FALL 2010

Trade Secrets

 

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

ID No. 85737 & 85736

Time:  W 6:30 - 9:30 p.m.
Room:  W-215
Professor Jay Dratler, Jr.
Room Across from 231D (IP Alcove)
Home: 330-835-4537
Copyright © 2000, 2002, 2003, 2006, 2008, 2010   Jay Dratler, Jr.   For permission, see CMI.

Plant Industries, Inc. v. Coleman

287 F. Supp. 636, 159 U.S.P.Q. (BNA) 651 (C.D. Cal. 1968)


MEMORANDUM OPINION FOR USE IN PREPARATION OF

PROPOSED FINDINGS OF FACT, CONCLUSIONS OF LAW, AND JUDGMENT


Crary, District Judge.  [*637]

Plaintiff seeks to enjoin defendants from unfairly competing with plaintiff by the manufacturing and selling of citrus products which have been produced by the utilizing of plaintiff's alleged trade secrets, and for damages.  In its Trial Memorandum, filed November 30, 1967, plaintiff asserts that said trade secrets are:
    "1.  The entire process used by plaintiff in the preparation of sterile, citrus peel having a long storage life, and in its preparation of citrus peel base materials sold, which process includes and the particular elements of which and the sequence of use of which plaintiff claims are its trade secrets, and include the processing of citrus peel to determine the thickness and the albedo content thereof." [*638]
    "2.  The debuttoning of the citrus peel to remove the button, blemishes and other unwanted or degraded or spoiled peel."
    "3.  The passing of the citrus peel so debuttoned through mechanism to separate out button fragments and other unwanted citrus peel fragments."
    "4.  Removing juice from the peel by washing the peel, i.e., the juice left on the peel after the orange juice has been removed from the peel."
    "5.  The fact of the use of the Toman slicer, its manner and speed of operation and the use of water in conjunction therewith during which the peel is sliced vertically to determine the vertical thickness of the peel at high commercial speeds and wherein a bitterness causing precursor is washed from the peel, and which enables the bitterness of the peel ultimately produced to be established."
    "6.  The passing of the peel over a separating means to separate the water from the peel and to further separate from the wanted peel unwanted slivers or fragments of peel."
    "7 . The particular cooking process employed by the plaintiff wherein the peel and other ingredients such as citric acid are added to the peel, the time of such cooking, the canning of the peel in five-gallon cans at a particular elevated temperature after which the canned peel is placed in storage and during which storage, due to the elevated temperature of the peel in the cans, the processing of the peel continues."

* * * [*639] * * *

[In 1964, Plaintiff Plant Industries, Inc. had acquired California Citrus Pulp Company, a Florida corporation ("Cal Citrus"), in order to acquire its assets and techniques for processing citrus peel, because "Cal Citrus was producing citrus peel unlike any [Plant Industries] was able to find available from any other source."  Defendant Coleman, who had married the neice of one of the founder of Cal Citrus, had been employed by Cal Citrus for twenty years, from 1946 to 1966, when he resigned.  Before August 1966, Coleman showed defendant Belk a jar of citrus peel produced by Cal Citrus, and Belk offered to employ Coleman if he would leave Cal Citrus, which plaintiff then owned.

One Toman, apparently an independent inventor, had patented a vegetable slicer in 1950 ("Toman Slicer").  Since that time, Cal Citrus used a Toman Slicer to make its citrus peel, employing water under domestic pressure to process peel through it.  Before June 1966, Coleman bought a Toman Slicer from Toman, paying a $500 down payment provided by Belk, and Belk paid the remaining $1,591.  Before this, no one other than Cal Citrus had used a Toman Slicer for processing citrus peel.  The Toman Slicer delivered to defendants had no provision for using water and no cover.  Before making any citrus peel, defendants received a cease-and-desist letter from plaintiff's counsel, asking for written assurances they defendants would protect and not use plaintiff's trade secrets. Since May 1967, defendants produced 11,000 five-gallon cans of sliced citrus peel for sale and entered into an agreement with a third party to provide a sales outlet for it.]

The Toman slicer, and other equipment to process sliced citrus peel, was set up in defendants' plant after January of 1967.  As a part of such equipment there was added to the Toman slicer a water spray which operated under the pressure existent in the pipe line.  This water spray was installed under the direction of and by defendant Coleman.

Defendant Coleman has called upon Knott's Berry Farm and Stone Cellars Kitchens, which were accounts of Cal Citrus, and sliced peel produced by defendants was presented to Knott's Berry Farm and Stone Cellars Kitchens.  Throughout his employment with Cal Citrus and plaintiff, defendant Coleman kept a notebook . . . .

Prior to August, 1966, defendant Coleman knew of notices placed at the entrance to the processing operations of Cal Citrus refusing admittance . . . .

After consideration of all of the evidence, including the above referred to stipulated facts, it appears to the Court that the principles of vacuum packing for preservation, debuttoning of citrus peel, moving citrus peel by mechanical device through mechanism to separate the said button fragments and other unwanted peel fragments from the peel, washing the peel, slicing the peel, separating water from the peel by various means, including Sweco shaker, passing of peel over agitating screens, the moving of the peel for various types of processing by conveyor belts and screen type conveyors, and the use of water and cooking to eliminate bitterness, are all generally known in the trade and industry of processing citrus peel for various purposes, including marmalade, and are not trade secrets of plaintiff.  

However, the question remains as to whether the particular manner, means or formula and know-how, used by Cal Citrus and plaintiff to produce the end product of the processed citrus peel was secret and confidential as between Cal Citrus, plaintiff, and defendant Coleman.  Did such process and know-how constitute trade secrets to the extent that it constituted a competitive advantage over competitors who did not know of the manner in which certain steps in the processing were accomplished[?].

In determining the rules to be applied, we must first consider whether the plaintiff seeks to protect a design secret with respect to the modification and manner of use of water with the Toman slicer and, if so, would such design be disclosed to anyone purchasing such a slicer.  The Toman slicer was a patented [*640] device and therefore, as such, would not be a trade secret.

It is also important to determine whether the defendant Coleman acquired the alleged trade secrets, as to use of water with the Toman slicer and the formula used in cooking and processing the peel after the slicing and dewatering operation, as a result of his own efforts while in the service of Cal Citrus and plaintiff or by way of disclosure to him by Cal Citrus or plaintiff while he, Coleman, was an employee.

* * * [The court discussed several relevant cases, including Wexler v. Greenberg.] [*642] * * *

Applying the rules as set forth above, and with particular reference to the observations of the California court and the Restatement of the Law of Torts as adopted by the California court, to the facts presented by the evidence in the case at bar, the Court finds:

    (1) The information relative to the manner and means of the use of water in the operation of the slicer was disclosed to defendant Coleman by Cal Citrus and not acquired by him as a result of his testing and experiments.  The evidence also discloses that no one in the processing of citrus peel other than Cal Citrus had used, prior to defendants' use, a Toman slicer or water in the slicing process.  The use of water in the manner applied by Cal Citrus afforded it an advantage over competitors, none of whom knew of such use or the benefits to be derived therefrom, and the Court concludes that use of the Toman slicer and water was a trade secret.  
    (2) The formulas, such as details for processing various citrus peel through the cookers, as kept by defendant Coleman in his notebook, contained confidential information which constituted trade secrets.  These secrets involve the proportions of the materials used, time for cooking, and so forth, and was information disclosed to the defendant Coleman by Cal Citrus and not the result of his experimentation or skill.  Although the general approach by plaintiff to the processing of citrus peel involved general concepts which were not trade secrets, the particular manner and means of embodiment of those concepts in certain phases of plaintiff's process, the Court concludes, were trade secrets.
    (3) The defendant Coleman, although not bound by written agreement not to disclose trade secrets, knew that the information as to the details of the method and know-how of processing citrus peel by Cal Citrus and plaintiff, particularly the slicing procedure and cooking formulas for different products and customers, was confidential and there was an implied obligation on his part not to disclose this confidential information received by him in trust.  
    (4) That Cal Citrus and the plaintiff maintained sufficient secrecy with respect [*643] to the trade secrets referred to above to protect the information.  Not only were there several signs on entrances to the plant and properties denying admittance thereto but Mr. Hanson, of the plaintiff corporation, stated that he had difficulty in getting into the plant to talk to [an employee of Cal Citrus, apparently before the acquisition], and the fact it appears no competitor had learned of the details of Cal Citrus' processing of citrus peel, all points to the fact that conscientious efforts were made to maintain secrecy.  
    Cal Citrus had allowed the members of one or more women's clubs and children to walk through its plant and representatives of two or three of their customers had been through to check on the product they were purchasing but these facts are not considered as constituting failure to maintain secrecy as to the trade secrets here involved.  
    (5) The trade secrets and confidential information were of substantial value to the plaintiff and Cal Citrus and to competitors, as the evidence discloses that the plaintiff was unable to obtain processed citrus peel of the quality and likeness of that produced by Cal Citrus and, in order to learn how to make such a product, purchased the assets of Cal Citrus.  It is also to be noted that the defendant Belk very frankly stated that he was aware that the process used by Cal Citrus was of a confidential nature and that he employed defendant Coleman because of the slicer that Coleman said he had built.  This slicer turned out to be a Toman slicer with water attachment so that water could be used under ordinary pipe pressure in connection with the operation of the slicer, similar to the arrangement as used by plaintiff.  
    It appears that the peel enters the slicer used by Cal Citrus and plaintiff from a funnel type piece of equipment placed on an angle to the slicer, whereas the peel in the defendants' process enters the slicer from a horizontal belt.
    (6) With respect to the ease or difficulty with which the information could be properly acquired or duplicated by others, the Court concludes that one skilled in the trade of processing citrus peel and familiar with the equipment used therein could in due time discover plaintiff's formulas, its means and know-how, with respect to the processing of citrus peel through a slicer using water for a propellent and, if desired, for debittering the peel in the process.  

It appears to the Court that one skilled in the trade would be able to learn of the Toman slicer and plaintiff's use thereof through checking patents on fruit slicers, inquiring of patentees of such slicers, and by inquiry of persons knowledgable with respect to slicers and their capabilities, including Mr. Toman as a patentee.  Information as to dimensions of the peel and the amount of albedo left on processed peel was available by examination of plaintiff's peel as contained in its products in which the peel in its various dimensions was an ingredient.

Mr. Roy, an employee of Cal Citrus from 1939 to 1951, testified that water was applied to the slicers used by Cal Citrus from shortly after he was employed by that company, for the purpose of moving the peel through the slicer so as to avoid the need of putting hands near the whirling blades of the slicer when the peel piled up in front of or clogged the machine.  In the first instance the use of water was not to eliminate bitterness but to avoid the need for employees to put their hands near the slicer blades.  Mr. Roy stated that on two occasions prior to the application of water, employees had suffered injuries to their hands from the slicer blades.  It does not appear that any substantial length of time was involved in finding that water under normal pipe lines pressure would accomplish this desired result.

Mr. Higby, for many years a research chemist with Sunkist Growers and chief chemist at the Exchange Orange Products Company, testified relative to the problems that would be involved in [*644] trying to determine how to process citrus peel, particularly Valencia and Navel orange peel, to obtain a product similar to plaintiff's.  He said that the major problem would be to get the peel sliced thin.  He thought he would have a fifty per cent chance of working out a process in, say a year.  That would be the laboratory process and would not include developing machinery for handling the peel or packaging the peel.  Mr. Higby also observed that if working with mature Valencia oranges, the laboratory work would be less important because bitterness is a minor factor in mature Valencias.

As noted above, the thickness of the citrus peel produced by Cal Citrus and plaintiff, and its length as used in different products, such as marmalade, and the thickness of the albedo left on the peel, could readily be determined by examination of the products in which plaintiff's peel was used and this information did not constitute a trade secret.  

The Court does not find that Cal Citrus, when first applying water, used it through the slicer to eliminate precursors, limonin or oils in the peel.  As noted above, the water, at that time and since, was for the purpose of avoiding recurrence of accidents which had involved the mangling of fingers.  

The Court concludes that the removal of the bitterness by the water operating into the slicer is the result of the precursor oils or other chemicals in the albedo and flavedo being soluble in the water or being removed in part by the force of the water.  The use of water as applied by Cal Citrus was not the result of long experiments or testing to accomplish the debittering result obtained.  It was the natural consequence, opportunely discovered by Cal Citrus. This fact does not keep it from being a trade secret if the information meets the other tests noted above.

The fact that the precursors and limonin in citrus peel were soluble in water was not a trade secret, since Mr. Higby, in 1938, had written an article widely distributed in chemical circles entitled "The Bitter Constituents of Navel and Valencia Oranges", in which this fact is discussed.  

The Court concludes that plaintiff was possessed of trade secrets and confidential information consisting of:

    1.  The use and the manner and means of the use of a Toman slicer and application of water thereto, including the amount of water, pressure used and where and how applied in the processing of citrus peel by plaintiff.
    2.  Formulas for the cooking of peel.  This does not include the use of citric acid, which was well known in the trade, but does include the measure of ingredients and other data relative to cooking the peel taken to defendant Belk Fruit Packers, Inc., by defendant Coleman.

The Court further concludes that the trade secrets were divulged to defendant Coleman by Cal Citrus on a confidential basis and have been so maintained by plaintiff.  It appears to the Court that defendant Coleman did disclose the said trade secrets of plaintiff to defendants in violation of a confidential relationship between Mr. Coleman and plaintiff and that the trade secrets are now being unfairly used by defendants in competing with plaintiff.

An obligation not to disclose confidential information may arise from circumstances other than communications in confidence to the employee by the employer.  It may also rest upon an express or implied agreement.  An implied agreement not to disclose could well have arisen from the efforts of Cal Citrus to maintain secrecy and defendant Coleman's knowledge that Cal Citrus' methods of processing citrus peel were not to be disclosed.  
No one else in the field of processing citrus peel had obtained plaintiff's result in processing such peel.  Therefore, we [*645] should assume that had Coleman worked for other processors he would not have acquired the knowledge he now asserts the right to use.  

It does not appear that the means of keeping the peel for a period of years in vacuum packed containers was the discovery of Cal Citrus.  Vacuum packing was not a trade secret.  Cal Citrus did solve the problem, although by chance, of eliminating the precursors and limonin from the albedo and certain oils and chemicals from the flavedo which allowed the peel to be vacuum packed without the bitterness and off-flavor which normally developed in the fresh peel within about seven days.

The fact water was sprayed into an item of equipment used in the processing of the peel was apparent to one passing through the plant, but the slicer was covered and the fact the water was sprayed into a slicer or that the slicer was a Toman slicer was not apparent to one passing through the plant, by reason of the covering of the slicer and the approaches thereto as evidenced by plaintiff's Exhibit 26-G.  

It is true that Cal Citrus had developed a process whereby it obtained a result not yet discovered by others.  [Plaintiff] had endeavored to find a product like the peel processed by Cal Citrus, both in the United States and abroad, but the evidence does not disclose what, if any, efforts, by way of tests or research, [were] made or accomplished to duplicate the peel.  

Samples of the peel, both before and after processing by Cal Citrus and plaintiff, being available, the Court concludes that one skilled in the trade of processing citrus peel could, with concerted effort, discover, by research and tests that his experience would dictate, the chemical and mechanical process to duplicate the end result of plaintiff's processed peel.  In considering this point, we must, of course, keep in mind the volume of information available in this field to the public as noted above and by . . . testimony.  

Plaintiff's process would be classified as "simple" by modern science and industry.  Mr. Higby, the expert research chemist, believed the slicing of the peel to so thin a dimension would be the biggest problem.  To a mechanical engineer experienced in the field of slicers of various kinds, it should not present an insoluble problem.  Mr. Higby was of the opinion that the processing from a chemical standpoint did not present a serious problem.  

Considering all of the evidence in the case, the Court concludes that a reasonable period of time which should be allowed for discovery of plaintiff's trade secrets is 18 months from the date of this Opinion.  

For the reasons noted hereinabove, plaintiff is entitled to an injunction against defendants, their agents and representatives, enjoining their use of trade secrets and confidential information as described herein and from disseminating any information with respect thereto for a period of 18 months to run from the date of this Opinion . . .

Plaintiff is entitled to Judgment for damages, if any, suffered to date as a result of defendants' use of its trade secrets, and costs of the within action.  

The Court does not conclude that there was deliberate wrong or fraud on the part of defendants in the appropriation of plaintiff's trade secrets.  

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