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THIN FILM LAB, INC. v. COMITO

September 3, 2002

THIN FILM LAB, INC., PLAINTIFF
V.
CARMELO COMITO, INDIVIDUALLY AND DOING BUSINESS AS UNIVERSAL THIN FILM LAB AND UNIVERSAL THIN FILM LAB, INC., DEFENDANTS.



The opinion of the court was delivered by: Fox, United States Magistrate Judge.

DECISION ORDER

The parties consented to try this matter before me pursuant to 28 U.S.C. § 636(c). Plaintiff Thin Film Lab, Inc. ("Thin Film"), an optical coating firm headed by Gregory Enzor ("Enzor"), commenced this lawsuit in April 2000 against Defendant Carmelo Comito ("Comito"), a former employee who created his own optical coating firm, Defendant Universal Thin Film Lab, Inc. ("Universal"). Enzor seeks injunctive relief and damages for misappropriation of trade secrets and unfair competition. In particular, Enzor argues that Comito unfairly solicited Lucent Technologies, a former customer of Thin Film, using confidential information, stole confidential coating designs for the bismuth-iron-garnet ("BIG") substrate from Thin Film's laboratories, and created a double-planetary rotation device ("DPRD") similar to Enzor's, using designs stolen from Enzor. Comito denies these allegations and seeks pro-rated back-payment of bonuses to which he claims he is entitled pursuant to his employment agreement with Enzor.

A bench trial in this matter commenced on May 13, 2002, and concluded on June 20, 2002. For the reasons that follow, the court finds that Comito and Universal violated Thin Film's trade secrets by unlawfully soliciting one of its most lucrative customers and creating a double-planetary rotation device that was nearly identical to the unique DPRD originally crafted by Enzor. However, Thin Film has failed to demonstrate that Comito violated its trade secrets regarding the Si02-Hf02-Si02 coating formula for the BIG substrate. Finally, Comito has failed to show that he is entitled to the back-payment of pro-rated bonuses for 1997. The following constitutes the court's findings of fact and conclusions of law.

FINDINGS OF FACT

I. Plaintiff Thin Film Lab, Inc.

Thin Film is a privately-held corporation, originally incorporated in West Hurley, New York. (T: 93).*fn1 Thin Film's primary business is the designing of anti-reflective coatings for optical lenses used in military devices, fiber-optic communications cables and mundane items such as glasses and camera lenses. (T: 14-15). Gregory Enzor is an optical engineer and the president of Thin Film. (T: 14).

Enzor started working in the optical coating field in 1968, when he began employment with Vacuum Instrument Corporation making parts for vacuum systems within which the optical coatings were done. (T: 17). From 1976 to 1980, he worked at Broomer Research building and repairing vacuum systems as well as performing a variety of optical coatings. (T: 18). At Transworld Optics, from 1980 to 1983, Enzor performed optical coatings, created optical coating designs, and maintained and repaired vacuum coating chambers, including planetary rotation devices. (T: 19, 23-24). In 1983, Enzor began working at Continental Optical, where he built a coating device, created coating designs and performed optical coatings. (T: 24). There, he worked alongside Defendant Comito, and they co-managed the coating engineer group, creating coating designs and operating vacuum chambers. (T: 26). While both were working at Continental, Comito taught Enzor how to use the Songer computer software to create coating designs and formulas, as it was the standard in the industry to use this software for this purpose. (T: 546-47, 560). This computer program was created by Larry Songer, a consultant at Continental. (T: 882). From 1984 to 1986, Enzor worked at Photronics Corporation, doing design work, using planetary rotation devices to do optical coatings, and maintaining and repairing coating equipment. (T: 29). In all of these work experiences, Enzor occasionally used silicon dioxide ("Si02") and hafnium oxide ("Hf02") to coat substrates. (T: 484). Every facility at which Enzor worked was locked with a security system and armed with a burglar alarm system; public access to the facilities was denied, and the coating designs used by each company were kept in secure filing cabinets. (T: 33).

In 1986, Enzor started his own business, Thin Film. (T: 34). First, he purchased a Balzer 510 vacuum chamber and created a double planetary rotation device largely by his own hand. (T: 35). Because of coating problems that he had seen from his prior work experience, such as unreliability, warping and jamming of the coating system (T: 27-28), Enzor created his planetary rotation device to be different from all those that he had previously seen. (T: 36). Although some of the parts used to create his first planetary rotation device were store-bought, Enzor hand-made many of them, and he modified the store-bought pieces to suit his own specifications and to prevent the problems that arose with other planetaries. (T: 77). Every piece, from the sprockets to the spindles to the mounting systems to the monitor bridge, was different from anything that Enzor had seen on planetary systems in his prior experience. (T: 52-64). These precise modifications allowed the planetary to have increased productivity due to less frequent break-downs, fewer machine jams, and more accurate coatings, and generally resulted in a machine that was better than any Enzor had seen before. (T: 420-21, 491). In total, Enzor spent about three months and approximately $11,000 to $17,000 building this first double planetary rotation device. (T: 490). The design for Enzor's planetary rotation device was completed and written down in October of 1986. (T: 37-38). Enzor later created four more planetaries based on this original design, and those machines were put together by Thin Film machinist Tom Schofield. (T: 39-40, 122-3).

Enzor then set out to find customers for his new company by advertising in industry trade papers, making hundreds of cold calls to potential customers and mailing out hundreds of solicitations over a span of one and a half years. (T: 93-94). As a result of Enzor's efforts, Optics For Research ("OFR") became one of Thin Film's anti-reflective optical coating customers. (T: 95-96). Enzor utilized the Songer computer software for Thin Film's coating work as well. (T: 93). In the course of performing coatings for OFR, Enzor became familiar with a substrate called BIG, or bismuth-iron-garnet, an infrared material which was manufactured by a company then known as Bell Labs, and used by OFR in its products. (T: 96). OFR requested that Thin Film place an anti-reflective coating on BIG. (T: 97). Because BIG was going to be used in undersea fiber-optic cables, Thin Film was required to coat BIG so that it passed several endurance tests, such as a slicing operation, an adhesion test, and a boiling water test, to ensure that the coating remained firm and without defects. (T: 98-99). Enzor created the coating design for BIG by himself, and in 1990, he began to coat the substrate using the Herpin theory to create a three-layer combination of Si02 and Hf02. (T: 101).

Bell Labs later became Lucent Technologies. (T: 109). Thin Film was one of two companies that passed the qualification tests for coating BIG for Lucent. (T: 149, 194). From 1990 until 1999, Thin Film performed a large bulk of Lucent's BIG coating work, and Lucent quickly became one of Thin Film's largest and most lucrative customers. (T: 111). During this time, Enzor dealt mainly with Steve Licht, the gentleman in charge of the BIG program at Lucent. (T: 112). Licht came to see Enzor at least twice, either at the original West Hurley location or at the subsequent Milford location. (T: 112).

In 1991, Enzor hired his former co-worker, Comito, on a part-time basis for help in getting a vacuum chamber up and running. (T: 114). Comito later became employed by Thin Film on a full-time basis under an employment agreement in which Enzor promised Comito an end-of-year incentive bonus of 10% of profits over $400,000 for that year. The agreement did not specify the duration of the employment and stated that it provided "no protection for either of us." (T: 115-16, 567). Comito's duties at Thin Film included building and fixing machines, creating coating designs and assisting Enzor with major business decisions. (T: 117). Enzor also designated Comito as the vice-president of Thin Film Lab, Inc. (T: 117). Comito did not participate in the creation of the BIG coating design, or in the actual coating process itself. (T: 112, 868). However, the main room where all the coating work was performed was small enough so that Comito was always within a few feet of the BIG coating chambers or the BIG coating run sheets. (T: 125-26). Here, Comito used Si02 and Hf02 to coat materials other than BIG. (T: 871-72). The Songer computer program was utilized at Thin Film to assist in the creation and formulation of the various coating designs. (T: 884).

Throughout the mid-1990s, Thin Film was the best and most reliable optical coater used by Lucent to coat its BIG substrate. (T: 197). In fact, Lucent was giving about 80% of its BIG coating business to Thin Film during this period. (T: 150, 206). At this time, there were many published articles available to the industry regarding BIG coatings, for although it was new, it was considered to be just another high-index material. (T: 156). Towards the late 1990s, Thin Film began to encounter difficulties in dealing with Lucent and in coating BIG. (T: 152). These difficulties included the BIG substrate pieces getting mixed up either before delivery to Thin Film or after coating at Thin Film, slow delivery turnaround times (three days instead of one), and wax buildup on the substrate pieces that Lucent sent to Thin Film which resulted in inaccurate coatings. (T: 152, 170). The problems were eventually addressed, and Lucent never intended to terminate Thin Film as its BIG coater. (T: 177-78, 431). Nonetheless, in 1999, Lucent stopped sending the bulk of its BIG coating work to Thin Film. (T: 111). This was less in part because of the coating and delivery problems Thin Film had encountered and mainly due to Lucent's need for a second supplier to meet increased coating demand. (T: 177). Lucent had no reason to discontinue its business with Thin Film (T: 199), and would have continued the same level of business with Thin Film until any additional capable vendor appeared. (T: 204).

In May 1997, Comito handed a letter of resignation to Enzor, with an offer to continue working under different employment terms. (T: 568, 853). Enzor was unwilling to reduce the number of hours Comito was working or to increase his salary, so he released Comito from employment. (T: 444-45). After Comito left Thin Film, he and Enzor had conversations in which Comito asked for his bonus from the first part of the 1997 calendar year. (T: 462). However, by May 1997, Thin Film had not yet earned $400,000 in profits for that year. (T: 445). About a month or two after Comito left, Enzor discovered that his sketches and plans for the original double planetary rotation device were missing. (T: 462). He had not had occasion to look for them earlier, but he knew that Comito was the only person who left Thin Film during that time. (T: 462-63). Within three or four months, Enzor learned that Comito was operating his own business, using the name Universal Thin Film Lab. (T: 463). Then, in the fall of 1998, Enzor found out that Universal Thin Film Lab was coating the BIG substrate for Lucent, at the same time that Thin Film's BIG business volume from Lucent dropped sharply until it eventually disappeared. (T: 463-64).

II. Defendant Carmelo Comito

After five years at Inrad, Comito started work at Thin Film in 1990, first as a part-time engineer, and later as a full-time employee. (T: 835). As per the terms of the employment agreement, every January, Enzor was to pay Comito an annual bonus of 10% of the profit exceeding $400,000 from the previous calendar year. (T: 838). Enzor and Comito never discussed the payment of pro-rated bonuses should Comito's employment be terminated before the end of a calendar year. (T: 839). In addition, Comito understood Enzor's statement that "no protection for either of us" spoke for itself. (T: 841).

During Comito's employment with Thin Film, Enzor referred to him as vice president, and payroll records indicated that Comito was vice president of Thin Film. (T: 118, 842). As vice-president of Thin Film, Comito was authorized to interact with customers, make binding agreements such as giving price quotes to potential customers, and sign official documents. (T: 424). For example, Comito signed state sales tax exemption certificates using the letters "VP" by his signature. (T: 118).

When Comito arrived at Thin Film, a double planetary rotation device, created by Enzor, was already in use. (T: 844). In fact, Comito was not involved in the creation of double planetary rotation devices at Thin Film at all. (T: 234). Comito normally worked on a coating device that was obtained after he began his employment at Thin Film, and used the other machines very infrequently. (T: 845). He worked on several hundred to a thousand coating designs at Thin Film, and usually created run sheets for each of these. (T: 845-46). While Comito was at Thin Film, he used the Si02-Hf02 combination for coating. (T: 437).

Comito knew that Thin Film was coating the BIG substrate for Lucent Technologies, and that Si02 and Hf02 were two of the materials used. (T: 848-49). However, he never coated or assisted in coating BIG while at Thin Film, nor was he otherwise involved in BIG coating. (T: 846, 849). Comito had opportunity to be introduced to the Lucent representatives who visited the Thin Film plant, including Steve Licht, and knew Licht to be associated with the BIG coating program at Lucent. (T: 271, 849-50).

In May of 1997, Comito submitted a letter of resignation to Enzor in which he offered to continue working for an increase in salary in place of an annual bonus. (T: 851-52). Enzor refused these altered employment terms and asked Comito to leave Thin Film immediately. (T: 853). Comito did so, and in the belongings he packed, he included a Rolodex which contained, among other entries, the names, phone numbers and addresses for clients, business contacts and suppliers of Thin Film. (T: 445, 854). He did not take any run sheets for coatings that he had performed. (T: 854-55).

Within a month of leaving Thin Film, Comito decided to open his own optical coating business. (T: 856). In the summer of 1997, he incorporated Universal, and that fall, he obtained a facility in Newburgh, New York. (T: 857). Comito performed some coating work on behalf of Kevin McKeon, who polished materials and routed them to Comito for coating. (T: 859). Comito became aware that McKeon was sending him coating jobs for Lucent Technologies. (T: 154, 860). Thereafter, he decided to call Steve Licht at Lucent, and informed McKeon that he could coat the BIG substrate and that Licht knew this. (T: 271-72). As a result, McKeon gave Comito's phone number to Licht and instructed him to call Comito for details regarding Comito's ability to coat BIG. (T: 159, 275). Licht asked his co-worker Bob O'Connor to send samples of BIG to Universal to see if it qualified to perform the coating work required. (T: 200). O'Connor was led to believe that Comito developed the BIG coating process while at Thin Film and performed BIG coatings for Thin Film. (T: 202-03). Ultimately, Universal qualified to coat BIG for Lucent. (T: 204).

Comito then began coating BIG for Lucent, using the Herpin theory to develop a three-layer coating combination of Si02 and Hf02, telling O'Connor that the coating information was created by him and was proprietary. (T: 211, 867, 869). He encountered similar difficulties in coating Lucent's BIG as Enzor had seen, such as wax buildup on the BIG samples and adhesion problems. (T: 863-64). He resolved these issues and offered Lucent a 24-hour turnaround time period for delivery of the coated BIG. (T: 867). By 1999, Universal had obtained about 90-95% of Lucent's BIG coating business. (T: 206).

Also in 1999, Comito began to employ Schofield as a machinist, first on a part-time basis, then on a full-time status. (T: 235). Working off of "rough sketches" that Comito possessed, Schofield created a double planetary rotation device for Comito, designated the CHA-2, that was the spitting image of Enzor's first machine. (T: 236). In fact, Enzor's machine and the CHA-2 that Schofield built for Comito based on the rough sketches were "virtually identical," and the first time Schofield saw any machines like these was at Thin Film. (T: 238-39). Schofield recognized some of the rough sketches as being those that Enzor created for Thin Film and that he referred to when building Thin Film's planetary rotation devices. (T: 237). After completion of the planetary rotation device, Schofield reorganized, redrew and standardized the rough sketches, informing Comito that he would throw the old, rough sketches away. (T: 247). Comito gave no Schofield no instruction to keep the rough sketches, nor did he inform Schofield that this lawsuit was pending at the time; had he done so, Schofield would not have thrown the rough sketches away. (T: 247, 249).

CONCLUSIONS OF LAW

I. Defendant Violated Plaintiff's Trade Secrets By Obtaining Lucent Technologies as a Customer and Constructing and Operating a Double Planetary Rotation Device Utilizing Plaintiff's Design, But Did Not Violate Plaintiff's Trade Secrets By Using a Similar Si02-Hf02-Si02 Coating Formula for the Bismuth-Iron-Garnet Substrate.

A. Trade Secrets: In General

Courts have considered the following six factors to be relevant in deciding whether particular information is a trade secret: "(1) the extent to which the information is known outside of the [plaintiffs] business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the owner to guard the secrecy of the information; (4) the value of the information to the owner and to his competitor; (5) the amount of effort or money expended in developing the information; and, (6) the ease or difficulty with which the information could be properly acquired or duplicated by others." Anacomp, Inc. v. Shell Knob Services, Inc., 1994 WL 9681, at *6-7 (S.D.N.Y. 1994) (internal quotations omitted); see also, Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 407, 604 N.Y.S.2d 912, 917-18, 624 N.E.2d 1007, 1012-13 (1993). The most important factor is whether the information is secret. See Lehman v. Dow Jones & Co., 783 F.2d 285, 289 (2d Cir. 1986). "Absolute secrecy, however, is not required." Anacomp, Inc., 1994 WL 9681, at *9, citing A.H. Emery Co. v. Marcan Products Corp., 389 F.2d 11, 16 (2d Cir.), cert. denied, 393 U.S. 835, 89 S.Ct. 109, 21 L.Ed.2d 106 (1968). "The rule is only that a "substantial element of secrecy must exist and this means so much that except by use of improper means, there would be difficulty in acquiring the information.'" Q-Co Industries, Inc. v. Hoffman, 625 F. Supp. 608, 617 (S.D.N.Y. 1985) (quoting A.H. Emery Co., 389 F.2d at 16).

In order for a party to succeed on a claim for misappropriation of trade secrets, the party must show that "(i) it possessed a trade secret and (ii) that the defendant used that trade secret in breach of an agreement, a confidential relationship, or duty, or as a result of discovery by improper means." Hudson Hotels Corp., 995 F.2d at 1176; see also, Integrated Cash Mgmt. Serv., 920 F.2d at 173. Further, "a former employee can be prohibited from taking trade secrets from his former employ[er] whether or not there exists an employment contract which prohibits competition." Computer Associates Intern., Inc. v. Bryan, 784 F. Supp. 982, 988 (E.D.N.Y. 1992). However, protection of the trade secret will not attach "where the alleged confidential information is readily ascertainable from nonconfidential sources." Cosmos Forms, Ltd. v. American Computer Forms, Inc., 193 A.D.2d 577, 579, 596 N.Y.S.2d 862 (1993).

Second Circuit courts have held that "an agent has a duty "not to use confidential knowledge acquired in his employment in competition with his principal.'" North Atlantic Instruments, Inc., v. Haber 188 F.3d 38, 47 (2d Cir. 1999) (internal quotations omitted). See also, Unisource Worldwide, Inc. v. Valenti, 196 F. Supp.2d 269, 280 (E.D.N.Y. 2002). The agent's duty exists during employment, "as well as after the employment is terminated." North Atlantic instruments, Inc., 188 F.3d at 47 (internal quotations omitted). This fiduciary duty "does not need to be formalized in writing . . . and any inquiry into whether such obligation exists is necessarily fact-specific to the particular case." AM Cosmetics, Inc. v. Solomon, 67 F. Supp.2d 312, 320 (S.D.N.Y. 1999). A court may examine "whether a party reposed confidence in another and reasonably relied on the other's superior expertise or knowledge." Id.; see also, Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310, 318 (2d Cir.), motion to vacate denied, 11 F.3d 381 (2d Cir. 1993); Chester Color Separations v. Trefoil Capital Corp., 222 A.D.2d 276, 636 N.Y.S.2d 613 (1995). In essence, "ongoing conduct between parties may give rise to a fiduciary relationship that will be recognized by the courts." Id.

Here, the Court finds that Enzor, the sole shareholder of Thin Film, designated Comito as vice president of Thin Film. On cross-examination, Comito conceded that Enzor entrusted him with the duties of vice president, including administrative and decision-making responsibilities, thereby creating a fiduciary relationship between the two men:

Q: Now, at Thin Film Lab, weren't you designated as a vice president of the company?

Comito: On occasion.

Q: Well, sir, you signed documents as vice president, didn't you?

Comito: Twice.

Q: Didn't you supervise employees?

Comito: Yes. I did.

Q: Did you give job quotes?

Comito: Yes, I did.

Q: Did you deal with customers?

Comito: Yes, I did.

Q: Did you coat design coatings all by yourself?

Comito: Yes, I did.

Q: You made administrative decisions, didn't you?

Comito: Concerning mostly myself.

Q: As part of your supervision of employees, didn't you make administrative decisions?

Comito: Limitedly.

Q: Well, you weren't the president, right? You were the vice president.

Comito: On occasion.

(T: 911-12). Comito even signed Thin Film documents, wherein he assumed the title and responsibility of being Thin Film's vice president:

Comito: It's a tax-exemption certificate.

Q: Was that filed with the State of Pennsylvania, Commonwealth?

Comito: It looks that way, yes.

Q: Did you sign it?

Comito: Yes, I did.

Q: Did you put the initials VP after your name.

Comito: I believe I did, yes.

Q: And you offered that to the State?

Comito: I was told to sign that.

Q: Did you sign it in the capacity of vice president?

Comito: I signed it as vice president.

Q: And did you know, in doing that, that you were representing to the State of Pennsylvania that you had authority to act as vice president —

Comito: Yes.

Q; — of Thin Film Lab?

Comito: Yes.

(T; 913). Therefore, as the vice president of Thin Film, Comito owed Enzor a fiduciary duty, both during and after employment at Thin Film, not to unfairly compete with Enzor.

B. Plaintiffs Work Relationship With Lucent Technologies Was a Trade Secret

"The question of whether or not a customer list is a trade secret is generally a question of fact." A.F.A. Tours v. Whitchurch, 937 F.2d 82, 89 (2d Cir. 1991); see also Chevron U.S.A., Inc. v. Roxen Service, Inc., 813 F.2d 26, 29-30 (2d Cir. 1987); Defiance Button Machine Co. v. C & C Metal Products Corp., 759 F.2d 1053, 1063 (2d Cir.), cert. denied, 474 U.S. 844, 106 S.Ct. 131, 88 L.Ed.2d 108 (1985). The determination of whether a customer list is a trade secret depends in part on whether or not the owner "took reasonable measures to protect [the] secrecy of the list," and "the ease or difficulty with which the information could properly be obtained from other sources." A.F.A. Tours, 937 F.2d at 89 (internal quotations omitted); see also, Defiance Button Machine Co., 759 F.2d at 1063. A customer list which is "developed by a business through substantial effort and kept in confidence" may be found to be a trade secret and protected as such, as long as the information is not otherwise readily ascertainable. Defiance Button Machine Co., 759 F.2d at 1063. "The mere fact that an employee has access to information the employer regards as confidential is not inconsistent with treatment of the information as a trade secret," as long as the employer takes "appropriate precautions to alert the employee to the need to maintain confidentiality." A.F.A. Tours, Inc., 937 F.2d at 89.

On the other hand, "[s]olicitation of an employer's customer by a former employee is not actionable unless the customer list could be considered a trade secret or there was wrongful conduct by the employee, such as physically taking or copying the employer's files or using confidential information." Cosmos Forms, Ltd., 193 A.D.2d at 579, 596 N.Y.S.2d 862 (quoting Levine v. Bochner, 132 A.D.2d 532, 517 N.Y.S.2d 270 (2d Dept. 1987)). In such a case, the former employee may still be enjoined from using the unlawfully-obtained information because he engaged in unfair competition. See Ecolab Inc. v. Paolo, 753 F. Supp. 1100, 1111 (E.D.N.Y. 1991). The rationale for such an injunction is that the former employee "has breached a fiduciary duty to the employer by engaging in misconduct." Ivy Mar Co., Inc. v. C.R. Seasons Ltd., 907 F. Supp. 547, 560 (E.D.N.Y. 1995). See also, Leon M. Reimer & Co. v. Cipolla, 929 F. Supp. 154, 161 (S.D.N.Y. 1996); Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387 392, 328 N.Y.S.2d 423, 427, 278 N.E.2d 636 (1972) (holding that, for example, a physical taking of customer lists might give rise to a claim for breach of fiduciary duty).

First of all, the Court is persuaded that the existence of Lucent as a BIG coating customer of Thin Film constituted a trade secret. Enzor did not fail to take "reasonable measures to protect [the] secrecy" of Lucent as one of Thin Film's BIG customers. A.F.A. Tours, 937 F.2d at 89.

Q: Did you have any discussions about the competition? Enzor: Either verbal or written, I had asked him not to contact my client list and not to use the name Thin Film Lab.
Q: What did Mr. comito say to you?
Enzor: I don't think he spoke directly on either of those points.
Q: He didn't answer ...

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