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Alk Associates, Inc. v. Multimodal Applied Systems

Decided: October 6, 1994.


On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County.

Before Judges J.h. Coleman,*fn1 Dreier and Villanueva.


The opinion of the court was delivered by


Defendants appeal by leave granted from a Chancery Division discovery order requiring that defendants disclose trade secrets to plaintiff under a protective order forbidding plaintiff to use the information. Defendants contend that a disclosure solely to plaintiff's counsel and designated experts, prohibiting dissemination of these secrets to the individual defendants' former employer, is needed to protect defendants in their new endeavor. They explain that even a cursory review of their computer program for the railroad industry by plaintiff's employees would reveal the new approach they are taking and could thus result in tremendous competitive disadvantages to defendants. Plaintiff in sales presentations could counter defendants' advances or could subtly change its own programs in ways which would be difficult to detect but which would detract from the advances made by defendants since they left plaintiff's employ. We here determine that entry of the protective order sought by defendants was both appropriate and well within the power of the chancery Judge.

The individual defendants formed the corporate defendant, Multimodal Applied Systems, Inc., in the last month of their service as employees of plaintiff. Defendant Van Dyke, prior to his employment by plaintiff, had been on the staff of the Massachusetts Institute of Technology. There he wrote and published a micro-computer version of a computer program owned by MIT and adopted by the railroad industry to assist the planning of railroad operations. This "Service Planning Model" is now owned by the Association of American Railroads.

After leaving MIT, Van Dyke, in his own consulting company, provided software support to the railroads using the Service Planning Model. He also developed another railroad operations planning system called the "Automated Blocking Model" which also was transferred to the Association of American Railroads. He apparently, however, retained the marketing rights to these products, and at the time he was hired by plaintiff in 1985, he sold his rights to these products to plaintiff. When Van Dyke and defendant Brandle were hired by plaintiff, they executed contracts containing post-employment restrictive covenants barring use of plaintiff's trade secrets. The agreement also transferred to plaintiff any novel ideas conceived by them while in plaintiff's employ.

Since leaving plaintiff in January 1992, the individual defendants have created their own software product for the railroad industry called "MultiRail." Consequently, plaintiff and Multimodal are competing software development companies for the railroad industry. Plaintiff contends, however, that defendants' MultiRail program contains plaintiff's trade secrets and is based on novel ideas conceived by the individual defendants while in plaintiff's employ. Defendants deny this allegation, contending that MultiRail is based upon novel concepts developed by them only after they left plaintiff's service. Plaintiff, through discovery, has demanded disclosure of the contents and background of the MultiRail program, which discovery both sides agree should be subject to a protective order. The narrow issue in this case is whether the protective order may, as requested by defendants, exclude

disclosure to plaintiff and its employees and be limited solely to plaintiff's attorneys and experts.

At the hearing on the motion, the trial Judge denied defendants' cross-motion for such a restrictive protective order, presumably because the Judge believed he did not have the authority to grant that form of protective order. He stated:

I want somebody to tell me how I can order any lawyer not to tell something to his client. . . . It's suggested here that I enter a protective order by which the lawyer would learn certain ...

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