DocketNumber： None
Citation Numbers： 1997 SD 111, 569 N.W.2d 16, 1997 S.D. LEXIS 112
Judges： Amundson, Miller, Konenkamp, Gilbertson, Sabers
Filed Date： 9/3/1997
Status： Precedential
Modified Date： 10/19/2024
[¶ 1] Jim Weins and Mac Meyer (often collectively referred to as Weins) asserted a claim for misappropriation of a trade secret against Robert Sporleder (Sporleder), Merle Van Liere and En-R-G Max, Inc. (often collectively referred to as Van Liere), and a contract action against Sporleder. During the trial, Weins amended his complaint to assert various tort claims against Sporleder, Van Liere, and En-R-G Max, Inc. Each claim was submitted to the jury. A verdict was returned in favor of Weins for compensatory and punitive damages. The trial court later found that the tort claims were displaced by the Uniform Trade Secrets Act and struck the jury’s award of punitive damages.
[¶ 2] We reverse as to the verdict finding misappropriation of a trade secret.
FACTS AND PROCEDURAL HISTORY
[¶ 3] This case involves the development of livestock feed supplements. Van Liere initially retailed feed supplements, later built a feed manufacturing plant and developed a soybean flaking process. Weins was employed with a feed company, TCI, which sold industrial minerals for livestock and liquid supplements for cattle. During his employment, he was involved with formulating feed programs for farmers. Sporleder earned an associate’s degree in applied science in animal nutrition and soil sciences. He was also a dealer for TCI for a few years, dealing with the formulation of feed programs.
[¶4] In 1983, Weins was working on a fermentation idea with yeast and sugar. He discussed the development of a tub product using this fermentation idea with Billy Talbot, an employee of TCI. When the plan never advanced beyond these general discussions, Weins began working with another company in similar employment where he also discussed the production of the tub product with other parties. In 1985, he terminated this employment and moved to Rapid City. Weins then spoke to Frank Parker about retailing and/or manufacturing a tub product, but Parker chose to remain uninvolved. In 1987, Weins first mentioned his
[¶ 5] In September of 1988, Weins and Sporleder first met and discussed experimen-tations with feed products. Within a month, Weins, Meyer, and Sporleder were mixing a batch of feed in a garage. The ingredients included milo flour, En-R-G Flakes, cane molasses, sugar, urea, ethyl alcohol, enzyme and fermentation packages, metal protei-nates, vitamins, and iodine. Weins incorpo-l'ated his fermentation idea by adding sugar and alcohol as limiting agents in initial batches of feed. The test results indicated lack of consistency, as the cattle ate more than a desirable amount.
[¶ 6] Other limiting agents were used unsuccessfully until Sporleder suggested the use of phosphoric acid.
[¶ 7] Sporleder, Weins, and Meyer then agreed that Sporleder would set up a corporation named “Pro-Energy” and Weins and Meyer would arrange for a patent search. Weins relayed to Sporleder his lawyer’s advice that they could not sell the product until they applied for a patent. Apparently, Spor-leder was dissatisfied with the delay and contacted another lawyer recommended by Van Liere. Meanwhile, Weins and Meyer decided to abandon the name “Pro-Energy” and use “Ferm-Mix.” Thus, Pro-Energy was never incorporated. By March of 1989, Weins and Meyer terminated their relationship with Sporleder. When they applied for a patent, Weins and Meyer were forced to exclude phosphoric acid from their formula since the idea was Sporleder’s.
[¶ 8] Shortly thereafter, Sporleder approached Van Liere with a proposed tub product. Sporleder claims the product was not the same as Weins’, because Weins admittedly used fermentation yeast and sugar, while Sporleder used phosphoric acid. Spor-leder and Mark VanderVliet tested the product at several farms, but consistency was never achieved.
[¶ 9] A series of letters and phone calls between the lawyers, Weins, Meyer, Sporleder, and Van Liere ensued. Among them was an alleged call in March of 1989 between Meyer and Van Liere, in which Meyer told Van Liere and Sporleder to discontinue making their tub product. Van Liere claims he was not making a tub product at that time. Rather, he contends that he was dealing with Sporleder concerning other matters.
[¶ 10] Van Liere claims he began manufacturing his own product in May of 1989, using steam-flaked corn, En-R-G Flakes, and base-mixes, along with molasses and phosphoric acid. Testing of the product was conducted and, by August of 1989, there was a marketable product.
[¶ 11] On August 26, 1991, the first complaint was filed by Sporleder against Van Liere and En-R-G Max, Inc., claiming unjust enrichment, breach of fiduciary duty,
[¶ 12] The trial court initially directed a verdict against Sporleder on his implied contract claim and, during the trial, Weins and Meyer were allowed to amend their complaint to assert various tort claims. After a twelve-day trial, the trial court submitted the remaining claims to the jury. As to Sporleder’s causes of action, the jury returned a verdict in favor of Sporleder for $320,000 in compensatory damages and $100,000 in punitive damages against Van Liere and En-R-G Max, Inc. Judgment was entered for $420,-000.
[¶ 13] As for the remaining causes of action, the jury returned a verdict in favor of Weins and Meyer for $440,000 against Spor-leder (50%), Van Liere (25%), and En-R-G Max, Inc. (25%), plus punitive damages of $100,000, $50,000, and $50,000, respectively. The trial court later found that the tort claims (including the claim for punitive damages) were displaced by South Dakota’s adoption of the Uniform Trade Secrets Act and struck the jury’s award of punitive damages. Judgment was entered for $440,000.
[¶ 14] Van Liere appeals, raising the following issues:
I. Whether the Weins verdict is inconsistent.
II. Whether Weins has a trade secret as a matter of law, or in the alternative, whether there is sufficient evidence of a trade secret.
III. Whether there is sufficient evidence of misappropriation.
IV. Whether the trial court improperly instructed the jury.
V. Whether the trial court made proper evidentiary rulings.
VI. Whether the damages awarded by the jury are supported by the evidence, are contrary to law, or are the result of passion and prejudice.
VII. Whether there was misconduct by counsel for Weins during the trial which requires a new trial.
VIII. Whether Weins should have been allowed to file a second amended compliant during the trial.
IX. Whether the costs should be reversed.
Sporleder also appeals as to the jury verdict against him, raising one issue different from Van Liere:
I.Whether the joint venture was terminated.
Weins and Meyer collectively filed notice of review, raising the following issues:
I. Whether the trial court erred in striking the punitive damages awarded by the jury.
II. Whether Weins is entitled to prejudgment interest on the compensatory damages awarded by the jury.
III. Whether punitive damages and attorney’s fees should have been awarded on the first cause of action, misappropriation of a trade secret.
DECISION
[¶ 15] Sporleder and Van Liere contend the trial court erred in failing to grant a summary judgment, directed verdict, or judgment notwithstanding the verdict on the issue of misappropriation of a trade secret. The standard of review in such instances was identified in Olson v. Judd, 534 N.W.2d 850, 852 (S.D.1995). Since a trial court’s decision regarding a motion for directed verdict is similar to judgment notwithstanding the verdict, these motions are considered together. Id. Evidence is viewed in a light most favorable to the nonmoving party and, if there is “substantial evidence to sustain the cause of action!,]” it is inappropriate to grant a directed verdict or a judgment notwithstanding the verdict. Id. (quoting Weiszhaar Farms, Inc. v. Tobin, 522 N.W.2d 484 (S.D.1994)). As to
[¶ 16] Van Liere and Sporleder claim Weins had no trade secret as a matter of law. The determination as to whether a trade secret exists as a matter of law is of first impression in this Court. We agree with the standard of review applied in a similar case, Uncle B’s Bakery, Inc. v. O’Rourke, 920 F.Supp. 1405, 1427 (N.D.Iowa 1996) (interpreting Iowa law). The court concluded the existence of a trade secret is a mixed question of law and fact. “The ‘legal part of the question’ is whether the information in question ‘could constitute a trade secret under the first part of the definition of trade secret....’” Id. (quoting Economy Roofing & Insulating Co. v. Zumaris, 538 N.W.2d 641, 648 (Iowa 1995)). We review such questions of law de novo. Grode v. Grode, 1996 SD 15, ¶ 5, 543 N.W.2d 795, 799. “The ‘fact part of the question,’ on the other hand, arises from the remaining part of the statutory definition found in subdivisions [of the statute].” Uncle B’s Bakery, Inc., 920 F.Supp. at 1427 (quoting Economy Roofing, 538 N.W.2d at 648). Questions of fact are reviewed applying a clearly erroneous standard. Grode, 1996 SD 15, at ¶ 5, 543 N.W.2d at 799.
[¶ 17] The question of law pertains to SDCL 37-29-1(4), defining trade secret as “information, including a formula, pattern, compilation, program, device, method, technique or process,” whereas the questions of fact involve the remaining subsections which require that the trade secret:
(i) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(ii) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.8
[¶ 18] The burden is upon Weins to show the existence of a trade secret. Jensen v. Redevelopment Agency of Sandy City, 998 F.2d 1550, 1556 (10th Cir.1993); Mid-America Mtg. Corp. v. Dakota Indus., 281 N.W.2d 419, 422 (S.D.1979), reh’g granted, 289 N.W.2d 797 (S.D.1980) (the first opinion was decided before the adoption of SDCL ch 37-29). Throughout the proceedings, however, there was never a clear assertion as to what exactly was claimed to be the trade secret. Weins’ complaint initially refers to the “feed product, and its use and application” as the trade secret. Later in the complaint, Weins states that the “selling and developing of the feed product” is the trade secret. In Weins’ amended complaint, there is reference to an “idea,” an “invention,” a “tub feed product containing a combination of ingredients to be fed free choice,” and “selling and developing the feed product” as the trade secret. The second amended complaint refers to the trade secret as a “feeding system.” During the trial, Meyer testified the trade secret was the formula alone, while Weins testified the trade secret was not the formula, but the idea of combining ingredients into a tub. In addition, Weins’ briefs submitted to this Court fail to assert what exactly constitutes the trade secret.
[¶ 19] In a similar case, wherein there was confusion as to what the trade secret was claimed to be, the Eighth Circuit Court of Appeals stated: “The testimony on this count was somewhat confused as Coenco never quite specified what ‘trade secrets’ had been taken from it. The theory seems to have been that the defendants had stolen [the plaintiffs] ideas as represented by the [product].” Coenco, Inc. v. Coenco Sales, Inc., 940 F.2d 1176, 1178-79 (8th Cir.1991). Ultimately, a judgment notwithstanding the verdict was held to be proper on the grounds that “the evidence failed, as a matter of law, to prompt application of the [trade secrets act].” Id. at 1179. Likewise, Weins cannot clearly demonstrate his position on what constitutes the trade secret.
[¶20] Even if Weins’ product was considered a trade secret under the initial
[¶21] It is undisputed that Weins’ product is a combination of well-known feed materials provided as a feed supplement. Specifically, the contents of the end product include milo flour, soybean flakes, cane molasses, sugar, urea, phosphoric acid, ethyl alcohol, an enzyme and fermentation package, metal proteinates (trace metals), and various vitamins. Combining these materials cannot be considered a trade secret if the formula was ‘“within the realm of general skills and knowledge’ in the relevant industry.” Computer Care v. Service Sys. Enters., Inc., 982 F.2d 1063, 1072 (7th Cir.1992) (quoting Service Ctrs. of Chicago, Inc. v. Minogue, 180 Ill.App.3d 447, 129 Ill.Dec. 367, 371, 535 N.E.2d 1132, 1136 (1989)); see also Nickelson v. General Motors Corp., 361 F.2d 196, 199 (7th Cir.1966) (holding that since the process of chrome-plating was commonly known and used in the industry, there was no trade secret) (applying tort law before the enactment of the Uniform Trade Secret Act). Thus, the focus turns to the “ ‘ease with which information can be developed through other proper means: if the information can be readily duplicated without involving considerable time, effort or expense, then it is not secret.’” Computer Care, 982 F.2d at 1072 (quoting Hamer Holding Group, Inc. v. Elmore, 202 Ill.App.3d 994, 148 Ill.Dec. 310, 311, 560 N.E.2d 907, 908 (1990)); see also Coenco, Inc., 940 F.2d at 1179 (noting testimony revealed the product was “readily ascertainable by proper means”).
[¶ 22] The ease with which one can develop a similar product is examined by focusing on the time and expense involved. See Computer Care, 982 F.2d at 1072; Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1236 (8th Cir.1994) (quoting Peter J. Courture, “Independent Derivation and Reverse Engineering,” in Trade Secret Protection and Litigation: Protecting Confidential Business and Technical Information 623 (PLI Patents, Copyrights, Trademarks & Literary Property Course Handbook Series No. 340, 1992)). An expert testified as to the ease of determining the contents of a feed product. By microscopy, the formula of a feed product can be established in twenty minutes. Further testimony revealed that a chemical analysis would take at most four or five days, costing around $27. This testimony clearly demonstrates the ease of duplicating Weins’ formula. See, e.g., Computer Care, 982 F.2d at 1075 (stating, “Computer Care’s system is readily replicable by anyone who has been exposed to its various components; one need not also have knowledge of a special formula or technique for combining those components.”).
[¶ 23] Furthermore, reasonable minds could not have differed as to the determination of whether the economic value of Weins’ product was readily ascertainable by other means. See id.; SDCL 37-29-1(4)(i). Weins offered no evidence that the use of phosphoric acid to limit consumption in feed products was not readily ascertainable by other persons. In fact, Phil Anderson was granted a patent along with Frank N. Rawlings on a feed supplement containing molasses, urea, and phosphoric acid for use as a liquid, free-choice feed supplement for ruminants.
[¶ 24] In addition, Weins actually admitted that the ingredients in his product were readily available in the market, and that it was common knowledge in the feed industry that these kinds of ingredients are used to formulate feed supplements.
[¶ 25] Facts similar to this case, which assist with the determination of the existence of a trade secret as a matter of law, are found in TGC Corp. v. HTM Sports, B.V., 896 F.Supp. 751, 753 (E.D.Tenn.1995), wherein a jury returned a verdict in favor of a glove manufacturer (TGC) on its trade secret misappropriation claim. The defendant, a corporation which agreed to market the gloves (HTM), then made a motion for judgment as a matter of law, claiming the evidence did not support the jury’s determination. The District Court in Tennessee agreed, holding there was no trade secret as a matter of law. Id. at 763.
[¶26] Similarly, as we noted previously, although the feed product is claimed by Weins to be a trade secret, all of the ingredients therein are public knowledge. Furthermore, being the first to combine the ingredients is of no assistance to the claim of trade secret. Weins also claims the process used to combine the ingredients was the trade secret, but such a combination is easily duplicated, thereby preventing it from being a trade secret.
[¶ 27] In addition, there was no substantial evidence showing Weins took reasonable efforts to maintain his product’s secrecy. SDCL 37-29-1(4)(ii). Secrecy is fundamental to the existence of a trade secret. Pioneer Hi-Bred Int’l, 35 F.3d at 1235. Although the secrecy is not required to be absolute, reasonable precautions must be
[N]o evidence exists to show that plaintiff took any affirmative measures to keep its [product] secret. No evidence was presented regarding internal or external physical security; that confidentiality agreements or understanding existed among those having access to plaintiffs [product]; that plaintiffs [product] contained confidentiality stamps or [was] kept under lock and key; or that employees received entrance and exit interviews imparting the importance of confidentiality. Consequently, we conclude that plaintiff failed to produce sufficient evidence to prove that under [the relevant section] of the [Trade Secrets] Act, its [product] was the subject of reasonable efforts designed to protect its secrecy.
Gillis Associated Indus, v. Cari-All, 206 Ill.App.3d 184, 151 Ill.Dec. 426, 431, 564 N.E.2d 881, 886 (1990) (applying the same subsection as SDCL 37-29-1(4)(ii)).
[¶ 28] Again, the application of TGC is helpful. The sizing specifications of the gloves in TGC were claimed to be a trade secret, but the court found the size of a glove can be duplicated by merely viewing it, and “[m]atters disclosed by a marketable product cannot be a secret.” 896 F.Supp. at 760. Likewise, in the present case, the idea of putting the feed in a tub cannot be considered a trade secret since the tub is viewable. In addition, feed supplements were placed in similar containers before the idea of using tubs. Among a few other remaining claims concerning the existence of a trade secret in TGC was the combination of the components. Id. at 760. Responding to this claim, the court stated,
[T]he clear weight of the evidence is that TGC did not have confidential agreements .... Yet, TGC gave both those firms the necessary information with which to make the TGC glove. The voluntary disclosure of “any alleged ‘trade secret’ as part of a business transaction without any reservation or agreement of confidentiality prevents recognition of the information as a ‘trade secret.’ ”
Id. at 760-61 (quoting Turner v. Great Am. Opportunities, Inc., 716 S.W.2d 40, 44 (Tenn.Ct.App.1986)). Similarly, Weins fails to demonstrate active measures were taken to maintain his product’s secrecy. For example, Weins and Meyer discussed manufacturing and marketing the product with persons from other companies. They admit that numerous people were aware of the product, yet no confidentiality agreements were signed. Tubs were left in areas making them visible to others, and they tested their product on many different ranches. While Weins lists persons who allegedly were not informed of the formula, he fails to dispute the aforementioned incidences demonstrating the lack of secrecy. A few instances of nondisclosure of the alleged secret do not amount to “reasonable efforts” to maintain secrecy. See Nordale, Inc. v. Samsco, Inc., 830 F.Supp. 1263, 1274 (D.Minn.1993) (holding summary judgment was proper because plaintiff failed to demonstrate an intention to keep the information secret, i.e., there was no notice to others regarding confidentiality). Furthermore, although confidentiality agreements are not always necessary, there must be other precautions. Swift Bros. v. Swift & Sons, Inc., 921 F.Supp. 267, 277 (E.D.Pa.1995). There were no such precautions constituting “reasonable efforts” in this case.
[¶ 29] Viewing the evidence most favorably to Weins, we conclude that no substantial evidence exists which demonstrates Weins’ product possesses economic value not readily ascertainable by other means pursuant to SDCL 37-29-l(4)(i), or that Weins maintained the product’s secrecy according to SDCL 37 — 29—1(4)(ii). Therefore, the trial court erred when it denied the motions for directed verdict and/or judgment notwithstanding the verdict.
[¶ 30] Even if a trade secret was involved in this case, there was no misappropriation. Misappropriation means:
(i) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(ii) Disclosure or use of a trade secret of another without express or implied consent by a person who:
*24 (A) Used improper means to acquire knowledge of the trade secret; or
(B) At the time of disclosure or use, knew or had reason to know that such knowledge of the trade secret was:
(I) Derived from or through a person who had utilized improper means to acquire it;
(II) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
(III) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use[.]
SDCL 37-29-1(2). Weins and Meyer have the burden of proving Sporleder and Van Liere misappropriated the trade secret pursuant to this statute. Such a burden includes proving there was an improper acquisition of the so-called formula. “Improper” is defined to include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means[.]” SDCL 37-29-1(1). Weins and Meyer cannot prove such improper acquisition, since the kind of ingredients used in their product to formulate feed supplements are of common knowledge even by Weins’ own admission. As stated in Computer Care, a protectable trade secret cannot be established when a formula is easily duplicated using commonly known ingredients. 982 F.2d at 1075; see also American Antenna Corp. v. Amperex Elec. Corp., 190 Ill.App.3d 535, 137 Ill.Dec. 417, 420, 546 N.E.2d 41, 44 (1989) (holding there was no trade secret misappropriation as a matter of law when no improper acquisition could be shown).
[¶ 31] Furthermore, Weins has not shown that Van Liere and Sporleder actually used the formula. No evidence exists proving the product ultimately mixed by Van Liere and Sporleder was exactly the same as Weins’ product. In fact, Weins admitted the products were not the same during his testimony. Weins’ product includes sugar, yeast, and alcohol, making it a sweet, fermentation product, while Van Liere’s product is a natural, texturized product. Van Liere’s expert testified the products are considerably different. Although Weins’ expert stated the products were substantially similar, he never actually examined the formula. Since Van Liere and Sporleder’s end product was at least somewhat different from Weins’ product, it is clear that independent thought was used to obtain the result. See, e.g., TGC, 896 F.Supp. at 761 (stating that since the end product was different than the original design, there was no indication that the trade secret was even used). Certainly Van Liere and Sporleder cannot be prevented from applying their independent ideas and knowledge in the industry.
[¶32] Due to our holding on the trade secret issue, we need not address the remaining issues in this ease. We reverse and direct a judgment consistent with this opinion.
. This cause of action was consolidated for trial with Sporleder v. Van Liere & En-R-G Max, Inc., 1997 SD 110, 569 N.W.2d 8 (1997) in which
. Meyer, the owner of a trucking business, met Weins through a mutual friend. The two then discussed feed sales and began working together.
. Limiting agents such as phosphoric acid are used to prevent cattle from overeating.
. This patent was later held invalid due to its obviousness. Rawlings v. National Molasses Co., 328 F.Supp. 913, 920 (C.D.Cal.1971).
. Such testing was performed on different ranches. Whether the owners of the ranch were informed of the formula for the ingredients in the tub is in dispute.
. Phosphoric acid was, however, used in Weins’ final product. See, e.g., ¶ 21, infra.
. Sporleder started a feed company, Winner Circle Feeds (WCF), which was having financial difficulties. Therefore, Van Liere eventually agreed to sell directly to some of WCF’s customers in April of 1989.
. SDCL ch 37-29 is a substantial adoption of the Uniform Trade Secrets Act.
. As we noted in footnote 3, this patent was challenged in Rawlings, wherein the court held the patent was invalid because prior art disclosed its obviousness. 328 F.Supp. at 920.
. Weins testified as follows:
Counsel: The ingredients that you used in your recipe, were those ingredients that were available on the market?
*22 Weins: Yes, they were.
Counsel: All right. Could you buy them— Anybody could go buy them; right?
Weins: Yes.
Counsel: And isn’t it common knowledge in the feed industry that these kind of ingredients are used to formulate feed supplements?
Weins: That is common knowledge, with the understanding, the right combination of ingredients will make feed much better.
. However, the jury in the case at hand was instructed to disregard the patent exhibits when determining whether a trade secret exists.
. For a review of case law dealing with the determination of trade secret as a matter of law. see Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1549-50 (11th Cir.1996) (holding it was error to grant a directed verdict and/or judgment notwithstanding the verdict because there was insufficient evidence to prove the existence of an implied confidential relationship, which was the sole basis for the trade secret misappropriation claim); Bridge Publications, Inc. v. Vien, 827 F.Supp. 629, 632-34 (S.D.Cal.1993) (affirming a summary judgment in favor of the plaintiff because no factual dispute existed regarding secrecy of materials or economic value thereof).
. A glove with a seamless palm is comprised of "a pattern of five pieces sewn together with a ’gunn cut’ and with single seams around the fingers.” Id. at 757.