Full opinion text
YANKWICH, Chief Judge. The Complaint in this case is denominated “Unfair Competition; Piracy of Trade Secrets and Labor”. In essence it seeks relief, to be more particularized hereinafter, for alleged violation by the defendants of alleged trade secrets consisting of methods of production of silicon rectifiers. I The Issues As Framed By The Pleadings The plaintiff, Sarkes Tarzian, Inc., to be referred to as Tarzian, is an Indiana corporation with its principal offices and facilities at Bloomington, Indiana. It is engaged in the operation of local radio and television stations and the manufacture and sale of components for electronic equipment, including silicon rectifiers. The defendants include Audio Devices, Inc., to be referred to as Audio, a New York corporation, the second largest manufacturer of recording tape and accessories and recording discs in the United States with its principal office in New York City and manufacturing plants in Connecticut. Audio also engaged in the manufacture and sale of an electronic component known as a silicon rectifier at its office and plant in Santa Ana, California. Eight individual employees of Audio’s Rectifier Division, formerly employed by Tarzian, are also named as defendants. The Complaint filed November 1, 1957, alleges, in substance, that the plaintiff, as the result of a large expenditure of money, acquired by purchase and development confidential, restricted and secret data, production know-how and information which it utilized in its business of manufacturing and selling silicon rectifiers; that each of the individual defendants had knowledge of such trade secrets; that Audio “conspired” with the individual defendants by employing them, to deprive plaintiff of such trade secrets and to deprive plaintiff of the advantage which it had over its competitors. In view of the discussion to follow it is well to note the names and positions occupied at Tarzian by its former employees who are named in the Complaint: George J. Eannarino was Director and Manager; Robert C. Parsons was Research Engineer; Frank Olesky was Production Supervisor; Hubert G. Dohmen was Technical Supervisor, Products Crystal Group; Charles C. L. Smith was Chief Quality Control Engineer; Clarence William Chesnut was Mechanical Technician; Frederick G. Schuller was Division Cost Accountant; Ernest C. Fries was Purchasing Agent. The relief asked by the plaintiff is as follows: 1. That the defendants be enjoined from utilizing any of the information mentioned in paragraph VIII of the Complaint in connection with the manufacture, sale, development or other exploitation of selenium or silicon rectifiers; 2. That defendants be enjoined from disclosing to any person whomsoever any of the restricted, confidential and secret information mentioned in paragraph VIII of the Complaint; 3. For an accounting of all profits resulting from the manufacture, use or sale of silicon rectifiers; 4. For money damages in the amount of $1,000,000; 5. For $1,000,000 by way of punitive damages; and 6. Costs of suit. The answer, filed December 11, 1957, denied that Audio in any way “conspired” to hire plaintiff’s employees or to deprive plaintiff of its alleged trade secrets and alleges that silicon rectifiers, which are manufactured by more than two dozen companies in the United States in a great variety of structures and characteristics for almost every known electrical application, are well-known devices in the art and the trade. The Answer asserts that the materials and methods, as well as the products, developed at Audio, by its personnel, including the individual defendants, are generally well known in the industry by plaintiff’s competitors and are described in numerous publications and documents, including text books, periodicals, lectures, patents and government reports, all widely circulated in the trade and available to the public. The Answer also contained a counterclaim for unfair competition. As it was discussed at the trial, its contents are omitted. The facts proved will be discussed further on in the opinion. One fact, however, may be adverted to now. Each of the former employees, except Frederick S. Schuller, at some time during the course of his employment signed an agreement relating to trade secrets. A typical one signed by Eannarino is reproduced in the margin. None of the employee-defendants had, at the time of their separation from Tarzian’s employ, August 8, 1957, a term contract, all being employed from month to month. II Trade Secrets And Unfair Competition This is a diversity action. Although for unfair competition, it is not pendent to a patent, copyright or trademark infringement. There is a disagreement among the writers and courts as to whether a federal action for unfair competition has been created by "the Lanham Act. In view of the decision of the Supreme Court in Erie Railroad Co. v. Tompkins, it is certain that the type of unfair competition for which recovery is sought in this action is, under the law of the Ninth Circuit, concededly governed by state law. In California, unfair competition is proscribed by statute. Because the California statute refers disjunctively to unfair or fraudulent business practices, the courts have held that it is not necessary to prove fraud. Unfair competition, under the law of California, may arise from unauthorized disclosure of secret practices. This accords with the general law. The 'Restatement says: “Unless otherwise agreed, after the termination of the agency, the agent; “(a) has no duty not to compete with the principal; and “(b) is subject to a duty to the principal not to use or disclose to third persons, on his own account or on account of others, in competition with the principal or to his injury, trade secrets, written lists of names, or other similar confidential matters given to him only for the principal’s use or acquired by the agent in violation of duty. The agent may use general information concerning the method of business of the principal and the names of the customers retained in his memory, if not acquired in violation of his duty as agent.” The concomitant to this rule is given in another Restatement: “One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if “(a) he discovered the secret by improper means, or “(b) his disclosure or use constitutes a breach of confidence reposed in him by the other in disclosing the secret to him, or “(c) he learned the secret from a third person with notice of the fact that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his duty to the other, or “(d) he learned the secret with notice of the facts that it was a secret and that its disclosure was made to him by mistake.” In the comment on this section two definitions are contained which are pertinent to the discussion to follow. The first is the definition of a trade secret: “A trade secret may consist of any formula, patterns, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or list of customers.” As to secrecy, the same comment states: “The subject of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Substantially, a trade secret is known only in the particular business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to others pledged to secrecy. Others may also know of it independently, as for example, when they have discovered the process or formula by independent invention and are keeping it secret. Nevertheless, a substantial element of secrecy must exist, so that, except by the use of improper • means, there would be difficulty in acquiring the information. California has for many years recognized the right of the employer to customer lists. This was established in the laundry route cases, the earliest of which dates to 1913 and the latest of which were decided in 1957 and 1958. But in enforcing the rule, California courts have insisted that the list be of a character which is secret,— that is names of customers who have been acquired, through solicitation, over a particular period of time. So that where it appeared that the buyers are persons, such as wholesalers, whose names are readily known to the trade through directories, trade catalogues or otherwise, an employer’s list which duplicates them is not necessarily secret or confidential. However, if the employee, through long association with them, learns of their buying habits, he will not be allowed to use such additional information to the disadvantage of the former employer. What is a trade secret is difficult to define. However, on the whole, it must consist of a particular form of construction of a device, a formula, method or process that is of a character which does not occur to persons in the trade with knowledge of the state of the art or which cannot be evolved by those skilled in the art from the theoretical description of the process, or compilation or compendia of information or knowledge. Illustrative of such a situation is a leading California case wherein a person had been in the employ of an industrial corporation and its predecessor engaged in the manufacture of wood tanks, cooling towers and other industrial wood specialties for a period of 35 years. During a major portion of such period he was field superintendent, in which capacity he supervised the construction jobs of his employer and had access to their books, patents and engineering data. After terminating his employment, he began operating his own concern with his son, manufacturing tanks and cooling towers of the type manufactured by his former employers. Although the court was of the view that there was evidence to show that “the business of constructing towers is extremely complicated and difficult and is dependent upon formulas developed by technically skilled engineers through long periods of trial and error,” and that the defendant “had a wealth of general experience which was the primary asset of the new concern,” nevertheless, the Court held that an injunction was properly denied, saying: “In the absence of uncontradicted evidence of respondents’ having utilized appellants’ confidential processes and trade secrets the demands of appellants were properly rejected. To grant the relief prayed for by appellants would virtually operate to deprive respondents of their right to pursue a gainful and lawful occupation in the field for which they are equipped by virtue of Eskil Johnson’s almost half century of service in his field. This, equity cannot do. Every person is as free to pursue any calling he may choose as to possess any property he owns. He may compete fairly with his former employer for the patronage of former customers. Continental Car-Na-Var v. Moseley, 25 Cal.2d 104, 110, 148 P.2d 9. “Injunction is not available to an employer to restrain a former employee if the alleged secrets are not in truth secrets. Scavengers Protective Association v. Serv-U-Garbage Co., 218 Cal. 568, 24 P.2d 489. It follows, therefore, from a review of all the evidence that, whether the processes asserted by appellants to be their own or whether they were invented by respondent Eskil Johnson, respondents will not be disturbed in their use of them.” (Emphasis added.) The Supreme Court of California, in a later case, made an identical ruling. There, the court rejected the contention that, in soliciting a former employer’s customers, the employee used the employer’s cost methods, in estimating maintenance, saying: “ ‘Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret.’ Rest., Torts, § 757, com. b. No evidence was introduced which tended to prove that Aetna used any unusual or secret material or equipment. On the contrary, the evidence shows that it regularly tested products of general use in the trade to determine which best suited its purposes. “According to Aetna, its procedure for estimating the price of a new contract, was a trade secret. However, no evidence was introduced tending to prove that Aetna had developed a secret, or even improved, system of making estimates. The very most which is shown by the evidence is that Aetna utilized a highly efficient system designed to meet competition and avoid losses. Of necessity, any competitor in the business must consider all of the factors which entered into Aetna’s computations. There is a total absence of any showing that the method of making estimates are secret, or that West was informed of any claim of secrecy. Under these conditions, West was privileged to use ‘methods of doing business and processes which are but skillful variations of general processes known to the particular trade.1 Rest., Agency, § 396, com. b.” (Emphasis added.) The writer expressed the same view in a ease in which, although finding that the employee infringed the employer’s invention, he was not guilty of unfair competition in soliciting orders for his device from certain airplane manufacturers, because the use of the particular product was confined to airplane manufacturers working in the particular field. Ill Breach of Trust In view of the extensive jurisprudence in California, there is no need to refer in detail to other cases, state or federal, which have been referred to and discussed in the briefs and arguments. Reference to some of them is given in a footnote, with indication to the law of the State under which they were decided. Differences between state and federal decisions on to unfair competition relate, to a great extent, to degree. At all times, the aim of all courts in applying the concept has been to enforce “increasingly higher standards of fairness or commercial morality in trade.” Commenting on this expressed aim, the Court of Appeals for the Third Circuit has stated: “In any situation where the law is in the growing stage it is not to be expected that the advance in all courts will be simultaneous. Furthermore, when the final outcome on a given set of facts may vary, not with the legal concepts involved, but their application to particular states of fact, the pattern is inevitably less clear than in cases where a definite rule is to be applied.” California recognizes a right of action for inducing a breach of contract of employment by unlawful means. Indiana does not seem to sanction such action. More, regardless of any contract of employment, the tort of which the plaintiff complains,— the disclosure of their trade secrets,— occurred in California. For that reason also, California is the place of the wrong: “The place of wrong is in the state where the last event necessary to make an actor liable for an alleged tort takes place.” And, as already appears, under the law of the Ninth Circuit, the law of California will govern. This principle works into the general pattern of this branch of the law of unfair competition. And whether the courts consider the wrongful acquisition of trade secrets a violation of a property right or not, in the last analysis, the essence of it is a violation of trust. As stated by Mr. Justice Holmes: “Therefore the starting point for the present matter is not property or due process of law, but that the defendant stood in confidential relations with the plaintiffs, or one of them. These have given place to hostility, and the first thing to be made sure of is that the defendant shall not fraudulently abuse the trust reposed in him. It is the usual incident of confidential relations. If there is any disadvantage in the fact that he knew the plaintiffs’ secrets, he must take the burden with the good.” Later cases have stressed this as the basic act which constitutes the tort. In a ease already referred to the Court said: “Plaintiffs do not assert, indeed cannot assert, a property right in their development such as would entitle them to exclusive enjoyment against the world. Theirs is not a patent, but a trade secret. The essence of their action is not infringement, but breach of faith. It matters not that defendants could have gained their knowledge from a study of the expired patent and plaintiffs’ publicly marketed product. The fact is that they did not. Instead they gained it from plaintiffs via their confidential relationship, and in so doing incurred a duty not to use it to plaintiffs’ detriment. This duty they have breached.” It is this breach of duty which the court protects, regardless of any specific contract undertaking the obligation of secrecy. But in applying the concept the law bears in mind the fact that prior employment of a person does not impose upon the employee, in the absence of a contract limited as to time and location, the duty not to compete with his former employer. The Supreme Court of California has stressed this point in a noted case. In that case the plaintiff, an Indiana corporation, engaged in the business of manufacturing, producing, buying and selling compounds for finishing, cleaning and treatment of floors and of tools and appliances used for the purpose, and maintained an office in Los Angeles. From 1932 to March 31, 1941, the defendant Moseley was the District Manager under a written contract which he terminated on the latter date. The defendant, Franzus, a chemist, was employed in Indiana from September, 1934, to July, 1936, after which and until 1946 he was employed by Gerson-Stewart Corporation, an Ohio corporation. Prior to March, 1941, Moseley, Franzus and a person from the GersonStewart Corporation formed a corporation which acquired the Brobiek Manufacturing Company, a concern doing business in Los Angeles. The corporation was formed in March, 1941, under the name of Gerson-Stewart Pacific Corporation and began its business on April 1, 1941, the day following the termination of Moseley’s contract with the plaintiff. On March 20, 1941, the defendants Moseley and Franzus mailed a form letter to a large number of the plaintiff’s customers advising them that Moseley was leaving the plaintiffs’ employ and would in the future be Sales Manager for the defendant corporation. Later Moseley and the new corporation solicited a large number of plaintiff’s customers “to eighteen of whom they sold merchandise of the new corporation, the purposes of which products were the same as those of the products manufactured and sold by plaintiff in the territory.” Plaintiff sought damages and injunction against the defendants’ use of the customers list and alleged trade secrets. Judgment was in favor of the plaintiff for damages and injunction which enjoined the defendants from “using or divulging any trade secrets regarding the composition of the products manufactured or sold by plaintiff.” The judgment was reversed. The higher court determined that the defendants had a right to engage in the same business as the plaintiff, saying: “Equity will to the fullest extent protect the property rights of employers in their trade secrets and otherwise, but public policy and natural justice require that equity should also be solicitous for the right inherent in all people, not fettered by negative covenants upon their part of the contrary to follow any of the common occupations of life. Every individual possesses a form of property, the right to pursue any calling, business or profession he may choose. A former employee has the right to engage in a competitive business for himself and to enter into competition with his former employer, even for the business of those who had formerly been the customers of his former employer, provided such competition is fairly and legally conducted,’ (Emphasis added.) Of necessity, whenever a change of employment of this type occurs and former employees enter into the employ of another with whom they engage in a competitive business, it is inevitable that some of the knowledge acquired while in the employ of the other should be made available to the new employer. But, as already appears, the courts will not deprive the employee of the right to use the skill he developed through the years This view accords with a recent decision arising under Michigan law. In that case the plaintiff, while acting as distributor for the defendant developed an industrial type of stacking basket made of wire which he later patented. The defendant devised and used a somewhat similar basket. The plaintiff claimed that he had disclosed the construction of the basket to the defendant under a pledge of secrecy. Although conceding that there was similarity between the two baskets, the Michigan Supreme Court refused to see a trade secret in the disclosure. On the contrary, they ruled that matters readily ascertainable could not be the subject of a trade secret, saying: “It is clear that although ‘for this limited protection it is not appropriate to require also the kind of novelty and invention which is requisite of patentability’ (Restatement, Torts, § 757), nevertheless, the law does not protect knowledge so general as to be common property in the trade. Ellis on Trade Secrets (§ 244) states the principle with accuracy in these terms:- “ ‘* * * where the idea was well known or readily ascertainable, the courts will rule that there is no legally recognizable trade secret. In other words, the discloser must treat the recipient of the disclosure equitably. That means that he cannot take advantage of the recipients ignorance of facts well known or readily ascertainable.’ ” (Emphasis added.) It is noteworthy that the Supreme Court of Indiana in a recent case cites with approval the following statement from a Maine case: “ ‘ * * * (W)hile an employer, under a proper restrictive agreement, can prevent a former employee from using his trade or business secrets, and other confidential knowledge gained in the course of the employment, and from enticing away old customers, he has no right to unnecessarily interfere with the employee’s following any trade or calling for which he is fitted and from which he may earn his livelihood and he cannot preclude him from exercising the skill and general knowledge he has acquired * * or even instructions while in the employment. Public policy prohibits such undue restrictions upon an employee’s liberty of action in his trade or calling * * * ’ ” So there is agreement among the courts that, except, where real trade secrets are involved, an employee may compete with his former employer and use such knowledge and skill as he has developed in the former’s employ. This accords with the main object of a free economy which is the basis of our industrial system. The Court of Appeals for the Ninth Circuit in dealing with the problems of unfair competition, even insofar as they relate to trademarks and tradenames, has stated: “The law encourages competition not only in creativeness but in economy of manufacture and distribution as well.” (Emphasis added.) IV Epitome of Accepted Principles The principle which places an employee under obligation, whether expressed in a contract or not, not to divulge any of the trade secrets of his employers is, as already appears from the preceding discussion, a part of the law of unfair competition. As such, whether there is a breach on the part of the employee or others, is a question of fact. However, from the preceding discussion, certain principles emerge which may be considered accepted law, both under California law relating to the subject and the general law as applied in both state and federal cases. They may be stated briefly in the following manner: Notwithstanding the duty of secrecy between the principal and agent, 1. An employee may, after retiring, compete with his former employer in the same business or even for the same custom; 2. There is no tort if, by legal means, one induces an employe to sever his employment with another; 3. The employee may announce to the trade his intended separation from the business of his employer and intention to enter into competition with him either by himself or with others; 4. He may solicit his former employer’s customers, if the list is of the type which is known to those engaged in the business and was not developed as a result of long cultivation and solicitation by the employer; 5. Trade secrets must be “the particular secrets of the employer as distinguished from the general secrets of the trade in which he is engaged”. For this reason, secrets acquired and developed as a result of long employment in the particular trade may be carried over and put to use by the new employer and for oneself; 6. Trade practices, to come within the obligation of secrecy must be secret. While they need not amount to invention, in the patent law sense, they must, at least, amount to discovery. It follows that matters which are generally known in the trade or readily discernible by those in the trade cannot be made secret by being so labelled in an agreement. The reason is obvious. As stated in a case from the Fourth Circuit: “The provisions of the contract which we have quoted cannot reasonably be interpreted as an agreement by defendants not to use machines or processes in use by persons other than plaintiff; for it would be absurd to designate as a confidential disclosure that which is publicly known. It is not sufficient, therefore, for plaintiff to introduce general testimony to the effect that Arthur had the idea of drying potatoes by the use of hot air and that defendants were given the benefit of his ideas while helping to build his machine. Plaintiff must show that he disclosed to defendants matters which were peculiar to the process and machine which he was developing- and not common property, and that defendants used these in building their machine, and not merely devices and processes which were open to the public.” This is but carrying into effect the principle declared many years ago by the Supreme Court of the United States that to constitute a trade secret there must be discovery. And there is no discovery when one skilled’ in the art develops a process for effecting certain desired results. In the case of an employee, the attitude of the courts is that expressed by a New York-court that “equity has no power to compel a man who changes employers to wipe clean the slate of his memory.” V Preliminary Factual Considerations Before considering the main issue which is whether the defendants violated the trade secrets of the plaintiff by concert of action between Audio and the individual defendants who were former Tarzian employees, we advert to certain matters which can be disposed of with great brevity: 1. No Enticement. As stated at the end of the trial, there is no evidence of enticement of the plaintiff’s former employees by Audio. Audio is the second largest company engaged in the manufacture of recording tape and discs in the United States with its principal office in New York City and manufacturing plant in Connecticut. The plaintiff, Sarkes Tarzian, prior to 1955, had engaged in the manufacture of selenium rectifiers. Desirous of engaging. in the manufacture of silicon rectifiers, in 1955, it purchased the plant of the Silicon Corporation of America and removed it to Bloomington, Indiana, where it established its rectifier division. Some of the personnel, including George B. Finn, came along with the project. Silicon, as already appears, is the second most common mineral in the world. Consequently, products which use it as a base have the advantage of an ample supply of the mineral in its original form. By the middle of July 1957, the rectifier division of the plaintiff was producing a rectifier which could be sold, in large quantities, at 88^. In the middle of July the defendant Eannarino, who at that time was Director-Manager of the division, entered into negotiations with Audio to interest them in the production of silicon rectifiers. After certain negotiations, Audio invested some $800,000 in new money which was secured through the sale of treasury stock in the purchase of a plant at Santa Ana, California, which they equipped with machinery, materials and stock and trade, for the production of silicon rectifiers.' The evidence shows that some $200,000 in additional money has been invested' and that as of early December 1957 they were producing about 4,000 rectifiers a day. At or about the same time these were offered to the trade at 83^. As of now, no profit has been realized by Audio. Tarzian is a closely held family corporation, controlled by Mr. and Mrs. Tarzian. No employees, regardless of position, had any interest in its profits. And it was Eannarino’s complaint that the provision in the five year contract which terminated in 1954, whereby he was to receive 5 per cent of the profits, was never fulfilled. He was unhappy about the situation and sought to interest others in the field, feeling that there were no patents or trade secrets involved. When Audio became interested he asked the other seven employees who are named defendants to join him in the new venture. Reference has beeen made to them as being “key personnel”. I doubt if the appellation is correct considering the large number of persons employed by Tarzian and the complete control of the corporation by the Tarzian family. But even if it applies to the particular rectifier division, as the defendant-employees had no term contracts, they were just as much within their, rights as Tarzian was, under both Indiana and California law, to terminate it by the shortest notice. Much is made of the fact that no disclosure of intention to leave was made and that Eannarino even accepted an advancement a few days before tendering, his resignation. This is unimportant. In one of the leading California cases already referred to the key employee continued his employment until one day before the new corporation with which he became associated began business. He even sent out written announcements of his future engagement before leaving his employ. The California court could see nothing extraordinary in this. Indeed, in our free, economy, social mobility is a chief characteristic. An employee who is dischargeable at will is under no obligation to treat his employer otherwise or with more consideration than he can be treated by him. It follows that, as Eannarino had a right to leave at will, his arrangement with the other employees and with Audio did not amount to a conspiracy on their part or on the part of Audio. The promised pay increase is not out of line with the type of. increases which skilled employees seek when they change employment. The fact that Eannarino was given an option to purchase a certain amount of Audio stock, 25,000 shares, at a fraction less than market, $7.76 per share, is easily and reasonably explained by Audio: They felt that as he was to be in charge of a unit of production he had the type of responsibility which warranted encouraging him in acquiring stock in the corporation. Mr. William C. Speed thus described Eannarino’s proposed work: “The crystal rectifier company out here in Santa Ana, although a division of Audio Devices, is run on an almost autonomous basis. George Eannarino is in charge of manufacturing, in charge of personnel, or at least he has people under him. In effect, he is — in effect and not in fact, he is the president of a small company out here in Santa Ana and then he has a plant manager of some kind under him and a production manager under him and I don’t know what all. “So his job, though subordinate to my own, is very parallel or very similar to the plant manager in Stamford.” At any rate, as he was to pay for the stock, the value of which would increase only if the company and the unit he headed prospered, no ominous implication can be drawn from the option contract. So I find that the individual employees’ separation from Tarzian was for legitimate business reasons and not the result of conspiracy betwen them, with or without Audio. As already stated, this is not a case in which someone has reaped, in the language of Mr. Justice Pitney, “the harvest of those who have sown.” Audio has invested large sums of money in endeavoring to establish this new division. And while the plaintiff may still be entitled to recover for the detriment suffered, the situation before us is not that of a person who, without expenditure of money of its own, seeks a “free ride” through the unprivileged appropriation of value created by another. Audio is a manufacturer of high precision instruments. There has been no attempt to simulate the Tarzian product or to hold out their product as that of anyone but themselves. While the device they manufacture, because of its nature, must be of a certain size, it does not look like the Tarzian device. And the only indicia it carries are those common to the trade showing the type of radio or television device it can replace. 2. Audio’s Equipment. Much was made at the argument of the fact that the equipment ordered for the new plant corresponded to equipment in use at Tarzian and was ordered from their suppliers. But the evidence is overwhelming that these were not machines built to specifications, but machines for pulling crystals, slicing crystals, dicing crystals and performing all the other steps necessary to the production of this device which are advertised in catalogues by nationally known firms who sell them either from stock or modify them to suit the particular needs of a manufacturer. They were not a secret source of supply open only to Tarzian which he could bind his employees not to disclose to others. There is no evidence that any of the employee-defendants took with them any blueprints, written data or invoices. The evidence as to the disappearance of a so-called “security file” is nebulous. No one has traced it or its contents to any of the defendants. Indeed, there is no evidence as to its contents. Stress is laid on the fact that before entering the business Tarzian purchased the Silicon Company of America (Silcoa) paying $160,000 for it. The establishment was admittedly not a financial or manufacturing success, and was promptly dismantled and moved from New York to Indiana. There are no details showing what the investment represented. It brought to Tarzian some key personnel as of January 1, 1956. But what knowledge they brought with them appears to have been acquired while in the employ of others, such as Sylvania. Tarzian may have deemed it to its interest to buy a complete “set-up” in order to go into the silicon rectifier business. This does not mean that others or even their own employees could not have duplicated it, without a purchase. Finn and his associates may have driven a good bargain, Tarzian a bad one. This does not mean that Eannarino and others, after they left their employ, could not carry on and use the knowledge they had acquired as to the sources of supply and the like which were known to the trade and not just to Tarzian. Nor can it be contended that because of this initial expenditure, these employees could not, in the future, assist another employer in duplicating the establishment and its equipment by paying for it, not to Tarzian, but to the manufacturers and suppliers who sold the machinery, materials and stock in trade to all comers. These matters are grouped together because they are, in my opinion, the causes of the irritation responsible for the strong feeling existing in this case that manifested itself in the attempt of Tarzian to stop the defendants by injunction, even before the Audio rectifier division was established in California. Granted that this may have been done, as stated by counsel, to “put them on notice”, the question remains, especially in view of the frank statements of the employees to the press when they severed their relations with Tarzian, that they did not intend to carry to the new employers any trade secrets of Tarzian, Why not wait and see ? The truth is that Tarzian was actually under the erroneous impression that he was entitled to a monopoly in the low price field of rectifiers. Unless his process of manufacture was a trade secret as defined in the preceding discussion, he was no more entitled to keep out competition in that field than Henry Ford Sr. was entitled to prohibit Chevrolet and other manufacturers of automobiles in the low price field from entering it by paralleling his assembly line methods. There is ample evidence that at or about the time of the entry into the field by Audio, other manufacturers were offering silicon rectifiers in large quantities at or about the same price as Tarzian. As these were manufactured chiefly for use in their own radio and television sets, they may not have been interested in outside custom. That they are now cannot be traced to Audio’s entry into the field. But even if it could be, it would not amount to unfair competition. A rival company has a right to choose its time to enter an open field and may draw from other employers persons who possess the skill acquired in the field. 3. The Problem, of Damages. The testimony as to damages is nebulous. Granting that loss of profits through reduction of sales and price may be an element of damage, the plaintiff, in a case of this character, must show, as in an antitrust exclusion case, not only the reduced sales price but the gross profits which could have been realized after deducting the expenses for conducting the business. While the testimony of Tarzian which places $100,000 on the value of a license plus 5 per cent of the profits as the value is not contradicted, it may be disregarded if it does not carry conviction. Certainly, the fact that Western Electric, with all its vast research facilities, offered a license under its own process for $25,000 is very significant. And while it was claimed that negotiations carried on for possible licensing were discontinued when this litigation began, contemporaneous letters exchanged between Tarzian and the would-be licensees indicate that the reason for the rejection was the onerous conditions which Tarzian sought to impose on licensee for what, as will ultimately appear, was not a secret process at all. Of course, even in the absence of proof of damages injunction may still issue provided that Tarzian had a trade secret which was taken from them and used, even though so-far profitlessly, by the defendants. Our conclusion, to be amplified in what follows, is that Tarzian had no trade secret. VI No Trade Secrets Violated In stating the grounds for the conclusion just announced, we shall not go into a detailed analysis of the voluminous record in the case. We shall confine ourselves to stating the conclusion we reached as to the dissimilarity between the two processes. The court will respect the understanding that the detailed outline of the forty-three steps furnished under seal shall not be revealed. I believe that this can be done by outlining the essential steps which are necessary in the construction of a rectifier and involve no choice of alternatives. I should begin by saying that the art only dates to June 25, 1948, when Dr. William Shockley of the Bell Telephone Laboratory filed an application for what is known as a transistor which he described as “Circuit element utilizing semi-conductive material.” The patent was issued on September 25, 1951. A rectifier is a device used to change alternating current to direct current. It permits miniaturization of radio and television sets, — achieving the rectification required in an electrical circuit previously accomplished by larger devices, such as the selenium rectifier. The devices here involved are very small. They take the place of tubes or rectifiers made of more expensive material which previously accomplished this function. Silicon, as already stated, is second most abundant element in the fourth group of the periodic system chart of the elements, established by Dmitri Ivanovich Mendelejeff in 1868. Silicates are the chief constituents of “any rocks, clays and soils”. Because of the abundance and cheapness of silicon, the use of its crystals for the making of rectifiers commends itself to the industry. Very revealingly, counsel for Tarzian in the opening statement disclaimed any discovery on the part of Tarzian to the rectifier as a device or to primacy in the use of silicon. His statement is reproduced in the margin. So the question comes down to just this: Has Tarzian developed a production process which is such a deviation from what was known and taught in the art that it has acquired a secret which its former employees were entitled to respect, contract or no contract, and Audio could not appropriate to itself? The answer to the question can be reached only if we analyze the steps which must be taken by anyone in order to manufacture a silicon rectifier. They are, in substance, as follows: (1) the acquisition of silicon crystals by purchase or the pulling of a crystal from silicon, (2) the test of the crystal, (3) the preparation of a crystal by slicing, (4) the etching of the crystal to insure uniformity, (5) the selection of certain material to use in the alloying process and the use of appropriate equipment for that purpose, (6) the mounting of the junction, (7) the treatment of the surface, and (8) the encapsulation. These processes are the same and must be followed without deviation by anyone who manufactures a silicon rectifier. The experts of the defendant, Dr. Ben Alexander and Dr. J. Earl Thomas conceded that these were the essential elements. There is no need to refer in detail to their testimony. Some of it will be referred to further on in the discussion. The experts for the plaintiff, Mr. Arthur J. Warner and Dr. Virgil Bottom conceded this to be generally true although they tried to avoid the consequence of the admission by claiming that Tarzian did things in an unorthodox manner. Whether a method is or is not orthodox does not determine its validity as a secret. It is whether it is unique and unknown in the trade that is important, or whether there is discovery in selecting between alternative steps. For these reasons the answers of Dr. Bottom to the court’s question constitute an important admission. They are reproduced in the margin. An analysis of the literature and especially of five exhibits indicates that these steps and the alternative choice of materials to use were generally known in the art late in 1957 and earlier. These reports teach not only the steps to be taken in the manufacture but also the methods to be applied and the choice of materials to be used in effecting th etching, alloying, soldering and encapsulation. It is very significant that in a general catalogue published by Du Pont in July 1957, and distributed generally to the trade, the various steps for constructing transistors and rectifiers are given. This, as a means of advertising the types of silicon they desired to sell. The introduction states: “Hyperpure silicon in semiconductor and solar cell grades is produced in commercial quantities by the Pigments Department of E. I. du Pont de Nemours Co., Inc., Hyperpure silicon is extremely pure; impurities are measured in parts per billion. It is manufactured expressly for use as a semiconductor in transistors, rectifiers, diodes, solar batteries and related devices * * * important products of the electronic industry. “The need for Hyperpure Silicon arose when a group of scientists headed by Dr. William Shockley of Bell Telephone Laboratories announced the invention of the transistor in 1948.” The manner of achieving junction in silicon is described in detail. The page is reproduced in the margin with numerical indication of the step in the process we have outlined above. All these reports antedate the separation of the employee-defendants from Tarzian. The last Henkels report is of a later date. But a study of the article shows that the literature he was giving was the entire literature which had grown up since the Shockley discovery. So what he was stating was not something new which he had discovered on the day of publication but what the art taught. And the dates of the numerous references confirm this clearly. As this is an equity case, it must be decided on the state of the record as it exists on the date of the decree, and the court may find the facts as they exist then without supplemental pleadings. But even if we confine ourselves to dates preceding it is quite evident that Tarzian did not use anything that was a secret in the art at the time the employee-defendants left its employ. Even assuming that, at the beginning, one of the processes, the surface treatment bath, as testified to by Frank Olesky, corresponded to the process used at Tarzian, it has now been abandoned. And even if its use were still going on, we could not, under the doctrines of de ■minimis and injuria absque damno, try to evaluate and base equitable relief on it. More, as indicated, it was not a secret. In brief, one who claims a trade secret cannot fix a rigid date. If a process rises to the dignity of a valid trade secret more than a difference of a month or so is necessary to turn it from a trade secret into a matter of general knowledge within the trade. This is especially true when there is no patent involved. For a patent may, from the moment of its issuance, make what had been a secret process a patentable process dating back to the date of the application. VII The Audio Process Today The Audio processes used today show the following deviations from the Tarzian methods: 1. Crystals: Audio originally obtained crystals from Du Pont already oriented. From these they grew their first crystals, on plane 1-1-1 (111). They now purchase some crystals from Knapic Electrophysics. The crystals they now pull are formed from N-type (or Grade 2) silicon. , These crystals cost less “than for Audio to pull them”. Audio does not use any Latini equipment. Their seed holder is completely different. So are their water cooling system and flanges. Parsons stated: “The differences between Sarkes Tarzian pullers and these are fairly numerous. . “The drive, a rotation mechanism, is completely different. The screw and half nut device to lower the seed into the melt on the Audio Devices’ pullers are completely different. “The design of the water cooling flanges we feel are different. “Q. Well, is there an internal system for water cooling? “A. Yes, These flanges are water-cooled internally. I believe Sarkes Tarzian, the flanges at Sarkes were much more bulky, had external and internal cooling. “The arrangement of the seal is different. The platform which the lower flange is resting on is completely unlike that of Sarkes Tarzian. It is supported on two pillars or posts as compared to a rack drive at Sarkes Tarzian. “I think those are some of the major differences.” Audio does not use Solar Grade silicon. Nor do they dope silicon. Tarzian doped with “solar cell material” which contains “roughly 1,000 times the N-type donors that the high grade material contains”. Their speed of rotation is 1 to 3% RPM, Tarzian’s is % RPM. Audio’s maximum speed of withdrawal is 3% inches per hour, Tarzian’s is 6 inches per hour. And Audio uses a 25 kilowatt induction heater, a standard Westinghouse R.F. generator, while Tarzian uses 10 kilowatt and 15 kilowatt heaters, in connection with the crystal-puller. 2. Cutting Dice: Audio’s first cut is longitudinal to form a slab rather than a wafer. The slabs are cut of about 115 to 118/1000th in widths. As a result, the major surface of each die. is in the 111 plane. No plastic or resin is applied between the first and second Audio cuts. Audio removes all the wax with hot sulfuric acid. Tarzian uses Fotocol or alcohol first. Audio’s sulfuric acid cleaning is followed by washing in acetone. 3. The First Etching: Audio etches to size with 3-8-0 hydrofluoric acid-nitric acid mixture. Tarzian uses 1-5-0. Audio’s etching time is variable and is determined by previous measurement of dice size. They do not use a transfer tray from here through the remainder of their process, Tarzian’s process is based on the use of a transfer tray. The importance of the change was thus stated by Petrosky: “Q. Is this transfer jig thereafter used in the process up to and including the step of encapsulation? A. Yes, it is. “Q. So that the units remain in the transfer jig for the remainder of the process up to and including the encapsulation? A. The transfer tray is used as a means of material handling and the units stay m there until certain operations are done throughout the process. “Q. Up to and including the final encapsulation and sealing operation ? A. That is correct.” This is a “mass-production” and “labor saving” technique. 4. Checking: Audio’s dice thickness is controlled to 8/1000ths of an inch plus or minus l/1000th. This is 11 per cent thinner than Tarzian’s which is 9/1000ths plus or minus l/1000th. Audio makes acceptable quality limits check: the dice found to be less than 7/1000ths are not used. r & r; . ’ ‘ . . . (1) Audios composition for alloying m graphite alloying boats or jigs is different. (a) One per cent gallium, plus or minus % per cent, the balance aluminum. Tarzian s is 3 per cent gallium, 97 per cent aluminum. ^ _ (b) Audio’s volume of tin to Al-G is 4:1, Tarzian’s 5:1. There is no conical recess at the bottom of Audio’s jig holes. Tarzian has conical or “relieved” hole at bottom, which is tapered. (2) Temperature — Audio’s alloying temperature is 905° C., Tarzian’s 960-970° C. (8) Vacuum — Audio attains a vacuum down to or less than .001 microns, Tarzian .01 microns, (4) Equipment — Audio uses a 6 inch bore on the diffusing pump. Tarzian a four |nch. The larger bore aids “the pump down time considerably.” (g) Qvm Speed_Audio’s equals 0.46 inch per minute which equals 27 inches per hour, Tarzian’s equals 36 to 38 inches per hour. The Miowing colloquy between the Court and Petrosky throws light on the choice involved in the use of devices for alloying: “The Court: Isn’t it true with regard to alJ of thege precision toolS; while there may be a standard nevertheless you ask the manufacturer to adjugt it tQ your own par. ticular operation. That being true the manufacturer takes what is a standard tool and adjusts it to your particular needs so it would fit your particular operation. Is not that true ? “The Witness: Yes. “The Court: In other words, there are pullers, and there are all sorts of things. I see invoices for a^ sorts of tools, which are ordered at some indicated sizes, and the like, Isn t that true ? “The Witness: Yes, your Honor, In the case of the alloying furnaces, we had this man come out, and we told him just exactly what we wanted! and he told ug what he could do, and then he went away and designed these things and sold them £0 us_ “in the case of the slicing and dicing equipment, basically the people that supplied us with the siicing and dicing equipment built the machine around a very high class surface grinder. However, they had to confer with us, and we spent a lot of engineering time, and so on, so they redesigned it to do this particular operation, and they developed it in that way. “The Court: That is right. “The Witness: Actually in the case of the slicing and dicing machines, I believe we bought six of them, and I think we paid in the neighborhood of $7,000 or $7,200 apiece for them. “The Court: Apiece? “The Witness: — where originally a piece of that equipment would have sold for perhaps $4,500. “The Court: $4,500. It is the same when you deal with all precisión items. Like if you are in a laboratory, and you want a special type of microscope, the company that sells microscopes may sell them for general use, and if you want a special one for high precision , ,, ... , . n „ work, they will make one specially » • , . , for you; isnt that true? “The Witness: That is true. “The Court: But in its essence it conforms to what the standard thing would be, except it is reduced so as to fit your operation. “The Witness: Yes, it is modified. “The Court: Modified. I am sorry. You got the better word. It is modified.” 6. Soldering: (1) Audio’s etching jig is different from Tarzian’s. For this reason, no transfer tray can be used. (2) Flux Audio uses a much larger amount of flux, one drop per unit, applying it individually with a hypodermic needle to get it in the center . Tarzian uses it very sparingly and applies it by spraying it onto the welding fixture with an atomizer, at 3 or 4 feet. (3) Base Audio s outer plate is of silver, Tarzian s of nickel. (4) Jig — Audio’s jig is made of aluminum, Tarzian’s of graphite. 7. The Second Etching and the Associated Binsing Procedure: (1) Audio’s schedule is different in 6 of the 7 steps of the second etching, having in common only the use of a NaOH and HNO3. (2) Surface Treatment — Audio uses acidified sodium citrate solution PH6-4, Tarzian uses alkaline sodium carbon-a^e solution PH10-12. (3) Silicon Varnish — Audio applies it with a hypodermic needle, so as to “put a head of varnish on the junction”. Tarzian dabs a whole tray with a pad. 8. Encapsulation: The Audio encapsulation is a welded seal by which “the rectifier cap or hat is put on”. Tarzian encases in a threaded ceramic body. No silicon grease is used by Audio. Tarzian fills with silicon grease the open end of the insulating bodies to cover the junction before final encapsulation. p> ToM Production Time: ... ,. .. Audio s total production time is 40 , hours, Tarzian s about 20 hours, VIII Confirmation of Audio Process From Other Sources What precedes is a correct summary of the testimony given by witnesses Olesky and Parsons and the deposition of Petrosky, who were in charge of the process. And in grouping the facts we have followed, with modifications, the framework of the outline inserted into the record by counsel for the defendants as a part of their ,closing argument. They have been checked as to detail against the record and modified and ampliñed as required. They are confirmed by the testimony of Dr. J. Earl Tbomas. What may be called the major differences were stated by him in this manner. ’ "To my mind they are similar m one respect in which there is a choice, and in that they are similar to a number of other processes and they are different from a number of others, and that is in the use of a tin-aluminum alloy. “Now, they are very, very different in three major respects. One of them is the orientation of the silicon wafer. “The Court: To the 1-1-1 plane? “The Witness: One of them is the ■use of a tantalum wafer to provide .an electrode contact. And instead of a spring contact that provides a much better contact in the Audio rectifier and enables the Audio rectifier to carry a higher surge current than the Sarkes Tarzian rectifier. And the last is the use of a true hermetical seal on the Audio rectifier as opposed to the screwed-together ceramic capsule of the Sarkes Tarzian rectifier. “I think those are the major ■differences — the use of a 1-1-1 plane in the Audio rectifier should have a very strong effect on the yield in the process. “The Court: So that in your view they should, using the language of patent law, they result in a better result? “The Witness: The Audio rectifier should be better than the Sarkes Tarzian rectifier in my opinion. “The Court: And perform the same function, however? “The Witness: Perform the same function but perform it in a superior fashion. “The Court: All right. “Q. By Mr. Reddy: Dr. Thomas, in respect to those steps in the process which must necessarily or logically should be done by a manufacturer, making a silicon rectifier, an alloy junction rectifier of this type, what steps do you feel do exist that are similar as to which there are no real alternatives ? A. The growth of the crystal, of course, is the first one. “The resistivity and conductivity type checks. The second, the fact of cutting dices. The third, of course, the particular orientation — ■ there is a choice. “The assembly of the rectifier in some kind of a jig to hold it during alloying. “As I have stated there is no choice. One may have a choice as to the type of jig but one must assemble in some kinds of jig. One must alloy in some kind of furnace. “One must solder the rectifier to the base. There is no choice. “Up until very recently there was no choice in the matter of etching. In the last few months I have heard that it is now possible with extreme laboratory type conditions to avoid that step. “I doubt that it will be possible in production but time will tell. Testing the characteristics of the rectifier, there is essentially no choice. One might very studiously avoid using an oscilloscope for making the check but he would simply be hamstringing himself by making the' test too difficult. “The required step of encapsulation. There is no choice but of course the method of encapsulation is different. “Q. Is the method of encapsulation at Sarkes Tarzian and Audio Devices different? A. Quite different. “Q. Quite different in your opinion? A. As different as two methods could be.” Further on in his testimony Dr. Thomas referred to certain minor differences: “Q. Yesterday you testified to some major differences that you observed in the Sarkes Tarzian device — Sarkes Tarzian process and Audio process. “In the course of your observations of the Audio process at the plant are there other differences of some significance you have observed. A. Yes, the design of their hood, for example, is completely different. The design of their etching equipment is completely different. The doping of the crystals that they use as their starting material is completely different. We haven’t mentioned that. “Of course, it has been testified to, but the method of application of varnish to the finished rectifier is completely different. “The method of application of flux to the rectifier is completely different. “The method of soldering the dice to the base of the rectifier is completely different. “The method of removing the wax from the dice is different. “The alloy composition ratio is different. “The etching times are different. “The drying and rinsing procedures are completely different. “Q. Is the soldering operation— does that operation take place in an oven of any kind and particularly in an oven with a moving belt? A. It does not. “Q. Is there any such device as a transfer tray utilized at Audio Devices, Inc.? A. There is not. I think there are other differences. I just can’t pluck them out of the air at the moment.” There is corroboration of this in the testimony of the other expert, Dr. Ben Alexander. As was to be expected, the plaintiff’s experts do not agree. They see uniqueness in the Tarzián process and similarity with the Audio process. There is no need to set forth their views. Suffice it to say that the court accepts as correct the comparison of the two processes and the statement of dissimilarities, as they appear from the testimony and exhibits referred to above. They are also reenforced by an examination of the patents in which the various steps claimed as secrets for the Tarzian process are taught. Summary and Conclusion In a noted opinion Chief Judge Cardozo has stated: “Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but. the p