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, raise the

possibility of an era of widespread corporate espionage and in-

formation gathering. Technological advances may offer in

some situations the incentive and in others the means for

facilitating the misappropriation of a competitor's trade

secrets. In many industries, technology provides the com-

petitive edge necessary for success and its acquisition by in-

dustrial

theft

may sometimes

be

considered a seductive alter-

native to expending substantial corporate funds for research.

Technological advances also offer an ever widening array of

sophisticated devices to facilitate such

theft

to those who 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 effectively with this 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 of the United States

antitrust laws.' In addition to the obviously attractive remedy

of treble damages and the award of attorneys'

fees,"

the

Sher-

man Act" may provide the aggrieved party with nationwide

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

AUTHOR'S

NOTE:

This article is based upon a paper submitted in partial

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

regulation) at the NewYork University Schoolof Law.

1

2THE ANTITRUST BULLETIN

relief? (a matter of some 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 article inquires into whether the antitrust laws should

be applied to claims based upon trade secret misappropriation

and, if so, under what criteria. This will entail an examination

of the development and gradual erosion of a theory of anti-

trust

liability, a review of alternative avenues of state court

relief, and an 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. TRADE SECRET MISAPPROPRIATION -THE

PER

SE

DOCTRINE

UNDER THE EARLY ANTITRUST CASES

Two threads, one factual and one legal, run through the

antitrust cases in which trade secret misappropriation- has

formed the basis for the complaint. First, a common factual

background exists, with former employees taking valuable

business information with them to a well-established com-

petitor or to a newly formed competitive entity. Second, the

judiciary almost uniformly focuses upon a limited concept for

applying the antitrust laws. Thus, in the seminal case of

Albert Pick-Barth

Co.

v. Mitchell Woodbury Corp.,' plaintiff,

acorporation engaged in the design, manufacture and installa-

tion of kitchen equipment in the New England area,

established

that

two of its employees, 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, and had begun a

'com-

peting business in

the

New England

area."

Plaintiff also

established

tliat

these two trusted employees were financed in

their endeavors by the defendant -eorporation, which was a

dominant factor in the kitchen equipment trade throughout

the United States,

but

which had not established any branch

in the New 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 business in 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 damages as a result of

this conspiracy.

11

The lower court, while recognizing

that

the question was

not free from doubt, nevertheless entered a verdict for plain-

tiff, reasoning that, in view of the "intentional interference

and injury for tortious character inspired by the intent here

found," it was "not necessary to prove injury to the public by

unreasonable restraint.':" The First Circuit approved this

analysis and affirmed the lower court's holding

that

a Sher-

man Act violation had been proven." After observing

that

any

court of equity would enjoin such activity as unfair competi-

tion, the court ruled:

If

a conspiracy is proven, the purpose of intent of which

is by unfair means to eliminate a competitor in inter-

state trade and thereby suppress competition, such a con-

spiracy, we think, is a violation of Section 1 of the Sher-

man Act.14

In Atlantic Heel Co. v. Allied Heel

CO.,15

the First Circuit

reaffirmed its decision in Pick-Barth. Plaintiff, a leading

manufacturer of leather and leatherboard heels, alleged

that

its director had conspired with a newly formed business com-

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

ticular, plaintiff asserted

that

this director had visited plain-

tiff's plant without its consent for the purpose of obtaining

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

employees and commission salesmen to leave plaintiff for

employment at Allied Heel." The trial court granted defen-

dants' motion to dismiss for failure to 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 the Sherman Act. The court reasoned as

follows: