Dow Chemical Co. v. American Bromine Co.

177 N.W. 996, 210 Mich. 262

• Court: Michigan Supreme Court
• Decided: June 7, 1920
• Docket: Docket No. 14
• Status: Published

Opinion

Brooke, J.

(after stating the facts). It is first asserted broadly on behalf of defendants and appellants that no trade secret in the legal sense ever existed in plaintiff’s plant. On the other hand, it is claimed by counsel for plaintiff that the various apparatus and processes used by the plaintiff in securing its product, in the particulars pointed out in the decree (the use of which, by said decree, was denied defendant) were secret. The following precautions, alleged to have been taken by plaintiff to insure secrecy in and about its plant, are relied upon by plaintiff:

“By surrounding by fences, warnings and watchmen.

“By keeping premises locked.

“By enclosing tanks and towers.

“By locating tanks on upper floors.

“By instructions to employees.

“By exclusion of visitors.

“By destruction of discarded parts of apparatus.

“By use of fictitious descriptive names.

“By check on plans and drawings.”

A great mass of evidence was introduced on behalf of both parties touching this question. Much of the evidence offered on behalf of the plaintiff was contradicted by evidence produced by defendants. Many of the facts relied upon by plaintiff to establish secrecy were conceded by defendants to exist as claimed but it is asserted that such precautions as actually were taken in and about plaintiff’s plant were taken not for the purpose of preserving inviolate such secrets, but were simply “such ordinary factory precautions as are taken for the purpose of protecting the property of the owner from theft or vandalism, to prevent interference with the workmen, to guard against accidents to visitors, to prevent employees from leaving the building during working hours, etc.”

Counsel for appellee define the word “secret” as follow's:

“A secret is something known only to one, or a few, and kept from others; anything hidden from general knowledge or observation; something not to be told.” Nims, Unfair Competition, § 141..

And it is urged that in considering the case before the court we should carefully have in mind the fact that this is not a patent case.

Arguing by analogy from patent law, it is asserted by counsel for appellants that a “trade secret” must possess (a) originality or novelty, (5) utility, and (c)' be in fact a secret, that is, known only to the party claiming it and employees working with it. Referring definitely to plaintiff’s claims of secrecy, it is said:

“1. One at least is wholly false.

“ ‘The arrangement of the carbons or electrodes in diagonal rows. It is not used by defendant. It has been abandoned by plaintiff.’

“2. Several are not used by defendants.

“ ‘The arrangement of carbons in diagonal rows, petticoat insulation, impregnation of carbons with paraffine or other substance, lath combs in tower, lead connections to electrodes having any similarity to plaintiff’s.’

“3. Some of them exist in defendant’s plant though they just happened to be there and were not intentionally designed.

“ ‘Overlapping carbons, carbons which project some distance outside of the tank into which the electrical connection is made.’

“4. Several have been disclosed in Dow patents.

“ ‘Insulation of the tank, impregnation of the carbons, bipolar electrodes, lead connections to the carbons, wood filling in the tower.'

“5. Some of them, though constructed in defendant’s plant, have been found to be of no substantial practical utility.

“ ‘The lute to the cover of the tank, overlapping carbons, pump log connections between compartments or cells of the tank.’

“6. Each and every of them, without exception, are so simple, open and obvious to one skilled in electrochemistry (some of them to an ordinary mechanic) that no novelty or secrecy can possibly be claimed in respect to them.

“ ‘The tank being made of wood, the plug with a handle long enough to project above the brine, bipolar electrodes, the cover to the tank, the lute to the cover, the ventilation of the cover, the pump log connection between the cells, the lead connection on the ends of the carbons, the wood filling in the tower.’

“7. If any of them could under any circumstances be recognized as a trade secret, they cannot at the instance of plaintiff, because if they possess any utility whatsoever, good faith and the observance of duties imposed by law required their disclosure in connection with the application for one or more of the several Dow patents and the withholding of them was a fraud upon the public in the continued perpetuation of which plaintiff can have no assistance from the court.”

Touching the claims of plaintiff and appellee relative to the precautions taken in its factory to preserve secrecy as to its apparatus and process, a careful examination of the record has convinced us that, considering the dangerous character of the work in which plaintiff was engaged, the precautions taken were no greater nor different from those which would or should have been indulged in by any prudent manufacturer engaged in a like enterprise.

Adverting to the claim of the plaintiff that the individual defendant, as well as all other employees, were warned that the process and machinery should be carefully guarded and kept secret from the outside world, we find the evidence in very marked conflict. We. believe the evidence upon this point to preponderate in favor of defendants and conclude, therefore, that plaintiff’s claim in this regard is not sustained and further, as a matter of fact, that no “trade secrets” in a legal sense ever existed in plaintiff’s plant'. , Many facts standing undisputed upon the record impel ns to this conclusion, among which the following may be mentioned:

First. An inventor, desiring to secure to himself the fruits of his invention, has two courses open to him, — first, to patent the same, thus securing an absolute monopoly for a limited time; or second, to keep his invention a secret, by which means he gets an imperfect monopoly for an indefinite period. It is quite obvious that Mr. Dow chose the former alternative. He patented his original process and apparatus and from time to time thereafter for 20 years secured many other patents, which he doubtless believed would tend to make his monopoly in his particular field of activity more complete. Some four or five of these patents were based upon inventions of the individual defendant, either alone, or in conjunction with others. Mr. Dow doubtless considered — and we believe rightly so — that a perfect monopoly for the limited period allowed by the Federal statute would result more advantageously to himself than would a course based upon the theory of secrecy. -

Second. In 1908, when Mr. Dow exacted from his employees a written contract with reference to inventions made by them while in his employ, we find that contract absolutely silent touching any obligation on the part of the employees to maintain secrecy touching the machinery and processes employed by the Dow Chemical Company. At that time, the matter of the protection óf his corporation and its rights was under consideration by Mr. Dow and it surely is not unjust to him to say that the subject treated in the contract was fully covered by him.

Third. That Mr. Dow himself fully understood that the individual defendant had entered into no agreement to maintain secrecy as to the ideas he had acquired during his employment is conclusively established by a letter written by Mr. Dow to defendant Schaefer on June 10, 1911, which follows:

“Mr. A. E. Schaefer,

“Saginaw, Mich.

“My dear Mr. Schaefer:

“We are in receipt of your letter of June 8th and note your proposition. We also realize that there are difficulties with the process which might arise and can also see that there would be a very good chance of some misunderstanding arising that might cause a deal of the kind you propose to be unsatisfactory either to you or to the Dow Company.

“It would seem to me to be more satisfactory from every standpoint to pay you a regular salary which would be a combination of salary and retainer fee, whereby we would be at liberty to call upon you at any time for any ideas that you might possess and whereby you would impart your ideas to us solely. If a deal of this kind meets with your approval, we would enter into a five year agreement with you to pay you $10.00 per month for such service as you could render us without materially interfering with your regular occupation.

“The chemist whom the Merck people have just employed to run their little plant here had to sign an agreement that in case he left their employ, he would not utilize the ideas that he had acquired during his employment with that company or impart the idea to others, in consideration of a certain sum of money, this to hold as long as the Merck Company continued to pay him for such secrecy. If you would care to incorporate this feature in the arrangement, made with you, it would be an additional reason why the Dow Company should put you on its pay-roll and keep you there.

“Yours very truly,

“The Dow Chemical Company, (Signed) “By Herbert H. Dow, “General Manager.”

• Fourth. When confronted with the possibility of competition through the erection of the plant by the corporation defendant, Mr. Dow sought to dissuade the promoters of the enterprise from proceeding with the project. He had more than one interview with individuals representing the defendant and, according to his own testimony, his claim at that time was not that the corporation defendant was fraudulently appropriating a secret process, wrongfully disclosed to it by the individual defendant, but he based his claim for relief against them at that time upon the alleged fact that the so-called Schaefer patent, under which they were about to operate, was an infringement of one of his patents (No. 733,467). The idea of secrecy appears not to have originated in Mr. Dow’s mind until the fall of 1916, at which time defendant’s plant was in operation. This suit was filed in November, 1916.

We are impressed that the claim of sécrecy on the part of the plaintiff is an afterthought, indulged in, possibly, by reason of the fact that Mr. Dow felt'relief through injunctive process from the Federal courts for infringement was doubtful. The situation presented by the case at bar is wholly at variance with that considered by us in the “Sticky Fly Paper” case (O. & W. Thum Co. v. Tloczynski, 114 Mich. 149 [38 L. R. A. 200]), and in the supporting cases there cited. In that case no effort had been made by the plaintiff to protect the invention by patent, but reliance for protéction was placed solely upon secrecy. And, moreover, the court found no difficulty in determining that an express contract existed between plaintiff and defendant, by the terms of which defendant was bound not to disclose the secrets of the operation learned by him in the course of his employment. Our conclusions upon this branch of the case are fatal to the claims of the plaintiff. But several other reasons exist, which, in our opinion, render it impossible for it to secure the relief prayed.

It is asserted by counsel for appellants that many of the alleged secrets are disclosed, either actually or by necessary inference, in plaintiff’s patents Nos. 987,-717, 1,053,266 and 1,070,454. Adverting to this claim, plaintiff’s counsel say:

“These patents do indeed disclose a bipolar cell, the last named illustrating electrodes constructed out of a plurality of carbon rods. The type of cell disclosed, however, in all three of these patents, is of the diaphragm type, is not adapted for the commercial production of bromine and, in fact, any attempt thus to employ the same would be disastrous.”

And further, in reference to patent No. 1,188,138 (an invention of Mr. Schaefer) it is said:

“Mr. Schaefer, in testifying regarding this patent, has presumed to interpret both the drawing and the language of the specification, in an altogether arbitrary and unwarranted fashion. Conceding that the invention was his, and that preliminary notes for the application were prepared by him, he has admitted that the papers and drawings were revised by Mr. Griswold, and the most superficial comparison of the showing of the patent with that of other related patents of the Dow Company would indicate that in accordance with the policy of the company as explained by Dr. Smith (Rec. 1378), no details of apparatus are shown, but only a diagramatic outline of the plant sufficient under the patent law to sustain claims to the process upon which protection was desired. He says, T think it has been a distinct policy of the company to not apply for patents on details of apparatus as used in the bromide plant/ ”

In all of the Dow patents except one, the applicant or patentee (usually Mr. Dow himself) states:

“* * * The principle of the invention being herein explained and the best mode in which I have contemplated applying the principle” * * *

The patent law (U. S. Revised Statutes, § 4888) requires the inventor to set forth—

“* * * the manner and process of making, constructing, * * * and using it in such full, clear, concise and exact terms as to enable any person skilled in the art or science to which it appertains or with which it is most nearly connected, to make, construct * * * and use the same; and in the case of a machine, he shall explain the principle thereof and the best mode in which he has contemplated applying that principle.” * * *

It would appear from the assertion of counsel for plaintiff and from the testimony of Dr. Smith, one of its expert witnesses, that the plaintiff, in securing its patents, purposely refrained from disclosing “the best mode in which he has contemplated applying that principle,” and endeavored to maintain secrecy as to such “mode.”

The obligation resting on the patentee is set out in Robinson on Patents (Vol. 1, § 42, and Vol. 2, 1 494), as follows:

“Through the whole body of the law runs the same principle, that the real consideration given to the public for the patent privilege is not the skill of the inventor in inventing, but his honesty and thoroughness in making his discovery known. The inventor, therefore, who does not fully disclose his invention, at the time and in the manner required by law, does not fulfill his contract with the public and is not entitled to the privilege which he receives.”

“A wilful false suggestion or concealment, in any point material to the invention or to the mode of making or using it, is also fatal to the interests of the inventor. He is obliged to keep faith with the public; and as he seeks to obtain the widest protection which it is in their power to bestow, he is, in his turn, bound to confer on them his entire secret in its most available and beneficial form. If for the purpose of misleading them and securing some advantage to himself he states in his description less than the whole truth, ■or asserts that things are necessary to produce the desired effect when he knows that they are not so, the fact that some degree of benefit may be derived from what he has described will not prevent the forfeiture of all right to any patent for the invention.”

In the case of Dornan v. Keefer, 49 Fed. 462, it is said:

“In applying for the patent it was his duty to disclose the most available method known to him of carrying the discovery into effect * * * This information, which may be used by others after his patent has expired, is an important part of the compensation which the public obtains for the temporary monopoly granted him. If he could withhold it, disclosing an inferior method simply, which he does not employ, the discovery would never become available public property, as the patent laws contemplate it shall. He would have a monopoly after his patent had expired, which would continue so long as he could conceal this material part of his discovery. I do not say that such disclosure was essential to the validity of his patent (that question is not before me), but that the information withheld does not constitute such a secret as the section, or equity, protects.”

See, also, upon this point: Curtis on Patents, § 250; 30 Cyc. p. 885; Whitney v. Mowry, 29 Fed. Cas. No. 17,592 (on appeal, 81 U. S. 620); Electric Boot & Shoe Finishing Co. v. Little, 75 Fed. 276.

If the facts as to secrecy are as now claimed by Mr. Dow and his supporting witnesses, his conduct (he being a representative of and in control of the plaintiff) has been such — under the foregoing authorities — as to deprive the plaintiff of equitable relief.

Our statute (Act No. 329, Public Acts 1905) entitled “An.act relative to agreements, contracts and combinations in restraint of trade or commerce” provides :

“All agreements and contracts by which any person, copartnership or corporation promises or agrees not to engage in any avocation, employment, pursuit, trade, profession or business, whether reasonable or unreasonable, partial or general, limited or unlimited, are hereby declared to be against public policy and illegal and void.” 3 Comp. Laws 1915, § 15033.

“This act shall apply to agreements, contracts and combinations in restraint of trade or commerce here-, tofore entered into or made, and which are sought to be enforced or maintained after this act takes effect'; and all contracts and agreements in violation of this act heretofore made, expressly or impliedly, continuing in force after this act takes effect, are hereby declared to be against public policy and illegal and void.” 3 Comp. Laws 1915, § 15037.

That statute has been under consideration by this court in Grand Union Tea Co. v. Lewitsky, 153 Mich. 244, and Grand Union Tea Co. v. Dodds, 164 Mich. 50 (31 L. R. A. [N. S.] 260). In the latter case we held the statute prevented the enforcement of a contract which restrains the employee from entering into another business where he would make use of the knowledge obtained in the employer’s business. This statute was passed since our decision in the' Sticky Fly Paper Case.' It is, perhaps, unnecessary to consider its bearing upon the questions presented in the case at bar, although it is apparent from an examination of the bill of complaint that relief is sought against the individual defendant because he “well understood that it would be a breach of trust and fraud upon his employer if he then or ever divulged to any person whatsoever any of the secrets or secret devices, apparatus, methods or processes or the secret construction of said apparatus.” Of course, it would be immaterial whether Schaefer’s obligation arises out of an “understanding,” as stated in the bill, or out of an “agreement” or “contract” prohibited by the statute. In either event, it would appear (though such conclusion is not necessary to determination) that defendant Schaefer could not by contract or understanding lawfully bind himself to forever refrain from engaging in the manufacture of bromides by the electrolytic and blowing-out process, either by himself or in conjunction with others.

We are of the opinion that the Schaefer patent, under which the corporate defendant is now operating, was, as claimed by him, based upon investigation and invention subsequent to the termination of his employment by plaintiff. It is, therefore, not subject to the terms of the contract existing between him and the plaintiff during the latter years of his employment. If said patent is an infringement on any patent owned or controlled by plaintiff (as originally claimed by Mr. Dow), plaintiff has its remedy in the Federal courts for such infringement.

Through the beneficent operation of the patent laws, plaintiff has, for a great many years, enjoyed a practical monopoly in the production of bromides. That .monopoly clothed it with power to exact an exorbitant price for its product, which power at times, the record discloses, it did not hesitate to exercise. As soon as defendant commenced quantity production of bromides, the price of the product in the open market dropped to a figure only about one-fifth that exacted by the plaintiff prior thereto.

Upon broad equitable principles and in consideration of public policy, plaintiff should be denied relief' unless its claim thereto is clearly established. After a careful consideration of this very voluminous record, we have no hesitation in reaching the conclusion that plaintiff has failed to so establish its right to relief.

The bill is dismissed, with costs in both courts.

Moore, C. J., and Steere, Fellows, Stone, and BIRD, JJ., concurred. The late Justice Ostrander and Justice Kuhn took ño part in this decision.