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E. I. duPont de Nemours & Co. v. American Potash & Chemical Corp.

Court of Chancery of Delaware, New Castle County

May 5, 1964

E. I. duPONT de NEMOURS AND COMPANY, a Delaware corporation, Plaintiff,
AMERICAN POTASH & CHEMICAL CORPORATION, a Delaware corporation, and Donald E. Hirsch, Defendants.

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[41 Del.Ch. 534] James M. Tunnell, Jr., William S. Megonigal, Jr., and Richard L. Sutton, of Morris, Nichols, Arsht & Tunnell and Walter D. Ford, Wilmington, for plaintiff.

David F. Anderson and Richard L. McMahon, of Berl, Potter & Anderson, Wilmington, for defendants.

SEITZ, Chancellor:

This is the decision on defendants' motion for summary judgment in plaintiff's action to enjoin the use or disclosure of plaintiff's trade secrets.

Plaintiff, E. I. duPont de Nemours and Company, a Delaware corporation, brought this action against American Potash and Chemical Corporation ('Potash'), also a Delaware corporation, and Donald E. Hirsch ('Hirsch'), a former employee of the plaintiff who is currently employed by Potash. Plaintiff sought, and the court granted, [41 Del.Ch. 535] a restraining order which, inter alia, prohibited Hirsch from divulging or disclosing the plaintiff's trade secrets and confidential information relating to the manufacture of titanium dioxide (TiO sub2 ) pigments by its chloride process. The order also restrained Hirsch, despite the absence of a covenant not to compete, from accepting or undertaking any employment by Potash or engaging in any work with Potash in connection with or related to the operation and development of a chloride

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process or in connection with or related to the manufacture of TiO sub2 pigments by a chloride process. An appropriate restraint was also imposed upon defendant Potash. Later, after argument, the court ruled that a preliminary injunction in the same terms as the restraining order should issue. However, no such order was ever presented for signature. Concededly, however, the restraining order is still in effect. Plaintiff also seeks a permanent injunction of the same scope as the restraining order.

After the decision on the preliminary injunction argument was announced, certain depositions were taken and interrogatories filed and answered. Thereafter, the defendants filed a motion for summary judgment in effect to dismiss the case before trial for lack of legal merit. The decision on this motion requires a rather elaborate factual presentation.

Plaintiff is engaged in developing, manufacturing and marketing a large variety of chemical products. At two of its substantial manufacturing plants plaintiff is, and for many years has been, engaged in the commercial manufacture of TiO sub2 pigments by a chloride process. On this record it may be said still to be the only successful commercial manufacturer of the product by a chloride process, at least in this country. Plaintiff is now constructing at Antioch, California a new commercial plant which will be used exclusively for the manufacture of such pigments by its chloride process.

The defendant Hirsch was employed by plaintiff on August 21, 1950. He had previously been a college instructor with a bachelor's and a master's degree in chemical engineering. In 1954 he received a doctorate. When he joined plaintiff, he executed an agreement by which he agreed, inter alia, not to use or disclose any of plaintiff's trade secrets without its prior written consent. As noted above, the [41 Del.Ch. 536] agreement contained no restriction against his employment by a competitor of the plaintiff in any field.

When Hirsch joined the plaintiff in 1950, it was undergoing at its Edge Moor, Delaware plant the trials and tribulations of attempting to manufacture TiO sub2 pigments by a chloride process for commercial use. Hirsch became a part of the personnel working to accomplish that objective. The successful development of the process was admittedly a long, involved, and expensive corporate effort.

From 1950 to 1955 and from 1960 to 1961, Hirsch was engaged principally in the research and development of plaintiff's chloride process. In the interim he worked in plaintiff's niobium manufacture. From the latter part of 1961, and until he resigned on November 27, 1962 to go with Potash, he was a very important member of a group assigned to advise in the design of plaintiff's new Antioch plant.

It would appear that though the defendant Hirsch had advanced in his particular line of endeavor, he desired to become involved in some management aspect of this work rather than the purely technical side and made this known to his superiors. As time went by, he apparently became unhappy, not so much with the compensation as with the fact that he had not been transferred to some managerial aspect of the operation. Commencing in or about 1959, he made inquiries about job opportunities elsewhere, but nothing developed until Potash entered the picture.

Potash is a diversified manufacturer of industrial chemicals. In November 1960, arrangements were completed between Potash and Laporte Industries, Ltd., of Great Britain for Potash to manufacture titanium dioxide in the United States by the sulphate process, Laporte being a large manufacturer of TiO sub2 by that process in England. By the spring of 1961, however, Potash had concluded that the competitive position of its TiO sub2 venture in the United States would be enhanced through use of a chloride process in lieu of the sulphate process originally envisaged. The chloride process is said to have a number of distinct commercial advantages over the sulphate process.

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On March 20, 1961, Potash requested from plaintiff a license granting it the right to use plaintiff's patents and know-how relating [41 Del.Ch. 537] to the manufacture of TiO sub2 by its chloride process. Though plaintiff offered Potash a license under certain of its patents dealing with the chloride process, it refused to grant Potash any right with respect to its secret know-how relating to such process. Potash dropped that approach.

In August of 1962, defendant Potash began recruiting personnel for a plant it was then designing and intended to construct in California for the manufacture of TiO sub2 . Production therein would be by a chloride process which defendants say was developed over a ten-year period by Laporte Industries, Ltd., through an extensive research and pilot plant program. At this stage, however, it appears that Laporte still does not produce TiO sub2 in commercial quantities by its chloride process. Nevertheless, Potash's engineers and chemists have participated in Laporte's work since 1960, and Potash alleges that it is now entirely capable with the help of Laporte of designing, constructing, and operating, presumably successfully, a large commercial plant for the manufacture of TiO sub2 by a chloride process in the United States.

In mid-September 1962, Potash first advertised in a Wilmington, Delaware paper, where plaintiff's home offices and its Edge Moor plant are located, for applicants for the position which Hirsch ultimately accepted, viz., manager of plant technical services. Later, to aid it in its program of recruiting personnel, Potash engaged a management consultant firm. That firm advertised in a Chemical Engineers' bulletin for a 'Manager, Plant Technical Services'. Defendant Hirsch answered this advertisement. A personal interview followed, and on November 28, 1962--one day after he had resigned from plaintiff--an employment agreement was signed with Potash, in which Hirsch agreed, inter alia, that he would not disclose 'any information that he knows to be proprietary or confidential information, data, development or trade secret of a third party without the prior written consent of said third party'. Although the position Hirsch was to fill presumably was to come into active being only after Potash's plant was completed, it is not suggested that he would not have become involved in the project before that time in the absence of this court's injunction.

Hirsch accepted his new position with knowledge that plaintiff intended to try to block him from working for Potash in connection [41 Del.Ch. 538] with the production of TiO sub2 pigments by a chloride process because of its expressed belief that such employment would result in a use or disclosure of plaintiff's secrets contrary to Hirsch's obligation to plaintiff. He was also advised that his job with plaintiff was still available to him.

Immediately thereafter plaintiff commenced this action to enjoin the defendants from using or disclosing its trade secrets. Subsequently defendants filed their motion for summary judgment which evokes this opinion. Parenthetically Hirsch is working for Potash in another product area but not in any specific capacity as yet.

The parties agree that the law is well settled that where an employee has agreed either expressly or by implication as one of the terms of his contract of employment that he will not divulge or disclose to his employer's detriment any trade secrets or other confidential information which he has acquired in the course of his employment, the employer is entitled to an injunction against a threatened use or disclosure of such confidential information by its former employee for his own benefit or for the benefit of a third person.

In determining the application of this rule of law to the present case, the court at this stage must take the following facts to be established: (1) Plaintiff has patents as well as numerous valuable trade secrets which it has developed in connection with its research and development of a chloride process for the production of TiO sub2 pigments;

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(2) Plaintiff has been successfully manufacturing TiO sub2 pigments by a chloride process for commercial purposes for many years but only after engaging in extensive and continuous research and experimentation extending over many years at a great cost to the plaintiff; (3) Plaintiff is currently the only successful commercial manufacturer of TiO sub2 by a chloride process, certainly in the United States and perhaps generally; (4) Plaintiff has taken the requisite action to protect and preserve the integrity of its secrets and confidential information in connection with the manufacture of this product; (5) Hirsch has knowledge of such trade secrets which he obtained in the course of his employment with plaintiff; (6) The disclosure of these secrets would ...

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