Sigma Chemical Co. v. Harris

NANGLE, J.

This case was tried to this Court sitting without a jury. This Court having considered the pleadings, the testimony of the witnesses, the documents in evidence, and the stipulations of the parties, and being fully advised in the premises, hereby makes the following findings of fact and conclusions of law, as required by Rule 52 of the Federal Rules of Civil Procedure.

A. FINDINGS OF FACT

1. Sigma Chemical Company (hereinafter "Sigma"), plaintiff herein, is a Missouri corporation having its principal place of business in the City of St. Louis, State of Missouri. Sigma is in the business of selling 16,000 esoteric or fine chemicals used in research, production and analysis in laboratories, universities and hospitals all over the United States and in 140-160 foreign countries. It sells primarily by the use of a catalogue. Of these 16,000 chemicals, 10,000 are purchased from suppliers in the United States and all over the world. The remaining 6,000 are manufactured by Sigma. The items purchased by Sigma for resale are analyzed upon receipt, re-packaged in small units and then sold. Purchases are made from 2,300 suppliers, many of whom are small "mom and pop" operations. The heart of Sigma's business is matching the right supplier with the product sold by Sigma. Although Sigma's suppliers send out catalogues and advertisements to many buyers, including Sigma's competitors, and although the chemicals and their names are in the public domain, Sigma's knowledge of which supplier sells a particular chemical of a certain quality that satisfies a particular purpose at the right price is not in the public domain. The chemicals sold by Sigma are often used for advanced pharmaceutical research and for the detection and analysis of disease. The exact nature and constituent parts of the chemicals it sells are often unknown. For example, it purchases and then resells a certain constituent part of milk. While two or more suppliers may offer that item for sale, all but one of them have purified the chemical so well that the active ingredient used for research has been purified out. The result is that Sigma uses only the one supplier which has not removed the one impurity that makes the product usable for research.

2. Foster Harris (hereinafter "Harris"), defendant herein, is a former employee of Sigma. Harris, formerly of St. Louis, Missouri, now resides permanently in California. Harris was employed by Sigma as a purchasing agent or chemical buyer.

[ ... Extensive fact finding regarding nature of Sigma's business ...]

12. Defendant Foster Harris is 37 years old and was born in Arkansas. He obtained a B.A. in Biology and Chemistry from the University of Missouri in St. Louis in 1969 and an M.A. in Economics in 1978 from Webster University. Prior to working for Sigma, Harris worked for Washington University School of Medicine doing basic biochemical research for three years and did similar work at Jewish Hospital for seven years.

13. On December 3, 1979, Harris went to work for Sigma and signed a non-competition and non-disclosure agreement at that time. He signed another such agreement on September 24, 1982. According to the latter contract, defendant agreed that he would not: directly or indirectly (whether as owner, partner, consultant, employee or otherwise) . . . for a period of two years following termination for any reason of [his] employment with the Company engage in or contribute [his] knowledge to any work or activity that involves a product . . . which is then competitive with and the same or similar to a product . . . on which [he] worked or with respect to which [he] had access to Confidential Information while with the Company.

By the latter contract, he further agreed that:

Following expiration of said two year period [he would] continue to be obligated under the "confidential information" section of this agreement not to use or to disclose confidential information so long as it shall remain proprietary or protectable as confidential trade secret information.

[... Extensive fact finding on Harris's duties ... ]

19. After becoming dissatisfied with Sigma, Harris started sending out resumes to pharmaceutical companies, such as Boots, and chemical companies, such as Upjohn. Neither Boots nor Upjohn is in competition with Sigma. Harris also sent a resume to a subsidiary of McDonnell Douglas, named "Vitek", which is not in competition with Sigma. Harris also sent a resume to ICN. ICN is one of Sigma's five (5) major competitors and ICN lists Sigma in ICN's 1982 annual report as one of its competitors.

20. Harris accepted a job with ICN as a purchasing agent and began employment on November 29, 1983. Prior to leaving Sigma, Harris lied about the identity of his future employer. Harris told his supervisor, John Haynes, that he was going to work for a friend who owned Afram, a company that imports from and exports to third world countries. However, the September 24, 1983, non-compete agreement between Sigma and Harris obligated Harris to "advise the Company of [his] new employer within ten days after accepting new employment." Harris did not tell ICN about his non-compete and non-disclosure agreement with Sigma when he went to work for ICN.

[...]

B. CONCLUSIONS OF LAW

This Court has subject matter jurisdiction because the parties are of diverse citizenship and the amount in controversy exceeds $10,000.00, exclusive of costs and interest. This is an action by Sigma, defendant's former employer, to obtain permanent injunctive relief against defendant's alleged breach of the restrictive covenant and non-disclosure agreement in his employment contract with Sigma. The primary legal issues in this case are whether the restrictive covenant is valid and enforceable and whether Sigma is entitled to permanent injunctive relief.

1. Validity of Restrictive Covenant

The benchmark in determining the validity of a restrictive covenant is whether it is reasonable. "Missouri law recognizes that a temporally and spatially limited restraint on an employee's ability to compete with his former employer will be enforced in equity if reasonable under all of the attending circumstances and if enforcement serves the employer's legitimate protectible interest." Thus, reasonableness has three (3) components: 1) the covenant must be reasonably necessary to protect the employer's legitimate interest; 2) the covenant must be reasonable in terms of temporal scope; and 3) the covenant must be reasonable in terms of geographic scope.

The covenant in the case at bar prohibits employment with competitors for two (2) years, but does not contain an express geographical limitation. Two (2) years is a reasonable time limitation and defendant does not seriously argue to the contrary. However, defendant argues that the restrictive covenant, which effectively prohibits defendants from working for a competitor for two (2) years anywhere in the world, is invalid because it is not reasonably limited to any territory of competition. Defendant's reliance on Noe is misplaced because Noe is factually distinguishable from the case at bar. Unlike the employer in Noe, Sigma both buys and sells its products on a worldwide basis. In addition, Sigma's major competitors compete with it on a worldwide basis. The test for the reasonableness of the geographic scope of a restrictive covenant is whether it is "no greater than fairly required for protection." The restrictive covenant in the case at bar is valid, despite the absence of a specific limit on its geographical scope, because Sigma's need for protection covers face of the earth. Although it is not on point, the case of Mills v. Murray, supports this Court's conclusion that Sigma's restrictive covenant is reasonable in terms of its geographic scope. Accordingly, the temporal and geographical scope of Sigma's restrictive covenant passes muster under the reasonableness test.

Whether Sigma has a legitimate interest to protect is the third and final prerequisite to enforceability of Sigma's restrictive covenant and is the primary source of combat in this case. In the area of restrictive covenants, "Missouri courts limit the granting of equitable protection to two narrowly defined classes of employer interest, customer contacts and trade secrets." Sigma claims that its product and vendor files constitute trade secrets and, therefore, warrant the protection of a restrictive covenant.

Missouri courts have adopted § 575 of the Restatement of Torts to define the term "trade secrets", as follows: 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. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret information in a business . . . in that it is not simply information as to single or ephemeral events in the conduct of the business, as, for example, the amount or other terms of a secret bid. . . .

The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. . . . Some factors to be considered in determining whether given information is one's trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. An analysis of these factors leads this Court to conclude that Sigma's product and vendor files are entitled to trade secret protection.

[Court analyzes each factor]

Because Sigma's product and vendor files constitute a trade secret and because the temporal and geographic scope of the restrictive covenant in Harris' employment contract with Sigma is reasonable, said restrictive covenant is valid and enforceable.

2. Propriety of Permanent Injunctive Relief

The principles which guide this Court in determining whether permanent injunctive relief is appropriate in this case are well known. "The determination whether to issue an injunction involves a balancing of the interests of the parties who might be affected by the Court's decision -- the hardship on plaintiff if relief is denied as opposed to the hardship to defendant if it is granted . . ." Federal Practice and Procedure: Civil § 2942. Moreover, "the main prerequisite to obtaining injunctive relief is a finding that plaintiff is being threatened by some injury for which he has no adequate legal remedy." In the opinion of this Court, Sigma is entitled to permanent injunctive relief in this case.

First, it is clear that Harris is violating or would violate the restrictive covenant in his employment contract by working for ICN as a purchasing agent. Given Harris' responsibilities and activities at ICN, as well as the overlap both between the products sold by Sigma and the products sold by ICN and between the products on Harris' stock status list at Sigma and the products for which Harris is responsible at ICN, Harris is contributing his knowledge to a service or product which is competitive with and similar to a service or product on which Harris worked at Sigma. In addition, Harris is in a position where it is very likely that he will, directly or indirectly, use or disclose trade secret information that Harris learned from Sigma's product and vendor files. Under these circumstances, there is a strong threat of irreparable injury to Sigma. Plaintiff stands to lose part of a competitive edge that has taken over forty (40) years to develop. The threat that Harris poses to Sigma is particularly great in view of defendant's own testimony that he had memorized some information through daily use and that he was the "best source person" at Sigma. Moreover, the facts that defendant attempted to mislead plaintiff about his new employment, that Harris violated his contract with Sigma by not advising Sigma of his new employer, that Harris solicited some of plaintiff's suppliers in the course of working for ICN, and that Harris apparently violated this Court's preliminary injunction on May 17, 1984 strongly suggests a threat of harm to plaintiff.

On the other hand, the harm that would occur to Harris if a permanent injunction were granted is not insubstantial. By the terms of the restrictive covenant, Harris will be prevented from working for ICN until November 22, 1985. In addition, Harris may be barred from utilizing his knowledge of Sigma's sources in the fine chemical business, so long as Sigma's trade secret information remains secret. However, the harm to Harris during the duration of the restrictive covenant is tempered by ICN's extension of credit. The potential harm to Harris is also diminished by the fact that other Sigma former employees have not had difficulty obtaining other employment at chemical companies, pharmaceutical companies, laboratories, universities and biotechnical companies, all of which do not compete with Sigma. Further, the balance of the equities do not favor Harris because he was aware of the restrictions imposed on him by his contract with Sigma and he took a voluntary, knowing and calculated risk by deciding to violate that contract.

On balance, it is the opinion of this Court that the threat of harm to Sigma if an injunction were not granted greatly outweighs the threat of harm to Harris if an injunction were granted. Accordingly, Sigma is entitled to permanent injunctive relief.