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Affiliated Hospital Products v. Baldwin

OPINION FILED JANUARY 18, 1978.

AFFILIATED HOSPITAL PRODUCTS, INC., ET AL., PLAINTIFFS-APPELLANTS,

v.

BRIAN BALDWIN ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. DONALD J. O'BRIEN, Judge, presiding.

MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Plaintiffs, Affiliated Hospital Products, Inc. (hereinafter "Affiliated"), and MPL, Inc., appeal from an order of the circuit court of Cook County denying MPL's motion for a preliminary injunction. The injunction was sought to restrain defendants from manufacturing and shipping machines abroad which MPL alleged were designed and built utilizing their trade secrets. Although the trial court found that plaintiffs did possess trade secrets, it concluded that defendants had not utilized or copied this confidential information in manufacturing their machines. Plaintiffs contend that the denial of MPL's motion for a preliminary injunction constituted an abuse of the trial court's discretion.

MPL is a manufacturer of disposable hypodermic needles and related products. It is a wholly owned subsidiary of Affiliated. Defendant Baldwin was MPL's president and chief operating officer from 1968 until August 14, 1974, when he received notice of his termination. Bernard Fein, president of Affiliated, testified that Baldwin was discharged because he had breached his fiduciary obligations to MPL. By the time he became president of MPL, Baldwin had years of experience in the needle industry. During the early days of MPL he worked in all areas of product and machine design.

In 1968 Baldwin concluded an agreement to sell the assets of MPL to Affiliated. As part of this transaction, Baldwin signed an employment contract which contained covenants against competition and against disclosure of confidential information. The contract expired in 1973 and was not renewed by Affiliated. Early in 1974, Baldwin, with permission from Affiliated, organized defendant Hypomed Corporation to reacquire MPL's assets from Affiliated. The acquisition was not completed before Baldwin's termination.

Subsequent to his discharge in August 1974, Baldwin arranged with the defendant Manan Tool and Manufacturing, Inc., and its secretary-treasurer, defendant Mittermeier, to locate his office next to Manan's and to collaborate on several projects Baldwin had in mind. Principal among these was the design and construction of machinery to process hypodermic needles. The remaining defendants, Anderson, Scalfaro, Faro Services, Inc., and Avgerenos d/b/a NGA & Associates, were all designers or builders of this machinery. Defendant Colonial Farms, Inc., was at some point after the commencement of these proceedings given title to some of the machinery.

While Baldwin was president of MPL he attempted to maintain the confidentiality of MPL's proprietary data through various means. Visitors at MPL's plant were required to sign a "Plant Visitation Agreement" which prohibited disclosure or use in any manner of any information gleaned in the course of the visit. Mittermeier, as well as others associated with Manan, had visited MPL's facilities and had signed this agreement. Reports concerning MPL's internal affairs and negotiations with outside interests all reflected Baldwin's concern that certain equipment and techniques be kept in the strictest confidence. All salaried and supervisory employees of Affiliated and MPL were required to sign an "Employee Invention and Confidential Information Agreement" which prevented disclosure of any matter relating to the business of either company during the duration of employment or at any time thereafter. Baldwin testified at these proceedings that MPL had no trade secrets.

We shall attempt to describe the various machines which form the subject matter of this suit and briefly summarize the evidence relating to defendant's alleged misappropriation of plaintiffs' trade secrets. The first phase of the manufacture of disposable hypodermic needles in both the MPL and Hypomed systems is the cutting of long strands of stainless steel tubing to prescribed lengths. After these pieces are ground to a point, they are called "cannula." The machine used for this phase of production is called a full load cut off machine. While Baldwin was president of MPL, he had contracted out certain work to defendants Manan and Mittermeier, but this had never included the construction of a full load cut off machine or any part thereof. Shortly before Baldwin's discharge from MPL, Mittermeier received from MPL a folder of MPL drawings with a request for a quotation for the construction of a duplicate full load cut off machine. After Baldwin left MPL, Mittermeier was told by an MPL employee to hold off on his quote and to retain the drawings.

In early 1975 Baldwin instructed Mittermeier to construct a full load cut off machine for Hypomed. Mittermeier contracted with Faro and its president, Scalfaro, for the design of the machine. Neither Scalfaro nor any Faro employee had any specialized knowledge about tube cutting devices or a full load cut off machine. Mittermeier and Scalfaro met at Manan's offices at which time Mittermeier gave Scalfaro the folder of MPL drawings he previously had received. Mittermeier told Scalfaro to refer to these drawings and to incorporate those features of the MPL full load cut off machine he found useful.

Scalfaro took the MPL drawings and eventually hired Avgerenos to design the Hypomed full load cut off machine. Scalfaro gave Avgerenos the drawings and told him that the cut off machine "was to look like the drawing that we had." Avgerenos had only the MPL drawings to study, and did not discuss the design of the machine with Baldwin prior to working on his drawings for Scalfaro. Prior to working for Manan, he had never seen such a machine. Avgerenos specifically recalled receiving MPL assembly drawings which depicted all the facets of the full load cut off machine. He studied the drawings "to see how they were doing it" because "he had to know what * * * to do."

Mittermeier, Scalfaro and Avgerenos thereafter met at Manan where they reviewed Avgerenos' concept drawings. At one meeting, Mittermeier made some sort of mark on what was later identified as the assembly drawing for the MPL full load cut off machine. Avgerenos and Mittermeier jointly referred to MPL drawings while they were discussing the design of the Hypomed full load cut off machine. Avgerenos maintained that he had not incorporated any MPL full load cut off machine features into his concept drawings and that the Hypomed machine was designed from his past experience.

While the testimony of several expert witnesses established that certain features on the MPL and Hypomed full load cut off machines were similar, none were willing to testify that the two machines, or any parts thereof, were identical. Baldwin knew that Mittermeier had possession of the MPL drawings, but could not recall if he was aware that they were given to Avgerenos.

The next phase of processing the needles involves a machine known as a grinder. After the tubes have been cut by the full load cut off machine, this machine grinds a tri-bevel point on each tube. While Baldwin was president, MPL entered into a license agreement for the grinder with Tooling Services of Johannesburg, South Africa, wherein the licensee agreed that all "processes, * * * information, know-how, equipment and inventions * * *" remain the confidential property of MPL. After leaving MPL, Baldwin offered MPL machinery as a demonstrator for machinery proposed to be licensed from Hypomed.

Once again, Baldwin requested Mittermeier to design and build the grinder. Mittermeier had more than 50 MPL drawings for the grinder, including several depicting the entire grinder fixture. He could not remember from whom he obtained them. Mittermeier hired defendant Anderson to help with the design for the grinder. Anderson had never seen a grinder or worked on a design for one. Mittermeier testified that Anderson and he referred to the MPL drawings. He identified 13 such drawings which he "looked at and used." He also stated that the actual incorporation of any MPL features into the Hypomed grinder was done by Anderson. The latter remembered referring to MPL drawings while he was working on his design for the grinder, but denied incorporating or copying any MPL features into his grinder design. Mittermeier designed a part for the grinder referred to as a loadbar. He referred to the MPL loadbar drawings and might have referred to an actual loadbar he had made previously for MPL. He testified that no one at MPL had ever told him that the loadbar drawing, or any other MPL drawing sent to Manan, was confidential or was not to be referred to. Expert testimony established that several parts of the MPL and Hypomed grinders were similar. However no witness testified that the two grinders, or their component parts, were identical.

Hypomed also manufactured two larger grinders, using the smaller grinder as a prototype. Mittermeier hired R.D. Systems, operated by James Ribordy, to design and build these two machines. Ribordy was not an engineer and had no background in the manufacture of hypodermic needles. Ribordy was given all the drawings for the small grinder which plaintiffs claimed incorporated MPL grinder features. ...


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