jet spray cooler, inc. v. crampton

8/14/2019 Jet Spray Cooler, Inc. v. Crampton

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Supreme Judicial Court of Massachusetts,Middlesex.

JET SPRAY COOLER, INC., et al.v.

Gifford K. CRAMPTON et al.Argued Oct. 5, 1978.

Decided Jan. 26, 1979.

Before HENNESSEY, C. J., and QUIRICO,KAPLAN, WILKINS and ABRAMS, JJ.

ABRAMS, Justice.Both the plaintiffs and the defendants appealfrom a judgment of the Superior Court adoptingas modified the report of a master on the issueof damages.[FN1] The judgment held thedefendants jointly and severally liable to theplaintiffs in the amount of $282,100.83, plusinterest from the date of the filing of themaster's report.

FN1. The issue of liability was resolvedby this court in Jet Spray Cooler, Inc. v.Crampton, 361 Mass. 835, 282 N.E.2d921 (1972).

The defendants appeal from the rejection of anearlier master's report (first damage master), andargue that the judge's order of reference toanother master (second damage master) was based on incorrect legal principles of damageassessment in cases involving themisappropriation of trade secrets. They alsoappeal from certain of the judge's modificationsof the second master's report.

The plaintiffs maintain that the rejection of thefirst damage master's report was proper, andcontend that the judge's order of reference to thesecond damage master for the determination ofdamages was correct. Nevertheless, theplaintiffs also appeal from certain of the judge'smodifications of the second damage master'sreport and from the judge's method ofcomputing interest on the award. We agree insubstance with the judgment entered. However,

the judgment must be modified to correct errorsarising from the transposition of certainaccounting figures. As recomputed, the damages

assessed should be $254,114.79. See note 16Infra.As so modified, we affirm the judgment ofthe Superior Court.

This action commenced with a bill of complaintin equity filed in the Superior Court in 1964.Three years later, the Superior Court judgesevered the issues of liability and damages andcommitted the case to a master (liabilitymaster).

After initially confirming the report of theliability master which found that the defendantshad misappropriated certain trade secretsbelonging to the plaintiffs, the Superior Court judge ordered the bill dismissed as to alldefendants. We reversed the dismissal in JetSpray Cooler, Inc. v. Crampton, 361 Mass. 835,845, 282 N.E.2d 921 (1972).[FN2]

FN2. Details as to the facts of the case asthey relate to liability are found in our

original opinion. Jet Spray Cooler, Inc.v. Crampton, supra at 836-838, 282N.E.2d 921.We do not repeat them here.

Thereafter, the Superior Court judge referred theissue of damages to the first damage master in1972.[FN3]The master held hearings and filedhis report in 1975, including both subsidiary andgeneral findings of fact.[FN4]

FN3. This case was committed to the

first damage master prior to the effectivedate of the Massachusetts Rules of CivilProcedure. However, this fact does notalter the result in this case. See Jones v.Wayland, --Mass. --, -- n.5(Mass.Adv.Sh. (1978) 157, 163 n.5), 373N.E.2d 199 n.5 (1978); Reporters' Notesto Mass.R.Civ.P. 53, reprinted in J.W.Smith & H.B. Zobel, Rules Practice 270,272 (1977).
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FN4. The first damage master alsoincluded with his report a transcript ofthe evidence and proceedings and the

exhibits. The order of reference to thefirst damage master did not authorizehim to report the evidence. Nearly threeyears later, after the hearings hadconcluded, the order of reference wasamended by consent of the parties torequire the master to submit a transcriptof the evidence and the proceedings. Thesame motion allowed the masteradditional time in which to prepare hisreport.

It is generally inappropriate to amend theorder of reference to require a transcriptof the evidence and the proceedings afterthe hearings before the master haveterminated. Cf. American AgriculturalChem. Co. of Mass. v. Robertson, 273Mass. 66, 80, 172 N.E. 871 (1930). It isclearly inappropriate to order a report ofthe evidence to assist parties who havedelayed proceedings by continuances.

Massachusetts Rule of Civil Procedure53(e)(1), 365 Mass. 817 (1974), provides that the master is to file atranscript of the evidence and theproceedings only when directed by theorder of reference.This rule, like itspredecessor Rules 86-90 of the SuperiorCourt, was carefully guarded to avoidthe evils of delay, prolixity andunnecessary expense which are often

associated with reports of evidence.Morin v. Clark, 296 Mass. 479, 483, 6N.E.2d 830, 832 (1937). To accomplishthis result, Mass.R.Civ.P. 53(e)(1)pointedly does not adopt the prevailingFederal rule. Compare Fed.R.Civ.P.53(e)(1) (1977).This deviation in thelanguage of the Massachusetts rule fromthat of the Federal rule on which it wasbased reflects the traditional practice inour courts (unlike the practice of the

Federal courts) that a master is rarelyordered to report the evidence heard byhim. Michelson v. Aronson, 4

Mass.App. 182, --, 344 N.E.2d 423, 426(1976).

Massachusetts Rule of Civil Procedure53(e)(1) allows the judge in hisdiscretion to order a report of theevidence. However, this discretionshould infrequently be exercised. SeePeters v. Wallach, 366 Mass. 622, 626,321 N.E.2d 806 (1975); Shelburne ShirtCo. v. Singer, 322 Mass. 262, 265, 76

N.E.2d 762 (1948). See generally J.W.Smith & H.B. Zobel, Rules Practice s53.9 (1977).

Hearings on the claim for damages began inJanuary, 1973. The hearings were thensuspended until February. The docket entriesreflect continuance of the order resuming thehearings until March, 1973. The next docketentry relating to the hearings is a motion toenlarge time for filing the master's report filed

on April 15, 1975. The report itself was not filedin court until July 24, 1975, more than threeyears after our opinion in Jet Spray Cooler, Inc.v. Crampton, and two and one-half years afterthe order of reference.

Hearings before the second damage master wereto begin in January, 1976. The docket entriesreflect at least five continuances of the master'shearings covering a six-month period. Thenthere were continuances to enlarge the time for

filing the master's report. The report was filedon April 20, 1977, some four years and elevenmonths after our 1972 opinion, and well overone and one-half years after the second order ofreference.

This case has been pending in the SuperiorCourt since 1964 and has been before threemasters. It has been continued indiscriminatelyby numerous judges, apparently without regardto the effect excessive continuances and
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extensions have on court delay, as well as on theconfidence of the public and litigants in theadministration of justice.

The snail's pace of this litigation in our courtsmakes the comment of Chief Justice Vanderbiltwith regard to the effect of referencesappropriate here. In his work, Cases andMaterials on Modern Procedure and JudicialAdministration (1952), he states: There is onespecial cause of delay in getting cases on fortrial that must be singled out for particularcondemnation, the all-too-prevalent habit ofsending matters to a reference. There is no more

effective way of putting a case to sleep for anindefinite period than to permit it to go to areference with a busy lawyer as referee. Only adrastic administrative rule,[FN5] rigidlyenforced, strictly limiting the matters in which areference may be had and requiring weeklyreports as to the progress of each reference willput to rout this inveterate enemy of dispatch inthe trial of cases.Id. at 1240-1241.SeeO'Brienv. Dwight, 363 Mass. 256, 279-280, 294 N.E.2d363 (1973).

FN5. See Rule 49 of the Superior Court(1974). It may also be desirable for a judge to require any request forcontinuance of a master's hearing to besigned by the litigants as well as bycounsel. Further, it is appropriate for themotion to state in writing the reasons forgranting a continuance, so that the publicmay know the reasons for delay.

I. The Rejection of the Report of the FirstDamage Master.

The first damage master found that thedefendants had incorporated informationcontained in the Foster-Miller report [FN6] intoeach of the visual display beverage dispenserswhich Crathco, the corporate defendant, soldafter 1962. The first damage master alsoincorporated in his report the finding by theliability master that it would ordinarily take a

year for a competent engineer with the benefitof the Foster-Miller Associates Report toconceive, design and develop the Crathco

dispenser, and about three months additionalwithout the benefit of the information containedin the report.

FN6. The information contained in theFoster-Miller report involvesengineering improvements in the domeand cooling processes. We do not discussthese improvements in further detailsince the plaintiffs claim that the reportstill remains a trade secret. See, e. g.,

Black, Sivalls & Bryson, Inc. v.Keystone Steel Fabrication, Inc., 584F.2d 946, 949 (10th Cir. 1978); A. O.Smith Corp. v. Petroleum Iron WorksCo. of Ohio, 73 F.2d 531, 539 Note (6thCir. 1934), modified on other grounds,74 F.2d 934, 935 (6th Cir. 1935);Macbeth-Evans Glass Co. v. Schnelbach,239 Pa. 76, 81, 86 A. 688 (1913). Seegenerally Annot., 62 A.L.R.2d 509, 532(1958). But see note 13 Infra and the

concurring opinion of Justice Kaplan.

However, the first damage master then foundthat taken as a whole the recommendations ofthe 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 heattransfer.He further found that the only damageto the plaintiffs was the three-month head startgained by the defendants, which he

characterized as having a negligible effect onthe profits of either the plaintiffs or thedefendants. Therefore, the first damage masterconcluded that the plaintiffs' damages should belimited to the $1,400 which the plaintiffs hadoriginally paid for the Foster-Miller report.

The judge rejected the first damage master'sreport in its entirety. The defendants challengethe judge's ruling on the ground that the firstdamage master applied correct legal principles
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in his assessment of the plaintiffs'damages.[FN7]Moreover, the defendantscontend that the first damage master's

conclusions were legally correct in light of ouropinion in Jet Spray Cooler, Inc. v. Crampton,supra.We disagree.

FN7. The defendants ground theirargument that the judge improperlyrejected the first damage master's reporton the language of Mass.R.Civ.P.53(e)(2), 365 Mass. 817 (1974).Rule53(e)(2) provides in pertinent part that(i)n an action to be tried without a jury

the court shall accept the master'sfindings of fact unless clearly erroneous.. . . The court after hearing may adoptthe report or may modify it or may rejectit in whole or in part or may receivefurther evidence or may recommit it withinstructions.

However, the clearly erroneousstandard of Rule 53(e)(2) does notrelieve the judge of the obligation to

ensure that the report of the mastercorrectly interprets and appliescontrolling legal principles. GeneralPlywood Corp. v. Georgia-Pacific Corp.,362 F.Supp. 700, 704 (S.D.Ga.1973),aff'd, 504 F.2d 515 (5th Cir. 1974).W.R.B. Corp. v. Geer, 313 F.2d 750, 753(5th Cir. 1963), cert. denied, 379 U.S.841, 85 S.Ct. 78, 13 L.Ed.2d 47 (1964).The judge must reject the master's reportwhere the master's findings are vitiated

in view of the controlling law.Wormstead v. Town Manager of Saugus,366 Mass. 659, 660, 322 N.E.2d 171,172 (1975), quoting from Selectmen ofHatfield v. Garvey, 362 Mass. 821, 825,291 N.E.2d 593 (1973). See Gil-BernConstr. Corp. v. Medford, 357 Mass.620, 623, 260 N.E.2d 160 (1970). Seegenerally J.W. Smith & H.B. Zobel,Rules Practice s 53.11 (1977); 9 C.A.Wright & A.R. Miller, Federal Practice

and Procedure, s 2614, at 811 (1971)(findings of the master infected by alegal error cannot stand).

Furthermore, where it is impossible toseparate the findings which are infectedby a legal error from those which arenot, the judge does not abuse hisdiscretion by rejecting the entire master'sreport and recommitting the case withinstructions. Haverhill Gazette Co. v.Union Leader Corp., 333 F.2d 798, 808(1st Cir. 1964). See Mass.R.Civ.P.53(e)(2).

The essence of an action for the wrongful useof trade secrets is the breach of the duty not todisclose or to use without permissionconfidential information acquired from another.See Junker v. Plummer, 320 Mass. 76, 80, 67 N.E.2d 667 (1946); E. I. duPont de NemoursPowder Co. v. Masland, 244 U.S. 100, 102, 37S.Ct. 575, 61 L.Ed. 1016 (1917). See generallyRestatement of Torts s 757 (1939);Developments in the Law Competitive Torts, 77

Harv.L.Rev. 888, 948-949 (1964). In the contextof an employer-employee relationship, we haveconsistently held that where an employeeacquires such confidential information in thecourse of his employment, he may be prohibited, after the termination of hisemployment, from using or disclosingconfidential information so acquired. Jet SprayCooler, Inc. v. Crampton, supra, 361 Mass. at839, 282 N.E.2d at 924, quoting from NewEngland Overall Co. v. Woltmann, 343 Mass.

69, 75, 176 N.E.2d 193 (1961). See EasternMarble Prods. Corp. v. Roman Marble, Inc.,372Mass. --, -- - --, [FNA] 364 N.E.2d 799 (1977).Aronson v. Orlov,228 Mass. 1, 4-5, 116 N.E.951,cert. denied, 245 U.S. 662, 38 S.Ct. 61, 62L.Ed. 536 (1917).

FNa. a. Mass.Adv.Sh. (1977) 1408,1415-1416.

The protection which we afford to trade secrets
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[FN8] against one who wrongfully uses them isgrounded on principles of public policy towhich we have adhered since Peabody v.

Norfolk, 98 Mass. 452, 457 (1868): It is the policy of the law, for the advantage of thepublic, to encourage and protect invention andcommercial enterprise.[FN9]Thisencouragement and protection is afforded tradesecrets because the public has a manifestinterest not only in commercial innovation anddevelopment, but also in (t)he maintenance ofstandards of commercial ethics. Kewanee OilCo. v. Bicron Corp., 416 U.S. 470, 481, 94 S.Ct.1879, 1886, 40 L.Ed.2d 315 (1974).

FN8. In addition to the protection whichwe have afforded to trade secretsthrough civil actions for injunctive reliefand damages, the Legislature has provided criminal penalties for themisappropriation of trade secrets.

General Laws c. 266, s 30(4), inserted bySt.1967, c. 817, s 1, provides that(w)hoever steals, or with intent to

defraud obtains by a false pretense, orwhoever unlawfully, and with intent tosteal or embezzle, converts, secretes,unlawfully takes, carries away, concealsor copies with intent to convert any tradesecret of another, regardless of value,whether such trade secret is or is not inhis possession at the time of suchconversion or secreting, shall be guiltyof larceny, and shall be punished byimprisonment in the state prison for not

more than five years, or by a fine of notmore than six hundred dollars andimprisonment in jail for not more thantwo years. The term trade secret asused in this paragraph means andincludes anything tangible whichconstitutes, represents, evidences orrecords a secret scientific, technical,merchandising, production, or management information, design, process, procedure, formula, invention

or improvement.

General Laws c. 266, s 60A, inserted by

St.1967, c. 817, s 2, provides that(w)hoever buys, receives, conceals,stores, barters, sells or disposes of anytrade secret, or pledges or accepts assecurity for a loan any trade secret,regardless of value, knowing the same tohave been stolen, unlawfully converted,or taken, shall be punished byimprisonment for not more than fiveyears or by a fine of not more than fivehundred dollars and imprisonment in jail

for not more than two years. The termtrade secret as used in this section shallhave the same meaning as is set forth insection thirty.

Moreover, the Legislature has provided acivil remedy in addition to the criminalpenalties. General Laws c. 93, s 42,inserted by St.1967, c. 817, s 3, providesthat (w)hoever embezzles, steals orunlawfully takes, carries away, conceals,

or copies, or by fraud or by deceptionobtains, from any person or corporation,with intent to convert to his own use,any trade secret, regardless of value,shall be liable in tort to such person orcorporation for all damages resultingtherefrom. Whether or not the case istried by a jury, the court, in itsdiscretion, may increase the damages upto double the amount found. The termtrade secret as used in this section shall

have the same meaning as is set forth insection thirty of chapter two hundred andsixty-six.See also G.L. c. 93, s 42A(injunctive relief).

General Laws c. 93, s 42, was enacted in1967, three years after the original bill inequity in this action was filed. Neitherparty has raised the issue, and the judgedid not increase the damages beyondthe amount found. Thus we do not
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decide whether this statute applies to thisaction. See, e. g., Cudlassi v.MacFarland, 304 Mass. 612, 613, 24

N.E.2d 512 (1939); Wild v. Boston &Maine R. R., 171 Mass. 245, 248, 50N.E. 533 (1898). Cf. Porter v. Clerk ofthe Superior Court, 368 Mass. 116, 118,330 N.E.2d 206 (1975). Nevertheless,the statute does provide guidance as tothe view of the Legislature with regardto principles of damage assessment incases involving business torts.

Furthermore, Mass.R.Civ.P. 26(c)(7),

365 Mass. 772 (1974), provides for theissuance of protective orders to avoid thedisclosure of trade secrets given in thecontext of judicial proceedings, and G.L.c. 93A, s 6(5), protects against thedisclosure of trade secrets in the contextof investigations by the AttorneyGeneral. In re a Civil InvestigativeDemand Addressed to Yankee Milk, Inc.,372 Mass. --, -- - -- (Mass.Adv.Sh. 729,735-740), 362 N.E.2d 207 (1977). See

alsoG.L. c. 4, s 7, Twenty-sixth (g).

FN9. We have frequently indicated,however, that (a) trade secret need notbe a patentable invention. J. T. Healy& Son v. James A. Murphy & Son, 357Mass. 728, 738, 260 N.E.2d 723, 730(1970). See generally Schneider &Halstrom, Trade Secret Protection inMassachusetts, 56 Mass.L.Q. 239, 243-246 (1971). In determining whether

certain information qualifies as a tradesecret, we consider (1) the extent towhich the information is known outsideof the business; (2) the extent to which itis known by employees and othersinvolved in the business; (3) the extentof measures taken by the employer toguard the secrecy of the information; (4)the value of the information to theemployer and to his competitors; (5) theamount of effort or money expended by

the employer in developing theinformation; and (6) the ease ordifficulty with which the information

could be properly acquired or duplicated by others. Jet Spray Cooler, Inc. v.Crampton, supra, 361 Mass. at 840, 282 N.E.2d at 925.Restatement of Torts s757, Comment b (1939).

Early Federal decisions are remarkably similar.In Fowle v. Park, 131 U.S. 88, 97, 9 S.Ct. 658,662, 33 L.Ed. 67 (1889), the Supreme Courtheld that (t) he policy of the law is toencourage useful discoveries by securing their

fruits to those who make them.In Board ofTrade of Chicago v. Christie Grain & Stock Co., 198 U.S. 236, 250, 25 S.Ct. 637, 639, 49 L.Ed.1031 (1905), Mr. Justice Holmes said that theboard had the right to keep the work which ithas done, or paid for doing, to itself. The factthat others might do similar work, if theymight, 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, 31S.Ct. 376, 382, 55 L.Ed. 502 (1911), the Court

held that (t)he complainant relies upon theownership of its secret process and its rights areto be determined accordingly. Anyone may useit who fairly, by analysis and experiment,discovers it. But the complainant is entitled tobe protected against invasion of its rights in the(secret) process by fraud or by breach of trust orcontract.Further, in E. I. duPont de NemoursPowder Co. v. Masland, 244 U.S. 100, 102, 37S.Ct. 575, 576, 61 L.Ed. 1016 (1917), theSupreme Court said that an employee shall not

fraudulently abuse the trust reposed in him.InBecher v. Contoure Laboratories, Inc., 279 U.S.388, 391, 49 S.Ct. 356, 357, 73 L.Ed. 752(1929), the Court recognized a cause of actionagainst an employee for breach of a contract orwrongful disregard of confidentialrelations.Finally, in United States v. DubilierCondenser Corp., 289 U.S. 178, 186, 53 S.Ct.554, 557, 77 L.Ed. 1114 (1933), the Court heldthat an inventor may keep his invention secretand reap its fruits indefinitely.See generally
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Co., supra 215 Mass. at 139,101 N.E. 1082.Seegenerally Telex Corp. v. International BusinessMachs. Corp., 510 F.2d 894, 931 (10th Cir.),

cert. dismissed, 423 U.S. 802, 96 S.Ct. 8, 46L.Ed.2d 244 (1975); Johnson, Remedies inTrade Secret Litigation, 72 Nw.U.L.Rev. 1004,1023 (1978); Hutter, Trade SecretMisappropriation: A Lawyer's PracticalApproach to the Case Law, 1 W. New EnglandL.Rev. 1, 39 (1978); R.M. Milgrim, TradeSecrets s 7.08(3) at 7-155 (1978).

However, while a plaintiff is not entitled to adouble recovery, the plaintiff is entitled to the

profit he would have made had his secret not been unlawfully used, but not less than themonetary gain which the defendant reaped fromhis improper acts (footnotes omitted). 2Callman, Unfair Competition, Trademarks andMonopolies s 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.2d1387, 1392-1393 (4th Cir. 1971), cert. denied,409 U.S. 892, 93 S.Ct. 117, 34 L.Ed.2d 150(1972). Only in this way can we ensure that an

unfair competitor will not be encouraged to proceed with his unfair methods in the hopethat his profits might exceed the injured party'slosses. National Merchandising Corp. v.Leyden, supra 370 Mass. at --, 348 N.E.2d776.Therefore, a plaintiff in an action involvingthe misappropriation of trade secrets mayproceed in the alternative to determine whetherthe defendant's wrongful profits exceed theplaintiff's losses caused by the misuse of theplaintiff's trade secrets. See Id. at 771 & n.16,

348 N.E.2d 771 & n.16.

We now consider the first damage master'smethod of assessing damages in light oftraditional principles. The first damage masterfound that (t)he plaintiffs introduced detailedevidence in relation to the period from theinception of Crathco . . . concerning allegedprofits made by the defendants year by year onsale of their units, and concerning allegedplaintiffs' loss year by year of profits on sales by

the defendants to plaintiffs' customers to theextent that the plaintiffs' profits would haveexceeded the profits made by the defendants

thereon.[FN10] Nonetheless, the first damagemaster disregarded this information and refusedto assess damages based on the defendants'profits or the plaintiffs' lost profits because hefound that the only effect of the defendants'wrongful use of the Foster-Miller report was thefact that the defendants were able to enter themarket in competition with the plaintiffs threemonths earlier than they could have donewithout the benefit of the informationcontained in the report.[FN11]

FN10. The first damage master'ssubsidiary findings reveal that he foundthat the royalty value of the report didnot exceed $1,400. In a case involvingthe misappropriation of trade secrets,we recognize that the reasonableroyalty measure ofdamages is taken tomean more than simply a percentage ofactual profits and is based on areasonable estimate of value of the

misappropriated trade secrets.University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 537(5th Cir. 1974). See Structural DynamicsResearch Corp. v. EngineeringMechanics Research Corp., 401 F.Supp.1102, 1119 (E.D.Mich.1975). However,the reasonable royalty measure ofdamages is only appropriate where thedefendant has made no actual profits andthe plaintiff is unable to prove a specific

loss. See University Computing Co. v.Lykes-Youngstown Corp., supra at 536.See generally Johnson, Remedies inTrade Secret Litigation, 72 Nw.U.L.Rev.1004, 1025-1026 (1978); Hutter, TradeSecret Misappropriation; A Lawyer'sPractical Approach to the Case Law, 1W. New England L.Rev. 1, 41-42 (1978).

FN11. To the extent that the first damagemaster's findings with regard to the
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three-month period of time may beinterpreted as applying a head startrule in assessing damages in this action,

such a measure of damages is improper.The application of a head startapproach would limit damages to thatperiod of time in which others in thetrade are likely, through legitimate business procedures, to have becomeaware of these secrets. Analogic Corp.v. Data Translation, Inc., 371 Mass. 643,--, 358 N.E.2d 804, 808 (1976).

Generally, the head start rule has been

applied in cases where the plaintiff's product, including the trade secret, has been marketed. The marketing of the product gives competitors a legitimateopportunity to study the product and tolearn the principles of the trade secretthrough reverse engineering or similarprocedures. See, e. g., Eastern MarbleProds. Corp. v. Roman Marble, Inc., 372Mass. --, -- (Mass.Adv.Sh. (1977) 1408,1417) 364 N.E.2d 799 (1977); Analogic

Corp. v. Data Translation, Inc., supra371 Mass. at -- - --, 358 N.E.2d 804.Cf.Carboline Co. v. Jarboe, 454 S.W.2d540, 552-553 (Mo.1970).

In a petition for injunctive relief, wehave indicated that the time necessary toengineer in reverse is one factor to beconsidered in determining the proprietyof the duration of injunctive relief. SeeEastern Marble Prods. Corp. v. Roman

Marble, Inc., supra 372 Mass. at --(Mass.Adv.Sh. (1977) at 1417, 364 N.E.2d 799);Analogic Corp. v. DataTranslation, Inc., supra 371 Mass. at --(Mass.Adv.Sh. (1976) at 2977, 358N.E.2d 804). We have not applied thistheory in an action for damages. Thedefendants contend that the actualmarketing by the plaintiffs of a productincorporating the trade secrets inquestion is irrelevant to the application

of a head start rule. In support of theirargument, the defendants rely onNational Rejectors, Inc. v. Trieman, 409

S.W.2d 1 (Mo.1966), and StructuralDynamics Research Corp. v.Engineering Mechanics Research Corp.,401 F.Supp. 1102 (E.D.Mich.1975).However, in National Rejectors, theSupreme Court of Missouri held that notrade secrets belonging to the plaintiffshad been misappropriated by thedefendants. Id. at 34.In StructuralDynamics, not only was the remedybased on a reasonable royalty because

the defendants had made no profits, Id.at 1119, but also the plaintiffs hadmarketed products containing the tradesecrets. Id. at 1109.

But the Value of the misappropriated tradesecrets to the defendants is not the basis of thedefendants' liability, and the value of themisappropriated trade secrets should not formthe basis of the plaintiffs' recovery. Seegenerally National Merchandising Corp. v.

Leyden, supra 370 Mass. at -- - --, 348 N.E.2D771. accoRd, g.l. C. 93, s 42. therEfore, byfocusing on the value of the misappropriatedtrade secrets, and not on the wrongful conductof the defendants, the first damage master'sassessment of damages was legally incorrect.The judge properly rejected the master's reportand committed the case to a second damagemaster. Cf. Wormstead v. Town Manager ofSaugus, 366 Mass. 659, 660, 322 N.E.2d 171(1975).

II. The Report of the Second Damage Master.

The judge's order of reference to the seconddamage master instructed the master: (1) tofind the extent of the use made by thedefendants of the trade secret (Foster MillerReport); (2) To find the amount of profits made by the defendants on the sale of unitsincorporating the trade secret; and (3) To findthe amount of the plaintiffs' loss of profits due
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total net profits of $67,604.80 during theaccounting period.[FN15] He rejected a claim by the defendants that $15,422.20 in losses

incurred during two of the years of theaccounting period should be deducted from theirtotal net profits. He also disallowed certain otherdeductions claimed by the defendants and addedthem to the defendants' net profits:

FN14. Once the plaintiffs demonstratethat the defendants have made profitsfrom sales of products incorporating themisappropriated trade secrets, the burdenshifts to the defendants to demonstrate

the portion of their profits which is notattributable to the trade secrets. Cf.Westinghouse Elec. & Mfg. Co. v.Wagner Elec. & Mfg. Co., 225 U.S. 604,620, 32 S.Ct. 691, 696, 56 L.Ed. 1222(1912); Callaghan v. Myers, 128 U.S.617, 666, 9 S.Ct. 177, 32 L.Ed. 547(1888); Sheldon v. Metro-GoldwynPictures Corp., 106 F.2d 45, 48 (2d Cir.1939), aff'd,309 U.S. 390, 60 S.Ct. 681,84 L.Ed. 825 (1940). When an

apportionment of the defendants' profitsis not possible on the basis of theevidence, (t)he fact that he may losesomething of his own is a misfortunewhich he has brought upon himself . . .. Westinghouse Elec. & Mfg. Co. v.Wagner Elec. & Mfg. Co., supra 225U.S. at 620, 32 S.Ct. at 696.Seegenerally Johnson, Remedies in TradeSecret Litigation, 72 Nw.U.L.Rev. 1004,1018-1020 (1978).

The defendants apparently did notsustain this burden before the master,who found that the testimony fromcertain of Jet's customers as (to) theirreasons for buying from Crathco ratherthan Jet was not impressive and raiseddoubts in my mind as to the weight itwas entitled to as respectscredibility.Therefore, the award ofdamages based on Crathco's entire

profits from sales of units incorporatingthe misappropriated trade secrets wasproper.

FN15. Both the second damage masterand the judge correctly computeddamages based on the defendants' netprofits, rather than on gross profits. See,e. g., MacDonald v. Page Co., 264 Mass.199, 206-208, 162 N.E. 364 (1928).

(a) $105,553.17 in legal fees and expenses indefending this action.

(b) $19,759.61 in Federal income taxes paid bythe corporate defendant during the accountingperiod.

(c) $21,578.29 in Massachusetts excise taxes paid by the corporate defendant during theaccounting period.

(d) $18,698.03 in bad debts incurred on sales bythe corporate defendant during the accountingperiod.

(e) $681.575.80 in salaries and consultant's fees paid to the individual defendants by thecorporate defendant during the accountingperiod.

(f) $22,508.40 for Key Life insurance premiumspaid by the corporate defendant on the lives ofthe individual defendants during the accountingperiod.

(g) $17,110.52 for group insurance coverage onthe lives of the individual defendants at varioustimes during the accounting period.

The net profits of the defendants as recomputed by the second damage master totaled$954,388.62 during the accounting period.

Finally, the second damage master consideredthe question of the lost profits of the plaintiffs tothe extent that they exceeded the profits of the
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jet spray cooler, inc. v. crampton

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