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Ingersoll-Rand Co. v. Ciavatta

Decided: June 22, 1988.


On certification to the Superior Court, Appellate Division, whose opinion is reported at 216 N.J. Super. 667 (1987).

For affirmance -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. Opposed -- None. The opinion of the Court was delivered by Garibaldi, J.


The issue in this appeal is the enforceability of an employee invention "holdover" agreement. Specifically, the issue presented is whether a "holdover" clause requiring an employee to assign a post-termination invention that does not involve an employer's trade secret or proprietary information is enforceable. The products relevant to this dispute are a new type of friction stabilizer, which defendant invented and patented, and a split-set friction stabilizer, manufactured and distributed by plaintiff. Both devices are used in the mining industry to prevent the fall of rock from the roof and walls of underground mines. The Appellate Division reversed the Chancery Division's ruling in favor of plaintiff. 216 N.J. Super. 667 (1987). We affirm.


Plaintiff Ingersoll-Rand Company is a New Jersey corporation with its corporate headquarters in Woodcliff Lakes, New Jersey. Plaintiff Ingersoll-Rand Research, Inc. is a wholly-owned subsidiary of Ingersoll-Rand and is located in Princeton, New Jersey. For purposes of this opinion, we refer to plaintiffs collectively as Ingersoll-Rand.

Ingersoll-Rand is engaged in the research, development, manufacture, and sale of products for use in various heavy industries. It does business through more than thirty divisions, which are organized into eleven business groups that cover a broad range of technology, including air compressors, construction equipment, mining machinery, oil field products, and tools. Ingersoll-Rand's sales exceed $2 billion and the company dedicates

approximately 3.5% to 4.0% of its revenues, or $70-80 million, to research and development.

Historically, one of the dangers of underground mining is the potential collapse of a mine's rock roof. Several methods and devices have been employed to stabilize the strata of rock layers in the roof of a mine. In 1973, Dr. James Scott, a Professor of Mining Engineering at the University of Missouri, conceived of the friction stabilizer roof support system and communicated with Ingersoll-Rand regarding the development of this concept. Ingersoll-Rand, working with Dr. Scott, expended substantial sums on the research and development of the product.*fn1 On December 2, 1975, the United States Patent Office issued the first patent for Dr. Scott's friction stabilizer. Dr. Scott subsequently assigned the patent to Ingersoll-Rand. In February 1977 Ingersoll-Rand began marketing its stabilizer under an agreement with Dr. Scott.

The Ingersoll-Rand split-set friction stabilizer consists of a tubular metal element that is larger in diameter than a pre-drilled hole formed in the roof of a mine. The stabilizer is forcibly inserted in the hole. As the stabilizer is forced into the pre-drilled hole, it undergoes radical deformation, causing the tube to react outwardly against the surface defining the hole. This force provides a frictional grip along the length of the tube, which stabilizes the rock strata of the roof. An example of a simple friction stabilizer would be a nail driven into a piece of wood. Ingersoll-Rand's friction stabilizer represented a breakthrough in mine roof support equipment.

The development of Ingersoll-Rand's roof stabilizer was well documented in the industry. Ingersoll-Rand, beginning in the

mid-1970s, extensively marketed and promoted the product through advertisements, pamphlets, and technical articles. These publications thoroughly detailed the stabilizer's configuration, composition, method of operation, test results, performance capabilities, and sales information. The technology employed to manufacture the device is over fifty years old.

The split set stabilizer has been a very successful product for Ingersoll-Rand. It represented over half of all stabilizer units sold in the United States for metal and non-metal mines, with over one million units sold in 1984. Ingersoll-Rand controls over ninety percent of the sub-market for friction stabilizers. Ingersoll-Rand has never reduced the price of the split set below list in response to competition; and prior to 1983, when the defendant's company, Safeguard Energy Products, Inc., entered the market, only one other competitor was in the submarket: Atlas Copco Corporation. The design of Atlas Copco's friction stabilizer is identical to a configuration of the Ingersoll-Rand stabilizer sketched by Dr. Walter McGahan of Ingersoll-Rand Research on December 10, 1978. Friction stabilizers, however, do compete with other methods of roof stabilization.

Defendant, Armand Ciavatta, is a 57-year-old engineer. He was graduated from the Rhode Island School of Design in 1953 with a Bachelor of Science degree in machine design. Subsequently, he took classes in mining, tunneling, and heavy construction engineering as well as graduate business classes. Since 1950, Ciavatta has held a number of technical engineering positions involving a variety of engineering principles, including: working for a division of General Signal Corporation on instrumentation used in weight and volume measurement; conducting quality control tests for instrumentation used in the first commercial nuclear reactor; as chief project engineer for the Revere Corporation of America where he worked with transducers and other force-measuring devices; and as Vice President of Engineering and Quality Control for Iona Corporation, where he was responsible for engineering development

and testing of the company's line of kitchen and consumer appliances. He was also self-employed for a period of six years when he provided engineering consulting services in a variety of areas, including manufacturing, valve engineering, tooling, public opinion testing, and market research. While employed by Revere Corporation, Mr. Ciavatta invented and obtained a patent for a force transducer using strain gauges. Although he had no agreement with his employer, he nevertheless assigned this patent to Revere.

Ciavatta joined the Millers Falls Division of Ingersoll-Rand as Director of Engineering and Quality Control in 1972. From 1972 to 1974, Ciavatta was responsible for quality control and materials management in the production of hand and electric tools. In the fall of 1974, the company terminated his employment in the Millers Falls Division, at which time he became Program Manager with Ingersoll-Rand Research, Inc. As a condition of his employment with Ingersoll-Rand Research, he executed an "Agreement Relating to Proprietary Matter" (Proprietary Agreement) in which he agreed, in pertinent part:

1. To assign and I hereby do assign, to the COMPANY, its successors and assigns, my entire right, title and interest in and to all inventions, copyrights and/or designs I have made or may hereafter make, conceive, develop or perfect, either solely or jointly with others either

(a) during the period of such employment, if such inventions, copyrights and/or designs are related, directly or indirectly, to the business of, or to the research or development work of the COMPANY or its affiliates, or

(b) with the use of the time, materials or facilities of the COMPANY or any of its affiliates, or

(c) within one year after termination of such employment if conceived as a result of and is attributable to work done during such employment and relates to a method, substance, machine, article of manufacture or improvements therein within the scope of the business of the COMPANY or any of its affiliates.

Additionally, in Paragraph 4 of the Agreement, Ciavatta agreed:

4. Not to divulge, either during my employment or thereafter to any person, agency, firm or corporation, any secret, confidential or other proprietary information of the COMPANY or any of its affiliates which I may obtain through my employment without first obtaining written permission from the COMPANY.

Ciavatta signed this Agreement on October 1, 1974, and at that time he had read and understood its terms.

While employed by Ingersoll-Rand Research as a Program Manager from October 1974 through March 1978, Ciavatta worked on a variety of development projects, other than those relevant to this litigation, including a tunneling device and the development of coal haulage machinery. As a result of his participation in these development projects, Ciavatta became interested in underground mining and read extensively the industry literature on the subject. From 1974 to 1978, Ciavatta never was formally involved in or assigned to research or development relevant to the friction stabilizer. Nevertheless, Dr. McGahan, the Director of Research, encouraged the research staff to be creative, to discuss ideas for projects or potential projects beyond those to which they had been assigned. These ideas were to be submitted on disclosure forms. Through 1975, Ciavatta submitted thirteen patent disclosures to his employer for mining technology and instrumentation. Five of the thirteen proposals were for devices to support or stabilize roofs of underground mines. Four of the five invention disclosures were not friction stabilizers, but one was an improvement to Ingersoll-Rand's split-set. Ciavatta's work during this period was his first exposure to mining support equipment. Ingersoll-Rand chose not to pursue any of his concepts. Thereafter, defendant claims, he lost his motivation to invent and did not originate any additional concepts while employed by Ingersoll-Rand.

In March 1978, the company transferred Ciavatta to the Split Set Division of Ingersoll-Rand Equipment Corp. While there, he served as Manufacturing Manager and Quality Control Manager. Ingersoll-Rand does not fabricate the stabilizer in any of its plants. Rather, it contracts with two vendors who manufacture the Split Set roof stabilizers, which Ingersoll-Rand then sells to the mining industry. As manager of manufacturing, it was Ciavatta's position to administer the manufacturing program. His responsibilities in that post included supervising the

manufacture, production, quality control, and distribution of Ingersoll-Rand's Split Set roof stabilizers. During this period, the company did not employ Ciavatta to design, invent, or modify the basic configuration of its Split Set roof stabilizer, and in fact he did not do so. Ciavatta did, however, have access to Ingersoll-Rand's manufacturing drawings, materials, and specifications. Ingersoll-Rand considers all of that information confidential, although the information had been published in industry trade publications. At the Ingersoll-Rand Research Center the company maintains a security system in order to ensure the confidentiality of its information. Drawings are stamped proprietary, visitors are escorted while in the Ingersoll-Rand Research Center, vendors must sign proprietary information agreements, and all employees must enter into a Proprietary Master Agreement similar to that at issue in this case.

In the spring of 1979, as a result of certain quality control problems, Ciavatta stopped certain shipments of the stabilizer and recommended that the vendors modify their production process. Ciavatta's superior countermanded this directive and directed the vendors to make their scheduled shipments. Subsequently, in June of that year, Ingersoll-Rand terminated Ciavatta's employment. Ciavatta claims that the company did not offer any explanation for his termination; the company claims it terminated his employment because of unsatisfactory performance and his poor relations with fellow employees.

After his termination, Ciavatta circulated more than one hundred resumes seeking employment with other engineering firms. From February to July 1980, he briefly obtained employment as general manager of a bankrupt company located in Michigan.

Ciavatta asserts, and the trial court found, that he first conceived of the invention in dispute in the summer of 1979 while unemployed and off the Ingersoll-Rand payroll. Apparently, he was installing a light fixture in his home when he first

conceived of his invention, an elliptical metal tube designed to stabilize the roofs of mines. While searching for employment following his discharge from Ingersoll-Rand, Ciavatta intermittently worked on his design. He completed his first sketch of the stabilizing device on August 25, 1979, approximately two months after Ingersoll-Rand fired him. Ciavatta's stabilizer differs from Ingersoll-Rand's in two respects: its tubular portion is closed rather than split, and the tube is elliptical in shape.

As he continued to develop the stabilizing device, Ciavatta consulted a patent attorney to determine his rights with regard to the device. At his attorney's request, Ciavatta obtained a copy of the Ingersoll-Rand employee Proprietary Agreement he had signed when beginning his employment with Ingersoll-Rand Research. He did not inform Ingersoll-Rand of his activities with respect to his roof support system. By letter dated October 24, 1979, his attorney advised Ciavatta that "this invention is yours and Ingersoll has no enforceable claim thereto."

After his brief employment with the bankrupt company in Michigan, Ciavatta returned to his work on the stabilizing device and began refining the system in a more systematic manner. Although still looking for employment, he "started to go through significantly more calculations," and obtained sample tubing to run experimental tests. In March 1980, nine months after his termination, Ciavatta filed for a United States patent on the device and was awarded U.S. Patent No. 4,316677 in February 1982. Subsequently, in March 1982, Ciavatta received a second patent, U.S. Patent No. 4322183, which involved an improvement to the roof stabilizer protected by Ciavatta's first patent.

In July 1980, Ciavatta prepared a business plan and solicited venture capital from a number of firms, including Kerr McGee Co. and United Nuclear Corp. These financing efforts failed, however, and Ciavatta used his life savings and borrowed over

$125,000 from his brother and a bank to take his invention to the marketplace. Ciavatta exhibited his now-patented invention at a trade show in October 1982, and sales of his product then began. He made his first sale in January 1983. Sales for 1983 totalled approximately $30,000. By the time that the trial of this case commenced in June 1985 his total sales approximated $270,000. Ciavatta's stabilizer sells for approximately 15% less than Ingersoll-Rand's stabilizer. The trial court observed "[t]he market place has begun to accept defendant's product and his device appears to be a competitive threat to plaintiff's device." 210 N.J. Super. at 344.

The parties disagree on when Ingersoll-Rand learned of Ciavatta's invention. The company acknowledges that it had learned of the model for his invention by December 1981 or early 1982. In July 1982, Ciavatta received a letter from Ingersoll-Rand's patent counsel requesting that he assign his patent to the company. Ciavatta communicated to Ingersoll-Rand that his lawyer had advised him that he was not obligated to assign his patent to his former employer. Simultaneously, Ingersoll-Rand employees prepared several internal memoranda analyzing the feasibility of Ciavatta's product and its potential competitive impact. Ingersoll-Rand, now aware of the challenge posed by Ciavatta's invention, began to consider competitive responses to the introduction of the invention in the market.

In September 1983, after Ciavatta had sold his product to several Ingersoll-Rand customers, the company decided to lower the price of its split set stabilizer and to commence this lawsuit.

Ingersoll-Rand initiated suit against Ciavatta on April 17, 1984, alleging that the defendant had violated the employment agreement by failing to assign the invention and related patents that he conceived after leaving Ingersoll-Rand. Specifically, Ingersoll-Rand sought assignment of the patent for ...

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