Opinion ID: 1547259
Heading Depth: 1
Heading Rank: 2

Heading: The Secret Process Case.

Text: The first challenge to the decree in 6331, awarding damages to the plaintiff for the appropriation of its secret processes, is that the dismissal of the second cause of action in the original suit was res adjudicata of the present controversy. It need give us little difficulty. It is well settled that, even though the cause of action and the parties be the same, a prior determination is a bar to a subsequent suit only when it is based upon the merits. If the first suit was dismissed for defect of pleading or parties or a misconception of the form of proceeding or the want of jurisdiction, the judgment of dismissal is no bar to another suit. Hughes v. United States, 4 Wall. 232, 237, 18 L. Ed. 303; Baker v. Cummings, 181 U. S. 117, 124, 21 S. Ct. 578, 45 L. Ed. 776; Southern Pacific Railroad v. United States, 168 U. S. 1, 49, 18 S. Ct. 18, 42 L. Ed. 355; Brown v. Fletcher, 182 F. 963 (C. C. A. 6); Detroit Trust Company v. Dunitz, 59 F.(2d) 905 (C. C. A. 6). More important is the challenge to the decree awarding damages for appropriation of those of the plaintiff's secret processes for which patents have now been issued, on the ground that the right to secrecy and to patent monopoly are inconsistent, and that both cannot be asserted with respect to the same process. The secret processes relied upon were twelve in number. Secrets numbered 1, 2, 3, 4, 5, 5-a, 9, and 10, are now the subject of granted patents, and applications upon secrets 6 and 8 were pending at the time of the hearing. The argument is substantially this: Since one having rights mutually inconsistent must assert that one upon which he relies, the filing of an application in the Patent Office is an election to rely upon monopoly and an abandonment of secrecy, a disclosure of the secret to the public, and a surrender of all rights thereto except such as are conferred by the patent grant. It is therefore argued that the decree awarding damages and their computation is erroneous in so far as it covers the period between the time of the applications and the issue of the patents. In so far as the contention is directed to inconsistency between the two remedies for the same period of time, the argument is undoubtedly sound. We doubt, however, that the filing of an application for a patent is the dedication of a secret to the public. At the time of the application, the inventor or discoverer has no means of knowing whether the patent will ultimately be granted. If the secret is valuable, the discoverer, conceiving it to be patentable, would by making application hazard both secret and patent. This would defeat the very purpose of the patent law, which conditions monopoly for a limited period upon the complete surrender thereafter of the subject-matter to the public, and we think no such principle can be deduced from the authorities. Macbeth-Evans Glass Co. v. General Electric Co., 246 F. 695, 701 (C. C. A. 6), does not support the conclusion for which contention is made. In that case Macbeth elected to use his invention as a trade secret for some ten years before applying for a patent. It was there said: If the right to secure protection of the patent laws can be effectively repudiated, it certainly has been here. The inventor's course of conduct was construed as in effect an abandonment of his right to patent monopoly, and inconsistent with the duty of diligence resting upon an inventor desiring to patent his invention. The rule of diligence was early recognized by the Supreme Court in Pennock v. Dialogue, 2 Pet. 1, 7 L. Ed. 327, and Kendall v. Winsor, 62 U. S. (21 How.) 322, 328, 16 L. Ed. 165. That from it should be deduced a rule that during the period in which the patent application is being pursued in the Patent Office there should be no right on the part of the inventor to protect his process by secrecy or that failing a patent he should forfeit equitable protection is unsound. No injunctive relief is available to an inventor between the date of application and the patent, for the duration of the monopoly is measured by the grant. Gayler v. Wilder, 10 How. 477, 493, 13 L. Ed. 504; Rein v. Clayton, 37 F. 354, 3 L. R. A. 78 (C. C. Mich.). Our conclusion is also supported by the established practice in the Patent Office to maintain all live applications in secrecy pending disposition. There is no proof here that the plaintiff was unduly dilatory in seeking the protection of the patent laws for his secret processes. There was no effort to extend monopoly beyond the term provided for by law. There is, moreover, in the case of patentable processes, every incentive to dispatch in seeking protection of the patent law. Prior to patenting the inventor not only risks the loss of his secret through inadvertence or breach of confidence, but likewise through independent discovery. During his period of monopoly he incurs no such hazard. We cannot lightly assume delay inimical to self-interest. It is next contended that the plaintiff has forfeited its right to equitable protection of its trade secrets since they were necessary to the practice of the patented method, and the deliberate withholding of them from the disclosures thereof was a breach of faith as against the public. Of this contention it is sufficient to say that the proofs are barren so far as indicating that the secret processes were known to Smith at the time of the application either for the original or for the reissue patent. They were not the discovery of Smith, but of Stresau, the plaintiff's engineer. In fact such evidence as there is controverts rather than supports the asserted inference. Nor is our conclusion inconsistent with the suggestion that the secret processes may have been largely responsible for the plaintiff's commercial success, since that was a progressive development that followed not so much the granting of the patent as the inauguration of some if not all of the so-called secret processes. As already indicated, the master found certain of the secret processes entitled to protection, but reported adversely to the plaintiff with respect to the others, namely, those from 5 to 12, inclusive. These he found to be within the public domain, because within the realm of mechanical skill. The court overruled the master with respect to such processes, and granted relief. This, it is contended, it was beyond the power of the court to do. We have recognized, as have other courts, that there is a presumption of correctness to the findings of a master if based upon substantial evidence, but we know of no rule that gives to such findings the finality of a jury's verdict. [2] No such sanctity in equity cases attaches even to the decision of the court itself. As was said by this court, Mills Novelty Company v. Monarch Tool & Mfg. Co., 49 F.(2d) 28, 29, Appeals in equity bring up the whole case (with certain inferences in favor of the decree below), and the decree below should be sustained if it was right for any reason. Cf. Laursen et al. v. Lowe, 46 F.(2d) 303 (C. C. A. 6). Apart from these considerations, however, we think the overruling of the master's report in respect to those alleged secrets held by the master not entitled to equitable protection was warranted by the master's erroneous application of the law. We do not accept the plaintiff's contention that, regardless of whether processes are novel, those things which it has attempted to hide from the public will be protected against use by any one who obtains knowledge of them through breach of a confidential relation, and the master was right in rejecting it. Nevertheless, in endeavoring to ascertain whether the processes were novel, the master seems to have applied the test of invention recognized by the patent law, and to have held invalid all processes which appeared to him to be within expected mechanical skill. It is agreed, and we think correctly, that processes which are not patentable may yet be the subject of trade secrets. However, if the rule applied by the master be the true one, it would be difficult to conceive of any process whose secrecy is entitled to be protected which is not at the same time patentable, except in so far as the patent law limits the subject-matter of patents. To entitle one to a patent, there must be invention. The applicant must have exercised some degree of ingenuity, displayed some flash of genius, inspiration, or imagination not within the reach of mere partisanship. That which constitutes invention has, of course, never been successfully defined. There are tests, however, which, responded to, proclaim its absence; the most familiar, of course, being that leading to the determination, always difficult to make, that the thing achieved was the result of ordinary mechanical skill. A process may, however, be maintained in secrecy and be entitled to equitable protection even though invention is not present. The cases which deal with the elements necessarily present in a proprietary process are careful to define such processes as resulting from invention, or discovery. Peabody v. Norfolk, 98 Mass. 452, 96 Am. Dec. 664; Salomon v. Hertz, 40 N. J. Eq. 400, 2 A. 379; Eastman Kodak Co. v. Reichenbach, 79 Hun, 183, 29 N. Y. S. 1143; Herold v. Herold China & Pottery Co., 257 F. 911 (C. C. A. 6); O. & W. Thum Co. v. Tloczynski, 114 Mich. 149, 72 N. W. 140, 38 L. R. A. 200, 68 Am. St. Rep. 469. Quite clearly discovery is something less than invention. Invention requires genius, imagination, inspiration, or whatever is the faculty that gives birth to the inventive concept. Discovery may be the result of industry, application, or be perhaps merely fortuitous. The discoverer, however, is entitled to the same protection as the inventor. In Board of Trade of City of Chicago v. Christie Grain & Stock Co., 198 U. S. 236, 25 S. Ct. 637, 639, 49 L. Ed. 1031, the plaintiff collected stock quotations, which it furnished its customers. Said Mr. Justice Holmes of its tabulation: It stands like a trade secret. The plaintiff has 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. The mere fact that the means by which a discovery is made are obvious, that experimentation which leads from known factors to an ascertainable but presently unknown result may be simple, we think cannot destroy the value of the discovery to one who makes it, or advantage the competitor who by unfair means, or as the beneficiary of a broken faith, obtains the desired knowledge without himself paying the price in labor, money, or machines expended by the discoverer. Facts of great value may, like the lost purse upon the highway, lie long unnoticed upon the public commons. Hundreds pass them by, till one more observant than the rest makes discovery. It is idle to say that, in the eyes of the law, interest may not in such case follow discernment. We think the court below was right in rejecting the master's application of the law in respect to those secret processes held by the master to be invalid for the reason that they were in the public domain, or within the reach of the skilled mechanic in the trade. We shall not discuss in great detail the evidence that sustains the findings of the master or the court with respect to the secret processes. It is sufficient to say that we find the evidence as to discovery, secrecy, appropriation, and breach of confidence not only substantial but compelling our independent judgment as to the correctness of decision below. The defendant had sought in many ways to obtain the knowledge necessary to enable it to compete successfully with the plaintiff in the making of pressure vessels. It finally engaged Hawthorne, who for many years had been employed in the plaintiff's welding department, and who was under express contract not to divulge any information received by him during his confidential relationship to the plaintiff. The conclusion is inescapable that the defendant knew of Hawthorne's employment in a confidential capacity. Shanor, its superintendent, had been denied access to the plaintiff's welding shop, though shown its other activities. The infringement of the secret processes followed Hawthorne's engagement with the defendant. Hawthorne had represented to the defendant that electric welding was more highly developed, more economically done, and on heavier products by the plaintiff than by others. The defendant largely increased his salary over that paid by its predecessor. Hawthorne's own estimate of the value of plaintiff's secrets and their cost of acquisition are revealed in his address to the National Board of Welding Engineers after he joined the defendant's organization, and the extensive advertising by the defendant of the novelty of its Fluid-Fusion welding process is further corroboration both of the value of the secret processes, their recent discovery, and the fact that they did not lie exposed in the public domain. One contention remains to be noted. The defendant urges that Hawthorne's employment contract was invalid because, being one of many similar contracts made by the plaintiff with its engineers, it was in unlawful restraint of trade. It is only necessary to say that contracts of this character have frequently been enforced, United States v. Addyston Pipe & Steel Co., 85 F. 271, 46 L. R. A. 122 (C. C. A. 6); Harrison v. Glucose Sugar Refining Co., 116 F. 304, 58 L. R. A. 915 (C. C. A. 7); Thibodeau v. Hildreth, 121 F. 892, 63 L. R. A. 480 (C. C. A. 1). Nims on Unfair Competition and Trade Marks (3d Ed.) 413; that protection is frequently granted against invasion of proprietary secrets through breach of confidence in the absence of express contract, Du Pont de Nemours Powder Co. v. Masland, 244 U. S. 100, 37 S. Ct. 575, 576, 61 L. Ed. 1016 (The property may be denied, but the confidence cannot be); and, finally, that Hawthorne's contract is not here in issue. That as between the employer and employee the latter might have complained of the contract is of no avail to the defendant here. Its invalidity has no bearing upon the rights of the plaintiff to its secrets, nor does it justify their invasion by the defendant in violation of the confidence reposed in Hawthorne. The decree in 6330 holding the patent claims in suit invalid is affirmed. The decree in 6331 awarding an accounting and damages for appropriation of the plaintiff's secret processes is likewise affirmed, with the proviso that if, upon remand to the District Court for further proceedings, it should be found that additional patents have issued on any of the secret processes, the decree may be modified by dissolving the injunction with respect to them. There being but a single record in the two cases, the cost of its printing will be divided equally between the parties.