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JULIE RESEARCH LABS., INC. v. SELECT PHOTOGRAPHIC

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK


November 24, 1992

JULIE RESEARCH LABORATORIES, INC., Plaintiff,
v.
SELECT PHOTOGRAPHIC ENGINEERING, INC., PHILIP BOETTGER, SANDRA BOETTGER, NEIL DARRISH, JIM LINFORD and PLI PHOTO LAB, INC.

CARTER

The opinion of the court was delivered by: ROBERT L. CARTER

OPINION

CARTER, District Judge

 Plaintiff, Julie Research Laboratories, Inc. ("JRL") is a New York corporation, with its principal place of business in New York. Its president, Loeb Julie, is responsible for the creation of the JRL Diamond, the product involved in this litigation. Defendant, Select Photographic Engineering, Inc. ("Select") is an Arizona proprietorship. Defendants, Philip and Sandra Boettger, are the proprietors of Select and are citizens of Arizona. Defendant, Neil Darish, *fn1" is the marketing director of Select and is a citizen of Arizona. Defendant, Jim Linford, is an independent contractor hired by Select to assist in the sale and promotion of the JRL Diamond and is a citizen of California. Defendant, PLI Photo Lab, Inc. ("PLI"), is an Ohio corporation with its principal place of business in Ohio.

 Plaintiff in or about 1987, put together an electronic photographic retouching and imaging system which it called the JRL Diamond. Plaintiff, seeking someone to market the Diamond, demonstrated the system on its premises in New York in September, 1990, to Jack Torgenson, a former Select employee. Torgenson suggested Select. In October, 1990, Philip Boettger and Bruce Rubadeux, a consultant visited JRL facilities in New York and were given a demonstration of the Diamond. There was no claim to Torgenson, Boettger or Rubadeux at these demonstrations to Boettger or Rubadeux that the Diamond contained anything that was proprietary, confidential or a trade secret. Indeed, plaintiff refused Boettger's and Rubadeux's offer to sign a confidentiality agreement.

 Rubadeux evaluated the JRL Diamond for Select in a report completed within a few days of the demonstration. In his report Rubadeux identified the Diamond as PC-based, running on a DOS operated system which included QFX, TIPS, and RIO and using a Wacon tablet.

 Subsequent to their meeting in New York plaintiff and Select reached agreement orally (plaintiff rejected a written accord) pursuant to which Select was to market the Diamond, provide space in its booths at various trade shows for showing the Diamond, with plaintiff's staff appearing at the trade shows to demonstrate the Diamond and to answer technical questions. Select was to receive a 15 percent commission on sales of the Diamond and a 40 percent commission on the sale of peripherals.

 Neil Darish spent time at plaintiff's facilities in New York in the fall of 1990 familiarizing himself with the Diamond and in drafting sales literature. He did not enter into a confidentiality agreement with plaintiff concerning any proprietary information he might acquire in the process. The Diamond was featured in Select's booths at trade shows in 1991 in Las Vegas in February, Chicago in September and New York in November, along with a prominently displayed informative and complimentary article about the Diamond by Elizabeth Cunningham.

 In 1991, Select sold a Diamond workstation to Andre's, a photo lab in Chicago where defendant Jim Linford was employed at the time. While at Andre's Linford had written a report evaluating various electronic photographic retouching and imaging systems including the JRL Diamond. When Linford left Andre's in the summer of 1991, he approached plaintiff to have the latter engage him to do a brochure on the Diamond. Plaintiff referred him to Select, and Select took him on to do the brochure. Linford spent the summer and fall of 1991 in New York at plaintiff's premises preparing the brochure on the Diamond. He did not enter into a confidentiality agreement with plaintiff concerning any trade secret information he might discover about the Diamond in the preparation of this brochure.

 Almost from the outset the relationship between plaintiff and Select was marked by disagreement over marketing strategies for selling the JRL Diamond, involving promotional literature, sales approaches to potential buyers and Julie's continual interference with Select's particular marketing efforts to close a deal with putative customers manifesting interest in the Diamond.

 Early in December, 1991, Select learned from Elizabeth Cunningham that plaintiff was seeking to find a sales representative for the Diamond to replace Select. While Julie denies he was seeking a replacement for Select, he admits confiding in Cunningham that he was much dissatisfied with Select's efforts in promoting and selling the Diamond. At any rate, this led to termination of the agreement by Select. Select gives December 26, 1991, as the termination date. Plaintiff places the date a few days later in December. Whether the relationship ended on December 26, 1991, or a few days later is irrelevant to our concerns.

 On December 20, 1991, in apparent anticipation of the dissolution of the agency relationship with plaintiff, Select met with Eric Sandel, an integrator, to discuss the possibility of his constructing a fast operating electronic photographic retouching and imaging system, using Hi-res QFX to handle large files. Sandel developed the Edge, which is subject to the preliminary injunction currently outstanding in this case.

  In August, 1991, defendant PLI ordered a Diamond workstation and peripherals through Select. The total amount of the purchase was $ 332,195.00, of which plaintiff claims $ 108,900.00 is still owing. PLI was not satisfied with the Diamond's performance, claiming that it was slower than advertised. It seeks a return of the work station and/or credits of $ 19,595.00 for return of the tape drive and exabyte, $ 37,000 for Fire 1000, filesilver and $ 13,000 for software never received against its payment of $ 218,000.

 Plaintiff obtained a preliminary injunction barring defendants from distributing or marketing an electronic photographic retouching and imaging system called the Edge, having convinced the court that it was a copy of the Diamond which defendants had constructed by misappropriation of plaintiff's proprietary trade secrets involved in the development of the JRL Diamond. Plaintiff seek a permanent injunction barring the Select defendants for a term of years from marketing, selling or promoting any PC-based electronic photographic retouching and imaging system, and from using or disclosing the configuration of the Diamond workstation and from using or disclosing the unique training, techniques or procedures in the operation of the Diamond. Plaintiff also seeks judgment against Select of $ 50,000.00 for training of Linford in the operation of the Diamond and judgment against PLI for unpaid balance due of $ 108,900 on its purchase of the Diamond.

 As they have maintained at the preliminary injunction hearing, defendants in the trial on the merits argue that no trade secrets or proprietary information was misappropriated by them from plaintiff because there were none; that Select owed no fiduciary duty to plaintiff; that their relationship was at will and plaintiff never sought nor secured from them a confidentiality agreement as to any proprietary information concerning the Diamond. Defendants seek vacation of the preliminary injunction and dismissal of the complaint. PLI seeks to repossess its benchmark from plaintiff and to return the Diamond. In the alternative, it seeks credits against the purchase price of various components not received or purchased elsewhere.

 DETERMINATION

 A trade secret can be anything used in one's business which gives an advantage over competitors who do not know or use it. Rapco Form Inc. v. Scientific Applications Inc., 479 F. Supp. 1027, 1029 (S.D.N.Y. 1979) (Sofaer, J). A plaintiff must prove it possessed a trade secret and that a defendant used that secret in breach of an agreement, confidence or duty or as result of illicit discovery. Integrated Cash Management Services, Inc. v. Digital Transactions, Inc., 732 F. Supp. 370, 375 (S.D.N.Y. 1989) (Ward,J), aff'd 920 F.2d 171 (2d Cir. 1990); Chicago Lock Co. v. Fanberg, 676 F.2d 400 (9th Cir. 1982); Computer Assoc. International, Inc. v. Bryan, 784 F. Supp. 982, 987-88 (E.D.N.Y. 1992); Diamond v. Oreamuno, 24 N.Y.2d 494, 301 N.Y.S.2d 78, 80, 248 N.E.2d 910 (1969). Disclosure through fair discovery is not actionable.

 The definition of a trade secret has been adopted as the law of New York from the Restatement of Torts ยง 757, comment b which provides:

 A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.

 Integrated Cash Mgmt. Services, Inc v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir. 1990). At the hearing on the preliminary injunction plaintiff put on as its first witness Eric Sandel, the integrator responsible for developing the Edge, and elicited from him what he had done and the ingredients he had used in constructing the Edge. The next day Loeb Julie took the stand and presented an exhibit called the "THE CHOICE MATRIX" which is set out below. CONFIDENTIAL THE CHOICE MATRIX FOR DESIGNING A RETOUCHING/IMAGING SYSTEM FROM SCRATCH 1. CHOOSE 1 OUT OF 9 HP XXX, DEC VAX, SUN, SILICON GRAPHICS, CPU TYPES DATA GENERAL, IBM PC, APPLE MAC, NEXT, AMIGA 2. CHOOSE 1 OUT OF 3 80286, 80386, 80486 PROCESSOR TYPES 3. CHOOSE 1 OUT OF 3 MCA, EISA, ISA COMPUTER BUS TYPES 4. CHOOSE 1 OUT OF 8 UNIX, WINDOWS, OS/2, DOS 3,4 OR 5;DR DOS OPERATING SYSTEMS 5 OR 6 5. CHOOSE 1 OUT OF 2(3) NORMAL HARD DISK, LARGE RAM, (XXX) IMAGE MEMORY TYPES 6. CHOOSE 1 OUT OF 5 ESDI, MFM, SCSI, RLL, IDE DISK DRIVE TYPES 7. CHOOSE 1 OUT OF 11 MATROX, DATA TECHNOLOGY, TARGA 16 IMAGE DISPLAY BOARDS TARGA 24, TARGA 32, TARGA PLUS, VISTA, DATA TRANSLATION, OPTA, EVEREX, NEW MEDIA 8. CHOOSE 1 OUT OF 12 LUMENA, NPS, IMAGE-IN, PHOTOSTYLER, TIPS, IMAGING/RETOUCHING WINRIX, QFX, PAINTBRUSH, RIO, TEMPRA, SOFTWARE PROGRAMS SABLE, GIANT PAINT 9. CHOOSE 1 OUT OF 5 MOUSE, TRACKBALL, TOUCHSCREEN, TABLET, POINTING DEVICE TYPES LIGHT PEN 10. CHOOSE 1 OUT OF 7 HOUSTON, SUMMAGRAPHIC, HITACHI, SEIKO, TABLETS WACOM, CALCOMP, KURTA 11. CHOOSE 1 OUT OF 6 DAT, 1/4 INCH TAPE, 9-TRACK, WORM, OFF- LINE STORAGE EXABYTE, ERASEABLE OPTICAL DEVICES 12. CHOOSE 1 OUT OF 4 CDS, ASPI, NOVASTOR, SYTOS STORAGE DEVICE SOFTWARE PROGRAMS

19921124

© 1992-2004 VersusLaw Inc.



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