Full opinion text
THOMSEN, Chief Judge. We have now reached the final stage of this action for patent infringement and misappropriation of trade secrets brought by Carter Products, Inc., Joseph G. Spitzer and Marvin Small (plaintiffs) against Colgate-Palmolive Company (Colgate), namely, the determination and award of damages, profits, interest, fees and costs. History of the Proceedings In May 1955, pursuant to his opinion, 130 F.Supp. 557, Judge Coleman entered a decree in this case: he held that plaintiffs’ patent (Spitzer et al., No. 2,655,480, issued October 13,1953, for a pressurized shaving cream) was valid and had been infringed by defendant Colgate, and that Colgate had also misappropriated certain trade secrets of plaintiffs; he ordered that an injunction issue restraining further infringement of the patent and use of the trade secrets, and requiring Colgate to assign to plaintiffs its rights under two patent applications; he referred the case to Robert W. Williams, Esq., as Special Master, to determine and report on the damages resulting from the infringement of the patent and the damages resulting from and the profits for which Colgate should be required to account because of the misappropriation of plaintiffs’ trade secrets; he reserved for future determination the question whether increased damages should be awarded; he found the case exceptional, held that plaintiffs are entitled to receive reasonable attorneys’ fees to the date of the decree, as well as their costs and taxable disbursements and directed the Master to recommend the amount of such fees. The decree, which had been stayed by supersedeas, was affirmed with one slight modification. Colgate-Palmolive Co. v. Carter Products, 4 Cir., 230 F.2d 855, March 1956, cert. den. 352 U.S. 843, 77 S.Ct. 43, 1 L.Ed.2d 59, October 1956. On November 19, 1956, this court issued the injunction called for by Judge Coleman’s decree, as so affirmed. Thereafter, Colgate filed a motion in the Court of Appeals seeking to be relieved of its stipulation admitting infringement. That motion was denied, 4 Cir., 243 F.2d 163, April 1957. An effort by Colgate to have this court clarify and amplify the decree by changing the accounting period for damages and profits specified therein was likewise unavailing, 151 F.Supp. 427, May 1957. In April 1957 plaintiffs moved for an order holding Colgate in contempt. On that motion this court found that Colgate had actively induced the sale by wholesalers and retailers of 1,600,000 cans of the adjudicated product in violation of the injunction, that any damages awarded for the sale of those cans should be trebled, and that plaintiffs were entitled to recover reasonable attorneys’ fees for prosecuting that portion of their contempt motion. But this court determined that an altered product which Colgate had begun selling in July 1956 did not infringe the patent nor violate plaintiffs’ trade secrets covered by the injunction. 164 F.Supp. 503, July 1958. On Carter’s appeal, the decision with respect to the altered product was affirmed, 269 F.2d 299, June 1959. The proceedings before the Master had been suspended pending the decision of the contempt proceeding, except for the filing by Colgate of certain accounting data. Thereafter, the Master heard testimony, received exhibits, and after argument rendered a careful report, in which he recommended an award of $5,~ 283,341, broken down as follows: The Master’s Recommendations I. Infringement Damages......................... $ 814,685 II. Misappropriation Damages under Par. 12(a) of the Decree.................................... 271,718 III. Misappropriation Damages under Par. 12(c) of the Decree ....................................... 184,155 IV. Profits on General Sales........................ 2,760,902 V. Profits on Specialized Sales..................... 203,165 VI. Recommended Attorneys Fees to May 18, 1955 .... 192,631 VII. To Treble Damages on 1.6 Million Cans.......... 82,800 VIII. Recommendation as to Exemplary Damages....... 773,285 $5,283,341 Both sides have excepted to most of the Master’s recommendations. Before considering the individual items challenged by the respective parties, however, it will be helpful to review some basic legal principles which govern this phase of the case. Some Basic Legal Principles and Contentions of the Parties Rule 53(e) (2), F.R.Civ.P., provides: “In an action to be tried without a jury the court shall accept the master’s findings of fact unless clearly erroneous.” This is- a terse statement of a principle which has been applied by the federal courts for many years. In Tilghman v. Proctor, 125 U.S. 136, 149, 8 S.Ct. 894, 901, 31 L.Ed. 664, the Supreme Court said: “We are then brought to a consideration of the exceptions taken to the master’s report in matters of fact, affecting the accuracy of his conclusions in respect to the amount of those profits, gains and savings. In dealing with these exceptions, the conclusions of the master, depending upon the weighing of conflicting testimony, have every reasonable presumption in their favor, and are not to be set aside or modified unless there clearly appears to have been error or mistake on his part.” As recently as March 1962 the Fourth Circuit said: “We must give great deference to the judgment of the Master in such cases as this which turn in large part upon the credibility of witnesses and on involved questions of accountancy.” London v. Troitino Bros., Inc., 301 F.2d 116, 118. See also Adamson v. Gilliland, 242 U.S. 350, 353, 37 S.Ct. 169, 61 L.Ed. 356; Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 263, 36 S.Ct. 269, 60 L.Ed. 629. Since plaintiffs have not undertaken to prove damages based upon their own loss of sales as a result of Colgate’s wrongful acts, damages for the misappropriation of the trade secrets as well as for the patent infringement may properly be allowed on the basis of a reasonable royalty. Under the present patent statute, 35 U.S.C.A. § 284, plaintiffs are not entitled to an accounting for profits, in addition to damages, for the patent infringement. However, under the case law they are entitled to an accounting for profits as well as damages for the misappropriation of their trade secrets. Accordingly, the decree awarded: damages and an accounting for profits for Colgate’s wrongful use of the 12(a) secret in Rapid Shave No. 1; damages for the patent infringement involved in the manufacture and sale of Rapid Shave No. 2 and Instant Barber Shave, and damages and an accounting for profits for Colgate’s wrongful use of the 12(c) secret in those two products. The problem caused by the interrelation between a reasonable royalty for the use of the 12(a) secret and the profits for which Colgate might be accountable because of its use of that secret in Rapid Shave No. 1 was solved by the Master’s treating the royalty as an added expense in determining profits. The similar problem with respect to Rapid Shave No. 2 and Instant Barber Shave is complicated by the additional element of a royalty for the patent infringement involved in the manufacture and sale of those two products after October 13, 1953, which must be considered along with the royalty for the use of the 12(c) secret therein from the time of their introduction, about July 1953, until they were superseded by the altered products in 1956. The Master treated both royalties as expenses in determining profits. Neither side disputes that principle, but — • Colgate contends: that the royalties recommended by the Master are too high; that the damages for patent infringement should not be doubled; that the facts proved do not justify an award of profits; that the profits were improperly computed by the Master; that the Master should have accepted Colgate’s computation and should have limited any award of profits to those directly derived by Colgate from the use of the particular trade secrets in specific products; and that in any event the entire profits should not be awarded, but only a portion thereof. On the other hand, plaintiffs contend: that the damages for patent infringement should be trebled rather than doubled; that the profits were even larger than those determined by the Master; and that the Master should have included in his recommended award, either as part of the profits or as a separate item, the value of the good will which Colgate built up for its pressurized shaving cream over the years by means of continued and repeated wrongful acts. FACTS The evidence which was considered by the Master and which must be considered by the court at this stage of the case is to be found partly in the record of the original trial before Judge Coleman, partly in the record of the contempt proceedings, and partly in the record made during the hearings before the Master. Many findings of fact were made by Judge Coleman at the conclusion of the original trial and by me at the conclusion of the contempt proceedings. Those facts were summarized in two opinions of this court, 130 F.Supp. 557 and 164 F.Supp. 503, and were adopted with very slight modifications in two opinions of the Fourth Circuit, 230 F.2d 855 and 269 F.2d 299. They need not be repeated here. The Master properly considered those findings to be binding upon him. The evidence taken by the Master developed a great many additional facts relevant and material to the various issues on which he made recommendations. The Master included in his comprehensive report, under appropriate headings, findings with respect to the factual background and the several issues, in which he skillfully blended the material findings theretofore made by the courts with the findings which he himself made. There is little dispute about the basic facts as found by the Master. This court accepts those findings, except as specifically noted in the discussion of the various issues below. A brief summary of the more important facts will suffice at this point. -* Before 1950 the market for shaving cream was relatively stable. In the late 1940’s, however, Spitzer and Small invented the first successful pressurized shaving cream, for which the patent involved in this case ultimately issued, and entered into a royalty agreement with Carter, which spent over $250,000 in development costs, in the hope that the product would eventually take over more than half of the shaving cream market. Carter’s product Rise appeared in April 1950, and was an immediate commercial success. Colgate, the leader in the shaving cream market, had repeatedly failed in its attempts to produce a marketable pressurized shaving cream. In September 1950 Colgate hired Fine, who had worked on the Rise formula while he was ’ employed by Foster D. Snell, Inc. (Snell), a chemical engineering firm which had done much of the development work for plaintiffs. In October 1950, in violation of his agreement with Snell, Fine revealed to Colgate the formula for Rise and other secrets. These disclosures enabled Colgate to produce the first version of Palmolive Rapid Shave, which has been known in these proceedings as Rapid Shave No. 1. It utilized the 12(a) secret. Colgate test-marketed Rapid Shave No. 1 in one city in July 1951 and in three cities in January 1952. It began to advertise and distribute Rapid Shave No. 1 nationally in October 1952. The sales increased rapidly and within eight months that product became the market leader. Despite promises made! to Snell, Colgate continued to use Fine’s services in the development of its pressurized shaving cream business. In' late 1952 and early 1953, after Fine hjad disclosed to Colgate the 12(c) secret, Colgate developed and in July 1953 began to market Rapid Shave No. 2, a superfatted product, which utilized the 12(c) secret and infringed plaintiffs’ patent when it issued shortly thereafter. In April 1954 Colgate used the same formula in Instant Barber Shave. In August 1951 and again in September 1953, Colgate caused to be filed in the name of Fine, alone or with others, applications for United States patents embodying plaintiffs’ secrets which Fine had learned at Snell’s and revealed to Colgate. An application was also filed in South Africa in January 1952. On October 13, 1953, plaintiffs’ patent, Spitzer et al. No. 2,655,480, was issued. Plaintiffs immediately instituted this suit for misappropriation of trade secrets and patent infringement. The trial before Judge Coleman began in November 1954; his opinion upholding the patent and finding Colgate guilty of misappropriation and infringement was filed in March 1955. The decree was entered, after long debate, in May 1955, was suspended pending appeal, and was affirmed with one slight modification in March 1956. Certiorari was denied in October 1956, and this court issued the injunction in November 1956. Both this court and. the Fourth Circuit condemned the misconduct of Colgate and Fine. Shortly after the trial before Judge Coleman, i. e. in the spring of 1955, Colgate decided to alter the formula of its superfatted products to avoid both the patent and the trade secrets by substituting two aliphatic hydrocarbons for the Freon propellants, and by using a single superfatting agent, which was only mildly effective, in place of the three superfatting agents (excess stearic acid, petrolatum and carbowax), which constituted the 12(c) secret. Colgate began to manufacture the altered products in May 1956, and by July 1956 they were on sale under the same names and the same dress as the adjudicated products, Palmolive Rapid Shave and Colgate Instant Barber Shave. Colgate gave no notice to the public in its advertising or otherwise that there had been any change in the composition of the products. When the injunction issued in November 1956 some 1,600,000 cans of the adjudicated products were still in the hands of wholesalers and retailers. In violation of the injunction Colgate took no action to prevent the sale of the adjudicated products; rather, it induced their sale by its indiscriminate advertising as part of its continuing campaign to maintain the market leadership which it had seized by means of its repeated wrongful acts of misappropriation and infringement. In the contempt proceedings, referred to in the opening paragraphs of this opinion, it was held: (a) that any damages ultimately awarded for the sale of the 1,600,000 cans should be trebled, and that attorneys’ fees should be allowed plaintiffs for prosecuting that portion of their contempt motion; but (b) that the altered products which Colgate began selling in July 1956 did not infringe the patent nor violate plaintiffs’ trade secrets covered by the injunction. From the evidence which was presented to the Master, he made the following findings with respect to accounting periods and sales. Other findings and recommendations of the Master are set out or referred to in the discussion of the several points in dispute. The Accounting Periods Fixed by the Decree Rapid Shave No. 1 was sold from July 1951 to July 1953. Rapid Shave No. 2 was sold from July 1953 until after the injunction of November 20, 1956. Instant Barber Shave was sold from April 1954 until after the injunction. The accounting period for patent infringement damages (see par. 9 of the decree) begins October 13, 1953, the date of the patent, and ends with the last sale of any adjudicated product. The accounting period for trade secret damages and profits (see par. 14 of the decree) begins with the first sale of an adjudicated product in 1951. It ends for Rapid Shave No. 1 (the 12(a) product) on October 13,1953, when the patent issued and the formula for that product was made public. It ends for Rapid Shave No. 2 and Instant Barber Shave (the 12(c) products) with the last sale of such products. Colgate’s General Sales of Adjudicated Products Before After Patent Patent Total Rapid Shave No. 1.... $2,716,013 ! - $ 2,716,013 Rapid Shave No. 2.... 1,208,088 13,294,804 14,502,892 Instant Barber Shave.. - 2,649,510 2,649,510 Totals $3,924,101 $15,944,314 $19,868,415 In addition to the general sales of the adjudicated products, all of which were made in the United States, Colgate made various types of sales which they classified as “specialized sales”. These included industrial sales, United States export sales from the United States factories, shipments to foreign subsidiaries and branches, goods manufactured abroad and freight claims sales. These specialized sales totaled between $1,000,000 and $1,500,000 for the period 1952-1956, inclusive, most of which was composed of foreign sales of Rapid Shave No. 2 and Instant Barber Shave during the years 1954-1956. The specialized sales were treated separately by the Master, and will be treated separately in the opinion, in a section of the Discussion headed “Specialized Sales”. DISCUSSION Index Page A. Damages — Royalties.................................... 393 Patent Infringement (Item I of the Master’s Recommendations), Misappropriation of 12(a) Secret (Item II), and of 12(c) Secret (ItemIII). B. Profits ............................................... 394 (Items IV and V of the Master’s Recommendations) 1. All or Part......................................... 394 The Nature of the 12(a) Secret....................... 395 The Nature of the 12(c) Secret...................... 395 Law- — Apportionment, Burden of Proof .............. 397 Application of Law to Facts.......................... 398 2. Computation of Profits.............................. 400 (a) Overhead ...................................... 403 ■ (b) Selling, Warehousing, Shipping and Administration Expenses ...................................... 403 (c) Advertising .................................... 404 (d) Research and Development Expense.............. 405 (e) Income Tax.................................... 406 (f) No Offset for Losses on One Product Against Profits on Another .................................... 406 (g) Credit for Loss Periods — General Sales of Same Product ....................................... 406 3. Good Will ......................................... 407 4. Profits on General Sales............................. 409 (Item IV of the Master’s Recommendations) 5. Specialized Sales ................................... 411 (Item V of the Master’s Recommendations) C. Increased Damages for Patent Infringement............... 412 (Items VII and VIII of the Master’s Recommendations) D. Attorneys’ Fees........................................ 413 (Including the Attorneys’ Fees Embraced in Item VI of the Master’s Recommendations) E. The Court’s Awards.................................... 416 F. Interest............................................... 416 G. Costs ................................................. 418 A. DAMAGES — ROYALTIES (Items I, II and III of the Master’s Recommendations, set out above) Plaintiffs have not attempted to prove their damages, either for the patent infringement or for the misappropriation of their trade secrets, upon the basis of their own loss of sales. Their damages for both wrongs may therefore be based upon royalties. When that measure is used, the court will ordinarily adopt an established royalty, if one is proved; otherwise the court will determine a reasonable royalty from all relevant circumstances. Dowagiac Mfg. Co. v. Minnesota Moline Plow Co., 235 U.S. 641, 35 S.Ct. 221, 59 L.Ed. 398; Duplate Corp. v. Triplex Safety Glass Co., 298 U.S. 448, 56 S.Ct. 792, 80 L.Ed. 1274; Swan Carburetor Co. v. Nash Motors Co., 4 Cir., 133 F.2d 562, cert. den. 320 U.S. 762, 64 S.Ct. 36, 88 L.Ed. 454. The royalty rates charged to other manufacturers by plaintiffs for the use of their patented invention after the patent had issued were proved. That evidence does not amount to proof of an established royalty, but was properly considered by the Master in determining the reasonable royalty rate which he recommended in connection with the patent infringement. No established royalty for either of the trade secrets was proved. The Master set out in his report the controlling legal principles, paragraphs 23-36, the circumstances existing at the various relevant times, paragraph 37A-Y, the opinions of the expert witnesses called by the respective parties, paragraphs 38-65, and the reasons for his conclusions, paragraphs 66-91. It is not necessary to repeat that material here. It is sufficient to say that the Master’s findings of fact with respect to reasonable royalties are not clearly erroneous, that he applied proper legal principles, and that I agree with and accept his recommendations. The Master recommended: 1. A royalty of 10% of Colgate’s net sales of Rapid Shave No. 1 for the use of the 12(a) secret therein — Item II of the Master’s Recommendations, $271,-718. 2. A royalty of 5% of Colgate’s net sales of Rapid Shave No. 2 and Instant Barber Shave in the United States after the patent infringement, for patent infringement — Item I of the Master’s Recommendations, $814,685. 3. A separate royalty of 1% of all Colgate’s net sales of Rapid Shave No. 2 and Instant Barber Shave, for the use of the 12(c) secret therein — Item III of the Master’s Recommendations, $184,-155. B. PROFITS (Items IV and V of the Master’s Recommendations) Paragraph 14 of the decree awarded to plaintiffs, in addition to damages, any profits which Colgate has made by reason of its misappropriation of plaintiffs’ trade secrets. Three questions or groups of questions with respect to the accounting for profits must be decided: 1. Whether plaintiffs are entitled to recover all or only part of Colgate’s profits from the sale of the adjudicated products. 2. Whether the court should accept the computation of Colgate’s profits submitted by Colgate, and particularly Colgate’s allocation of expenses to the adjudicated products; or should make the adjustments thereto recommended by the Master, which reduced the expenses allocated to the adjudicated products and increased the recoverable profits; or should make other adjustments greater or less than those recommended by the Master. 3. Whether plaintiffs are entitled to an allowance — as part of the profits or otherwise — for the momentum of good will which Colgate built up in the adjudicated products in violation of plaintiffs’ rights, and which it was able to transfer in large measure to the altered products when they were introduced in the second half of 1956. The following basic principle affects the decision of all three questions: A misappropriation of trade secrets entitles the injured party not only to a reasonable royalty, but also to an award of profits on the basis of “unjust enrichment”, because it is a “breach of confidence”, a “species of fraud”. Reynolds v. Whitin Machine Works, 4 Cir., 167 F.2d 78, at 86, 87. In effect, the courts treat the wrongdoer as a trustee who must be made to hand over the proceeds of his wrong. As Justice Holmes said in a case of unfair competition involving the improper use of a trademark: “To call the infringer an agent or trustee is not to state a fact but merely to indicate a mode of approach and an imperfect analogy by which the wrongdoer will be made to hand over the proceeds of his wrong.” L. P. Larson, Jr., Co. v. William Wrigley, Jr., Co., 277 U.S. 97, 99, 48 S.Ct. 449, 72 L.Ed. 800. See also Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 405, 406, 60 S.Ct. 681, 84 L.Ed. 825, a plagiarism case. The trustee analogy has been applied in other trade-mark cases, and was applied in some but not all patent cases arising under the former statute. See Hamilton-Brown Shoe Co. v. Wolf Bros., 240 U.S. 251, 259-262, 36 S.Ct. 269, 60 L.Ed. 629; Westinghouse Electric & Mfg. Co. v. Wagner Electric & Mfg. Co., 225 U.S. 604, 32 S.Ct. 691, 56 L.Ed. 1222; Century Distilling Co. v. Continental Distilling Corp., 3 Cir., 205 F.2d 140, cert. den. 346 U.S. 900, 74 S.Ct. 226, 98 L.Ed. 400. The analogy appears to be regularly applied where the award of profits is based upon a misappropriation of trade secrets; no authority to the contrary has been found; and in any event, the principles enunciated by the Fourth Circuit in Reynolds control the accounting in this case. 1. All or Part Are plaintiffs entitled to recover all or only part, and if the latter, what part, of Colgate’s profits from the sale of the adjudicated products, by reason of Colgate’s use of the 12(a) secret in Rapid Shave No. 1 and of the 12(c) secret in Rapid Shave No. 2 and Instant Barber Shave ? Initially, we must consider the extent to which the use of the trade secrets contributed to the commercial success of the several adjudicated products, the legal principles which govern the apportionment of profits, and the application of those principles to the facts. The Nature of the 12(a) Secret - The 12(a) secret was described in the decree as follows: “(a) By combining the trade secret of the formula of the soap solution in the plaintiffs’ product ‘RISE’ with diluted Colgate lather cream to make ‘RAPID-SHAVE NO. 1'.” The Master found that before Colgate misappropriated the 12(a) secret none of its laboratory products constituted a satisfactory commercial product, but that the use of the 12(a) secret enabled it to avoid the defects of its earlier laboratory products, and to produce Rapid Shave No. 1, which had immediate market acceptance; that the secret formula became an inherent, integral part of Rapid Shave No. 1, and was a fundamental element which permeated the product and made it sale-able. The Master concluded that the entire commercial value of Rapid Shave No. 1 can be attributed to the 12(a) trade secret formula incorporated therein, and that if Colgate had realized any net profits from the sale of Rapid Shave No. 1, plaintiffs would be entitled to recover all of them. However, the Master found that Colgate realized no net profits from the sale of Rapid Shave No. 1 after restating Colgate’s accounts: (a) to include in the expenses properly chargeable against the receipts from the sales of Rapid Shave No. 1, the 10% royalty which the Master recommended be allowed for the use of the 12(a) secret therein; and (b) to eliminate from those expenses the items which the Master concluded were not properly included therein. He therefore recommended no award of profits based upon the sales of Rapid Shave No. 1. The conclusions which the court has reached with respect to the several items in dispute also result in a finding that Colgate realized no net profits from the sale of Rapid Shave No. 1. The Nature of the 12(c) Secret The 12(c) secret was used in the adjudicated products, Rapid Shave No. 2 and Instant Barber Shave, from the time those products were introduced until they were superseded by the altered product in the second half of 1956. Since those two products were identical, references to Rapid Shave No. 2 in this portion of the opinion will include Instant Barber Shave. The nature of the 12(c) secret, as well as its importance, is disputed by the parties. The pertinent parts of paragraph 12 of the decree read as follows: “That the defendant Colgate-Palmolive Company has wrongfully and unlawfully misappropriated trade secrets of plaintiff by embodying them in pressurized lather shaving compositions as follows: “ * * * * -x- * “(c) By combining in a pressurized lather-generating composition a soap solution superfatted with petrolatum, carbowax and excess stearic acid, and embodying said secret combination in its products ‘Rapid Shave No. 2’ and ‘Instant Barber Shave’.” Colgate contends that the 12(e) secret “consisted of the use of a combination of three well-known superfatting agents”, whose only function was “to impart a smooth oiliness or emollient feeling to the shave similar to the effect produced by brushless shaving creams”. The quoted words have been taken literally from this court’s opinion, in 164 F.Supp. at 503, but out of context. The question then at issue was whether the use of any one of the three superfatting agents alone was a misappropriation of the secret. We are not concerned with that question now, because all three of the superfatting agents were used in Rapid Shave No. 2. The question here is the extent to which the use of the three superfatting agents contributed to the success of Rapid Shave No. 2. Plaintiffs argue that because the combination referred to in paragraph 12(e) constitutes everything that came out of the can to produce the particular kind of shaving lather that Colgate wanted to sell and its customers wanted to buy, the conclusion must follow that all of the value of Rapid Shave No. 2 resulted directly from the effects produced by including the three specified superfat-ting agents in the combination. This contention goes too far, since it ignores Colgate’s use in Rapid Shave No. 2 of a soap solution and a propellant neither of which was a secret when they were first used by Colgate, although both were covered by the patent which issued shortly thereafter. However, as we shall see, the combination of the three superfatting agents had a broader function in Rapid Shave No. 2 and contributed more largely to its commercial success than Colgate is now willing to admit. The Master found “that the use of the 12(c) secret added a valuable element to the product but was not an essential element to Colgate’s pressurized shaving cream. The value of the 12(c) secret process was that by using the three secret agents with the other elements of a pressurized lather-generating soap solution, a commercially acceptable super-fatted product resulted. It is true that Colgate later developed and marketed an alternative superfatting formula not within the 12(c) secret, and the possibility of doing so has bearing on the value of the secret and what would be a reasonable royalty. However, in 1951 Colgate misappropriated Carter’s super-fatting formula using the three secret agents, and in July 1953 began its very extensive use which was not discontinued until July 1956. This action of Colgate’s indicates Colgate’s 1953 judgment that the misappropriated formula was more desirable than any alternative.” The Master further found that the use of the 12(c) secret ingredients in Rapid Shave No. 2 imparted a smooth oiliness or emollient feeling to the skin similar to the feeling produced by brushless shaving creams, a characteristic which Colgate’s earlier products did not have; that this feature added to the corn-mercial value of each of the products which embodied it, but did not create the entire value of the product, Colgate argues that the emollient effeet produced by the superfatting agents was their only function. Certainly that was an important function and contributed to the commercial success of the product. But it was not their only funcüon, as appears clearly from the patent application filed by Colgate in the name of Fine in 1953, wherein it was stated "that each of the three superfatting agents had specific effects in producing a superior pressure-propelled shaving cream\ Excess stearic acid> one of the ^ ingredients, was said to aid in the stabilization of the emulsion and to exert a creaming effect. Carbowax, another “gredient, was said to aid in controllin^.the viscosity and stability of the composition, to exert added lubricating qualities, and to contribute to the formablon a ^er bubble and better textured Iatber- Petrolatum, the third 12 ingredient, was said to increase the viscosity of the product, to aid m stahlhzm^ the foam> and to Permit easy ^lidin^ of the razor over the beard. It is true, as Colgate argues, that it is possible to produce and sell a commercially acceptable product without the su-perfatting feature, as witness Carter’s Rise and Colgate’s Rapid Shave No. 1. Moreover, Colgate’s altered product, which was introduced in July 1956, did not contain enough superfatting material to have any appreciable emollient effect. The single superfatting agent therein was included for a different purpose. See 164 F.Supp. at 523, bottom of second column. Colgate quotes plaintiffs’ counsel as saying, “It doesn’t make a difference between a good product and a bad one, it makes a difference between a good product and one that is different”. That is true. But as the Master noted in the passage quoted above from his report, from July 1953 to the last half of 1956 Colgate deliberately chose to market products which used the 12(c) secret. Law — Apportionment, Burden of Proof Reynolds v. Whitin Machine Works, supra, 4 Cir., 167 F.2d at 86, 87, stated the basic principles which govern the award of profits in cases involving the misappropriation of trade secrets, but did not deal with the question whether plaintiffs are entitled to recover all or only part of the profits where some factor or factors other than the trade secret also play a part in the commercial success of the product. The parties have relied on precedents drawn from more or less analogous fields- — patents before the 1946 amendment to what is now 35 U.S.C.A. § 284, trademarks and copyrights. The leading case is Westinghouse Electric & Mfg. Co. v. Wagner Electric & Mfg. Co., 225 U.S. 604, 32 S.Ct. 691, 56 L.Ed. 1222, a patent case under the old law which allowed recovery of profits as well as damages. The Supreme Court laid down the following general principles: (1) that the burden is on the plaintiff patentee to prove profits; having done so, he is entitled to all the profits made from .the sale of the infringing articles or devices, unless (2) the defendant infringer assumes the burden of showing that part of the profit is attributable to features other than those 'covered by the patent; (3) when such added features contributing to the profit are shown, it then devolves upon the patentee to prove either what part of the entire profit should be apportioned to the infringing device and what part to the added features, or to prove that the infringer, by commingling the elements, has rendered it impossible for the patentee to meet the requirement of apportionment; and (4) if the patentee introduces proper evidence to show such confusion, it then devolves upon the in-fringer to introduce evidence of a proper apportionment. See the summary of the Westinghouse rules in Levin Bros. v. Davis Mfg. Co., 8 Cir., 72 F.2d 163, at 164. The reasons for the rules were discussed in Westinghouse, which the Supreme Court said “presented a case where the court was called on to determine the liability of a trustee ex male-ficio, who had confused his own gains with those which belonged to the plaintiff. One party or the other must suffer. The inseparable profit must be given to the patentee or infringer. The loss had to fall on the innocent or the guilty. In such an alternative the law places the loss on the wrongdoer.” 225 U.S. at 618, 619, 32 S.Ct. at 695, 696. The infringer in Westinghouse argued that the foregoing rule should not apply to patent cases, but the Court said that “the liability is not lessened because the confusion is due to a wrongful appropriation by a trustee de son tort instead of carelessness of a trustee lawfully appointed. Nor is it limited to those cases where the patented device is shown to have preponderated in the creation of the profits.” 225 U.S. at 619, 620, 32 S.Ct. at 696. The Court went on to say: “ * * * when a case of confusion does appear — when it is impossible to make a mathematical or approximate apportionment- — then from the very necessity of the case one party or the other must secure the entire fund. It must be kept by the infringer, or it must be awarded, by law, to the patentee. On established principles of equity, and on the plainest principles of justice, the guilty trustee cannot take advantage of his own wrong. The fact that he may lose something of his own is a misfortune which he has brought upon himself.” 225 U.S. at 620, 32 S.Ct. at 696. The Westinghouse case has been cited and followed many times. It is still the law, although in a number of patent eases under the old law and in one plagiarism case where it was impossible for either side to show the relative contributions of the several factors, the courts felt that under the particular circumstance of the case it would have been unfair to require the defendant to account for all the profits. Cf. Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 36 S.Ct. 269, 60 L.Ed. 629; Dowagiac Mfg. Co. v. Minnesota Moline Plow Co., 235 U.S. 641, 35 S.Ct. 221, 59 L.Ed. 398; Sheldon v. Metro-Goldwyn Pictures Corp., 2 Cir., 106 F.2d 45, aff’d 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed. 825; Swan Carburetor Co. v. Nash Motors Co., 4 Cir., 133 F.2d 562; Levin Bros. v. Davis Mfg. Co., 8 Cir., 72 F.2d 163; Dad’s Root Beer Co. v. Doc’s Beverages, S.D.N.Y., 94 F.Supp. 121, aff’d 2 Cir., 193 F.2d 77. The Westinghouse rules are the general rules, to be applied unless their application would be unfair. Application of Law to Facts The Master correctly found that the 12 (c) secret added to the commercial value of the products which embodied it, but did not create the entire value of those products; that the ingredients became integral parts of unitary products; that it is impossible to determine from the evidence what part of Colgate’s profits from the sale of Rapid Shave No. 2 was attributable to the 12(c) secret; and that such impossibility arose because Colgate’s books of account were not— and perhaps could not be — so kept as to reveal the part so attributable. Those findings were fully justified by the evidence. They indicate that plaintiffs have met the initial burden resting upon them under the first Westinghouse rule, and that Colgate has gone forward and has shown that a part of the profit was due to features other than those covered by the trade secret, namely, to the TEA soap solution and the particular propellants used therein. So, the next question is whether plaintiffs have met the new burden which devolved upon them under the third Westinghouse rule, to prove either what part of the entire profit should be apportioned to the trade secret and what part to the other features, or to prove that because of the commingling of the ingredients or confusion of the records it is impossible to make an apportionment. The Master found that plaintiffs had met their burden by proving the latter alternative. I agree. It is impossible to make such apportionment, not only because Colgate’s books were not kept to show it, but also because, as the Master found, the superfatting ingredients called for by the 12(c) secret became an integral part of a unitary product and added commercial value to the product as a whole. In other words, Colgate so commingled the elements that it was impossible for plaintiffs to make an apportionment, and Colgate failed to meet the burden which then shifted to it under the fourth Westinghouse rule to introduce evidence of a proper apportionment. From this failure on the part of Colgate, the Master concluded that plaintiffs are entitled to all of Colgate’s profits from the sale of the products embodying the 12(c) secret. In reaching this conclusion, the Master followed strictly the fourth Westinghouse rule, as applied in the Westinghouse case for the reasons quoted above, and as applied in most of the other cases cited. Colgate attacks the fairness of this conclusion, citing the discrepancy between the relatively small royalty recommended by the Master for the use of the 12(c) secret and his recommended allowance of all profits after crediting the royalty for patent infringement and the royalty for the use of the 12(c) secret. Colgate cites Sheldon v. Metro-Goldwyn Pictures, 2 Cir., 106 F.2d 45, aff’d 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed. 825, a plagiarism case, and Swan Carburetor Co. v. Nash Motors Co., 4 Cir., 133 F.2d 562, cert. den. 320 U.S. 762, 64 S.Ct. 36, 88 L.Ed. 454, a patent ease under the old law. In the Swan case Judge Soper said: “But sometimes it is an impossible task to separate the profits due to the patent from the profits due to other causes and in such event it has been broadly stated in some of the decisons that, when the defendant is responsible for the blending of the lawful with the unlawful parts, he must abide by the consequences and account for the entire profits from the infringing sales. This phrasing of the rule, however, has been employed in cases where the infringer has added improvements or changes of his own to the patented structure and has so mingled his contribution with the original that any segregation of profits has become impossible. The burden of separating the profits at his peril, however, does not rest upon the defendant when he uses the patented structure without change as part only of a larger machine and there is no practicable way in which apportionment records may be kept.” 133 F.2d at 566. The controlling principles were stated by Chief Justice Hughes in the Sheldon case as follows: “To call the infringer a trustee ex maleficio merely indicates ‘a mode of approach and an imperfect analogy by which the wrongdoer will be made to hand over the proceeds of his wrong.’ [L. P.] Larson [Jr.] Co. v. [William] Wrigley [Jr.]. Co., 277 U.S. 97, 99, 100 [48 S.Ct. 449, 72 L.Ed. 800]. He is in the position of one who has confused his own gains with those which belong to another. Westinghouse [Electric & Mfg.] Co. v. Wagner [Electric & Mfg.] Co., supra [225 U.S.], p. 618 [32 S.Ct. p. 695]. He ‘must yield the gains begotten of his wrong.’ Duplate Corp. v. Triplex [Safety Glass] Co., 298 U.S. 448, 457 [56 S.Ct. 792, 80 L.Ed. 1274]. Where there is a commingling of gains, he must abide the consequences, unless he can make a separation of the profits so as to assure to the injured party all that justly belongs to him. When such an apportionment has been fairly made, the copyright proprietor receives all the profits which have been gained through the use of the infringing material and that is all that the statute authorizes and equity sanctions.” 309 U.S. at 405, 406, 60 S.Ct. at 686, 687. This is an equitable proceeding, and the weight of authority indicates that the strict rule of Westinghouse should not be applied arbitrarily. Whether an apportionment is to be made in this case should turn on an evaluation of all the facts in the light of the principles stated in Westinghouse and in Reyonolds. Against an allowance of all the profits from the sale of Rapid Shave No. 2 are: The contributions made to the product by the soap solution and the propellants, which were not trade secrets, although they were covered by the patent; and the fact that the Master recommended a royalty of only 1% for the use of the 12 (c) secret. In favor of an allowance of the entire profit from the sales of Rapid Shave No. 2 are: The importance of the 12(c) secret, as shown by the claims made for it in the patent application filed by Fine on behalf of Colgate in September 1953; and Colgate’s deliberate and continuing campaign of deceit, unfair competition and infringement, involving repeated misappropriation of plaintiffs’ trade secrets, which amounted to a breach of confidence, a species of fraud, resulting in Colgate’s unjust enrichment. Reynolds, supra, 167 F.2d at p. 87. Colgate was able to seize leadership in a new and profitable market through the sale, under the name “Palmolive Rapid Shave”, first of Rapid Shave No. 1, which used the 12(a) secret, then of Rapid Shave No. 2, which used the 12(c) secret and infringed plaintiffs’ patent, and finally of its altered product, which was sold under the same name without any indication to the public that the product had been altered, thus enabling Colgate to retain the leadership which it had wrongfully seized. Particularly, it appears from the facts of this ease that when a company enters the pressurized shaving soap field it must expect two or three loss years before its product reaches a profitable basis. Colgate’s repeated wrongful acts resulted in little or no profit from its sales of Rapid Shave No. 1 during the two years it was sold, but very substantial profits from the sale of Rapid Shave No. 2. The good will which had been built up for those adjudicated products was carried over in large measure to the altered product, sold under the same name, so that Colgate was able to begin marketing that product at a profit without undergoing two or three preliminary loss years. In the light of the applicable legal principles, these factors lead the court to approve the Master’s conclusion that there should be no apportionment of profits, but that all of Colgate’s profits during the accounting period should be awarded to plaintiffs. The fairness of this result is supported by the conclusion of both the Master and the court that no separate award should be made for the good will value of the business in pressurized shaving cream which Colgate built up through the manufacture and sale of the adjudicated products. See 3, Good Will, below. 2. Computation of Profits As required by the decree and by the Master, Colgate submitted schedules showing its proposed computation of the profit and loss on each product, year by year. In its calculations Colgate separated its general sales from its specialized sales. The specialized sales constituted only a small fraction of the total sales, and will be dealt with separately under the heading “Specialized Sales”. What follows in this section of the opinion down to that heading deals with general sales of the adjudicated products. Colgate’s calculations, including its proposed apportionment of. fixed overhead and other joint expenses between the adjudicated products and Colgate’s other products, were made in accordance with generally accepted accounting principles for reporting facts to management. Colgate contended before the Master that those principles should control the computation of profits for which Colgate is liable in this case. Plaintiffs attack the accounting method used by Colgate in preparing the schedules, on the ground that it does not fairly reflect all the profits realized by Colgate from its wrongful acts. They submitted to the Master a computation of profits based on the “differential accounting” or “direct costing” method. Plaintiffs do not dispute the amounts received by Colgate from the sale of the several products, nor the total amounts of the several expense items. The dispute is about the proper allocation of expenses in such a case as this. The Master concluded “that the accounting in this case for profits for patent infringement and wrongful misappropriation should be [by] ‘the differential accounting’ or ‘direct costing’ method, wherein the cost of production includes no items which have not directly increased the seller’s cost of production or sale.” He accordingly made a number of adjustments to Colgate’s figures. Some of the adjustments involved differential accounting; some involved the application of other principles. Specifically, he reduced the amounts allocated to the adjudicated products for overhead, advertising, selling, warehousing, shipping and administrative expense, and disallowed the claimed deduction for income taxes. Those adjustments will be discussed individually below, as well as the Masters’ refusal to reduce the amounts allocated for research and development expense. In support of his conclusion that the differential accounting or direct costing method should be used, the Master relied on “the rationale set forth” in the following paragraph from the Restatement, Torts, see. 748, comment i: “i. Apportionment of Costs. If the defendant manufactures several kinds of products and is subject to liability to the plaintiff for conduct with reference to only one of them, there may be considerable difficulty in apportioning the defendant’s costs between that product and the others. The apportionment made on the defendant’s books is not necessarily determinative. Some expenses involve no problem of apportionment because they are incurred only in connection with one kind of goods. Such are, for example, the wages paid to employees working only on that kind of goods. The problem of apportionment arises only with reference to joint expenses, that is, expenses incurred in connection with several kinds of goods jointly. The typical example of such expenses is the overhead or general expense, including rent, heat, power, office expense and the like. Accountants may use one of several methods in apportioning such expenses, the choice depending largely on the needs or convenience of the particular business. But the apportionment in an accounting for profits under the rule stated in this Section is made on a special basis determined by the theory of the liability for profits. The purpose of the apportionment is not business convenience or business policy but an accounting by the wrongdoer for the total gains from his wrongdoing. Consequently the accounting for profits seeks to determine as accurately as possible what part of the joint expenses was incurred in the manufacture or marketing of the infringing goods and what part would have been incurred if the infringing goods had not been manufactured or marketed. If the manufacture and marketing of the infringing goods causes no increase in the general expense, no part of it is to be allocated to them, even though such a practice would be bad from the point of view of cost accounting or business policy. Only when the manufacture or marketing of the infringing goods increases the joint expenses is it proper to allocate a part of them to these goods. If the rule were otherwise, the defendant would be permitted to retain gains made by his own wrongdoing. The apportionment of joint expenses in the absence of such an increase would reduce the cost of the nonin-fringing goods and would thus permit gain for the defendant from his tortious conduct.” Colgate contends that the Master erred in adopting the method of allocation recommended by the Restatement, and that he should have accepted Colgate’s computation. Although it admits that the court is not required to adopt the method which it used, Colgate argues that the court should adopt that method, and that the weight of authority does not permit the use of differential accounting. The particular label attached to the method is relatively unimportant; we must consider whether the controlling authorities require, permit, or prohibit such adjustments to Colgate’s allocations as were made by the Master. The use of differential accounting was specifically approved in Century Distilling Co. v. Continental Distilling Corp., 3 Cir., 205 F.2d 140, 147, a trademark case, because “the use of the differential cost theory made possible the discovery of concealed or incidental profits — in the form of charges which but for the infringement would have been made against the non-infringing part of Century’s business — properly allocable to” the infringing product. The Court found that the defendant’s allocations had been either arbitrary or “matters of interpretative accounting subject to the choice or whim of Century’s accountants”. Differential accounting or some method similar thereto was applied in Levin Bros. v. Davis Mfg. Co., 8 Cir., 72 F.2d 163, and in Sheldon v. Metro-Goldwyn Pictures Corp., 2 Cir., 106 F.2d 45, aff’d 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed. 825, where the Second Circuit said that Levin Bros, stated the correct rule on this point. Defendant relies particularly on the Tremolo case, Tremaine v. Hitchcock & Co., 23 Wall. 518, 90 U.S. 518, 23 L.Ed. 97, a patent case involving an optional addition to organs, in which the Court approved apportionment to the infringing device of all defendant’s general expenses, even though some of them were not increased by the sale of the infringing device. The Tremolo case has been seldom cited by federal courts, and is hard to reconcile with some later Supreme Court decisions, e. g., Sheldon v. Metro-Goldwyn Pictures Corp., supra. In Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 36 S.Ct. 269, 60 L.Ed. 629, the defendant contended that the account, as stated by the Master and confirmed by the Circuit Court of Appeals failed to máke due allowance for certain items entering into the cost of manufacturing and selling the shoes in diminution of defendant’s profits, including interest on capital, depreciation of real estate, taxes, insurance, advertising, .and trade discounts. But the Supreme Court affirmed, saying: “These are matters of fact, respecting which we see no sufficient reason for disturbing the decree.” 240 U.S. at 262, 36 S.Ct. at 273. “Reasonable and necessary” expenses were allowed in Sutton v. Gulf Smokeless Coal Co., 4 Cir., 77 F.2d 439, a patent case. See also Duro Co. of Ohio v. Duro Co. of New Jersey, 3 Cir., 56 F.2d 313, a trademark case, and Alfred Bell & Co. v. Catalda Fine Arts, S.D.N.Y., 86 F.Supp. 399, a copyright case. None of those cases involved a misappropriation •of trade secrets or any other species of fraud, or anything comparable to the situation shown by the record in this case. The Tremolo case was discussed at length in two Massachusetts cases, Regis v. H. A. Jaynes & Co., 191 Mass. 245, 77 N.E. 774, and C. A. Briggs Co. v. National Wafer Co., 215 Mass. 100, 102 N.E. 87, which indicate that the Tremolo rule should be applied unless special circumstances would make its application unjust. In the case at bar there are several circumstances which would make application of the Tremolo rule unjust. Colgate’s wrongful acts in the manufacture and sale of the adjudicated products included not only patent infringement, carried to the point of contempt of this court’s injunction, but also repeated and continuous misappropriation of trade secrets, and deceit in connection therewith. These acts enabled Colgate to become the leading manufacture of pressurized shaving creams and to build up a momentum of good will for the adjudicated products which it was able to transfer in large measure to the altered products by so packaging and advertising those products that the public was not told there had been any change. They enabled Colgate to begin marketing its altered products at a sales level which could not otherwise have been attained for several years, and to avoid some of the costs of introducing a new product. Plaintiffs contend that they are entitled to recover the value of this momentum of good will, either as part of the profits for which Colgate is required to account, or as a separate item. For reasons which will be stated below under the heading “Good Will”, the court has concluded that plaintiffs are not entitled to such an allowance; but the facts set out in the preceding paragraph should be considered in deciding how the various expense items for which Colgate claims credit should be apportioned. Colgate’s repeated misappropriation of plaintiffs’ trade secrets resulted in Colgate’s unjust enrichment, for which it is being made to account. The purpose of the apportionments with which we are concerned in this case is not to serve business convenience or business policy, but to secure a proper accounting by a wrongdoer for the total gains of his wrongdoing. What may be a proper method of apportioning expenses in reporting results to management may not be- — and in this case is not — a proper method to be used in accounting for profits derived as a result of the misappropriation of trade secrets. It follows that each of the contested items should be considered separately, in the light of all the facts affecting the particular item, and of the principles set out in the Restatement, Torts, sec. 748, comment i, quoted above. (a) Overhead Colgate charged $785,216 against its general sales of adjudicated products as a deduction for “fixed overhead”. The Master found that the entire $785,216 of overhead expenses charged by Colgate were necessary expenses for the manufacture of the adjudicated products; but that one-half of that sum — $392,608— represented fixed or non-variable overhead costs which did not vary with the volume of production or sales of adjudicated products, and would have been incurred in connection with the operation of Colgate’s factories in which the adjudicated products were produced along with other Colgate products whether or not Colgate had manufactured the adjudicated products. He, therefore, concluded that the cost of sales of the adjudicated products, as shown on Colgate’s relevant exhibits, should be reduced by $392,608. In this recommendation the Master is supported by the able opinion of Judge Stone in Levin Bros. v. Davis Mfg. Co., 8 Cir., 72 F.2d 163, at 165, 166, which was adopted in principle by Judge Learned Hand in Sheldon v. Metro-Goldwyn Pictures Corp., 2 Cir., 106 F.2d 45, 54, aff’d 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed. 825. Judge Lowell followed the same principles in Krentler-Arnold Hinge Last Co. v. Leman, D.Mass., 24 F.2d 423, 424. See also Restatement, Tofts, sec. 748, comment i. Cf. Victory Fireworks & Specialty Co. v. Commercial Novelty Co., D.Md., 26 F.Supp. 126. The Master’s recommendation is supported by the weight of authority and should be adopted in this case. (b) Selling, Warehousing, Shipping and Administration Expenses For the same reasons that he recommended reduction in Colgate’s allocation of overhead expenses to the adjudicated products, the Master recommended a reduction of $407,766 to eliminate fixed and nonvariable expenses of selling; a reduction of $247,843 to eliminate fixed and nonvariable expenses of warehousing and shipping; and a reduction of $468,326 to eliminate, fixed and nonvariable expenses of administration. Each such reduction was of a part only of the particular category of expense, and was determined according to the uncontra-dicted testimony of plaintiffs’ accounting expert, Simone. Colgate’s comptroller, Bennett, testified that such fixed costs were “substantial”, but that Colgate kept no records showing the amounts of such fixed costs or the amounts of such variable costs. As heretofore noted, the court must accept the Master’s findings of fact unless they are clearly erroneous. Rule 53(e) (2), F.R.Civ.P., and cases cited above. The court finds that they are not clearly erroneous; on the contrary they appear to be supported by the weight of the evidence. What Colgate calls the “rewriting” of its books has been made necessary by Colgate’s failure to keep its books so as to maintain “separate and accurate records of all its infringing acts; * * * on its failure to keep such records, the court, in measuring the damages on account of his trespasses, should resolve all doubts against him”. Computing Scale Co. v. Toledo Computing Scale Co., 7 Cir., 279 F. 648, 673. See also the cases cited under' “Overhead” above, and the principles set out in the Restatement, Torts, sec. 748, comment i, quoted above. Colgate has shown no sufficient reason why the court should not follow the Masterls recommendation. (c) Advertising Colgate claimed before the Master and still claims expense deductions totaling $6,513,651 for advertising the adjudicated products during the accounting period from 1952 to July 1956. Carter claimed before the Master that this deduction should be reduced by $2,977,505, in part ($1,923,189) to reflect an allocation “on the basis of the ratio of total company advertising to total company sales”, and in part ($1,054,316) to reflect “investment advertising spending”. Colgate’s advertising, like all similar advertising, seeks several objectives: immediate sales of the particular products advertised; future sales of the particular products advertised; and increased future sales of other products by promoting the corporate name or other trade name by which the company’s products are generally known. The allocation of all advertising expense on the basis of “the ratio of total company advertising to total company sales” would recognize the general benefit which inured to Colgate from the advertising of the adjudicated