Opinion ID: 2061872
Heading Depth: 1
Heading Rank: 1

Heading: The Rejection of the Report of the First Damage Master.

Text: The first damage master found that the defendants had incorporated information contained in the Foster-Miller report [6] into each of the visual display beverage dispensers which Crathco, the corporate defendant, sold after 1962. The first damage master also incorporated in his report the finding by the liability master that it would ordinarily take a year for a competent engineer with the benefit of the Foster-Miller Associates Report to conceive, design and develop the Crathco dispenser, and about three months additional without the benefit of the information contained in the report. However, the first damage master then found that taken as a whole the recommendations of the Foster-Miller report involved no creativity, were not novel, new, unobvious or patentable, and were matters of common knowledge to a person of ordinary skill in the field of heat transfer. He further found that the only damage to the plaintiffs was the three-month head start gained by the defendants, which he characterized as having a negligible effect on the profits of either the plaintiffs or the defendants. Therefore, the first damage master concluded that the plaintiffs' damages should be limited to the $1,400 which the plaintiffs had originally paid for the Foster-Miller report. The judge rejected the first damage master's report in its entirety. The defendants challenge the judge's ruling on the ground that the first damage master applied correct legal principles in his assessment of the plaintiffs' damages. [7] Moreover, the defendants contend that the first damage master's conclusions were legally correct in light of our opinion in Jet Spray Cooler, Inc. v. Crampton, supra . We disagree. The essence of an action for the wrongful use of trade secrets is the breach of the duty not to disclose or to use without permission confidential information acquired from another. See Junker v. Plummer, 320 Mass. 76, 80 (1946); E.I. duPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102 (1917). See generally Restatement of Torts § 757 (1939); Developments in the Law  Competitive Torts, 77 Harv. L. Rev. 888, 948-949 (1964). In the context of an employer-employee relationship, we have consistently held that where an employee acquires such confidential information in the course of his employment, he may be prohibited, after the termination of his employment, from using or disclosing confidential information so acquired. Jet Spray Cooler, Inc. v. Crampton, supra at 839, quoting from New England Overall Co. v. Woltmann, 343 Mass. 69, 75 (1961). See Eastern Marble Prods. Corp. v. Roman Marble, Inc., 372 Mass. 835, 841-842 (1977). Aronson v. Orlov, 228 Mass. 1, 4-5, cert. denied, 245 U.S. 662 (1917). The protection which we afford to trade secrets [8] against one who wrongfully uses them is grounded on principles of public policy to which we have adhered since Peabody v. Norfolk, 98 Mass. 452, 457 (1868): It is the policy of the law, for the advantage of the public, to encourage and protect invention and commercial enterprise. [9] This encouragement and protection is afforded trade secrets because the public has a manifest interest not only in commercial innovation and development, but also in [t]he maintenance of standards of commercial ethics. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481 (1974). Early Federal decisions are remarkably similar. In Fowle v. Park, 131 U.S. 88, 97 (1889), the Supreme Court held that [t]he policy of the law is to encourage useful discoveries by securing their fruits to those who make them. In Board of Trade of Chicago v. Christie Grain & Stock Co., 198 U.S. 236, 250 (1905), Mr. Justice Holmes said that the board had the right to keep the work which it has done, or paid for doing, to itself. The fact that others might do similar work, if they might, does not authorize them to steal the plaintiff's. Again in Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373, 402 (1911), the Court held that [t]he complainant relies upon the ownership of its secret process and its rights are to be determined accordingly. Any one may use it who fairly, by analysis and experiment, discovers it. But the complainant is entitled to be protected against invasion of its right in the [secret] process by fraud or by breach of trust or contract. Further, in E.I. duPont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102 (1917), the Supreme Court said that an employee shall not fraudulently abuse the trust reposed in him. In Becher v. Contoure Laboratories, Inc., 279 U.S. 388, 391 (1929), the Court recognized a cause of action against an employee for breach of a contract or wrongful disregard of confidential relations. Finally, in United States v. Dubilier Condenser Corp., 289 U.S. 178, 186 (1933), the Court held that an inventor may keep his invention secret and reap its fruits indefinitely. See generally Water Servs., Inc. v. Tesco Chems., Inc., 410 F.2d 163, 171 (5th Cir.1969); Hutter, Trade Secret Misappropriation: A Lawyer's Practical Approach to the Case Law, 1 W. New England L. Rev. 1, 9 (1978). Consistent with these principles, once information is demonstrated to be of an appropriate nature to qualify the information as a trade secret, any inquiry into the misuse of the trade secret must focus on the conduct of the defendant. Jet Spray Cooler, Inc. v. Crampton, supra at 843. If the defendant has acquired the information as a result of a confidential relationship which he enjoyed with the plaintiff, and, if the defendant has used the information without the permission of the plaintiff, then the defendant's use of the information is wrongful, and the defendant is liable to the plaintiff in damages for the wrongful use of the information. Id. at 845. The first damage master apparently did not focus on the facts found in the case on liability. The liability master found that [s]ince their inception the plaintiffs have conducted an extensive research and development program in a constant effort to improve their products and have, on occasion, consulted with independent engineering firms to help develop new products as well as to improve their existing products. Jet Spray Cooler, Inc. v. Crampton, supra at 836. Additionally, in Jet Spray Cooler the plaintiffs had maintained sufficient secrecy to protect the confidentiality of the information in the Foster-Miller report. Id. at 844. The first damage master apparently attached no importance to either of these factors and concentrated on the lack of novelty rather than on the impropriety of the method used to procure the secret. The fact that a process is the combination and adaptation of old principles to new purposes does not prevent the process from being a trade secret if the process as distilled accomplishes a result which gives the holder a competitive advantage due to his own ingenuity, research and development. Moreover, the fact that the secret was easy to duplicate does not militate against its being a trade secret. The important point is that the owner and those to whom it was necessary to reveal the secret knew of the trade secret. Maruchnics, Industrial Trade Secrets, Their Use and Protection, 4 Clev.-Mar. L. Rev. 69, 71-72 (1955). Thus, the first damage master erred as matter of law in failing to focus on the abuse of the confidential relationship and on the secrecy attached to the report which was designed to improve the plaintiffs' product and give it a competitive advantage. By not focusing on the defendants' conduct and on the secrecy attached to the Foster-Miller report, the first damage master erred in his assessment of damages. The measure of damages in cases involving business torts such as the misappropriation of trade secrets entitles a plaintiff to recover full compensation for his lost profits and requires a defendant to surrender the profits which he realized from his tortious conduct. See, e.g., National Merchandising Corp. v. Leyden, 370 Mass. 425, 430-433 (1976) (interference with contractual relations); Forster Mfg. Co. v. Cutter-Tower Co., 215 Mass. 136, 139-140 (1913) (misuse of trade name); Regis v. H.A. Jaynes & Co., 191 Mass. 245, 249-250 (1906) (infringing trademark). See Restatement of Restitution § 136, Comment a (1937); Restatement of Torts § 757, Comment e (1939). Public policy requires that unfair competitors must not be allowed to profit by their wrongful methods and that those who have been injured by them should receive adequate compensation for the loss or injury they have suffered. 2 H. Nims, Unfair Competition and Trade-Marks § 419, at 1324-1325 (4th ed. 1947). Of course, a plaintiff is not entitled to both the profits made by the defendant and his own lost profits. See Forster Mfg. Co. v. Cutter-Tower Co., supra at 139. See generally Telex Corp. v. International Business Machs. Corp., 510 F.2d 894, 931 (10th Cir.), cert. dismissed, 423 U.S. 802 (1975); Johnson, Remedies in Trade Secret Litigation, 72 Nw. U.L. Rev. 1004, 1023 (1978); Hutter, Trade Secret Misappropriation: A Lawyer's Practical Approach to the Case Law, 1 W. New England L. Rev. 1, 39 (1978); R.M. Milgrim, Trade Secrets § 7.08 [3] at 7-155 (1978). However, while a plaintiff is not entitled to a double recovery, the plaintiff is entitled to the profit he would have made had his secret not been unlawfully used, but not less than the monetary gain which the defendant reaped from his improper acts (footnotes omitted). 2 R. Callman, Unfair Competition, Trademarks and Monopolies § 59.3, at 496 (3d ed. 1968). Clark v. Bunker, 453 F.2d 1006, 1011 (9th Cir.1972). Cf. Sperry Rand Corp. v. A-T-O, Inc., 447 F.2d 1387, 1392-1393 (4th Cir.1971), cert. denied, 409 U.S. 892 (1972). Only in this way can we ensure that an unfair competitor will not be encouraged to proceed with his unfair methods in the hope that his profits might exceed the injured party's losses. National Merchandising Corp. v. Leyden, supra at 433. Therefore, a plaintiff in an action involving the misappropriation of trade secrets may proceed in the alternative to determine whether the defendant's wrongful profits exceed the plaintiff's losses caused by the misuse of the plaintiff's trade secrets. See id. at 433-434 & n. 16. We now consider the first damage master's method of assessing damages in light of traditional principles. The first damage master found that [t]he plaintiffs introduced detailed evidence in relation to the period from the inception of Crathco ... concerning alleged profits made by the defendants year by year on sale of their units, and concerning alleged plaintiffs' loss year by year of profits on sales by the defendants to plaintiffs' customers to the extent that the plaintiffs' profits would have exceeded the profits made by the defendants thereon. [10] Nonetheless, the first damage master disregarded this information and refused to assess damages based on the defendants' profits or the plaintiffs' lost profits because he found that the only effect of the defendants' wrongful use of the Foster-Miller report was the fact that the defendants were able to enter the market in competition with the plaintiffs three months earlier than they could have done without the benefit of the information contained in the report. [11] But the value of the misappropriated trade secrets to the defendants is not the basis of the defendants' liability, and the value of the misappropriated trade secrets should not form the basis of the plaintiffs' recovery. See generally National Merchandising Corp. v. Leyden, supra at 430-433. Accord, G.L.c. 93, § 42. Therefore, by focusing on the value of the misappropriated trade secrets, and not on the wrongful conduct of the defendants, the first damage master's assessment of damages was legally incorrect. The judge properly rejected the master's report and committed the case to a second damage master. Cf. Wormstead v. Town Manager of Saugus, 366 Mass. 659, 660 (1975).