Opinion ID: 2225574
Heading Depth: 1
Heading Rank: 21

Heading: 1989 Preliminary Injunction Hearing

Text: In February 1989, the court heard the preliminary injunction. This was 8 months after Kreikemeier signed a contract to build aerial ladders for another manufacturer referred to in the record as Maxim, one of SFAC's competitors. Delwin Smeal testified that as SFAC incorporated other components into its hydraulic system, Smeal realized that SFAC needed to modify its valve spool to deal with jerkiness in the ladder's operation. In 1977, after considerable trial and error, he discovered how to mill a valve spool to get a smoother hydraulic operation for SFAC's aerial ladders. About 1983, the modification process was refined, using commercially available valve spools. Kreikemeier started working at SFAC in 1977. Smeal stated that Kreikemeier began working on SFAC's aerial ladder hydraulics in 1982 and that he taught Kreikemeier how to mill SFAC's valve spools. In 1984, SFAC began selling its ladders to Pierce Manufacturing Company (Pierce), a company that produced finished firetrucks but did not manufacture aerial ladders. At some point, Maxim also asked SFAC to sell its aerial ladders to Maxim. Because Maxim was a competitor, SFAC declined. SFAC suspected that Maxim wanted only to reverse engineer SFAC's ladder, causing SFAC to lose its competitive advantage. After SFAC declined this offer, a representative from Maxim contacted Kreikemeier about him either working for Maxim or building ladders for Maxim. The Maxim representative had previously worked for Pierce and had become familiar with Kreikemeier during that time. At some point, Kreikemeier told Maxim that he was not interested in working for it; he stated that he wanted to start his own company. When he did not break off his negotiations with Maxim, SFAC terminated his employment in May 1988. In June 1988, Kreikemeier signed a contract to build aerial ladders for Maxim. Kreikemeier knew SFAC's entire manufacturing process because he had been the assistant manager of the aerial ladder division before SFAC terminated his employment. Before leaving SFAC, Kreikemeier admitted to Smeal that he planned to use SFAC's hydraulic system. Kreikemeier admitted that when he left SFAC, he took copies of SFAC's plans, structural designs, and everything written down on paper about SFAC's ladder, including SFAC's modification of its valve spools. He stated that he did not take the documents to duplicate SFAC's ladder but admitted that he referred to them in designing his ladder. He also admitted that he did not produce the SFAC documents in response to the court's document production order. And he burned SFAC's documents just before the preliminary injunction hearing. He specifically admitted to using SFAC's grinding method to modify the valve spools in the hydraulic valves for R.K.'s outrigger jacks, which stabilize the truck when the aerial ladder is in use. But the evidence did not show that R.K. was grinding the valve spools in its hydraulic system for raising or lowering an aerial ladder. Smeal testified that SFAC's trade secret was multifaceted. He was asked whether his modification of the valve spool represented all of the confidential information and trade secrets that SFAC possessed regarding its aerial ladders. He denied that characterization. Smeal stated that SFAC also added components to the lines between the valve and the cylinder and that neither the external components nor the valve spool modification would work unless they were coordinated. But he admitted that the external components were commercially available and that SFAC did not make any changes to the control valve other than to modify the valve spool. He stated that SFAC cut its valve spools to advance the flow from the pressure line to the work port and from the work port to the tank line. He also stated that SFAC dissipated unwanted build-up pressure inbetween... valves and cylinders ... [b]y cutting the spool. But Smeal did not identify any specific cuts or modifications that SFAC made to its valve spools. The only witness to identify SFAC's valve spool modification was its hydraulic expert, Wayne Whaley, Ph.D. Whaley believed that SFAC's valve spool modification was unique and superior to other methods for dissipating pressure surges because it permitted the pressure in the valve to remain constant, relative to the flow of the fluid and the position of the valve spool. He stated that SFAC had achieved constant pressure by effectively creating a fluid damper on both lines leading to the cylinder. According to Whaley, SFAC had created its constant pressure circuitry system out of standard hydraulic components. He explained that SFAC had done this by creating an orifice opening in the region of the tank spool: i.e., by modifying the portion of the valve spooling that returns fluids back to the tank. More important to our resolution, he stated that the only cuts SFAC made were on that part of the spool where the flow returns to the tank and that the pressure side of its valve spool was not changed. Whaley explained that this unbalanced modification converted the tank side of the cylinder into a fluid damper by creating this small orifice that begins to open before the pressure side, the pump side of the flow goes to the other side of the cylinder. Or, as he explained in a 2002 deposition, the tank side of the control valve is opened a little before the pressure side is opened to leak out some of the fluid. This modification greatly minimized the pressure surges that go through the system when a valve opens or closes. Using the information that Smeal gave him, Whaley also created a diagram of SFAC's valve with the spool modification. Whaley had never seen a valve like SFAC's before, and he believed it was patentable. Whaley titled the diagram An Ideal Linear Control Valve. In response to the court's questions, Whaley specifically stated that this diagram showed SFAC's spool alteration. He stated that all hydraulic valve spools were capable of being modified in this manner and that the modification could be easily done by any skilled craftsman who knew the secret: how to modify the tank side of the valve spool to create a fluid damper. (As noted, the focus of the trade secret in Whaley's testimony was an orifice on the tank side of the valve spool that leaked fluid back to the reservoir tank.) The court received into evidence a document providing Whaley's opinion of SFAC's trade secret as illustrated by his diagram. In the document, he stated that SFAC has clearly invented a new surge-free control valve not available from any other source and not known in the fluid power control industry. [SFAC's] surge-free valve utilizes an unbalanced control spool which converts the tank side of a hydraulic cylinder to a fluid damper which dissipates pressure surges. (Emphasis supplied.) He further stated that SFAC's surge-free control valve in combination with any compensation circuit may also be a trade secret. But he stated that he would need to do more patent research before making that conclusion. In March 1989, the court issued the preliminary injunction. The court incorporated Whaley's above description of SFAC's trade secret as the manufacturing process that R.K. was prohibited from revealing or using. There were no further hearings. In June 1990, the court issued a permanent injunction upon the parties' settlement agreement. It is true that Smeal had testified that SFAC cut its valve spool to advance flow from the pressure port to the work port and from the work port to the tank port. But the agreed-upon injunction did not prohibit R.K. from modifying its valve spools on the pressure side or from modifying its valve spools to increase flow from the pressure port to the work port. Instead, the permanent injunction's prohibition was identical to the preliminary injunction. It prohibited R.K. from using an unbalanced control spool to convert the tank side of a hydraulic cylinder to a fluid damper to dissipate pressure surges.