*1 Crampton. Jet Inc. Spray Cooler, K.
Jet & another vs. Gifford
Crampton & others. January 26,
Middlesex. October 1978. 1979. C.J., Present: Hennessey, JJ. Quirico, Kaplan, & Wilkins, Abrams, Practice, Competition. Civil, Damages, Trade Secret. Master. Unfair Wrongful use of trade secret. Interest. involving secrets, misappropriation In an action of trade a master concentrating novelty process in erred on the lack of of in his damages failing assessment of and in to focus instead on the abuse of relationship the confidential the defendants. [163-169] damages involving The measure of in misappropriation a case plaintiffs compensation trade secrets entitled the to recover full required their lost prof- the defendants to surrender the they conduct; its which realized their tortious the value of the misappropriated trade secret to the defendants was not the basis of liability the defendants’ and should not have formed the basis of the plaintiffs’ J., recovery. concurring. [169-173] Kaplan, misappropriation secrets, In an judge action for of trade did not damages allowing
err in his assessment in aas deduction from gross profits the defendants’ all bad debts incurred the defend- In an action for ants sales misappropriation infringing products. trade secrets, [177] did not damages allowing err his assessment of the defendants to gross profits deduct from their all salaries and consultant’s fees paid corporate to the individual defendants defendant where paid the salaries and fees to the individual defendants were reason- light positions corporation. able in the [178-179] plaintiffs misappropriation Where the in an action for of trade secrets product incorporating misappropriated never marketed infor- mation, prove failed to that their lost were the result of the defendants’ sales to the customers with certainty sufficient to allow the to recover based profits. on lost [179-181] misappropriation secrets,
In joint an action for of trade involve- corporate ment of the defendant and the individual defendants in *2 damages actively utilizing required the that the be secrets assessed against all of them. [181] compensated plaintiffs damages fully in of the an
Where an award secrets, misappropriation properly of the for trade action report only from the date master’s was filed awarded interest the in accordance with G. L. c. 8. [181] Superior August 14, Court on filed in the Bill in equity 1964. Following reported court at 361 Mass. review this (1972) damages by heard on the issue of the suit was granted Supreme Dimond, Court a re- J. The Judicial quest appellate review. for direct him) (Anne for the P. Zabin W. with de-
Albert Yates fendants. (Anne Hyde Joseph Fahy & T. with
Morris Michelson him) plaintiffs. plaintiffs ap J. Both the and the defendants Abrams, Superior adopting
peal judgment of the Court damages.1 report of a master on the issue of modified judgment jointly severally the defendants and The held plus plaintiffs $282,100.83, in the amount of liable report. filing of the of the master’s interest from date appeal rejection from the of an The defendants earlier (first master), argue report damage that the and master’s (second judge’s master dam- order of reference to another master) legal principles age of based incorrect was involving misappropria- in cases assessment They appeal from certain of the tian trade secrets. also of report. judge’s of the second master’s modifications rejection that the first maintain proper, report that the was and contend judge’s of second order reference damages was correct. Neverthe- determination for the appeal judge’s less, also from certain damage master’s of the second modifications liability resolved this court in Jet The issue of was Crampton,
i Inc. judge’s computing from the method interest on the agree judgment award. We substance with entered.
However, judgment must be modified to correct er- arising transposition accounting rors from the certain figures. recomputed, As damages assessed should be $254,114.79. modified, note As so we affirm infra. judgment Superior Court.
This action with a of complaint equi- commenced bill ty later, filed in the Superior years Court Three 1964. Court Superior judge severed the issues of liability (liabili- and committed the case a master *3 master).
ty confirming report After the initially liability master which found defendants had misappro priated certain trade belonging plaintiffs, secrets to the the Superior Court the bill ordered dismissed toas all defendants. We reversed the dismissal in Jet Spray Cooler, (1972).2 Crampton, Inc. v. 361 Mass.
Thereafter, Superior Court judge referred the issue of damages damage to first master in 1972.3 The mas ter held and hearings report filed his in including both general findings and subsidiary fact.4 they as to liability Details the facts of the case as to relate are original opinion. Cooler, found in Crampton, our supra Jet Inc. v. repeat at We 836-838. do not them here. damage prior This case was committed to the first However, effective date of the Massachusetts Rules of Civil Procedure.
this fact does not in Wayland, alter the result this case. See Jones v. (1978);Reporters’ 255 n. 5 R. Notes to Mass. Civ. P. reprinted Zobel, 270, 272 in J. W. Smith & H. B. Rules Practice The report transcript first master also included with his a proceedings of the evidence and and the exhibits. The order of refer- ence to the first report master did not authorize him to later, Nearly years concluded, hearings evidence. three after the had parties order of was reference amended consent of the re- quire transcript the master to pro- submit a evidence ceedings. The motion same allowed the master additional time in prepare report. which to his generally inappropriate It is to amend the order of reference to require transcript proceedings a the evidence and the after
Jet Spray in Hearings began January, on the claim for until suspended February. 1973. were then hearings The order The entries reflect continuance docket March, The dock hearings until 1973. next resuming hearings enlarge is motion to relating et entry 15, 1975. April filing report time the master’s filed on 24, 1975, July itself not filed court until report was more our years opinion than three after years and two and one-half after Crampton, the order of reference. the second master were to be-
Hearings before least 1976. The docket entries reflect at gin January, hearings covering a six- five continuances of enlarge there continuances period. month Then were report. The filing report the time for the master’s was 20, 1977, filed four and eleven April years some opinion, after our 1972 and well over one months after the second order of reference. years one-half Agricultur hearings have terminated. Cf.American before master Robertson, clearly It is al Chem. Co. Mass. inappropriate parties assist who of the evidence to order *4 proceedings by delayed continuances. have amended, 53(e)(1),as 367 Rule of Civil Procedure Massachusetts (1975),provides transcript is file a of Mass. 917 evidence and the master to by proceedings only of "when directed the order rule, predecessor Superior 86-90 of This like its Rules reference.” Court, delay, prolixity and carefully guarded to avoid the evils of "was expense reports evi- unnecessary are associated with of often (1937). Clark, accomplish 483 To this dence.” result, v. Morin 53(e)(1) adopt prevailing pointedly R. Civ. P. does not Mass. 53(e)(1)(1977). Compare R. P. "This deviation Federal rule. in the rule on which was based reflects Fed. Civ. of Federal language rule from that of the Massachusetts practice in our it traditional courts) (unlike practice of Federal a master courts rarely report heard him.” Michelson to the evidence ordered (1976). Aronson, App. Ct. 53(e)(1) judge in allows the Rule of Civil Procedure Massachusetts However, discre- the evidence. this his to order a of discretion Wallach, 366 Mass. infrequently See be exercised. Peters tion should (1975); Singer, 322 Mass. Shelburne Shirt Co. (1948). Zobel, 53.9 Rules & H. B. Practice generally J. W. Smith (1977). This case has been in the pending Superior Court since 1964 and been It has before three masters. has been con- indiscriminately tinued numerous judges, apparently regard without to the effect excessive continuances and extensions on as as have court well on the confi- delay, public litigants dence of the in the administration of justice. pace
The snail’s of this litigation in our courts makes the comment of regard Chief Justice Vanderbilt with to the effect of appropriate work, references here. In his Cases and Materials on Modern Procedure and Judicial (1952), Administration he states: "There is special one in getting cause of delay cases for trial that must be condemnation, singled particular out for the all-too- prevalent of sending habit matters to a reference. There is no more effective of way putting sleep a case to for an period permit indefinite than to it go to to a reference a busy lawyer with Only as referee. a drastic administrative le, enforced, ru rigidly strictly limiting the matters may which a reference had requiring be weekly reports as the progress of each put reference will rout this inveterate enemy dispatch trial Id. cases.” at 1240-1241. See O’Brien v. Dwight, 256, 279-280
I. Rejection Report the First Master. Damage
The first master found that the defendants had incorporated information contained in the Foster-Miller report6 into each the visual display beverage dispensers Superior may See Rule 49 of the Court It also be desirable request require any for a of a continuance master’s hear- ing signed by Further, litigants be as well counsel. it is appropriate writing for the motion to granting state in the reasons for continuance, public delay. so that know the reasons for *5 report The information contained in the Foster-Miller involves engineering improvements cooling processes. in the dome and We do "improvements” plaintiffs not discuss these in further detail since the report See, Black, e.g., claim that still remains a trade secret. Fabrication, Inc., Bryson, Keystone & Sivalls Inc. v. Steel 584 F.2d (10th 1978); Corp. Cir. A.O. Smith v. Petroleum Iron Works Mass. corporate Crathco, defendant, sold after 1962.
which report damage incorporated in The first master also his liability finding by it master "that would ordinari- engineer competent ly year a with the benefit take Report design conceive, of the Foster-Miller Associates develop dispenser, three the Crathco and about the benefit of the months additional without information report.” in the contained damage
However, tak- the first master then found that of the Foster-Miller en as a whole the recommendations report creativity, novel, new, no were not unob- "involved patentable, knowl- vious or and were matters of common edge person ordinary to a skill in field of heat only damage He further found that the transfer.” gained plaintiffs by the was the three-month head start having "negligi- defendants, which he characterized as or the ble” effect on the of either the damage Therefore, the first master conclud- defendants. plaintiffs’ damages ed should be limited paid originally $1,400 for the had report. Foster-Miller report judge rejected in the first master’s ruling entirety. challenge judge’s
its The defendants applied ground that the first cor on the principles legal in rect his assessment .7 damages Moreover, contend that the defendants (6th 1934), grounds, 74 F. F. 539 note Cir. modified on other 2d (6th Schnelbach, 1935); 2d Macbeth-Evans Glass Co. (1958). Annot., 509, 532 generally 62 A.L.R.2d 239 Pa. concurring Kaplan. opinion of Justice But note see infra judge improperly ground argument that the The defendants report language R. rejected the first master’s on the 53(e)(2) 53(e)(2), provides pertinent Rule Civ. P. jury the part tried without a court shall an action be "[i]n findings clearly accept the of fact unless erroneous----The adopt may may hearing may modify it or or court after part may or reject or receive further evidence it whole or it with instructions.” recommit 53(e)(2) However, "clearly of rule does not erroneous” standard *6 159 377 Mass. 165 v. Cooler,
Jet Inc. Spray Crampton. legally first master’s conclusions were correct Cooler, light opinion of our v. Spray Crampton, Jet Inc.
supra. disagree. We
The an wrongful essence of action for the use of trade duty secrets is the breach of the not disclose or to use permission without confidential acquired information Plummer, 76, from another. See Junker v. 320 Mass. 80 (1946); Masland, E.I. duPont de Nemours Powder v.Co. (1917). 100,
244 U.S. 102 generally See Restatement of — (1939); Torts 757 Developments in the Competi Law § Torts, 888, (1964). tive 77 Harv. L. Rev. In the context an employer-employee relationship, we have consistently held where an employee acquires such confidential information course his employment, he may prohibited, be after the termination of his em "from ployment, using disclosing or confidential informa tian so acquired.” Jet Inc. v. Crampton, su 839, at pra quoting from New England Overall Co. v. (1961). Woltmann, 69, 343 Mass. 75 See Eastern Marble Marble, Inc., 835, Prods. v. Corp. Roman 372 Mass. 841- 4-5, cert. (1977). Orlov, 1, 842 denied, Aronson v. 228 Mass. (1917).
Early Federal decisions are remarkably similar. In Park, (1889), Fowle 131 U.S. the Supreme Court held that policy law is to encourage "[t]he useful *8 securing discoveries by fruits to those who make them.” In Board Trade v. Chicago Christie Grain & of 236, Stock 198 (1905), U.S. 250 Mr. Justice Holmes said that the board had "the right to keep the work which done, it paid has or for doing, to itself. The fact that others Court, (1975). 116, 118 Superior Nevertheless, v. Clerk the provide guidance Legislature the statute does with business torts. as to the view of the regard principles to involving assessment in cases Furthermore, 26(c)(7), (1974),provides Mass. R P.Civ. 365 772 Mass. protective for the issuance of orders to avoid the disclosure of trade given judicial proceedings, 93A, secrets in the context and G. L. c. (5),protects against 6 the disclosure of § of trade secrets in the context investigations by Attorney Investiga- General. Matter Civil Milk, Inc., 353, tive Demand Addressed Yankee (1977). 4, 7, Twenty-sixth (g). See also G. L. c. § 9 indicated, frequently however, We have trade secret need "[a] patentable Healy not be a invention.” T. v. Murphy J. & Son A. James (1970). Son, generally Halstrom, 357 & Mass. See Schneider & Massachusetts, 239, 243-246 Q. Trade Secret Protection in 56 L. (1971). determining qualifies In whether certain information as a "(1) secret, trade we consider the extent to which the information is (2) business; known by outside of the the extent to it is known (3) employees business; and others involved in the the extent of meas employer guard secrecy information; ures taken (4) employer competitors; the value of the information to the and to his (5) money expended by employer the amount of effort or in devel (6) oping information; difficulty and or ease with which the properly acquired duplicated by information could be Spray or others.” Jet Crampton, supra at 840. Restatement of Torts 757, Comment b
168 Inc. u. work, if not they might, does authorize might do similar Again in plaintiffs.” steal the Dr. Miles Medical them to (1911), 373, Sons, D. Park & U.S. Co. John upon relies the owner complainant Court held that "[t]he process rights its its are be deter ship of secret and fairly, use it who accordingly. Any mined one complain it. But the analysis experiment, discovers right against to be invasion of its protected ant is entitled or of trust or process by in the fraud breach [secret] Further, in E.I. Nemours Powder contract.” duPont de Co. Masland, 100, (1917), Court Supreme 244 U.S. fraudulently not abuse the said that an "shall employee Laboratories, In reposed trust him.” Becher Contoure (1929), Inc., recognized the Court 279 U.S. of a against employee an "breach con cause of action disregard of confidential relations.” wrongful tract or Corp., Condenser United States Dubilier Finally, (1933), the held that an inventor U.S. Court reap its fruits indefi "may keep his invention secret Chems., Servs., Inc. v. Tesco generally Water nitely.” (5th Hutter, Inc., 1969); Trade Se 410 F.2d Approach A Practical Misappropriation: Lawyer’s cret Law, England 1 W. New L. Rev. the Case principles, these once information Consistent with *9 be an nature to appropriate qualify” demonstrated to "of secret, into any inquiry the the information a trade the trade secret must focus on conduct of misuse the supra Inc. v. Crampton, the Jet Spray defendant. acquired If the information as at 843. the defendant has relationship enjoyed he result of a confidential which and, has used the plaintiff, the if the defendant with permission plaintiff, the the then information without wrongful, is and use of the information the defendant’s damages in "for the plaintiff is to the the defendant liable information.” Id. at 845. use of the wrongful apparently did not focus on damage first master The liability. liability in case on mas- found the facts have inception their ter found that "[s]ince Jet Cooler, Inc. Spray pro- and development
conducted an extensive research improve in effort their and gram products a constant to occasion, have, independent engineer- on consulted with help products as to im- ing develop firms to new as well prove existing products.” Jet Additionally, at 836.
Crampton, Cooler supra protect had secrecy maintained sufficient information confidentiality of the Foster-Mil- at 844. report. ler Id.
The first master no im- apparently attached portance to either of these factors and on concentrated on novelty impropriety lack of rather than of the procure process method used to the secret. The fact and adaptation the combination old principles new purposes prevent process not being does a trade process secret if accomplishes as distilled a result gives the holder a competitive advantage due to his ingenuity, Moreover, own research development.
"the fact easy duplicate secret was does not against being militate its important a trade secret. The point is that the owner and those to whom it was neces- sary to reveal the secret of the knew trade secret.” Ma- ruchnics, Secrets, Industrial Trade Their Use and Protec- tion, Thus, L. Clev.-Mar. Rev. the first erred failing master as matter law in to focus on the abuse confidential on relationship and to the secrecy attached which was to im- designed prove plaintiffs’ product give competitive it a not advantage. focusing By defendants’ conduct secrecy and on the report, attached Foster-Miller the first erred his assessment of dam- ages. of
The measure in cases involving business torts such as the misappropriation trade secrets enti- plaintiff compensation tles a recover full his lost *10 profits requires a profits defendant surrender See, which he realized from his tortious e.g., conduct. v. Leyden, 425, National 370 Mass. Merchandising Corp. 159 170 (interference (1976) relations); with contractual 430-433 Mfg. Co., 136, 215 139- Forster Co. Cutter-Tower (1913)(misuse name); Jaynes Regis of trade v. H.A. & 140 trademark). (1906)(infringing 245, Co., 249-250 (1937); § 136, of Restitution Comment a See Restatement 757, § Torts Comment e "Public Restatement of requires competitors policy not be al- that unfair must wrongful profit by their methods and that those lowed to adequate injured by them receive who have been should injury they compensation for the loss or have suffered.” Competition § 419, Nims, at 2 H. Unfair and Trade-Marks 1947). (4th ed. 1324-1325 plaintiff course, a is not entitled both
Of profits. See For the defendant and his own lost made gener supra Mfg. 139. See at ster Co. v. Cutter-Tower Corp., ally Corp. v. International Business Machs. Telex (10th Cir.), dismissed, cert. 423 U.S. 510 F. 2d Litigation, (1975);Johnson, Secret Remedies Trade (1978); Hutter, Trade Secret Nw. U. L. Rev. Misappropriation: Lawyer’s Approach A Practical (1978); England Law, L. R.M. 1 W. New Rev. Case Milgrim, Trade Secrets 7.08 [3] at 7-155 plaintiff However, while a is not entitled to double profit recovery, plaintiff he would "the is entitled to the unlawfully used, but have made had his secret not been monetary gain which the defendant not less than the reaped omitted). (footnotes improper 2 R. from his acts” Monopo Competition, Callman, Trademarks and Unfair 1968). (3d Bunker, 453 F.2d § 59.3, ed. at 496 Clark lies 1972). (9th Corp. Sperry A-T-O, Cf. Rand Cir. (4th 1971), cert. de Inc., F. 2d (1972). Only way in this can we ensure nied, U.S. encouraged pro competitor will not be that an unfair hope "that his methods in the with his unfair ceed might injured party’s losses.” National Mer exceed the Leyden, supra chandising Corp. Therefore, 433. at involving misappropriation plaintiff in an action proceed to determine in the alternative trade secrets *11 171 Jet Crampton. wrongful profits
whether the defendant’s exceed the plaintiffs losses caused the misuse of the plaintiffs trade See at 433-434 & n.16. secrets. id. damage
We now consider first master’s method assessing damages light of traditional principles. The damage first found that intro "[t]he duced period detailed evidence relation to the inception of ... concerning alleged profits Crathco made units, by the defendants on year by year sale of concerning alleged plaintiffs’ year by loss year profits on sales the defendants plaintiffs’ customers extent plaintiffs’ profits that the would have exceeded the Nonetheless, profits made the defendants thereon.”10 the first master disregarded this information damages refused to assess on prof based the defendants’ its or lost because he found that only effect wrongful defendants’ use of the Foster- Miller report was fact that the defendants able were to enter in competition market with the three months earlier than could have done they without benefit the information contained the report.11 subsidiary findings The first master’s reveal that he "royalty” $1,400. value found that of the did not exceed In involving secrets, misappropriation recognize a case of trade we royalty’ damages that "the 'reasonable measure of is taken mean simply percentage profits” a more than of actual and is based "a misappropriated reasonable estimate of value” of the trade secrets. University Computing Lykes-Youngs Corp., Co. v. town 504 F.2d 1974). (5th Dynamics Corp. Engi See Structural Research (E. neering Corp., Supp. Mechanics Research 401F. D. Mich. 1975). However, royalty” only the "reasonable measure appropriate where the defendant has made no actual and the plaintiff prove specific University is unable to loss. Computing See Lykes-Youngstown Corp., Johnson, supra generally Co. v. at 536. See Litigation, 72 Remedies in Trade Secret Nw. U. L. Rev. 1025- Hutter, (1978); Misappropriation; Lawyer’s Trade Secret A Prac Law, Approach England tical (1978). Case 1 W. New L. Rev. findings regard To the extent the first with period interpreted applying to the three-month of time be Inc. v. misappropriated of the trade secrets
But value liability, is not of the defendants’ the defendants the basis misappropriated of the trade secrets should and the value general plaintiffs’ recovery. form not the basis *12 Leyden, at 430- ly supra Merchandising Corp. National Therefore, Accord, 93, focusing L. c. 42. the by 433. G. secrets, of the and not on the misappropriated value trade defendants, damage the first wrongful conduct damages incorrect. legally master’s assessment of was the and com properly The rejected a Cf. damage mitted the case to second master. Worm 660 v. Town Mass. Manager Saugus, stead of damages action, assessing a in in this such measure "head start rule” damages improper. application approach of is The of a "head start” period "others the limit to that of time in which in would through procedures, legitimate likely, business to have trade are Translation, Analogic Corp. v. aware of these secrets.” Data become Inc., applied Generally, the "head start rule” has been in cases where the secret, plaintiffs product, including the trade has been marketed. The competitors legitimate marketing product gives opportunity of the principles study product learn the of the trade secret See, e.g., through engineering procedures. or similar Eastern reverse Inc., Marble, Corp. v. Marble Prods. Roman Translation, Inc., (1977); Corp. supra at 648-649.Cf. Analogic v. Data 1970). (Mo. Jarboe, 540, 552-553 Co. 454 S.W.2d Carboline relief, injunctive petition we have that the time In a for indicated engineer necessary determining in factor considered in reverse one to be injunctive propriety of relief. See of duration Marble, Inc., 842-843; supra Corp. Prods. at Marble v. Roman Eastern Translation, Inc., Corp. supra We not Analogic Data at 648. have damages. theory in an The contend applied this action defendants marketing plaintiffs product incorporating actual of that the question application of to the the defendants a head trade secrets is irrelevant rely argument, support In of on Na- rule. start (Mo. 1966), Trieman, Rejectors, Inc. v. S.W.2d and Struc- tional tural Dynamics Corp. Engineering Research Mechanics Research 1975). (E. However, Supp. F. D. National Corp., Mich. trade Supreme held that no secrets Rejectors, the Court of Missouri misappropriated belonging had been defend- only Dynamics, remedy not was the based Id. at 34. In Structural ants. profits, royalty” made no defendants had on a "reasonable because containing products but also the had marketed id. at Id. at 1109. the trade secrets. Report Damage The the Second Master. II. of judge’s The order reference to the second "(1) instructed the master: To the extent master find (Foster the use made the defendants of the trade secret (2) Report); To find the of profits Miller amount made by on the incorporating defendants sale units (3) secret; and To plaintiffs’ trade find amount of the profits due dispens loss of sales such defendants’ ers to customers to the extent such loss exceeds defendants’ on these same sales.” This order of reference is consistent our principles with traditional involving assessment cases business torts.12 specific second findings made with regard to each of three issues which the judge had instructed him to examine.
First, damage the second master addressed the extent to which the trade secrets had by been used the defend ants. He found that display beverage dispens each visual er unit sold the corporate defendant from 1963 to (the 30,1975 September period) accounting incorporated the trade secrets contained in report.13 the Foster-Miller The second damage master also during found that 12 object findings The defendants certain of the second concerning question master misappropriated whether the trade profits. They allege secrets themselves caused the defendants’ that the findings scope exceeded the of reference to the master. The order of reference the second adequately master required finding of causation. The master was directed find profits whether the defendants’ products accrued from the sale of incorporating misappropriated See, e.g., trade secrets. Eno v. 686, Mfg. (1943); Gottscho, 314 Prime Adolph Mass. Inc. (1958). Marking Corp., v. American 26 N.J. The second dam- age also was directed to find the amount of the lost profits products utilizing "due to” the defendants’ sales of the trade secrets. 13During argument, plaintiffs suggested oral for the counsel
possibility damages beyond against of a new action the defendants which would claim 30,1975, September period accounting the end of the course, utilized the second suggestion master. Of such a
Jet Inc. Craznpton. 27,110 dispensers accounting period the defendants sold $6,322,357.18. gross with sales
Second, computed profits the net of the de the master accounting incor during period fendants sales trade Since all the of the de porating the secrets. sales secrets, trade the second dam incorporated fendants computed the total net age master He found that the records submitted defendants.14 brings filing do not whether the no issue before us and we decide permissible. these facts is a second action based on report Foster-Miller It is clear that the information contained twenty approximately years old. The have never is now outset, product incorporating the From the marketed a information. secret, information, appropriate qualify a trade while it as the seems development type of the result of to have which "was been Corp. ordinary Co., A. Iron mechanical skill.” O.Smith Petroleum Works Restatement 1934). (6th Accord, 2d Torts 73 F. b Comment Therefore, any litigation future there must be a new in the event of "to of the information in Foster-Miller deter evaluation mine if the process truly remains trade secret.” Eastern Marble Marble, Inc., Corp. Prods. Roman supra, 840. Crampton, 361 Mass. at See also note Kaplan. concurrence of Justice and the the defendants have made demonstrate that Once products incorporating misappropriated profits secrets, trade from sales of portion to the defendants to demonstrate the the burden shifts Cf. not attributable to trade secrets. West of their which is *14 Co., Mfg. inghouse (1912);Callaghan Myers, Mfg. Wagner Elec. & U.S. Elec. & Co. (1888); 128 U.S. Sheldon Metro- (2d 1939), aff'd, Corp., F. 309 U.S. Goldwyn 106 2d Pictures profits apportionment of is not an the defendants’ When evidence, that he lose possible on the fact the basis of "[t]he brought upon has something which he of his own is misfortune himself____” Wagner Mfg. & Westinghouse Mfg. & Co. Elec. Elec. Johnson, generally Remedies Trade Secret supra at 620. See Litigation, 72 Nw. U. L. Rev. the apparently not sustain this burden before The did defendants master, testimony from certain of Jet’s customers found that "the who not buying Crathco rather than Jet was their for as impressive reasons [to] weight my mind as to the it was raised doubts in Therefore, damages respects credibility.” award of the to as entitled incorporating the profits of units entire from sales based on Crathco’s proper. misappropriated was trade secrets u. corporate profits defendent showed total net $67,604.80 during accounting the He period.15 rejected $15,422.20 by claim the defendants losses in during two the the years accounting period curred should be deducted from their total net He profits. also disallowed certain other deductions claimed the de by profits: fendants and added them to the defendants’ net (a) $105,553.17 in legal expenses fees and in defending this action.
Ob)$19,759.61 in Federal income taxes paid by cor- porate during defendant the accounting period.
(c) $21,578.29 in Massachusetts excise paid by taxes corporate accounting defendant during period.
(d) $18,698.03 in bad debts incurred on sales corporate defendant during accounting period.
(e) $681,575.80 in salaries and paid consultant’s fees the individual corporate defendants defendant during accounting period.
(f) $22,508.40 Key premiums paid Life insurance corporate defendant on the lives of the individual during defendants the accounting period. $17,110.52
(g) for group coverage insurance on the lives of the individual at defendants various times during the accounting period. net profits recomputed defendants as by the $954,388.62
second master totaled during the ac- counting period.
Finally, second considered the question of the lost the plaintiffs to the extent they exceeded the profits of the defendants. The plaintiffs claimed that on the sales made by corporate defendant customers would have $1,500,000 totaled nearly more than Crathco on made the same sales during accounting period. Both the correctly computed second master and profits, gross based net defendants’ rather than on *15 See,
profits. e.g., 199, 206-208(1928). Page MacDonald v. 264
Jet Spray claim, finding this evi- rejected The master speculative aspect "conjectural, on this dence unsound.” theoretically and also found that the in- second
The no as "profits had made such.” defendants dividual Therefore, he found favor of the individual defendants. objections and the defendants filed
Both the 23,1977, September report. On to the second adopted and then second modified judge 53(e)(2). He Mass. R. Civ. P. accom- damage master. See comprehensive, well reasoned his order with panied memorandum of decision. allowed the defendants’ deductions for bad judge
The paid for and consultant’s fees salaries debts computed The then the total individual defendants. $282,100.83.16 at profits net of the defendants’ computation follows: on Crathco’s books after "Profits as shown $52,182.76 deducting loses... Added items 15,422.20 $ Losses 105,553.17 Expenses Legal Fees and Corporation Excise Income and 41,337.90 Taxes Key Premiums for Man Group Insurance 67,604.80 229,918.07 229,918.07
$ $282,100.83” Total profits may computation have appears of the defendants’ that the It First, figure the total mathematical errors. resulted certain group the master key man and insurance as found premiums for profit $39,618.92. computation, judge’s the defendants’ net In the was inadvertently accounting period to have figure seems been for the Second, premiums. figure proper for insurance instead of the used totaling error in the defendants’ to have made a minor master seems deducting Since after losses. profits on Crathco’s books as shown $67,604.80 deducting and the losses were before Crathco’s $15,422.20, figure after for Crathco’s were claimed losses *16 Jet Cooler, Inc. Spray Crampton. further judge damage
The modified the second mas- finding plaintiffs’ profits ter’s lost could not be computed. He concluded that the second damage master’s findings subsidiary were sufficient on their face to allow $257,- him to find that lost profits totaled 068.
Finally, judge rejected second master’s finding in favor precluded individual defendants as holding our Jet Inc. v. Crampton, su- at 844. He held the pra individual defendants jointly severally liable with the corporate defendant.
Because the plaintiffs’ profits lost were a lesser amount profits than the defendants’ as computed by the judge, he awarded damages plaintiffs in the amount of the profits. defendants’ net Both plaintiffs and the de- appeal fendants from certain of the judge’s modifications of the second report. master’s
1. Bad Debts. The gross allowed a deduction profits from all bad debts incurred by the defendants on of the sales in- fringing products. Co., J. Nelson v. H. Winchell & The urge us to adopt approach taken Supreme Colorado, Court of ex- pressed Hyman Co.& Velsicol Corp., Colo. (1951), bad debts not be gross deducted from
profits because a defendant should assume the risk of his extension of credit. This we decline to do. An accounting defendants’ designed strip is them of their impermissible gains. Where a defendant has suffered bad resulting products debts sales which he has manufactured, the defendant has incurred manufactur- ing expenses profits. and has reaped no He should not be required over as pay funds never received. See Nelson J. H. Winchell & supra. deducting $52,182.60. Using computa- losses should be the method of adopted Court, Superior
tion once these errors are corrected the profit figure $254,114.79. net defendants’ Cooler, Inc. Paid to Individual
2. and Consultant’s Fees Salaries Defendants. appeal judge’s from the modification also report which allowed the the second gross profits from their all salaries defendants deduct *17 paid the fees individual defendants and consultant’s plaintiffs emphasize corporate that the defendant. question paid in to individuals the salaries and fees were plain Therefore, in the defendants this action. who were properly argue that the master refused deduct tiffs gross profits corpo from the the their and fees salaries defendant.17 rate judge correctly think that the allowed defend-
We question gross the salaries and fees ants deduct judge’s that "there the basis of the conclusion on findings no salaries or consultant’s fees were are earnings disguised or that excessive or distribution corporate ren- defendant to whom the services were corporate question a sham.” The whether offi- dered was should not deter- are named as individual defendants cers from a cor- whether their salaries be deducted mine question profits. porate The determinative defendant’s their and fees are reasonable should be whether salaries corporation light positions as officers of the pro- "engaged in the of the business and conduct Stephen profits.” John B. Stetson Co. L. Stet- duction of (S.D.N.Y. 1944). Supp. F. See Clair v. son 1946). (S.D.N.Y. Supp. Kastar, Inc., 70 F. Hyman Corp., 123 & Co. v. Velsicol Colo. The master relied (1951), authority In his of the salaries fees. as disallowance Velsicol, paid to in- for salaries the master disallowed deduction report. defendants, judge approved Af- the master’s dividual emphasized firming judgment, Supreme Court of Colorado period "prior to for the the com- disallowed were salaries operations” Hyman Company’s and did not & mencement of Julius paid during operation of the any for salaries deductions disallow contrast, By here salaries allowed at 632-633. Id. business. operation during judge paid of Crathco’s were deductions business. u. Since the found that the salaries in- paid light posi- dividual defendants were reasonable in of their corporation, tions in the he properly allowed their salar- ies and to be deducted from the gross profits fees corporate defendant.
3. Computation Lost Profits. Plaintiffs’ The second master declined to make a finding plaintiffs’ of the amount of the profits. lost He concluded that any figure which he arrived at would be too specula- tive. however,
The judge, modified the second mas- ter’s and computed lost at $257,068. result, To this reach the judge relied on the second master’s subsidiary findings that the de- fendants had sold dispensers plain- to over sixty of the customers; tiffs’ that had dispens- the defendants sold no *18 ers, it reasonably possible was the would have made the sales customers; to these same the defendants’ sales $2,- these customers totaled 856,311.41, and that during accounting period the the plaintiffs’ profits net before averaged per taxes nine cent gross sales. multiplied
The judge the total of the defendants’ sales plaintiffs’ ($2,856,311.41) to the customers plain- the (nine cent). profit margin tiffs’ per He concluded that the resulting $257,068 total of approxima- was "a sufficient plaintiffs’ tion of the profits.” loss of
The defendants’ objection computation the judge’s plaintiffs’ the lost rests solely on the defendants’ contention that there is no evidence that the would have had the same volume sales as the defend- However, "[tjhere unreasonable, ants. is nothing in our view, taking in the judge’s gross the tainted sales of [the exceeding as not sales which plain- defendants] [the capable tiffs ....” National Merchandising Corp. v. were] (1976). Leyden, 431 Mass.
The second damage master’s subsidiary findings pro- vided sufficient information concerning both the defend- Mass.
Jet Spray plaintiffs’ plaintiffs’ customers and ants’ sales to allow the to com earnings judge records” "established profits. lost Elec. pute Corp. Matsushita plaintiffs’ (1972), Corp, quoting America v. Sonus (1966). Cosindas, Rombola v. Mass. However, reports his find- where the master subsidiary we, below, draw own infer- like our ings, from the master’s ences and come to our own conclusions O’Brien, findings. subsidiary Corrigan (1967). Wallach, 366 See Peters Zobel, Rules Smith & H.B. generally J.W. Practice 53.11 action, subsidiary this the second
In during accounting period the findings also reveal that product incorporating plaintiffs never marketed report.18 contained the Foster-Miller recommendations of dispenser found that the Crathco The master further competition” Spray dispenser "serious to the Jet fered produced superior dispensers it was "because dispenser manufacturers and also that Crathco’s other it contained particularly to Jet’s since comparable was in the Re improvements recommended Foster-Miller port.” findings, determine whether light
In of these we cannot in this action were "due to” plaintiffs’ lost secrets, trade products utilizing sales of defendants’ profits were "due to” or lost whether *19 refrain from market- plaintiffs’ own business decision to in the containing report. the information ing products Here, uncertainty the in the at & n.12. supra See not action of the damages any arises from assessment of defendants, the the Com- plaintiffs. from inaction of but per the plaintiffs ninety cent of sold to more than In the dispensers. beverage found display Both masters for visual market products incorporat- why plaintiffs not market did that reason report in 1963 was ing in the Foster-Miller the information contained development saving plaintiffs information future were that marketing. Inc. u. Corp. Leyden, National at Merchandising supra Therefore, plaintiffs 430. we conclude that have not to” proved their lost "due the defendants’ sales to with plaintiffs’ certainty customers sufficient to allow to recover on profits. based lost 4. Liability Joint and Several the Individual Defend- ants.
The modified the report second to hold the individual jointly defendants and severally corporate liable result, with the defendant. To reach this he relied on Jet Crampton, Inc. v. supra, where we held that joint involvement of the corpo- "[t]he rate defendant and the defendants ... in util- [individual] izing the secrets of the Foster-Miller report... require[s] if damages, any, against shall be assessed all of them.” Id. at 844.
Our resolution of this issue dispositive in 1972 is question of liability of the individual defendants. The individual actively defendants participated in the misap- propriation of plaintiffs’ trade They may secrets. not insulate from themselves the consequences of their ac- tions by choosing the corporate form which to market products. Accord, Donsco, Casper Corp., (3d F.2d 1978); Bunker, Cir. Clark 453 F.2d (9th 1972). 1006, 1010-1011
III. Interest.
The judge allowed interest on the recovery on the date which the master filed report. his G. L. c. 8.19 The they maintain that are § entitled to interest from an earlier date.20 We think the 235, 8, appearing 1973, 1114, 219, General Laws c. in St. c. § provides pertinent part: judgment "When upon is rendered ... master,... computed an auditor or upon interest shall be report, amount of ... from the time when made to the time the judgment is entered.” plaintiffs argue they in the alternative that are entitled to action, they interest from the they date filed the are computed annually entitled to interest on the net of the defend- *20 377 Mass. Cooler, Inc. v.
Jet Spray from the date of the only allowed interest judge correctly filing report. of the master’s 235, 8, to add requires c.
General Laws to the report the master files his from the time interest any action where the award is entered judgment time Beyond statutory of master. this is on the based mandate,21 should hardship” of relative "considerations award, represents inter govern an addition to the Skene, H. date. Wood Assocs. Edgar est from an earlier (1964). Firefighters, Cf. Watertown 347 Mass. Watertown, 706, 718 n.25 & 1347 v. Local (1978). profits of the net is plaintiff
An to a defendant’s award is not un to ensure that the defendant primarily made See, wrongful e.g., acts. as a result his justly enriched at 433. Leyden, supra Merchandising Corp. National profits net is made only of a defendant’s Since award plaintiffs net exceed the defendant’s where losses, plaintiff may actually recover demonstrable Id. v. Colonial its actual loss. See Sammons far more than 1942). (1st Press, Inc., 345-346 Cf. Mis 126 F.2d Co., 316 Kresge v. S.S. Mfg. hawaka Rubber & Wooden Co. (1942) ("There 203, 207 to the may well be a windfall U.S. impossible it is to isolate the where trademark owner infringing of the attributable to the use profits which are 30,1975, ants, September they or are entitled to interest accounting period utilized the master. end of the 6C, 6B, them to that G. L. c. entitles claim §§ complaint they in 1964. on which filed the We from the date interest Here, primarily monetary disagree. award based Compare filing subsequent of the action. Porter losses incurred Court, Superior These statutes v. Clerk damages accruing after the award interest on were not intended to action, actually filing assuming is not an that such interest of the itself. element they Moreover, showing to the master that no made an element of their in the form of interest as incurred had Compare Page profits. MacDonald lost *21 377 Mass.
Jet Crampton. But to hold give otherwise would the windfall to wrongdoer”). Here, have been entirety awarded the of corporate profits the defendants’ net from 1964 to 1975.22 This award is made because it is impossible for the de segregate portion fendants to of profits their which is misappropriated attributable to the trade secrets from of portion profits be may attributable Prods., See, Carter Inc. v. Colgate- e.g., other factors.23 Co., (D. 1963). Palmolive 383, 214 F. 399 Supp. Md. Thus it is likely "plaintiff that may recover more than his supra. exact loss.” National Merchandising Corp. Leyden, In circumstances, these we do not think that the plain tiffs be unfairly deprived compensation will of or that defendants will be if "unjustly [they enriched not are] required to pay profits interest on the total so awarded.”24 Prods., Co., Carter Inc. v. Colgate-Palmolive supra at 417. 22 many involving torts, In cases business a defendant will market variety products, only a subject of some of which liability. him to An profits accounting only requires for in such cases the defendant See, offending Co., surrender his net products. from e.g., Carter Prods., 383, (D. Colgate-Palmolive Inc. v. Supp. 214 F. 394-400 Md. 1963). Similarly, produces a variety products, where defendant of he may gross profits deduct from his only portion of his business expenses can production which he demonstrate are attributable to the offending See, products. e.g., Co., Mfg. Eno Prime (1943); Page MacDonald contrast, By apparently here the defendants have marketed no product which misappropriated does not contain the trade secrets. aecounting. Therefore, corporate profits their entire subject net are single example, Profits not result from a they source. For may well result manage- use of trade secret combined with skill, investment, capital ment pro- and such other factors as tend to case, profit any enterprise. however, duce appears In this it that the separate portion were defendants unable to attributable portion use the trade secret from that attributable to other profit 14, supra. factors. See note plaintiffs rely Whidden, on H. D. Foss & v. Co. (1925), Coyne Laundry and Schenectady, Indus. Inc. v. Appeals for of the United States Court
The observation Larson, Jr., in L. P. Co. v. William Circuit the Seventh (7th 1927), Jr., Co., rev’d 20 F.2d Wrigley, (1928), apt here: particularly 277 U.S. grounds, other unquestion- palpably here in issue is so "The award compensate plaintiff] any ample ably fully [the *22 no circumstances rights, suggest of its as to all invasion enlarge to it allow- the discretion invoke court’s the of the master’s ance of interest back of date Therefore, awarded interest judge properly only the ....” re- the second from the date on which Accord, 8. Tilghman G. L. c. port was filed. See (1888); Prods., Proctor, 160-161 Carter 125 U.S. 418. supra at v. Colgate-Palmolive is to be modified Superior of the Court judgment and, modified, thus is opinion this in with accordance affirmed.
So ordered. I in the decision (concurring). join J. Kaplan, court, that allowed are feeling but with the being period cast over They are made so excessive. note 13 that The court indicates at years. of eleven one, a mechani- simple ordinary result was a "secret” skill, it could doubt that survive and intimates some cal (1971), they support Gould, to their claim that 30, 1975, September the end of the ac- are entitled interest However, counting period in both of these cases utilized master. plaintiffs injury, and not monetary grounded on the was award wrongful profits. Interest in both cases was award- on defendant’s position place plaintiff in reference "in same in order to ed resulting injury damages directly from the had if injury as 278, quoting & v. immediately.” at from H. D. Foss Co. paid Id. been Whidden, supra at 151. See, e.g., necessary L. P. in this action. compensation is No such (7th Jr., Co., Larson, Jr., Wrigley, 20 F.2d Co. v. William 1927), grounds, 277 U.S. rev’d on other Mass. 159 Cooler, Inc. protectible as a entity suspect October 1975.1 that before; it perished had that sense time that is to some say, ordinary course of events the secret sub- stance would have become known and at an available date, earlier if the even defendants had not appropriated it and keep had tried it to themselves.
This, however, was, was a matter of trouble proof, is, record virtually barren of the relevant facts and inferences. remarks,
In adding
if,
these
I
suggest
would like to
told,
as we are
the law of trade secrets does not necessari
law,1
ly
patent
conflict with the
there is still excellent
reason
it
beseeming
with
apply
modesty.
*23
(1974). Doerfer,
Corp.,
Kewanee Oil
v.Co. Bicron
Limits on Trade Secret Law Federal Patent and Antitrust Supremacy, 80 L. Harv. Rev. 1432