Cook Group v. Wilson ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: JON S. WILSON,
Debtor.
COOK GROUP INCORPORATED; WILSON-
COOK MEDICAL, INCORPORATED; COOK
INCORPORATED; VANCE PRODUCTS
No. 98-2831
INCORPORATED; SABIN CORPORATION,
Plaintiffs-Appellants,
v.
JON S. WILSON; WILTEK MEDICAL,
INCORPORATED,
Defendants-Appellees.
Appeal from the United States District Court
for the Middle District of North Carolina, at Greensboro.
N. Carlton Tilley, Jr., Chief District Judge.
(CA-96-657-2, BK-93-50034C-11W, AP-94-6010W)
Argued: September 24, 1999
Decided: October 27, 1999
Before WILKINSON, Chief Judge, and HAMILTON and
WILLIAMS, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Aaron J. Kramer, SCHIFF, HARDIN & WAITE, Chi-
cago, Illinois, for Appellants. James Robert Fox, BELL, DAVIS &
PITT, P.A., Winston-Salem, North Carolina, for Appellees. ON
BRIEF: Linda K. Stevens, Ronald Wilder, SCHIFF, HARDIN &
WAITE, Chicago, Illinois; Jeffrey E. Oleynik, Jimmie W. Phillips,
Jr., BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD,
Greensboro, North Carolina, for Appellants. William K. Davis, Alan
M. Ruley, BELL, DAVIS & PITT, P.A., Winston-Salem, North Caro-
lina; Charles M. Ivey, III, IVEY, MCCLELLAN, GATTON & TAL-
COTT, L.L.P., Greensboro, North Carolina, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Appellants Cook Companies argue that appellees Jon Wilson and
Wiltek Medical should be held in contempt for violating an injunction
that prohibited the continued use of Cook's Trade Secrets 3 and 14.
The bankruptcy court denied the motion to hold appellees in contempt
for violating these secrets and the district court affirmed. Because the
bankruptcy court did not abuse its discretion in declining to hold Wil-
son and Wiltek in contempt, we now affirm the judgment.
I.
This case arises from a longstanding dispute concerning the alleged
misappropriation of various trade secrets developed by appellant
Cook for the manufacture of medical devices. Jon Wilson is a former
president of Wilson-Cook, one of the Cook Companies. Upon resign-
ing from Wilson-Cook, Wilson founded Wiltek Medical. In May
1995, the United States Bankruptcy Court for the Middle District of
North Carolina found that appellees Wilson and Wiltek (collectively
Wiltek) wilfully and maliciously appropriated trade secrets of Cook.
The bankruptcy court entered a permanent injunction prohibiting
Wiltek from using, licensing, marketing, or otherwise displaying or
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disclosing the Cook trade secrets. Several months later, the bank-
ruptcy court granted Cook the right to conduct one surprise inspection
of Wiltek's plant.
The surprise inspection occurred on October 1, 1997. As a result
of information uncovered during the inspection, Cook claimed that
Wiltek was continuing to use five Cook trade secrets, including Trade
Secrets 3 and 14. Cook filed a contempt motion with the bankruptcy
court asserting that Wiltek was violating the injunction. Cook alleged
that Wiltek either violated the trade secrets directly or used processes
and techniques that were substantially derived from the trade secrets.
In December 1997, the bankruptcy court denied Cook's contempt
motion as to Trade Secrets 3 and 14. The district court summarily
affirmed. Cook appeals.
II.
A.
The district court sits as an appellate court in bankruptcy. See First
Nat'l Bank of Md. v. Stanley (In re Stanley), 66 F.3d 664, 667 (4th
Cir. 1995). Therefore, we apply the same standard of review as the
district court in reviewing the bankruptcy court's judgment. The
denial of a contempt motion can be overturned only for an abuse of
discretion. See, e.g., Langton v. Johnston, 928 F.2d 1206, 1220 (1st
Cir. 1991); Davis v. Bowen, 894 F.2d 271, 272 (8th Cir. 1989). To
obtain a contempt citation, the complaining party must prove a viola-
tion of a court order by clear and convincing evidence. See In re Gen-
eral Motors Corp., 61 F.3d 256, 258 (4th Cir. 1995). The bankruptcy
judge denied the contempt motion because he found that Cook did not
meet this high burden with regard to Trade Secrets 3 and 14. The
bankruptcy court's denial of the contempt motion likewise turned on
findings of fact. We apply a clearly erroneous standard to these find-
ings. See In re Stanley, 66 F.3d at 667. Here, the same bankruptcy
judge defined the scope of the trade secrets and denied Cook's subse-
quent contempt motion. His interpretation of his own order and
injunction must thus be given substantial deference. See Colonial
Auto Center v. Tomlin (In re Tomlin), 105 F.3d 933, 941 (4th Cir.
1997) (bankruptcy court involved with earlier proceeding has a "bet-
ter vantage point" from which to assess the order's meaning (internal
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quotation marks omitted)). These standards of review coupled with
Cook's burden of proof underscore the daunting nature of Cook's
appeal.*
B.
We thus proceed to review the rulings of the bankruptcy court.
Trade Secret 3 involves a process for making atraumatic wire guides
used for a variety of medical purposes. Cook argues that in its 1997
ruling the bankruptcy court mistakenly found that Trade Secret 3 was
limited to forming balls on the tips of wires and did not include
rounding-off wires. Cook maintains that identical equipment, pro-
cesses, and techniques are used either to form a ball on the end of
wire or to round-off the end of a wire. Yet it was Cook who empha-
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*Cook concedes that the deferential standard of review applies to find-
ings of fact, but argues that it does not apply to a lower court's failure
to apply the doctrine of equivalents, which should be reviewed de novo.
See In re Stanley, 66 F.3d at 667 (application of law is reviewed de
novo). Cook contends that application of the doctrine of equivalents
might have led to the conclusion that Wiltek's procedures and equipment
were substantially derived from or were substantially equivalent to those
protected by Cook's trade secrets. Such a finding would prove a violation
of the injunction and provide a basis for the contempt motion.
We are unpersuaded. The doctrine of equivalents is primarily a patent
law doctrine and its application in the trade secret context has been quite
limited. Almost all of the cases that Cook relies on are appeals to deter-
mine whether or not something was a trade secret. See, e.g., Vermont
Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142 (2d Cir. 1996);
Mangren Research and Dev. Corp. v. National Chem. Co., 87 F.3d 937(7th Cir. 1996). In this case, however, the bankruptcy court had already
determined the scope of the trade secrets. We must decide only whether
it abused its discretion in denying Cook's contempt motion. Cook cites
to only one circuit court case where the doctrine of equivalents was
applied in a trade secret contempt context. See Motorola, Inc. v. Com-
puter Displays Int'l, Inc., 739 F.2d 1149 (7th Cir. 1984). But even
Motorola can be distinguished because it involved a consent decree and
not an injunction. Nothing in this circuit would suggest that the doctrine
of equivalents is invariably applied in a trade secret contempt context,
much less that it would somehow trump the governing standards of
review.
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sized in its 1994 proposed findings of fact that Trade Secret 3
involves forming a jointless ball on the end of wire. Wiltek stopped
this process after the injunction, but it continued the rounding-off pro-
cess. Despite Cook's arguments to the contrary, we hold that the
bankruptcy court did not err in finding that Trade Secret 3 was limited
to forming balls on the tips of wires.
Cook also claims that Wiltek continued to violate Trade Secret 14
by using the same process to form catheters with only one minor
modification -- substituting the heating liquid Cook used with a simi-
lar substance. Again, it was Cook who in its proposed findings
claimed that Trade Secret 14 depended on the particular qualities of
a specific liquid. The heated liquid Wiltek uses has similar properties,
but an entirely different chemical composition from Cook's liquid.
The bankruptcy court found that Wiltek's process was independently
developed and was not substantially derived from Trade Secret 14.
The bankruptcy court's finding that Trade Secret 14 was limited to a
particular type of heating liquid was not clearly erroneous. Under
Cook's interpretation, Trade Secret 14 could prevent Wiltek from
using any substance that is more effective than water for forming
catheters. This position has no logical stopping point. The protection
of trade secrets serves important goals, but the extension of a trade
secret to cover any conceivable modification would stifle innovation
and competition.
Contempt is a weighty penalty and should not be casually imposed.
In this case, Wiltek officers testified that they did not think rounding-
off was a violation of Trade Secret 3 because of the injunction's
emphasis on forming balls on the ends of wires. Fairness dictates giv-
ing a party clear notice of what it is violating before holding that party
in contempt. See In re General Motors, 61 F.3d at 258 (civil contempt
is an appropriate sanction only where a party has violated an order
that sets forth "in specific detail an unequivocal command" (internal
quotation marks omitted)); Project B.A.S.I.C. v. Kemp, 947 F.2d 11,
16 (1st Cir. 1991) ("[C]ivil contempt will lie only if the putative con-
temnor has violated an order that is clear and unambiguous.").
III.
In this case the trade secrets at issue were defined and later inter-
preted by the same bankruptcy judge. Because his interpretation of
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the scope of his earlier injunction warrants deference and because his
findings reveal no clear error, there was no abuse of discretion in
denying Cook's contempt motion. For the foregoing reasons, the
judgment of the district court is
AFFIRMED.
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