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Stocker Hinge Mfg. Co. v. Darnel Indus.

OPINION FILED JUNE 5, 1978.

STOCKER HINGE MFG. CO., PLAINTIFF-APPELLANT,

v.

DARNEL INDUSTRIES, INC., ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. FRANCIS T. DELANEY, Judge, presiding.

MR. PRESIDING JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:

Rehearing denied July 10, 1978.

In this interlocutory appeal, Stocker Hinge Mfg. Co. (plaintiff), seeks to reverse an order denying plaintiff a preliminary injunction against defendants Darnel Industries, Inc. (Darner), Samuel A. Hoffman (Hoffman) and S & S Hinge Company (S & S).

In its brief, plaintiff urges that the trial judge erred in holding an employment contract between plaintiff and Hoffman void on the ground that its non-competition provision was too broad; the trial court erred in failing to find that a provision in the employment agreement for preservation of trade secrets was valid and enforceable; the trial court failed to recognize and enforce the common law duty of defendants not to misuse trade secrets; since plaintiff had established a fair likelihood of success on the merits, irreparable harm and absence of an adequate legal remedy, the trial court should have granted the preliminary injunction and the trial court also erred in denying discovery to plaintiff and in limiting plaintiff's right to counsel.

In their brief, Darnel and Hoffman maintain that plaintiff failed to show a reasonable likelihood of prevailing on the merits because the equities do not lie with plaintiff; alleged trade secrets were not communicated to Hoffman as a result of a confidential relationship between him and plaintiff; plaintiff failed to establish any trade secret and plaintiff has been adequately compensated for any loss. Said defendants also urge that plaintiff failed to establish it had no adequate remedy at law or that it would be irreparably injured; plaintiff came into court with unclean hands; the non-competition provision in the employment contract and the provision therein regarding trade secrets are void; the rulings of the trial court regulating discovery were proper and plaintiff, in fact, was given a full and fair opportunity to be heard.

In a separate brief, defendant S & S contends that plaintiff has no contractual relationship with S & S and that plaintiff failed to show affirmatively that S & S acquired its dies and designs with knowledge of any breach of contract or breach of confidential relationship between Hoffman or Darnel and plaintiff and plaintiff has failed to establish a fair likelihood that it would prevail on the merits against S & S so that the trial court properly denied plaintiff's motion for preliminary injunction.

We will first consider the written non-competition agreement between Stocker and Hoffman dated January 11, 1966. In this agreement, Hoffman covenanted that neither during his employment nor at any time thereafter would he give to or knowingly permit acquisition through him by any third person "of any confidential or other information relating to the business, assets, accounts, processes or `trade secrets' of the employer, of which knowledge shall have come to the employee [Hoffman] as a result of or in connection with his employment." The agreement also provided that for two years after the termination of employment neither Hoffman nor any firm or business over which he had control would directly or indirectly compete with the business of Stocker in nine specified States of the United States.

Plaintiff, Hoffman and Darnel have made lengthy arguments with reference to the last mentioned covenant of the contract regarding competition by Hoffman with plaintiff. In our opinion, this portion of the contract is not material to this appeal. It is undisputed that the activities of Hoffman, which plaintiff seeks to enjoin, did not take place until after the expiration of the 2-year period following the date of termination of Hoffman's employment with Stocker. In our view, the issue here is whether there was a violation of the remaining portion of the agreement regarding trade secrets. In addition, even without this agreement, there is an issue as to whether Hoffman obtained and is now violating the rights of plaintiff with reference to basic trade secrets which are the property of plaintiff.

In other words, if plaintiff is actually the owner or possessor of trade secrets which it imparted to Hoffman pursuant to a confidential relationship while he was employed by plaintiff, the wrongful use of this information may be enjoined by plaintiff particularly if Hoffman has specifically covenanted not to do so. (See Victor Chemical Works v. Iliff (1921), 299 Ill. 532, 547-48, 132 N.E. 806.) Therefore, in our opinion, the decisive issue to be determined here is whether plaintiff has possession and uses in its business a trade secret which is defined as "`a plan or process, tool, mechanism or compound known only to its owner and those of his employees to whom it is necessary to confide it.'" (Victor, 299 Ill. 532, 545-46, quoting from 22 Cyc. L. & Proc. 842.) Determination of this matter requires a factual statement.

The plaintiff specializes in the manufacture of long, narrow "continuous" hinges, such as those on the lids of pianos, and "butt" hinges, a short and square hinge used on cabinets and doors. Defendant Hoffman is an experienced tool and die maker who was employed as chief engineer by plaintiff from January 1966 until January 1974. Hoffman participated in the design of carbide tools and dies used by plaintiff in the production of its hinges. Prior to his association with plaintiff, Hoffman worked from 1951 to 1966 as a tool and die maker for Portage Tool Company, an establishment which produced carbide tools and dies for various manufacturers including plaintiff. When Hoffman left plaintiff, he became associated with defendant Darnel, another tool and die producer. Hoffman performed die building services for Darnel which is owned by Hoffman's son-in-law.

In December of 1976, Hoffman approached defendant S & S with the suggestion that S & S, a hinge manufacturer and competitor of plaintiff, replace its existing steel dies with carbide dies manufactured by Darnel. In the spring of 1977, S & S ordered several carbide dies from Darnel. It is this last business arrangement which has provoked the instant controversy.

Plaintiff contends Hoffman incorporated into the design and manufacture of these carbide dies various trade secrets, developed during his years of employment by plaintiff. Specifically, plaintiff claims that its machines contain certain unique processes and features resulting in the automated production of continuous hinges virtually without a residue of scrap material. These allegedly unique features include: the ability to cut the material which forms the hinge with a blade less than half as thick as the material; the production of hinges three times as quickly as S & S; the use of three dies in one punch press and the incorporation of several custom-made parts into the dies and press.

In support of these contentions, extensive testimony was given H. Edwin Stocker, Jr., who has been associated with plaintiff for more than 30 years and is currently its president. Mr. Stocker's testimony was presented to the court in closed sessions. The defense followed with rebuttal by Hoffman; Warren Meyers (Meyers), chief engineer at S & S and holder of an engineering degree; and Edward Sperling (Sperling), tool engineering manager of a steel company who has been involved in the tool and die field since 1927. We will first summarize Mr. Stocker's analysis regarding the alleged secret features of each of the above listed items and then the responses of defendants' expert witnesses.

Mr. Stocker testified plaintiff's machinery is unique in that its cutting blades are generally only 55 to 60 percent as thick as the material fed into the press and at times carbide punch blades only .022 inches thick are used to cut material ranging in thickness from .041 to .045 inches. In contrast, defendants' expert witness, Sperling, stated his company's thinnest blades were .044 inches thick, twice as thick as plaintiff's blades, and that if plaintiff used a .020 blade to cut .050 material it would be unique. However, Hoffman testified that according to his knowledge plaintiff uses ...


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