Mid-America Marketing Corp. v. Dakota Industries, Inc.

MARKETING CORPO MID-AMERICA

RATION, Respondent, INDUSTRIES, La INC. and

DAKOTA Appellants.

Maur, Inc., Defendants 12085.

No.

Supreme Dakota. Court South 16,1979. Aug.

Rehearing Granted Falls, Vrooman, David J.

David V. Sioux & Vickers, Murphy, McDowell Boyce, Falls, Greenfield, Sioux respondent. Evans, Smith, Davenport,

Deming Falls, A. Smith, Charles Hurwitz & Sioux Deinard, Leonard, Minne- & Mays, of Street Minn., appellants. apolis, for defendants WOLLMAN, Chief Justice. Mid- by plaintiff-respondent

In an action dam- Marketing Corporation America ages the them unauthorized disclosure and intact into a snowmobile suit hood. use of a trade secret in breach of confidence prototype bonnet was first delivered contract, jury and the found for January 13, 1975, on at which Bachmeier $270,000, respondent in the amount of of signed receipt stating that time he a the $20,000 which represented pu- an award of “design proprietary etc. to Dakota [was] damages. appeal by nitive This is an de- subject engineering Ind. to release for de- fendants-appellants Industries, Dakota Inc. velopment, funding.” (Dakota) (LaMaur) and Inc. produced by Subsequent prototypes Da- judgment. that We reverse. incorporating suggestions kota made by founder, Anthony Respondent’s Bachmei- Bachmeier and others convinced Bachmeier (Bachmeier), er has been associated with making progress were toward a beauty industry the since 1959. In late Therefore, product. Febru- marketable on Bachmeier and others struck $10,- gave ary respondent improve idea design the function and of 1,000 payment of the as advance toward electrically in heated bonnets used the in- to be known as the ThermoChem bonnets dustry to facilitate chemical Processing System. February On of human hair. In December Bach- respondent into an Dakota and entered meier took an electrically heated cap agreement provided that Dakota would by Company manufactured the TIZ to Da- sell the bonnets and would them kota and with discussed them his ideas con- only respondent respondent and that cerning improvements design buy would them from Dakota. This cap. Bachmeier nothing knew of electrical agreement acknowledged also that Dakota design theory nothing and Dakota knew developed Processing the ThermoChem of human hair processing or the theories System of respondent. with the advice Da- thereof. Bachmeier indicated that the bon- $10,- respondent’s kota has never returned net be larger should than TIZ model any it delivered bonnets to nor has snugly and should fit about face 19, 1975, respondent respondent. On March air; order to block out the outside that the by assignment received from Bachmeier material lightweight should be and femi- by all held them in the others interests nine; temperature bonnet electrically Respondent heated bonnet. did (a should 180° figure by be at arrived mea- assignment not receive an interest suring operating temperature of a hair by held Dakota. processing device by manufactured Helene Co.); Beginning February respondent Curtis and that the heat should be uniformly began holding the Ther- throughout distributed demonstrations of interi- System throughout of the bonnet. Dakota suggested Processing moChem snowmobile suit hood manufactured were Prototypes Da- South Dakota and Iowa. kota good would be a basis given beauty operators to various salon as a agreed. Bachmeier At the conclusion of gaining experience method in the actual this initial meeting, Dakota committed it- operation of particular the device. No at- self producing working prototype secrecy. tempt made to maintain Dur- was bonnet. No non-disclosure respon- the first week March however, signed by was parties; Bach- beau- employees dent’s attended a national meier did inform Dakota he did not Chicago, Respon- ty trade show in Illinois. want his idea “spread around town.” was Processing System dent’s ThermoChem public display of its and demonstrations Dakota then cap dismantled the TIZ Born, Inc., operation given. were Vic determine the method the heating which regional representative organization, circuitry sales produced. had been Following examination, orders engaged to solicit procured a heat- ing pad, System; Processing heating removed ThermoChem elements (consisting wire, thermostat, prototype given resistance of the device was to Born control cord), switch power placed conjunction and was never returned. In show, Chicago respondent prepar- Respondent meanwhile decided to under- take national distribution of the Thermo- advertising purchased ed brochures Processing System through Chem its own Processing pictured the ThermoChem representatives. of sales network Several pictures accompanying System. These representatives of these handled LaMaur’s unique text disclosed all of the features of beauty product line and there was evidence (its Processing System the ThermoChem rep- aware of these respondent became size, appearance, close fit about feminine through negotiations resentatives with face, purpose, ability to retain moisture this net- LaMaur. To establish distribution constant, heat) except even and maintain work, 2, 1975, respondent May entered circuitry the details of its electrical and whereby into a contract with Dakota Dako- construction, respondent had about which agreed, among things, ta other to sell Ther- knowledge. no Processing Systems only to re- moChem show, Chicago respondent At the made its spondent respondent agreed produce to first contact with LaMaur. As a result of 12,500 Processing ThermoChem orders for LaMaur’s interest the ThermoChem Pro- System quarter. units each calendar Dako- cessing System, respondent project manager withdrew ta’s testified that calen- ninety days public quarters they dar meant each prototypes display. from On March Respondent pro- beginning May 2, 1975, signed indicating LaMaur a memo challenge under- testimony duced no to this acquiring rights interest in exclusive to dis- possess suffi- standing. Respondent did not Processing tribution of the ThermoChem cient financial resources to underwrite (This System. indicate memo does not cosmotologists ordering the bon- credit of rights from whom these were to be ac- nets; therefore, agreed to under- however, signed by Bach- quired. It was/ those customers Dakota write that risk for respondent’s stock- meier another of worthy found to be credit and that agents respondent.) holders but not as 12,500 against the those orders would count LaMaur invited Bachmeier to demonstrate each required was to sell respondent units Processing System the ThermoChem at an- on the quarter to avoid default order beauty industry other York show in New contract. 1975; City simultaneously, in mid-March contract, toMay Pursuant to this respondent displayed the ThermoChem Pro- to respondent submitted orders July of 1975 cessing System at still another show these, 3,632 only 930 units. Of Dakota for Iowa. worthy by Dako- deemed to be credit were Negotiations respondent ta; however, these orders were none of LaMaur did not lead to a contract. Follow- filled. breakdown, began negotia- this LaMaur 23, 1975, respondent and Dakota May On Company tions with the KAZ should at- that Dakota met and decided incorpo- hair bonnet that would with negotiations tempt reestablish the openly by respon- rate the ideas place Respondent attempted to LaMaur. namely, coverage full with heat head dent — upon Dakota’s ne- following restrictions and moisture control. Neither KAZ nor agreement was gotiation no with LaMaur: LaMaur, respondent, nor for that matter meeting; during initial to be reached possessed expertise developed the technical exclusive granted to be LaMaur was not actually appro- Dakota to construct an was to be rights; respondent distribution priate Therefore, KAZ to start had repre- obligations to sales relieved of beginning original engineering. at the with sentatives; to be units was not price of the approached When Dakota as dis- discussed; aspects of and technical infra, cussed LaMaur realized that a mar- not Processing System were ThermoChem product procured ketable could be from Da- an un- The record reveals to be revealed. KAZ; hence, kota much that Da- sooner than from Bachmeier supported statement May restrictions. On agreed the contract to these with KAZ was terminated. kota tions, Dakota and LaMaur met and con- knew because Dakota that LaMaur An in principle ferred. was going forward a bonnet reached at this On meeting. purchase necessary would if one from proposed agreement Dakota submitted a competitor, and because believed the LaMaur and turned over LaMaur the through been contract to have breached Processing Systems orders ThermoChem 12,500 respondent’s inability to sell units respondent placed with Dakota. during ninety days. During first LaMaur submitted a counter-offer on June 18,939 August sold units 1975; respondent’s offer called for dra- dropped LaMaur. LaMaur’s sales however-— n consent to the agreement but did not make month, matically first after the party contract and in fact returns sales —and LaMaur exceeded respondent’s no made compen- up wound sales for year with net the first sation. 12,707 of only nor bonnets. Neither Dakota anything paid respon- LaMaur has ever June On Dakota submitted a compensation dent as for its interest respondent contract to supplant intended to bonnet. No have ever been bonnets deliv- May agreement. 2 Under proposal ered to nor has respondent Dakota returned respondent would receive 18% of all reve- respondent’s $10,000 payment. advance on by nues sales of bonnets made Dakota and sold to This LaMaur. offer also re- The of Torts 757 Restatement § quired respondent to to the consent June 13 provides: contract between Dakota and LaMaur. One who or uses discloses another’s Along contract, with this pro- new Dakota so, privilege trade a to do without respondent vided copy Appendix of A to is liable if to the other the contract appellants, pur- which (a) by improp- he discovered the secret ports identify proprietary aspect “[t]o means, er of the Electric Processing System, Bonnet (b) his disclosure or use constitutes Dakota Industries Inc. Part No. 57822.” him reposed breach of confidence The document also all describes the materi- by in disclosing the other the secret assembly required als and steps him, a bonnet. There is no discussion of how the (c) he learned the secret from a third system works or how it should be used in person with notice of the facts of hair. Respondent human it rejected was a secret and that the third this offer. person it improper discovered Dakota “Appendix submitted A” to La- person’s means third 20,1975, onMaur June and LaMaur commit- of disclosure it was otherwise itself, through ted issuance of an internal other, or duty breach of his “merchandising memorandum, decision" (d) he of learned secret with notice sell Respondent bonnet. submitted the facts that it was a secret counter-offers 2 and him that its disclosure made to 1975, both rejected of which were because by mistake. they would respondent have pro- allowed processing systems duce competition apparent respondent It is prove must Processing the ThermoChem System. it a trade indeed had secret in order theory. for liability to attach under this July 25, 1975, On appellants entered into a written for Dakota’s manufac- secrets been in wide Trade have found ture and LaMaur’s variety sale subjects, including A but not limit two-party contract, it formulas, made no ed to: chemical Platinum Prod respondent. justified Berthold, its 21 Corp. course of ucts 280 N.Y. action as necessary protect (1939); processes, industrial substantial N.E.2d 520 Sun investment Rideout, Corp. 361, 102 because of Dial N.J.Super. intractable stance negotia- (1954), assumed in A.2d 90 A.2d aff’d N.J. (1954); information, Secrecy. subject The pricing matter of a trade Simmons Waibel, Hardware Co. v. S.D. public secret must be secret. Matters of lists, (1891); N.W. 814 customer Town and general knowledge or of in an Serv., Country House & Homes Inc. v. Ev industry appropriated by cannot be one 314, 189 ans, (1963); 150 Conn. A.2d 390 as his secret. Matters which are com- Services, supply, sources of Water Inc. v. pletely goods one Chemicals, Inc., (5th Tesco 410 F.2d 163 Cir. markets cannot be his secret. Substan- 1969). Kintner, generally E. An Intel See only tially, a secret is known Property (1975). lectual Law Primer particular business in which it is used. numerous situations in which trade secrets requisite proprietor is not might against arise militates a set defini may, it. He the business know without tion of a trade secret.1 Restatement of it to losing protection, his communicate however, (1939), Torts comment b § employees may involved in its use. He provides a widely relied definition of a pledged likewise communicate it to others trade secret. Kewanee v. Bi See Oil Co. secrecy. may Others also know of Corp., cron U.S. 94 S.Ct. as, example, when independently, L.Ed.2d 315 The comment states: process or for- they have discovered may A trade secret consist for- independent invention and are mula mula, pattern, compilation device or Nevertheless, keeping it secret. a sub- information which is used in one’s busi- exist, secrecy so stantial element of must ness, gives opportunity and which him an that, improper except by the use advantage competitors to obtain an over means, difficulty would be in ac- there may who do not or use know it. It be a quiring the information. An exact defi- compound, proc- formula for a chemical a possible. nition of a trade secret is hot manufacturing, treating ess pre- or in deter- Some factors to considered .be materials, serving pattern for a ma- mining given information whether device, chine or other or a list of custom- (1) one’s trade secret are: the extent ers. It differs from other secret informa- which the information is known outside (see 759) tion in a business in it is § business; (2) to which it of his the extent simply single not information as to employees and others in- ephemeral is known events in the conduct business; business, as, extent of example, the amount or volved in his other terms of a guard secret bid for a contract se- taken him to measures salary or the employees, information; certain or the (4) the value of crecy of the security contemplat- investments made or compet- the information to him and to his ed, or the date fixed for the announce- itors; (5) money the amount of effort policy ment of a new bringing or for out expended developing the infor- by him a new model or the like. A trade secret mation; difficulty with (6) the ease or process is a or device for continuous use properly which the information could be operation in the of the business. Gener- acquired duplicated by others. ally it production goods, relates to the (1939). Torts 757 at 5-6 Restatement of § as, example, a machine or formula for emphasize processes that guidelines These production may, of an article. It products. produce are used in a business to however, relate goods to the sale of or to knowledge processes It is the of these operations business, other in the such as a knowledge com- gives of that the holder determining discounts, code for rebates or petitive advantage over those without other price concessions in a list or cata- knowledge. logue, customers, specialized or a list of through Respondent or a Bachmeier bookkeeping method of or other of- management. give fice knowledge process of a that would Lawyer’s Approach For the Case a detailed Practical discussion of the elements and A Law, litigation England the defenses L.Rev. 1-45 involved in trade secret 1 Western New Hutter, Misappropriation: see M. Trade Secret superior results the .treatment of human Dakota and the use of the bonnet process hair. controlling This dealt with respondent. say case of This is not to specified heat and moisture for a time product can never be a secret. For exam- specified giving chemicals when beau- ple, in K & G Oil Tool & Service Co. v. G & ty Respondent tacitly treatments. ac- Serv., Fishing G Tool 158 Tex. knowledged the nature of its trade (1958), produced S.W.2d 782 paragraph complaint. VI of its “That in magnetic fishing tool for broken bits out of confidentially late Plaintiff contacted oil wells. these tools to leased Dakota and disclosed to Dakota its trade pro- defendant under an invention, namely appli- use and vided that would not disassemble defendant System.” cation of the seriously cannot thereby the tool and learn how it was made. argued be invented the grant- damages Plaintiff recovered and was electrically cap heated to be used in the injunction jury ed an after a determination treatment of human hair inasmuch as Bach- produced that defendant could not have brought meier existing model to his highly began similar tool it to manufacture meeting first with Dakota. disassembling plaintiff’s without tool.2 Dakota developed knowledge process of a present There is no evidence in the record that would an electrically heated jury from which the could find that knowledge This was contained in appellants singly wrongfully or in concert “Appendix A” and dealt with fabric and appropriated respondent’s secret. sizes, weights, insulation pattern stitch Appellants’ motion for a directed verdict on shapes, diagrams, electrical etc. This respondent’s first cause action should knowledge gave advantage Dakota a clear granted. have been over competitors, for when LaMaur learned that could be used Respondent’s second cause of ac in its through employing behalf alleged tion a breach of an contract. terminated the Company’s KAZ effort Respondent’s theory on this cause of action produce a similar bonnet. Dakota took steps protect was that because Dakota and LaMaur knew the secrecy process, of this whep respondent for respondent had an interest in the bon intended to deliver three bonnets to LaMaur testing, met, for Dako- they net when were under an ta instructed respondent to inform LaMaur obligation provide respondent’s to for inter the bonnets were not to be disassem- case, respondent’s est. At the conclusion of bled and were to be temperature used for appellants moved for a directed verdict on testing only. Respondent steps took no action, arguing the second cause of that the protect knowledge of how the bonnet 2, 1975, May respondent contract between was to be used but freely instead and Dakota included within its terms the others, this including LaMaur. complained by respondent transaction

In theory this case it is therefore the contract clear that the bonnet is secret; B, not the the secret would not Appendix paragraph relates to the lie. production of the bonnet in the case provides: three of that contract presented case, trically 2. From the facts in this it is heated bonnet to Dakota and told Da- parties doubtful that temperature of the could success- kota the it wanted based on anoth- fully establish the existence of a hair-processing system; trade secret in er the chemical treat- the bonnet. As noted in his work on commercial Professor Alexander protective ment and liner came from other sources; torts: existing Dakota took an snowmobile hood, heating pad, protect- heating a combination [F]or of features to be elements from a temperature ed as a aggregation it must be more than a mere controls from a third manufactur- parts, prototype of well known even if er create the bonnet. These facts parts previously against had not finding protectible been assembled militate of a the manner in which the “secret” combina- in the bonnet. See also Nickelson v. put together. tion has been Corporation, (7th General Motors 361 F.2d 196 Alexander, G. Commercial Torts 3.2 at 1966). § Cir. (1973). Here, respondent existing took an elec- committed to the view This court is is terminated this In the event that, foresee a parties to a contract when any reason and Dako- party either provide may develop and condition which and market ta continues hap- remedy in their contract America contin- processing system or Mid condition, presumption of that pening or market produce, produced, have ues to prescribed intended the parties is that the systems (as qualified by para- any similar remedy for the condi- remedy as the sole 10.3) par- graphs through 10.0 the mutual tion, controlling presumption is and this agree pay commissions re- hereby ties contract nothing is where there spectively each other on a schedule surrounding its in the conditions itself or (5%) consisting percent of five of the first a different that necessitates execution dollars; two-hundred-fifty-thousand conclusion. percent (3%) three of the next four-hun- percent dred-thousand dollars and of two provides no evidence The record (2%) long as as either of all remainder for jury could determine which the markets, [sic], 1975, party manufacturers between contract valid, enforceable product.3 sells this and Dakota was not a parties. expression of the intent Respondent argues paragraph that this be- verdict on to direct a was error to refuse party inoperative when a third came —La- of action. respondent’s second cause involved. We do not find Maur —became reversed, is the case judgment The argument persuasive. For entry of to the circuit court all, remanded any meaning parties must to have at com- dismissing respondent’s judgment Da- contemplated possibility have plaint. processing system kota would market the party.

a third As this court stated in J., MORGAN, concurs. Co., Werre v. Northwest Thresher 27 S.D. (1911): N.W. J., FOSHEIM, specially. concurs what, question There is no but where HENDERSON, JJ., dissent. DUNN existing there is a contract express valid FOSHEIM, (concurring specially). Justice parties between in relation to a transac each, fully fixing rights of there tion implied promise, is no room for an or suit Industries, Inc., governed by a Dolan, quantum meruit. Ball v. on Febru- agreement entered into written (N.S.) 114 N.W. 15 L.R.A. S.D. the same ary 1975. On the suit Under such circumstances As formal contract. parties made a second upon such transaction must be based on notes, second majority opinion the contract alone . compensation to be agreement specifies the agree- the paid party if either terminates Co., also Thurston v. Cedric 80 See Sanders market produce and continues to ment and 426, (1963). 496 S.D. N.W.2d product. the “parties stipulate When in a contract compromise right a parties consequences what the of a breach of the in rights and interests their and contract be, stipulation agreement shall such if rea- the is no claim venture. There the controlling sonable is and excludes other and or voidable agreements were void consequences.” 17 Am.Jur.2d Contracts enforceable well have plaintiff may very (1964). Or, 522 at 1009 as stated the § express contracts. upon these claims based Supreme Washington in United Court of business Seitz, However, having reduced their v. Glass Workers’ Local No. 188 fixing agreements 640, 74, (1965): formal 642, arrangement Wash.2d 399 P.2d patent Supreme law. Aronson under federal available 3. We note that the United States Co., 257, recently upheld validity Pencil 440 U.S. Point S.Ct. has the of con- Court Quick (1979). grant rights beyond protection 59 L.Ed.2d 296 tracts that the each, rights (4)There the rights oppression, of those and duties were acts of fraud are precisely they say they what are. The or malice the defendants suffi- majority opinion any indicates that suit cient justify punitive an award of upon such a transaction must be based damages to Mid-America. alone, particularly contract when I would judgment affirm the of the trial condition which occurred is foreseen court based jury awarding verdict remedy contract provided. with a If is $270,000for the unauthorized disclosure and state, correct of statement the rule in this belonging use of trade Mid- agree is, and I then remedies other- America. available, wise in tort either or con- tract, are moot issues. HENDERSON, (dissenting). Justice DUNN, (dissenting). Justice case, involving This a commercial tort of I dissent the majority opinion. from I alleged an disclosure and unauthorized use would hold that there is credible evidence to impression of a trade is one of first support jury verdict majority for this court. I dissent from the Marketing Corporation. Mid-America (1) opinion grounds on the that: Plaintiff’s Our sufficiency review the evi- improve design idea to and function of dence on appeal involves consideration of electrically heated bonnet used in the the evidence and inferences derived industry to facilitate chemical light evidence in the most favorable to novelty human hair was of sufficient upholding Engberg the verdict. v. Ford secrecy to conform definition of a Co., Motor 87 S.D. N.W.2d secret; (1973). (2) implicit trade We in confidential appellants’ will consider evi- dence as amplify, insofar it tends to existed clarify explain evidence support Industries, defendant-appellant, jury Nugent Quam, verdict. 82 S.D. Inc., duty was a not to disclose (1967). fact, N.W.2d 371 In we must detriment; (3) plaintiff’s secret to Da- assume that all conflicts in testimony kota, breach of its confidential relation- were the respondent’s resolved in favor ship plaintiff, trade se- jury. Noah, Hannahs v. 83 S.D. conspired cret to which both 158 N.W.2d 678 appropriate to and did their own use. mind, With these standards of review in summary A well-stated of trade secret there is ample support in the record protection, recognized juris- number of in a jury to conclude that: dictions, opinion contained in (1) Mid-America together and Dakota Jersey: Supreme Court of New produced product between Decem- may A trade secret consist of a formu- 27,1974, 27,1975, ber which la, process, compilation device or legally protectible a trade as gives one uses in his and which business secret. opportunity him an to obtain an advan- Between tage competitors over who do not know 1975, Dakota disclosed the trade se- subject it. use Its matter cret to LaMaur breach its con- public knowledge must not be a matter of fidential relationship with Mid- general within the indus- America, and thus both Dakota and . . try. Although . a substantial appropriated

LaMaur the trade se- exist, cret measure of the secrecy their own use must secre- without consent of cy Mid-America. need not be absolute and disclosure to employees involved in its use will not $250,000 damages Actual totaling ordinarily employer’s pro- result in loss were sustained Mid-America as a Novelty result . . . and invention appropriation of defendants’ tection. of the trade secret. are not essential for the trade secret as

427 acknowledged this beauty industry, . . And in the patentability. are for advertising. in its enthusiastic was ingredient known to own So every the fact that novelty and benefits of LaMaur about controlling for the industry is not bonnet, in a it was advertised that com- may consist of the method of beauty magazine as a “scientific” national bining produces product them which breakthrough.” Although “dynamic and superior competitors. to that of any that there was LaMaur later denied Rideout, Corporation 16 N.J. Dial v. Sun bonnet, about the thing novel or inventive (1954), 29 108 A.2d 445 aff’d advertising “poetic as dismissing its own 361, 102 (1954). N.J.Super. (empha A.2d 90 license,” Bur v. F. the court Schonwald added) sis Co., 7, 13 Mfg. 356 Mo. S.W.2d kart to the level of Trade secrets need not rise (1947), such similar contentions addressed novelty patent in the law and invention advertising contrary: on to the Koehring Company Etnyre sense. v. E. D. new, not Although abstract idea was (N.D.Ill., Company, F.Supp. & warrants a we think that the evidence 1966). may A of a trade secret consist conceived and finding plaintiff that process clearly anticipa or which is “device concrete method of developed specific prior merely ted in the art or one that is this application his own for the use and improvement.” mechanical Futurecraft re- accomplish abstract a definite idea Corp. Clary Corp., Cal.App.2d sult, ingredients namely: to use available (1962). Cal.Rptr. 198 The information in of canvas shoe type to make a certain formulating entirely it need not be un it believed showed that sole. Defendant known, or, it, as one court stated the field something product was this method and virginal. Engine not be need Fairchild & new, by widely advertis- useful and novel Cox, Airplane Corp. Sup., 50 N.Y.S.2d sole,” new ing it as a “sensational (1944). every It matters not that creation,” definitely original “an [“] formula, device, ingredient process, hardly posi- in a improvement.” It is compilation industry. is known to the A con- that the evidence tion now to claim may trade secret consist of a method of exactly the that it was clusively shows combining any pro ingredients such as to to and plan product known same product superior competi duce a to that of sup- (Emphasis by many others. made Asso., Alpine Geophysical tors. Bolt Inc. v. plied.) Asso., Inc., F.Supp. (D.N.J. competitive ad- LaMaur was aware 1965). would have over vantage product depict This case does not a situation no There can be industry. others process widely where the is so device or was of sufficient doubt this bonnet known that it could be considered to be in novelty and invention to conform public’s general store of information. definition of a trade secret. simple This is evidenced fact that the examined is whether The next area to be products then not de market were to indicate was sufficient evidence there signed capable performing, providing nor such informa communicated benefits, solving problems of this design production tion for the this bonnet could. Plaintiff conceived the defendant, under an bonnet to the electrically idea for an heated bonnet limiting its express would, totally within a enclosed environ disclosures Confidential use or disclosure. ment, apply an even distribution of heat capa person who is to a include disclosures temperature and moisture at best suit invented. manufacturing the device ble of process Laboratories, ed to break down the hair and 279 U.S. Becher v. Contoure applied during chemicals all of the various 73 L.Ed. 49 S.Ct. representative types beauty met with Dakota’s treatments. capacity had the company engaged solely in the manufactur determine if Dakota con he had product that products for use manufacture the nationwide sale of admission, changed. By had not the terms representatives, ceived. With these he dis sketches, agreement, Dakota specifications, subsequent his that closed “only through drawings. agreed system to market the These included: the size of the bonnet; plaintiff” plaintiff was to act as “sole” required wiring electrical provide marketing agent system. would even heat distribution bonnet, throughout including specific Additionally, confidentiality of their hairline, wiring along prob a definite relationship may be from what chemicals; temp lem area in transpired preparatory trip to Dakota’s erature to be maintained inside of the bon May Minneapolis to visit LaMaur on net; capable preventing thermostat meeting plaintiff between 1975. At temperatures; shape fluctuation of recognition of and in May Dakota on necessary provide the bonnet the en see their mutual interests an effort to that closed environment and seal off outer protected, plaintiff imposed were a number air; heavy and the necessary insulation restrictions, conditions, or limitations prevent allow heat maintenance and dissi negotiations Dakota in its * pation. At the time Bachmeier accepted and which Dakota representa this to he informed the agreed. Those items parties to which both tive that “he did not want this matter agreement was to be included that no spread around town.” reached; granted be LaMaur was not to rights; plaintiff’s exclusive distribution necessary plaintiff It is not to show marketing representatives pro- were to be expressly agreed that Dakota not to use for; compensated plaintiff vided was to be by plaintiff; information disclosed to it LaMaur; and for its orders turned over to dealings parties may between the imply an techni- there to be no discussion of the agreement confidentiality. as to Brown v. cal details of the bonnet. Fowler, (Tex.Civ.App.1958). 316 S.W.2d 111 case, In this plain- between principle The cases have made clear the tiff and Dakota obligation was such that an may by dealings parties that such not to disclose the information known to give confidential rela implication rise to a the two of them about the bonnet can read- principle legal conclusion tionship. This is a ily be inferred. recognizing practices in the need for ethical Telechron, the commercial Inc. v. world. example, For after the disclosures about Parissi, 1952); (2nd 197 F.2d 757 Cir. the bonnet were made to Dakota Bach- Corp., 190 F.2d Schreyer v. Casco Products meier, plaintiff February and Dakota on (2nd 1951); Seismograph Cir. Service 21, agreement executed an under Corp. F.Supp. 342 Raydist, v. Offshore agreed which Dakota it would manu- (E.D.La.1955); Kuhnau, 232 Or. Kamin facture and sell the ThermoChem Process- 374 P.2d 912 ing System (the bonnet) only plaintiff agreed buy that it would is whether point The next to be addressed system only from agreement Dakota. That used or disclosed this trade secret created a mutuality obliga- injury of interest and violation of the confidence and to the tion between parties. plaintiff. argue those two The defendants admitted that displaying took at a number of of the bonnet plaintiff into publication, their confidence industrial and that shows constitutes created parties “mutual trust” between from mis- which bars action thereafter point. later, at Over pur- appropriation two months of the claimed trade secret. secret, however, suant to a second contract into does entered be- Publication of a trade parties tween the misappro- who liability not affect the of one trust, situation of mutual priates during Dakota’s own the information the course of * Marketing Corporation, assigned rights corpora- President of Mid-America who his to said tion. relationship. disclosing a confidential Franke v. Wilt- confidence in secret, trade schek, (2nd 1953). 209 F.2d 493 Cir. Fur- court is not empowered resolve the issue ther, it matters not LaMaur whether could principles under of contract. gained knowledge have its study from the however, The majority opinion states, bonnet display. of the The fact is that it of the eventual sale the bonnet to third Rather, not. gained did LaMaur it from parties was within included the terms anof Dakota via Dakota’s confidential relation- appendix 2,May to the 1975 contract be- ship plaintiff. with As a result of Dakota’s plaintiff Dakota, tween theorizing relationship, confidential Dakota incurred a recovery under implied contract will not lie. not duty to use the trade information out, however, It pointed must be plaintiff’s Dakota only detriment. not provision in majority opinion referred to turned over specifications the technical of only play came into termination of but, LaMaur, the bonnet addition, said parties. contract At the continued to manufacture them for by sale time misappropriated plaintiff’s LaMaur. Plaintiff never has received secret, trade contract not been ter- compensation for its interests in the bonnet. by minated as its defined terms. The ma- is duty This Dakota breached. jority opinion states that termination was According great weight of authori- triggered plaintiff when did not fulfill the plaintiff ty, in an actión for breach of requisite number of orders in the calendar involving confidence a trade secret has the e., quarter, 12,500. The quarter, i. calendar burden of proving (1) three elements: Pos- however, elapsed had not between the session of knowledge or information which agreement betrayal and Dakota’s on June is novel generally known, e., and not i. 20, 1975, when Dakota disclosed the bonnet secret; (2) Communication of this specifications to LaMaur. Nor would knowledge or information to the defendant elapsed have at the time an express under implied lim- finally which Dakota LaMaur entered iting its defendant; use or disclosure into a agreement providing written Use or of disclosure bonnet, manufacture and sale mak- or information so obtained in violation of ing compensation no plain- the confidence the injury and to of the acknowledgment tiff nor of its interest plaintiff. Wilkin Corporation, v. Sunbeam it. (10th 377 F.2d 1967); Cir. Venn v. Goedert, Consequently, the time this cause at (8th 1963); 319 F.2d 812 Cir. E. W. arose, type action be said that this Company Struthers-Dunn, Inc., Bliss it cannot (8th 1969); expressly was includ- parties F.2d sale to third Tatge Cir. Mann v. Co., Chemical ed within Kan. 440 P.2d the terms (1968); Chemicals, Basic Benson, negates an interpret Inc. v. contract. To it as such (Iowa 1977). 251 N.W.2d 220 proving necessary element the offense. implied of an contract allegation Plaintiff’s disclosing The essence of a trade secret is must within context un- be considered Wiltsehek, a breach of faith. Franke at brought: der which the action supra. necessary emphasize at this the time its confidential Dakota breached point that plaintiff elected to sue in tort involving relationship the trade under this theory, such, not in contract. As understanding, express there was an either the contracts plaintiff entered into between implied, limiting using such consequence and Dakota are in so plaintiff’s information detriment. The as they far prove necessary tend to ele- record Dakota knew or should reveals that ment of such tort: there was an ex- have information known that concern- press agreement between the ing freely not to be dis- parties, the bonnet was which limited Dakota’s disclosure or provid- of this closed to other concerning use sources. information the bon- Once such breached properly net. information alleged has proved plaintiff. an actionable tort for breach confidential aff’d, (Sup.Ct.1959), also contends that LaMaur and 15 A.D.2d 226 N.Y. Dakota conspired to misappropriate (2d 1962). Dept. S.2d 1021 trade secret. The record indicates that jury complex resolved the issues in plaintiff’s LaMaur was aware of interest plaintiff. favor of the The trial court’s the bonnet. On several occasions LaMaur instructions, although not framed in negotiated plaintiff had get with exclu- above, phraseology exact were sufficient rights sive distribution to the In jury adequately determine: fact, acknowledgment plain- LaMaur’s plaintiff relationship confidential tiff’s interest is seen from its inclusion in its Dakota; through with their mutual proposed June 13 contract between itself endeavors, plaintiff developed a and Dakota Dakota, provision calling for the writ- trade secret within the framework of that plaintiff ten consent agreement. to the relationship; and that Dakota confidential Plaintiff did not consent proposed breached with its confidential contract which many contained of the same plaintiff by disclosing the trade secret provisions plaintiff had on earlier addition, to LaMaur. In the trial court’s rejected. occasion The contract made no proper respect instructions were with compensation whatsoever Dakota, together whether plaintiff for its interest in the bonnet ac- conspired appropriate to indeed quired by reason of its efforts and the secret to their own use. conception bonnet’s development. Not- reviewing In the record and the authori- withstanding plaintiff’s sign refusal said regarding protection, ties trade secret I feel contract, Dakota forwarded the manufac- proving has met the burden of turing specifications By to LaMaur. late June, required in a three elements breach plaintiff, without the consent of La- bonnet; involving confidence a trade secret. It is Maur had tested the written and printed judgment for this reason I affirm the pamphlet instruction would on the cus- bonnet; jury tomer’s use of its ver- arranged the trial court based placement $270,000 awarding of an advertisement in a dict for the unauthorized beauty magazine national announcing belong- disclosure and use of a trade secret new bonnet. Pursuant to a contract en- plaintiff.

tered into between Dakota and LaMaur on

July August, late LaMaur had 13,623

already compensa- sold bonnets. No

tion paid has ever been plaintiff.

LaMaur did not receive the manufactur

ing specifications from an untainted source. plaintiff’s knew of interests in the bon STATE of South net. parties, Third who use a trade secret Respondent, with knowledge confidence, of a breach of equally

are person liable with that who disclosed such Emery information. A. H. SMITH, William P. Defendant Co. v. Marcan Corporation, Products 268 Appellant. F.Supp. (S.D.N.Y.1967). also, 289 See Stone 12567. No. Goss, 65 N.J.Eq. A. 63 L.R.A. (Ct.Err. App. 1903); Lamont, & Corliss Supreme Dakota. Court of South & Co. v. Bonnie Corp., Blend Chocolate Misc. Argued May 1979. (Sup.Ct.1929); N.Y.S. Friedman v. Corp., Stewarts Credit 26 N.Y. Decided (Sup.Ct.1939), aff’d, S.2d 529 App.Div. (2d Dept. 1941); N.Y.S.2d 533 Min

nesota Mining Mfg.& Tape Co. v. Technical

Corp., 23 Misc.2d N.Y.S.2d

Case Details

Case Name: Mid-America Marketing Corp. v. Dakota Industries, Inc.

Court Name: South Dakota Supreme Court

Date Published: Aug 16, 1979

Citation: 281 N.W.2d 419

Docket Number: 12085

Court Abbreviation: S.D.