Opinion ID: 2286678
Heading Depth: 1
Heading Rank: 6

Heading: The Scope of the Injunction

Text: The order of the lower court, filed June 10, 1964, permanently enjoins the former employees, Space Aero, Brandenburg and Norris from further manufacture or sale of high or low pressure hose assemblies utilized in oxygen, air and pressure suit systems of like or similar construction to hose assemblies manufactured to the requirements of United States Military Specification H-22489, and from advising any person, firm or corporation as to the means for or method of manufacture of such hose assemblies. There is no provision in the order for the termination of the injunction if and when Darling's trade secret becomes generally known to the public; nor is there any provision with reference to the interest claimed by the United States in the scope of the injunction. Injunction is a proper equitable remedy to protect the interest of the proprietor of a trade secret against the wrongful use of that secret in breach of a fiduciary duty. Franke v. Wiltschek, 209 F.2d 493 (2d Cir.1953); Restatement, Torts, § 757 (e); Callmann, op.cit., § 59.1; note, Protection and Used Trade Secrets, 64 Harv. L. Rev. 976, 982 (1951). The authorities differ, however, as to whether an injunction issued to protect a trade secret should terminate after the secrecy ends. The sixth and seventh Federal Circuit Courts of Appeals hold that, once a person has obtained a disclosure through a breach of confidence while the disclosure was still secret, contrary to the obligations of a confidential or contractual relationship, he cannot thereafter use the subject matter of the disclosure which he has wrongfully used, even though members of the public can do so. Shellmar Products v. Allen-Qualley Co., 87 F.2d 104 (7th Cir.1936) cert. denied 301 U.S. 695; A.O. Smith Corp. v. Petroleum Iron Works Co., 73 F.2d 531 (6th Cir.1934). These cases deal with information subsequently patented but the rationale has been applied to trade secret cases, even where no patent is involved. The doctrine enunciated in this line of authorities is sometimes referred to as the Shellmar rule. The Second Circuit Court of Appeals and some other jurisdictions hold to the contrary. Conmar Products Corp. v. Universal Slide Fastener Co., supra ; Carter Products, Inc. v. Colgate-Palmolive Co., supra, 130 F. Supp. at 575. The holding of these cases is sometimes referred to as the Conmar rule. The American cases which follow the Shellmar and Conmar rules respectively, are analyzed in Turner, op.cit., at 442-454. The reasoning of the Conmar rule is that the trade secret is protectible only because of the fiduciary relationship of the discloser to the disclosee. Once the secret is public, the confidence would end in any event. An injunction is issued only when damages are not adequate compensation and once a trade secret becomes public, its original owner can no longer be irreparably harmed by the use of the former secret by persons who originally used it wrongfully, because the rest of the world is also using it. Under this rule, a distinction is made between the use of an injunction to protect proper lawful interests and its use as a penalty. The rationale of the Shellmar rule is that a person wronged has an action for breach of confidence entitling him to a perpetual injunction against the person who breached it of which the owner of the trade secret can not be deprived by an intervening publicity of the disclosure. The wrongdoer has deprived himself of the opportunity, open to the rest of the world, by his own violation of confidence. Inherent in this judicial dichotomy is the weighing of the two conflicting social and economic philosophies, reference to which has been made in the discussion of the existence of a trade secret  the balancing of the protection of rights in a proprietary knowledge gained by research and initiative against the interests in free competition and the use of an individual's skill for his own benefit and the benefit of the general public. Our Court has had occasion to consider the balancing of these interests in a different aspect of the employer-employee relationship but one in which the decision is apposite to the considerations involved in the present case. In Tawney v. Mutual System of Maryland, 186 Md. 508, 47 A.2d 372 (1946), the appellee, a small loan company, with another company, filed a bill for an injunction and accounting against two former employees and others, alleging that the employees had entered into employment contracts under which they agreed, inter alia, to keep secret the names of any past, present or prospective borrowers and customers of their employers; to refrain from using any information relative to such borrowers and customers, and to keep this information secret and refrain from using it for a period of three years from the date of termination of their employment. We held that these provisions of the contract of employment were valid and enforceable, but that other provisions requiring the employees to refrain from competition in the Baltimore City trading area for a period of two years from the date of termination were not enforceable. In holding the latter provisions illegal, Judge Henderson, for the Court, said: We think this goes beyond what is necessary to protect the good will of the employer, and works an undue hardship upon the employees, who would be excluded from engaging in the business for which they are specially fitted by long training and experience. Moreover the effect of enforcing the clause (M) would be to stifle competition, in a field where the existence of competition is clearly in the public interest. 186 Md. at 521. Our holding in the Tawney case rested upon the invalidity of a portion of an express contract between employer and employee rather than upon a breach of an implied duty of loyalty which the employee owes the employer; however, in the portion of the opinion which has been quoted, we indicated our realization of the importance of protecting the legal interests of the employer to the extent necessary, without working an undue hardship upon the employee. The reference to the desirability of competition in a field where competition is clearly in the public interest is particularly relevant to the present case where the oxygen breathing hoses, which are the subject of litigation, are important to the national defense. We agree with the Conmar rule. Our conclusion that this rule should be applied to the present case is fortified by the specific and important public interest here involved. The injunction should be modified so that it may be terminated if and when the methods and processes used by Darling in the manufacture of its oxygen breathing hoses become generally known to the public, without contribution in any way to such public knowledge through disclosures by the appellants. We do not agree with the appellants that the injunction should be restricted to the use of the processes rather than prohibiting the manufacture of the product. Darling's trade secret consists too largely of the ordered relationship and combination of various steps and devices, some in themselves quite simple in nature, to make a prohibition of specific steps or processes practical. It is the period of the injunction, rather than its subject matter, which, under the circumstances, we find too broad. There is, however, one aspect of the subject-matter of the injunction which should be modified. We have found that the male disconnect attached to the hoses is not a part of Darling's trade secret and that the secret as to the manufacture of the hoses can be protected without inclusion of this attached fitting. The injunction should be restricted so as to exclude from its operation and effect the male disconnect under Military Specification H-22489. Brandenburg and Norris contend that, in any event, they should not be enjoined from manufacturing any hose like or similar to Military Specification H-22489, because Brandenburg had the know how to build the hose, independently of any knowledge he acquired from the former employees. Even if Brandenburg knew how to build the hose, however, neither he, nor Norris, for whom he acted, had ever built such hose commercially. Brandenburg as an individual and Norris, as a company, actively helped Space Aero in producing the hose for which Space Aero obtained the Navy contracts. It is an implicit premise of the injunction that Darling's interests in its trade secret could not be adequately protected unless Brandenburg and Norris, as well as Space Aero and the former employees with whom they cooperated, were enjoined. There is a reasonable inference from the testimony that the practical knowledge which Brandenburg and Norris obtained from their association with the former employees in building the hose added to the knowledge which they formerly had. It would be difficult to separate the results of such practical experience from any independent knowledge formerly possessed. In view of all the circumstances, the court below was justified in enjoining Brandenburg and Norris, in order adequately to protect Darling. The harm to Darling and any hardship of the injunction upon Brandenburg and Norris sprang from the situation to whose making Brandenburg and Norris wrongfully contributed. See Wicklein v. Kidd, 149 Md. 412, 424, 131 Atl. 780 (1926); [6] and Restatement, Torts, § 941 comment b. The appellants contend not only that the injunction is too broad, but that it is invalid, because the United States was not made a party to the proceedings. The injunction affects the United States in that Space Aero is enjoined from performing and bidding on contracts with the Navy, and therefore, the appellants argue, the decree cannot bind the government. The answer to this contention is that the United States did not ask to be made a party to the proceedings, the appellee did not name it as a party defendant, and the appellants did not take any timely steps, in the court below, to have it joined as a necessary party. The statement of the United States as amicus curiae requested the lower court to consider its interest in the scope of the injunction to be entered, but the affidavit of Rear Admiral Hines attached thereto expressly disclaimed, on behalf of the Navy, the taking of any part in any dispute between the parties. The United States had ample notice of the pending litigation, and its failure to apply for joinder as a party is to be accepted as a disclaimer of any rights to that status. Reddick v. State, 213 Md. 18, 30, 130 A.2d 762 (1957). The appellants did not raise the defense of want of a necessary party by way of motion under Maryland Rule 323 or by a dilatory plea under Rule 341. The United States, however, by its statement as amicus curiae and the supporting affidavit filed on June 10, 1964, the date that the decree was signed, requested the court to consider the interest of the government in the scope of the injunction to be entered. The statement specifically requested that the injunction should exclude the performance of designated contracts between the Navy and Space Aero. The affidavit of Rear Admiral Hines, which was made a part of the statement, also referred to sub-contracts between Space Aero and certain Navy prime contractors. The affidavit stated: While there is reason to believe that delays in subcontract performance will curtail Navy scheduling, we are not immediately in a position to substantiate this view. It is respectfully requested that the Court grant leave to revise any injunction which may issue in the event affirmative data supports a demonstrable adverse interest to the National Defense. On June 30, the court signed an order denying the petition for modification of the injunction, without hearing, and, so far as the record discloses, without affording the United States an opportunity to show, as it had claimed, that the extent of the injunction would have a serious impact upon the Navy's military needs. Courts of equity may, and frequently do, go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go where only private interests are involved. Virginia Ry. v. Federation, 300 U.S. 515, 553 (1937). See also Yakus v. United States, 321 U.S. 414, 441 (1944). A court of equity can mold its decree to grant relief suitable to the peculiar nature of the case. McKeever v. Realty Corp., 183 Md. 216, 224, 37 A.2d 305 (1944). The operation of the injunction issued below was stayed by the filing of a bond and it appears that the last completion date of the three contracts between the Navy and Space Aero specifically referred to in the statement of the United States Navy was in November, 1964. We do not know, however, whether these contracts have actually been completed. In the interest of the national defense, the government must be given the opportunity to show whether all the work required under these contracts has been performed; if not, the scope of the injunction should be limited to permit completion. The United States must also be accorded the opportunity, by appropriate proceedings in the lower court, to seek further to limit the scope of the injunction to permit the completion of Space Aero's subcontracts with the prime Navy contractees referred to in Rear Admiral Hines' affidavit, if it is determined that the prohibition of the completion of these subcontracts has a demonstrable adverse effect on the national defense. The damages, if any, sustained by Darling as the result of Space Aero's completion of its contracts can be determined in subsequent proceedings. Order affirmed in part, reversed in part, and case remanded for the passage of an order and for further proceedings if necessary in conformity with this opinion; costs of this appeal to be paid one-half by the appellants in equal shares and one-half by the appellee.