intentional, willful and malicious, and then determined attorney fees to Boeing under authority of RCW 19.108.040. Since no Washington case discussed this statutory standard, the court applied the same approach adopted from the similar language of RCW 19.86.090. . . .
The trial court first calculated the number of hours devoted to Boeing's claims and then multiplied that number by a reasonable rate. However, at this point the court reduced the amount by 30 percent due to the novelty of issues involved. The court noted that the hourly rate for Boeing's attorneys was very high in comparison to those of Sierracin's attorneys, and there was an insufficient breakdown of time spent by Boeing attorneys. The court reduced [*65] the amount attributable to Boeing's clerks, and further reduced the remaining amount by 20 percent for antitrust issues, which Boeing lost at the trial level. Boeing contends that this entire method was improper, and that its fee award should not be decreased because of the novel issues involved.
The amount of a fee award is discretionary, and will be overturned only for manifest abuse. . . . Fee requests may be adjusted upward or downward, and deference is awarded the trial court's decision. Hensley v. Eckerhart, 461 U.S. 424, 434, 437, 103 S.Ct. 1933, 76 L. Ed. 2d 40 (1983). Nevertheless, we disagree with the method used by the trial court.
A trial court abuses its discretion by reducing the fee award simply on the basis that the issues presented are novel. A trial court may reduce the fee because it believes the number of hours billed are excessive or unnecessary, or the hourly rate charged is too high. If the court finds an excessive number of hours are incurred in the presentation of a case, the court should deny any compensation for excessive hours. In addition, if the court finds the hourly rate is "too high" or excessive, the court may reduce the hourly charge. In fact, we recently held in Nordstrom, Inc. v. Tampourlos, 107 Wash.2d 735, 733 P.2d 208 (1987) that the trial court should not determine a reasonable attorney fee merely by reference to the number of hours which the law firm representing the prevailing party bills. Other factors, including the reasonableness of the hourly rate and reasonable amount of time required to present the party's case should be considered, and consideration should be given to the type of case involved. The rate a firm can charge for complicated, specialized advice (tax planning, etc.) has little bearing on the reasonable rate for an antitrust or trade secrets case. To reduce a fee on the basis of the novelty of the claim, however, is not a relevant concern.
Finally, Boeing argues that since we have reversed Sierracin's antitrust verdict, it should also receive its fees connected with defending against these antitrust claims. We [*66] disagree. In Nordstrom, we held that when a number of actions are argued and only some of those allow for recovery of attorney fees, it would give the prevailing party an unfair benefit to award attorney fees for the entire case. Rather, attorney fees should be awarded only for those services related to the causes of action which allow for fees.
In this case, Boeing should therefore receive attorney fees for its successful trial and appeal of the trade secrets issue. Had Sierracin raised the antitrust issue only as a counterclaim, and not as an affirmative defense, Boeing would not recover any of its attorney fees on that antitrust issue. Since Sierracin did raise this issue as a defense to Boeing's trade secrets claim, Boeing should receive its attorney fees for that part of the antitrust issue that can be fairly related to the affirmative defense. The attorney fees that Boeing incurred on the antitrust counterclaim, however, are not recoverable.
Our careful review of the entire record indicates to us, however, that the final award the trial court arrived at for Boeing's attorney fees was just and equitable. The trial court correctly discounted the hourly rate of Boeing's attorneys as there is no reason why Boeing's counsel should be charging a higher rate than Sierracin's. The final award of $ 353,565.45 is affirmed.
Finally, we note that the trial court's determination of costs seems to us excessive. Costs have been narrowly defined in RCW 4.84.010 as a narrow range of expenses, including filing, witness fees, and service of process expenses. See Nordstrom, Inc. v. Tampourlos, supra. Boeing's attorneys should not be able to inflate their cost bill to recover additional fees, and the costs recovered should be strictly limited to those defined in RCW 4.84.010.
We affirm the trial court's double damage award against Sierracin and in favor of Boeing in the amount of $ 3,270,666 plus attorney fees and costs. Boeing's trade secrets claim was not preempted by federal law, nor was it subject to an antitrust affirmative defense or otherwise affected by consolidation of claims. The trade secrets were not readily ascertainable from another source, nor were they lost through tooling, transfer of Libbey drawings, or publication of exhibits at trial.
We set aside and dismiss with prejudice Sierracin's judgment and attorney fees on its antitrust claims. Substantial evidence does not support Sierracin's jury verdict on its antitrust counterclaims against Boeing, and Sierracin failed to prove any causal antitrust injuries.
Stay of the subject injunction is permanently lifted.
We uphold the trial court's finding of willful and malicious misappropriation of Boeing's trade secrets and its award of exemplary damages and attorney fees against Sierracin.
We uphold the trial court's award of $ 353,565.45 to Boeing for reasonable fees at trial, and remand to the trial court for the determination of reasonable attorney fees on appeal and costs during the trial and on appeal.
1. [court's footnote 4] While we recognize
that our decision renders moot the question of what type of security should
have been posted as a supersedeas bond, we believe that the trial court's
determination of the terms of the bond was incorrect. The Court
of Appeals believed "that a stay of the injunction will adversely affect
Boeing but that the adverse effect can be measured in terms of a monetary
amount." We believe the trial court's decision to award
only 5 percent of the sale price of each 7/7/7 window Sierracin sold pending
the appeal, plus a $ 50,000 bond for attorney fees and costs, was grossly
inadequate and failed to account for all the various damages Boeing might
suffer pending appeal.
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