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Sun Dial Corp. v. Rideout

Decided: October 18, 1954.

SUN DIAL CORPORATION, A CORPORATION OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
CARL D. RIDEOUT, JAMES L. RIDEOUT, ROBERT A. WHITFIELD, NANCY ORI WHITFIELD AND PRECISION MARKING CO., A CORPORATION OF NEW JERSEY, DEFENDANTS-APPELLANTS



For affirmance -- Chief Justice Vanderbilt, and Justices Oliphant, Burling, Jacobs and Brennan. For reversal -- Justices Heher and Wachenfeld. The opinion of the court was delivered by Jacobs, J.

Jacobs

The Chancery Division dismissed the plaintiff's action to enjoin the individual defendants, its former employees (along with their corporation, the defendant Precision Marking Co.), from using or disclosing the process which they learned while in its employ. See 25 N.J. Super. 591 (Ch. Div. 1953). The Appellate Division found that the evidence adequately established the plaintiff's claim that it had a valuable secret process which the individual defendants learned in confidence and which they should equitably not be permitted to use or disclose. See 29 N.J. Super. 361 (App. Div. 1954). It reversed the judgment entered in the Chancery Division and we granted certification under R.R. 1:10-2. 15 N.J. 379.

William J. Williams, Jr., organized the plaintiff Sun Dial Corporation in 1943 for the purpose of manufacturing precision dials and panels. Immediately prior thereto he had been sales manager of Linotone Corporation, a dial and panel

making subsidiary of Mergenthaler Linotype Company. Although the Chancery Division referred to testimony that there was nothing novel in the Sun Dial process and that both Linotone and Sun Dial used photography in the making of dials, it recognized that "the Sun Dial process differs from the Linotone process in the method of coating and relieving the dials and the solutions and agents used." The Appellate Division found flatly that Sun Dial's process differed materially from Linotone's. It stated that Linotone's method was characterized by etching the metal surface as contrasted with Sun Dial's surface relieving and pointed to specific differences while stressing certain elements in the Sun Dial process and the substantial research and expenditures involved in their development. We are satisfied with the Appellate Division's finding that the Sun Dial process differed materially from Linotone's. We are likewise satisfied that the individual defendants learned the plaintiff's process while they were in its employ and used it after they had left the plaintiff's employ and had organized the defendant corporation for the competitive purpose of making precision dials and panels. In this regard the findings by the Chancery Division and the Appellate Division are in full accord.

Williams testified that from the inception of the plaintiff's business there was a "No Admittance" sign at the entrance of its plant and that its employees were told its process was secret. Others who visited the plant testified that they were told the process was secret and the Chancery Division found that the "proofs disclose that Williams endeavored to have the Sun Dial process appear 'secret.'" Although Williams described his process in general terms in a 1947 article appearing in Plastics Magazine, the article contained what the Chancery Division described as "deliberate ambiguity" and a competitor testified that with the information supplied in the article he had tried but was unable to duplicate the Sun Dial process. In 1949 a sign was posted at the plaintiff's new plant which requested that admittance not be asked "as we are working under a secret process." Visitors were required to sign a register under a statement that

"Any processing observed on these premises is considered Secret Process which I agree not to use or divulge." The defendants contend that these precautions were taken only because Sun Dial then had a government contract relating to the Norden gunsight but Williams testified, from supporting corporate records, that they were taken long before the Norden contract or any accompanying security regulations. The defendants further contend that they were not told during their employment that the process was secret; we are in agreement with the Appellate Division's analysis of the testimony and its finding to the contrary.

A trade secret may consist of a formula, process, device or compilation which one uses in his business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. See National Tile Board Corp. v. Panelboard Mfg. Co., 27 N.J. Super. 348, 351 (Ch. Div. 1953); 4 Restatement, Torts, ยง 757, p. 5 (1939). Its subject matter must not be a matter of public knowledge or of general knowledge within the industry. Restatement, supra, at 5. Although a substantial measure of secrecy must exist, the secrecy need not be absolute and disclosure to employees involved in its use will not ordinarily result in loss of the employer's protection. Restatement, supra, at 6. Compare the suggestion in Vulcan Detinning Co. v. American Can Co., 72 N.J. Eq. 387, 396 (E. & A. 1907), that it is "that qualified secrecy that arises from mutual understanding and that is required alike by good faith and good morals." See Barton, A Study in the Law of Trade Secrets, 13 U. of Cin. L. Rev. 507, 519 (1939). Novelty and invention are not essential for the trade secret as they are for patentability. See Restatement, supra, at 7; Ellis, Trade Secrets, 28, 35 (1953); Callman, Unfair Competition and Trade Marks (2 d ed. 1950), 799. Cf. Boost Co. v. Faunce, 17 N.J. Super. 458, 463 (App. Div. 1952). And the fact that every ingredient is known to the industry is not controlling for the secret may consist of the method of combining them which produces a product superior to that of competitors. See Stone v. Grasselli Chemical Co., 65 N.J. Eq. 756, 760

(E. & A. 1903), where Justice Swayze said:

"The ingredients used in the manufacture of Stone's depilatories were well known, and had been used for that purpose for years before the XXX and XXXX were put upon the market, and the same ingredients were used by the Grasselli Chemical Company in the manufacture of a depilatory. It is urged that the only advantage possessed by the complainants arose out of skill in handling, and not out of a secret process, and that there was no secret either in the ingredients or in the method of compounding them. The complainants combined the ingredients by a different method from any other in use, and the result was a product of a different character. The complainants' process of manufacture was considerably more complicated than [that of the Grasselli Chemical Company]. The secret consisted in a knowledge of the proper method of mixing the ingredients, and treating them, in order to produce a product of proper consistency."

In the light of the foregoing principles we find little basis for questioning the Appellate Division's determination that although its individual components may in themselves have been well known, the plaintiff's process in its aggregate was, in fact, a trade secret. Apart from the defendants, the plaintiff and its licensees are apparently the only dial makers who are familiar with it and use it in their plants. As the Appellate Division pointed out, competitors have tried but have been unable, without the process of the plaintiff, to achieve its high degree of accuracy and fine technical finish on dials and panels. Mr. John E. Paul, senior vice-president of the United States Radium Corporation, testified that he had read the article in Plastics Magazine, had visited the plaintiff's plant and seen one of its dials and that although his company attempted to duplicate the dial it was unable to do so. He testified further that when he was taken through the plaintiff's plant he was told that the process was secret and that the thing that impressed him "was you didn't see much until you came to what ...


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