Opinion ID: 2286678
Heading Depth: 1
Heading Rank: 1

Heading: The Existence of a Trade Secret

Text: A trade secret is described in Restatement, Torts, § 757, comment b, as follows: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. In an excellent treatise by Turner on The Law of Trade Secrets (London 1962), which considers the American as well as the English cases on the subject, the learned author states: The subject-matter capable of protection may be an industrial secret like a secret machine, process, or formula, or it may be industrial know-how (an increasingly important ancillary of patented inventions); it may be information of any sort; it may be an idea of a scientific nature, or of a literary nature (such as the plot of a story or the theme of a television series), or it may be a slogan or suggestion for a method of advertising; lastly, the subject-matter may be the product of work, or expenditure of money, or of trial and error, or the expenditure of time. Secrecy is not necessarily a constituent of a protectable subject-matter, but when it is, different degrees of imperfect secrecy are sufficient in different circumstances to make subject-matter capable of protection. p. 4. Whether or not there is a trade secret and, if there is, whether its owner will be protected against persons accused of using it unlawfully, has been considered in numerous cases in federal and state jurisdictions, and in England, as well as by text writers. See inter alia the cases cited in Mycalex Corporation of America v. Pemco Corporation, 159 F.2d 907, 913 (4th Cir.1947). The legal principles are not in dispute; it is their application to the particular facts on which, in general, the decisions turn. As has been done in other cases, we shall summarize what we regard as the salient facts but will not set them out in such detail as to disclose the alleged trade secret, which it is the purpose of this litigation to protect. Head Ski Company v. Kam Ski Company, 158 F. Supp. 919 (D.C. Md. 1958). See also annotation, In Camera Trial of Hearing and Other Procedures to Safeguard Trade Secret or the Like Against Undue Disclosure in Course of Civil Action Involving such Secret, 62 A.L.R.2d 509, 530-532, and cases therein cited. In reviewing the testimony, it is to be remembered that Maryland Rule 886 a provides that, when an action has been tried by the lower court without a jury, the judgment of the lower court will not be set aside on the evidence unless clearly erroneous. Wood v. Wood, 227 Md. 211, 176 A.2d 229 (1961). If there is substantial evidence to support the lower court's factual conclusion, that finding must be reviewed in the light most favorable to the prevailing party below. Goodwin v. Lumbermens Mut. Cas. Co., 199 Md. 121, 128, 85 A.2d 759 (1952). The conclusions of law based upon the facts, however, are reviewable by this Court. Tyler v. Secretary of State, 230 Md. 18, 20, 185 A.2d 385 (1962). See Moran v. Moran, 219 Md. 399, 401, 149 A.2d 399 (1959). There was substantial testimony on behalf of Darling that its manufacture of the hoses involved approximately thirty different steps. Admittedly, some of these steps consisted of simple manual operations and the use of devices and uncomplicated machinery which in themselves were known to the industry. It is not any one of the steps but their selection, order and conjunction which Darling contends is its trade secret. In general, and without going into the details of the testimony, it is the application of the silicone rubber to produce the desired result which Darling claims is its own unique secret, based on research and experimentation and embodying the result of years of trial and error before the requisite know-how was achieved. It is the requisite strength and delicacy of the oxygen breathing hose for pilots which necessitates the numerous methods and techniques which Darling has used. The court below referred to Darling's know-how. A knowledge of the particular process, method, or material which is most appropriate to achieve the desired result may itself be a trade secret. Head Ski Company v. Kam Ski Company, supra, 158 F. Supp. at 923; Manos v. Melton, 358 Mich. 500, 100 N.W.2d 235 (1960); By-Buk Company v. Printed Cellophane Tape Company, 163 Cal. App.2d 157, 329 P.2d 147 (1958); cf. Mycalex Corporation of America v. Pemco Corporation, 64 F. Supp. 420 (D.C. Md. 1946) affirmed 159 F.2d 907. See Turner, op.cit., at 35-37. One of Darling's witnesses, Rothermel, a chemical engineer experienced in the manufacture of flexible hose, had been employed by the Dayton Rubber Company from 1936 until 1960. He became a technical superintendent of one of the plants of the Dayton Rubber Company (now the Dayco Corporation); later he became Vice-President and General Manager of Strato Safety, a wholly owned subsidiary of Dayton Rubber Company in California. From September 1, 1958 until February 1, 1960, his one assignment was to produce hose that was equivalent or equal to Darling's hose, which would be accepted by the customers on an equal basis. Rothermel was directed by the president of the Dayton Rubber Company; he had the full facilities of the laboratory and the knowledge of the suppliers of that company and could draw on all of its equipment. To the best of Rothermel's knowledge, Darling was the sole manufacturer of the hose here in question in 1956 and thereafter; hose of that type, as far as he knew, was not built by anyone other than Darling. He had hoses manufactured by Darling but, in his opinion, it was not possible to produce the hose by just having a sample of it, except, perhaps, after several years of trial and error. He did not have Military Specification H-22489 at the time he was working to reproduce the Darling hose, although he had the specifications within the three months prior to trial, but, in his opinion, he could not have produced the hose even if he had had the specifications. There was other testimony to the effect that these specifications only gave the details of the particular results which were required in the oxygen breathing hose and did not explain how those results were to be obtained. Rothermel testified further that he had difficulty in finding proper silicone rubber compound, in putting in communication wires and other matters necessary for the proper manufacture of the desired product. Opper, a witness called for the defendants, was employed by the Dayco Corporation since 1950; from 1959 he has been manager for the Strato Safety Equipment Division; he worked for several years on oxygen breathing hose and obtained a contract from the Navy for the building of small-bore hose from the Military Specification H-22489 on June 7, 1961, although the company did not qualify until April of 1963. The hoses produced under Opper's direction had different dimensions from those made by Darling and Space Aero but the specifications under which the Strato Safety hose was manufactured were identical. The appellants contend that Rothermel chose to duplicate the Darling hose unassisted and, as a result, the compound he used refused to stay in place. They produced experts of their own, including Muller, Director of Engineering of H.K. Porter Company, one of the largest industrial manufacturers in the country, who visited the Space Aero plant and testified that each of the elements he saw and the manner in which each step was being performed were substantially the same as one or another of the processes with which he had been familiar in the industry. The defendants also offered Professor Charles Alfred Shreeve, head of the mechanical engineering department of the University of Maryland, an expert in mechanical engineering. He testified to the same effect as Muller and stated further that the trade secrets he heard described by Mr. Darling on the stand were neither new, novel nor unknown but were all obvious mechanical processes. Darling contends that Muller was unable to recall or describe much of the equipment and many of the process steps utilized at Space Aero; and that Shreeve could not remember many steps and techniques used in the Space Aero process. None of the appellants' expert witnesses, other than Brandenburg, testified he could have reproduced the Darling hose without having seen it in actual manufacture. Brandenburg, a research chemist and manufacturer of silicone products, testified he was thoroughly familiar with the Darling hose building process, which he had helped develop, and that each of the steps was common knowledge in the industry. He admitted, however, that there were no other companies building the hose. The finding of the court that other hose manufacturers in this country have endeavored to produce an oxygen breathing hose which would compete successfully with Darling's but (at least until 1963) have failed to do so, is clearly supported by the testimony. The testimony as to whether Darling's methods and processes were unique, and, as a composite result, known only to it, or whether they were generally known and in the public domain, is voluminous and conflicting. The record, as a whole, convinces us that the trial judge was not in error in his implicit finding that Darling's know-how in the manufacture of its hoses was the subject matter of a trade secret. This holding does not extend to the male disconnect, referred to at length in the evidence. This disconnect is attached to the hose, and is fitted to a female connector in the plane which leads to the oxygen supply. The testimony shows that the drawings of the male disconnect, bearing standard military specification numbers, were originally obtained from Douglas Aircraft Company, which had developed them, and then recopied under Darling's name. The disconnect could be ordered as a complete unit merely by using the military specification and order numbers. Several companies listed these numbers in published catalogues. The male disconnect shown in the drawings can be purchased on the open market. Darling shortened the part as shown in the drawings by half an inch, added some knurling and rounded the end of the insert portions. These changes are visible on inspection of the part. None of the elements of a trade secret is present in respect of the male disconnect, nor does the testimony support any design rights of Darling therein. A trade secret as to the manufacture of the hoses themselves can exist apart from the disconnect attached to them. Even though a process or method may be the subject of a trade secret, a substantial element of secrecy must exist before the owner of the method is entitled to judicial protection. Absolute secrecy is not essential but a substantial element of secrecy must exist so that there would be difficulty in others properly acquiring the information. Mycalex Corporation of America v. Pemco Corporation, 64 F. Supp. 420, 423 (D.C. Md. 1946); Excelsior Steel Furnace Co. v. Williamson Heater Co., 269 Fed. 614, 616 (6th Cir.1920); Turner, op. cit., 71-98; Callmann, Unfair Competition and Trade-Marks, § 53.3 (e); Ellis, Trade Secrets, §§ 26, 53. A trade secret owner, however, does not abandon his secret by a limited public publication for a restricted purpose. Abernethy v. Hutchinson, 1 H. & T.W. 28, 3 L.J. (o.s.) (Ch.) 209 (1824). The Restatement sets forth some factors to be considered in determining whether given information is one's trade secret. These factors are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Restatement, Torts, § 757 b. The testimony was uncontradicted that the Darling process was the result of years of experimentation and research; approximately a quarter of a million dollars went into the development of the processes and methods. The value of the information gained in the development of the hoses to Darling is clear. From a small business in 1948, Darling has grown to a point where in excess of two hundred persons are employed and where it is manufacturing one hundred or more different types of hoses, with a gross of nearly five million dollars a year. The value which the information would have had to other companies, if they could have been successful in making a similar type of hose, is evident if only from the efforts of Dayco Corporation which tried for years to duplicate the Darling method and, despite its resources, was unsuccessful until 1963. The Darling methods were known, and indeed had to be known, to some of its employees, including its former employees who formed Space Aero. The extent of measures taken by Darling to guard the secrecy of the information is in dispute. As evidence of the requisite secrecy, Darling points to the testimony that, during the initial stages of the development of the hoses, the activities and process were kept secret even from Darling's employees. The Instruction Guide issued for training, offered in evidence, states that the methods and processes and the manner in which materials were used must be considered as trade secrets, and that to divulge this information to any individual outside of the company would provide others with knowledge and information detrimental to the existence of the company. A lock box was maintained in the plant for blueprints and a list of authorized personnel with keys was carefully maintained. The training of the company's employees was in a separate area and, according to Darling's witnesses, the trainees were frequently told that the company had processes of which no one else in the world knew. The appellants' testimony presented a quite different picture. A former supervisor testified that she and other employees were never cautioned to hold the method of manufacture in confidence. The mutable Phillips testified that, while he knew there was no one else in the United States making hoses in a method similar to that of Darling, he did not recall being admonished not to discuss the product. The Darling methods were also known to Brandenburg who, through Norris, was involved in Darling's business. Norris did not manufacture oxygen breathing tubes, but its sales of its silicone products to Darling increased from a volume of a few hundred dollars in 1953 or 1954 to about three hundred thousand dollars in 1960. During the years of the relationship, Brandenburg made many visits to the Darling plant, and testified that he was familiar with each step of the process of making the hoses and had been of material help in the entire development. On the latter point, however, there was conflicting testimony on behalf of Darling, to the effect that Brandenburg had only been consulted in the area of the compounds which he furnished. Judge Pugh, in his opinion, while making no express findings of fact, referred to the evidence that Brandenburg had full and complete knowledge of the operation of the Darling plant and that, independently of this knowledge, Brandenburg had the know-how to build the hose. Whether or not the testimony would have justified a finding to this effect, the relationship of the parties is pertinent. Darling and Norris were working together, as manufacturer and supplier, in what was, to some extent at least, a joint enterprise. Brandenburg testified, in answer to a question by the court, that it was not the policy of his company to go around telling other people what some one else is doing. There was a certain amount of ethics involved. By Brandenburg's own testimony, there was some element of confidence and trust in the relationship. Under all the circumstances, Brandenburg's knowledge of the process, however complete, did not negate the substantial element of secrecy necessary to the existence of a trade secret. Saco-Lowell Shops v. Reynolds, 141 F.2d 587 (4th Cir.1944); International Industries v. Warren Petroleum Corp., 99 F. Supp. 907 (D.C. Del. 1951). See Chun King Sales v. Oriental Foods, 136 F. Supp. 659, 662 (D.C.S.D. Cal. 1955). Cf. Mycalex Corporation of America v. Pemco Corporation, 159 F.2d 907 (4th Cir.1947); and Messler v. Knapp Bros., 52 F. Supp. 812 (D.C. Mass. 1942). There was much testimony as to tours through the plant and particularly as to a public demonstration of hose-building for the Greater Washington Industrial Council, during which small groups of guests were given demonstrations of hose-building and other techniques. The appellants point, inter alia, to the testimony that two overhead garage doors to the street were left open and that workers were free to have visitors while they were assembling the hose. Darling's plant was located not in one of the country's great industrial centers, but in a relatively small, if growing community. The testimony, taken as a whole, convinces us that Darling took precautions to guard the secrecy of its process which, under the circumstances, were reasonably sufficient. In its particular community and environment, it may well be that Darling considered that too elaborate efforts at concealment would call attention to what was being concealed, as in Poe's Purloined Letter. In any event, as the lower court emphasized in its opinion, no one else succeeded in making hoses according to the Darling process. Until the formation of Space Aero by Darling's former employees, Darling's efforts at secrecy, like the process itself, met the basic criterion of success. Upon consideration of all the testimony in the light of the applicable legal principles, we are convinced that Darling's processes and methods in manufacturing its oxygen breathing hoses (apart from the male disconnect fitting) constituted a trade secret.