Should a Trade Secrets Misappropriation Claim Lie in the Procrustean Antitrust Bed?

• Author: Norman Yoerg
• Published date: 01 March 1977
• Date: 01 March 1977
• DOI: http://doi.org/10.1177/0003603X7702200101

SHOULD

A TRADE

SECRETS

MISAPPROPRIATION

CLAIM

LIE

IN

THE PROCRUSTEAN ANTITRUST BED?

by

NORMAN

YOERG,

JR.*

I. INTRODUCTION

Rapid advances in industrial technology,combined in some

instances with unscrupulous business methods, raisethe

possibility of an eraof widespread corporate espionage andin-

formation gathering. Technological advancesmay offer in

some situations the incentiveand in others the means for

facilitating the misappropriation of a competitor's trade

secrets. In many industries, technology provides thecom-

petitive edge necessaryforsuccess anditsacquisitionby in-

dustrial

theft

may sometimes

be

considered a seductive alter-

native to expending substantial corporate funds for research.

Technological advancesalsoofferaneverwideningarray of

sophisticated devices to facilitate such

theft

to thosewho may

be

so inclined.' At

the

same time, corporate executives, under

competitive pressure, may be tempted to use such technology

to discover competitors' trade secrets. 2

Meanwhile,

state

law, the traditional domain of com-

petitive torts such as trade secret misappropriation, in the

past had contained technical requirements

that

limit the

judiciary's ability to deal effectivelywiththis problem.

It

is

therefore perhaps inevitable

that

the businessman injured by

such practices may attempt to assert in Procrustean" fashion

that

these practices fall within the scope ofthe United States

antitrust laws.' In addition tothe obviously attractive remedy

of treble damages andthe awardof attorneys'

fees,"

the

Sher-

manAct" mayprovidetheaggrievedparty with nationwide

*White &Case, New York, N. Y.

AUTHOR'S

NOTE:

This article is based upon apaper submitted in partial

satisfaction of the requirements for thedegree of Master of Laws (in trade

regulation)attheNewYorkUniversity SchoolofLaw.

1

2THE ANTITRUST BULLETIN

relief? (a matter ofsome importance to a trade secret owner),

federal jurisdiction over pendent state claims for trade secret

misappropriation, unfair competition and other related torts,"

and other substantive and procedural advantages.

This articleinquires into whether the antitrust laws should

be applied to claims based upon trade secret misappropriation

and, ifso, under what criteria. This will entail an examination

of the developmentandgradual erosion of atheory of anti-

trust

liability, areview of alternative avenues of state court

relief, andan analysis of such a Sherman Act claim under

pre-

sent law to determine whether

it

comports with traditional an-

titrust

principles. Finally, this article will offer a proposal for

dealing with

the

application of antitrust law to the com-

petitive

tort

of trade secret misappropriation.

II. TRADESECRETMISAPPROPRIATION -THE

PER

SE

DOCTRINE

UNDER THEEARLY ANTITRUSTCASES

Two threads, one factualandone legal, run through the

antitrust cases in which trade secret misappropriation- has

formed the basis for the complaint. First, acommon factual

background exists,withformeremployees taking valuable

business information with them to awell-established com-

petitor or toa newly formed competitiveentity. Second, the

judiciary almost uniformly focuses upon alimited concept for

applying the antitrust laws. Thus, in the seminalcase of

Albert Pick-Barth

Co.

v. MitchellWoodbury Corp.,' plaintiff,

acorporation engaged in the design, manufacture and installa-

tion of kitchen equipment in the New England area,

established

that

two of itsemployees, one the manager of

its

kitchen equipment business and the other

its

former president

and treasurer, had taken a large

part

of plaintiff's records, in-

cluding plaintiff's list of customers,andhad begun a

'com-

peting business in

the

New England

area."

Plaintiff also

established

tliat

these two trusted employees were financedin

their endeavors by thedefendant -eorporation, which was a

dominant factor in the kitchen equipment trade throughout

the United States,

but

which had not established any branch

in theNew England area.

In

response to a

set

of inter-

TRADE SECRETS 3

rogatories, the jury found

that

these defendants had conspired

to deprive plaintiff of its businessin kitchen equipment, but

that

this misappropriation of plaintiff's business did not affect

an unreasonable restraint of trade.The jury further found

that

plaintiff had sustained $40,000 in damagesas a result of

this conspiracy.

11

The lower court,while recognizing

that

the question was

not free from doubt,nevertheless entered a verdictforplain-

tiff, reasoning that, in view ofthe"intentional interference

and injury for tortious character inspired by the intent here

found," itwas "notnecessary toprove injury tothe public by

unreasonable restraint.':" The First Circuit approved this

analysis and affirmed thelower court's holding

that

a Sher-

man Act violation had been proven." After observing

that

any

court of equity would enjoin suchactivity as unfair competi-

tion, the court ruled:

If

a conspiracy is proven, thepurpose of intent of which

is by unfair means to eliminatea competitor in inter-

state trade and thereby suppress competition, such a con-

spiracy,we think, is a violation ofSection 1 of theSher-

man Act.14

In Atlantic Heel Co. v. Allied Heel

CO.,15

the First Circuit

reaffirmed itsdecision in Pick-Barth. Plaintiff, a leading

manufacturer of leather and leatherboard heels, alleged

that

its director had conspired witha newly formedbusiness com-

petitor, Allied Heel, to destroy plaintiff's business. Inpar-

ticular, plaintiff asserted

that

this director had visited plain-

tiff's plant without its consent for thepurposeof obtaining

plaintiff's trade secrets and had induced plaintiff's key

employees andcommission salesmentoleaveplaintiff for

employmentatAllied Heel." The trial court granted defen-

dants' motion to dismiss for failureto state a claim under the

Sherman Act. On appeal,the First Circuit reversed. After

rejecting defendants' argument

that

public injury must be

shown," the court held

that

plaintiff, by proving a conspiracy

to destroy acompetitor by unfair means, had established aper

se violation of theSherman Act. The court reasoned as

follows: