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Gallowhur Chemical Corp. v. Schwerdle

Decided: October 7, 1955.


Drewen, J.c.c. (temporarily assigned).


This is a secret process cause in the field of chemistry. The trial was uncommonly protracted. The testimony is voluminous, not to mention the depositions as well. The subject matter is scientific and technical, and the exhibits, which are equally so, are numerous. As might well be supposed, each side presented its array of learned experts, and all points of difference have been vigorously argued, orally and in copious briefs.

The problem in chemistry enclosed within the secret as alleged was the solubility of phenyl mercuric acetate in aqueous solutions. A statement of the factual background in somewhat extended detail is in order.

The plaintiff Sowa and defendants Schwerdle and Sartoretto are chemists by profession. In 1942 Sowa was engaged in chemical and scientific research for the plaintiff Gallowhur Chemical Corporation (herein called Gallowhur). By agreement between them, Sowa and Gallowhur were jointly interested in all profits derived from the sale of products manufactured from the processes developed in Sowa's research. At the time here referred to defendant Schwerdle was in Sowa's employ at the latter's New York laboratory, and continued so to be for a time thereafter. Also working in the Sowa laboratory was the defendant Sartoretto. His employment was not directly under Sowa, he being an employee of the American Machine and Foundry Company (no party to this cause), which company by agreement was availing itself of Sowa's laboratory facilities. In the language of the complaint, "said research work related in part to the scientific problem of the solubilization and use of phenol mercury compounds and research into and testing and application of organo-mercurial elements and compounds." It is alleged further that all of such research was secret and confidential to the knowledge of Schwerdle and Sartoretto, and that both were lawfully required on their parts completely to maintain the secrecy of all such researched processes and experimentations in each and every of their stages and in all the developments and consequences thereof. As for Schwerdle, he was

under express written agreement with Sowa to be bound and to keep secret "all * * * processes heretofore or hereafter used or developed by Sowa," the time limit being "unless and until published."

During the period in question there was developed in the Sowa laboratory methods of solubilizing phenyl mercuric acetate that are claimed to have been within the secret stated, and knowledge of which is likewise claimed to have been acquired by Schwerdle and Sartoretto within the confidential relationship described.

Eventually Schwerdle and Sartoretto discontinued their respective employments in the Sowa laboratory, and became organizers of and stockholders in a corporation known as American Research Associates. The circumstances surrounding their becoming so identified should be stated. On June 2, 1945 the two defendants here referred to entered into an agreement with one W. A. Cleary, one Russell Cook and one Morgan Seiffert, to form a corporation whose chief purpose would be to carry on research for the defendant W.A. Cleary Corporation (hereinafter called Cleary). The said W. A. Cleary, Cook and Seiffert were at the time respectively the president, vice-president and the secretary of Cleary. Pursuant to the agreement made by Schwerdle and Sartoretto with the persons named, American Research Associates, Inc. came into being, its certificate of incorporation having been filed in February 1946.

Plaintiffs charge that at the time of this association of Schwerdle and Sartoretto with the named personnel of Cleary, the said W. A. Cleary, its president, had been made aware of the fact of Schwerdle's and Sartoretto's participation in the research carried on at the Sowa laboratory and of the fact, as alleged, that both were possessed of secrets there learned by them in the development of solutions of the chemical problem and problems above-stated. Plaintiffs allege further that Cleary acquired knowledge of such secret processes through the illegal divulging thereof to the said W. A. Cleary by Schwerdle and Sartoretto, in violation of the secrecy legally enjoined upon them.

It does not appear to be in dispute that Schwerdle and Sartoretto, when they began work in the Sowa laboratory, knew very little if anything about the solubilizing of phenyl mercuric acetate. It is not disputed either that Schwerdle, in addition to the general circumstance that prescribed and imposed upon him the bond of secrecy aforementioned, was obligated by express agreement in writing, as already noted. Sartoretto had been a pupil of Dr. Sowa at Notre Dame University, and Sowa had been helpful in securing Sartoretto's employment by the American Machine and Foundry Company for work in Sowa's laboratory. It is shown also that when each of these two defendants left the Sowa laboratory they were more or less familiar with the processes that had been developed there toward the solving of the problem already stated; that Cleary, prior to the association with it of Schwerdle and Sartoretto in the manner set forth, had at no time been engaged in research or in the manufacture of products involving the solubilization of phenyl mercuric acetates; that after Cleary had become so associated through the medium of American Research Associates, Inc. it did engage in such production, and that the processes used by it appear to be similar to those developed and owned by the plaintiff.

Basically, the subject matter of this dispute comprises two chemical processes that are claimed to have become effective in the accomplishment of the desired solubilization, plus the claim that both of them were originally developed by Sowa. One of these processes is characterized by the use of alkanolomines with acids, and the other by the use of ammonium salts with ammonium hydroxide. These will be referred to as the alkanolomine process and the ammonium process, respectively. The final development of these procedures by Sowa occurred circa 1942-3 and patent applications thereon were made in those years. Patents were granted, four in all, but not until 1946 and 1947. For convenience the patents will be separately designated by the terminal figures of their respective patent numbers (all antecedent digits in the several numbers being the same for each patent), viz.: -121,

-261, -262 and -815. The first, second and third cover the alkanolomine process and the fourth covers the ammonium salts process.

It is important to note, as will become more apparent later, that in 1947 patent infringement and unfair competition suits were instituted by Gallowhur and Cleary, each against the other, on the alkanolomine process; and that both suits were formally discontinued by agreement of release and license -- the license covering the ammonium salts process -- concerning which there will be further details. Upon the inception of the 1947 litigation Cleary ceased using the process claimed by plaintiffs to have infringed the alkanolomine patents; and in March 1948 it began the use of the processes concerning which there appears to be no serious dispute that it comes within the sphere, if not the prohibition, of plaintiff's patent -815 (the ammonium salts process).

The first of the defenses to be noted is that plaintiffs, entirely apart from anything charged against defendants, did not preserve their processes in sufficient secrecy to warrant their being classified as trade secrets at all. Sartoretto declares that he was not informed that any secrecy attached to what was going on and that he was never admonished in any way to keep secret what he learned regarding the processes in question. It may be taken from his testimony, moreover, that it is his contention that much of what he learned was thrust upon him by Sowa at luncheons and similar occasions, and that the purpose of Sowa's converse with him at such times was to acquire Sartoretto's opinion and advice concerning the matters discussed, without compensation therefor. More particularly, defendants show that conversations about the alleged secrets were carried on with them by Sowa freely and openly in public places, one of these being spoken of in the testimony as "Rudy's Bar," where, as stated, any one might have overheard what was being said. Since the affairs of kings, not to mention the course of planets, may be talked of anywhere, there is no reason to suppose that the problems of high emprise in the measureless realm of chemistry were not at times discussed in "Rudy's Bar." But

I think it far less than probable that any of these recondite data were or could have been snared in transitu by the chance listening of other patrons of the place, assuming they were interested at all.

Defendants urge also that "there is an absolute vacuum in plaintiff's case as to any proofs to establish any semblance of secrecy at the various establishments of Gallowhur * * * where operations began as early as January 1, 1943 * * *." But there is no proof either that anything escaped or could have escaped from the laboratories for the want of requisite precaution. Had defendants thought this matter vital they might have vigorously pressed the cross-examination, for example, of the witness Wiggans in this regard. In any event, the relevant principle is plain that plaintiff "is entitled to the benefit of its secret device so long only as it preserves its secrecy." Globe Ticket Co. v. International Ticket Co. , 90 N.J. Eq. 605, 610 (E. & A. 1919). Yet in applying that principle we must consider the nature of the thing here involved, which is I think, to state it moderately, a fairly complex chemical process, impervious to anything like ordinary apprehension. Whether a guarding of the secret with reasonably adequate precaution, apart from the divulging that is charged here, is an essential element of plaintiffs' affirmative proof, and whether the burden of that proof has been carried, I find it unnecessary to decide, in the face of the other clear and determinative factors present.

It is contended for Schwerdle and Sartoretto that as between them and plaintiffs no relation is shown of such a confidential nature as to be lawfully subjected to the predication of secrecy for which plaintiffs argue. I think there is no merit in this. That both were equipped mentally for opportunities of access is basic in the case. As for Schwerdle, he recognized the element of secrecy by his agreement in writing to observe it. As for Sartoretto, he was a friend, not to say an intimate, of Schwerdle's and there is ample in the proofs from which to infer that he also had physical access to the experimentations carried on in the place of his and Schwerdle's employment. It is further inferable that Sartoretto's personal

friendship with Sowa, probably going back to college days, his own work and training and the interests and objectives normally inherent therein with respect to the discovery of secret chemical processes, must plainly have indicated to him the need for secrecy.

Considering, first, the ammonium salts process apart from the other, defendants claim that it cannot be said to have the status of a trade secret because it was known in the "prior art," or in the earlier published literature on the subject or both. Especially relied on by defendants are the early discoveries or theories of one Pesci, as revealed in the published writings of that investigator in the field of chemistry. The relation of the Pesci text to the prior art with which we are presently concerned was severally expounded from the witness stand by the opposing experts, and I find no probative basis, for the reason I shall state, for specific findings as to which of the expressed views is to be accepted to the exclusion of the other. As so often happens when highly technical and scientific concepts are in evidential conflict and the voice of qualified, not to say eminent, authority is heard on both sides, the probative result here, in this and other like particulars, has turned out, in my judgment, to be one of static equipoise. Fortunately for the clearer course of justice there are other tangible preponderances that compel the ultimate decision.

More generally, defendants urge that a confidential disclosure of an idea already known cannot have the character of a trade secret or place the person to whom the idea is disclosed under an obligation not to exploit or divulge it; that such an idea cannot, in a word, be deemed confidential. I think the truth of this must at once be recognized. Smoley v. New Jersey Zinc Co. , 24 F. Supp. 294, 300 (D.C.N.J. 1938), affirmed 106 F.2d 314 (3 d Circ. 1939). My examination of the cases in this connection brings me to the further conclusion that "prior art" is, in the nature of things, a much less effective defense in a trade secret case than in a patent infringement case. "Novelty and invention are not essential for trade secret as they are for patentability." Sun Dial Corp. v. Rideout , 16 N.J. 252, 257 (1954). And see Franke

v. Wiltschek , 209 F.2d 493 (2 d Circ. 1953); Shellmar Products Co. v. Allen-Qualley Co. , 87 F.2d 104 (7 th Circ. 1936). Relevant and interesting dicta is found in L.M. Rabinowitz & Co. v. Dasher, Sup. , 82 N.Y.S. 2 d 431, 438 (1948):

"The Court will not speculate on whether Dasher or the other defendants might have waded through the 'prior art' and perhaps might have acquired enough information to be able to construct imitations of plaintiff's machines * * *. The fact remains that until Dasher copied the plaintiff's machines, no one else had constructed one which was nearly as good as the plaintiff's."

There is testimony, and defendants urge its preponderance, that the alkanolomine process was not plaintiff's but a unique process of Cleary's own, resulting from independent research. The argument from the proof is that Sartoretto in the fall of 1944, while employed by American Machine and Foundry Co. (but after his termination of all relationship with Sowa and the Sowa laboratory), was encouraged by plaintiff Gallowhur's vice-president, one Tilt, to do research in the solubilizing of phenyl mercuric acetate. Sartoretto says that he purposely did not use Sowa's method because it was unstable. Defendants say, too, that no attempt was made to use Sowa's process, even if secret, because the instability of Sowa's product was the very incentive that moved Tilt to encourage Sartoretto to undertake the research he suggested. Sartoretto says that at this juncture he knew that triethanolamine had been used to solubilize P.M.A. (Phenyl mercuric acetate) and that this fact was "common knowledge in the trade" through various publications as well as from disclosures by Sowa himself. Sartoretto says further that he found a solubilizing agent called Trigamine which was far more stable than Sowa's at similar concentrations. Trigamine, Sartoretto testifies, was a product sold by Glyco Products Co., and that the witness's process consisted of synthesizing 10 parts Trigamine, 10 parts P.M.A. and 80 parts water, and that he made this discovery in a matter of minutes. He exhibited in court what he represented to be a sample product of this experiment. Sartoretto adds that thereafter, in January 1945, he told Tilt

that he, Sartoretto, had a stable solution of P.M.A., but that Tilt was ...

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