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CONTINENTAL DATA SYS. v. EXXON CORP.

January 10, 1986

CONTINENTAL DATA SYSTEMS, INC.
v.
EXXON CORPORATION, et al.



The opinion of the court was delivered by: NEWCOMER

 Clarence C. Newcomer, J.

 Continental Data Systems, Inc. ("Continental") brought this action alleging theft of trade secrets by Exxon Corporation ("Exxon") and the individual defendants. In addition to a variety of state law claims, Continental alleges that the defendants' conduct violates the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ┬ž 1961 et seq. ("RICO"). *fn1" I am now presented with a motion for summary judgment by Exxon. Exxon argues that plaintiff's RICO claim lacks merit because Exxon was not part of an "association in fact" with the individual defendants. While I am dubious about Exxon's contention, this issue does not defeat the motion. Rather, for reasons which will be fully elaborated below, I will grant defendant Exxon's motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure on the RICO claim, and deny it in all other respects.

 I. FACTS OF THE CASE.

 Because defendant has moved for summary judgment under Rule 56, I must construe all evidence in the light most favorable to plaintiff. See, Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 405 (3d Cir. 1981). Furthermore, the presence of any material issues of fact precludes the entry of summary judgment. Id. I am therefore adopting in substantial part the plaintiff's statement of facts in this case. Plaintiff's First Supplemental Memorandum in Opposition to Defendant Exxon Corporation's Motion for Summary Judgment at 5-17 (hereinafter "Plaintiff's First Supplemental Memorandum").

 A. The Parties

 Continental is a start-up, high technology company. It was formed in July 1981. It became a Xerox value-added dealer for word processing equipment and, in January 1984, became an IBM value-added dealer for word processing equipment. It specializes in designing and licensing software tailored to the needs of the legal community and the hardware to make it run. It has grown from a handful of employees in 1981 to over 50 employees in the spring of 1985. Its revenues for the fiscal year ending June 1983 were $1.7 million, and its net income $83,000.

 Exxon is one of the largest corporations in the world with 1983 assets of $62.9 billion, revenue of $88 billion and net income of $4.98 billion. Exxon Office Systems Co. ("EOS") was formed in 1981 as a division of Exxon Enterprises which itself is a division of Exxon Corporation. EOS resulted from the merger of three divisions which together had 6,000 employees. In 1983, EOS had assets of $201 million, revenue of $133 million and a net loss of $60 million.

 In late 1982, EOS had approximately 20 branches in the United States. Paul Morris was Philadelphia branch manager, James Geddes was marketing manager, and Judith Raybuck was a senior sales representative. Faith Halpern was offered employment with EOS in November, 1982, but was told that she could not start work as a sales representative until late December.

 B. Development of Continental's Software

 In the spring of 1982, Continental began development of a personal injury program which incorporated the capabilities of the no-fault package but had expanded capabilities. The cost of developing the programs was in excess of $95,000. Initial versions were delivered to Continental's customers by November 1982. By early December 1982, Continental salespersons were given sales manuals containing sample output from the software programs. Each salesperson had a single manual. Selected pages of the manuals were used to show bona fide customers the capabilities of the software. In the unusual situation where the bona fide customer requested a copy of certain portions of the manual to make a decision, the customer was asked to agree orally to maintain the confidentiality of the manual. In addition, authority to leave the manual had to be obtained from Continental's Vice President of Sales. In the hands of a competitor, the manual was a virtual blueprint to enable the competitor to duplicate the output of Continental's software. When the software was licensed, a provision of the contract prevented unauthorized use or dissemination of the software and its manuals.

 C. The Alleged Misconduct

 EOS lost $122 million in 1981 and $37 million in 1982. In 1982 and 1983, the Philadelphia branch failed to meet its sales quotas. During the first half of 1983, Paul Morris was informed that he was in jeopardy of losing his job because of his branch's poor sales performance.

 Geddes became marketing manager for the Philadelphia area in September 1982. Geddes was in charge of a "team." Raybuck was a member of Geddes' team who specialized in selling EOS word processing systems to attorneys. Morris, Geddes and Raybuck were salaried EOS employees eligible to receive incentive pay if they met their sales quotas. At no time did Geddes ever meet his quota.

 In November 1982, Raybuck complained to Geddes that EOS was losing sales to Continental in the legal market because of Continental's personal injury software ("PIP") program. Geddes regarded Continental as a viable competitor in the legal market but was unable to obtain any useful information about the company or its products. Geddes spoke to Morris about PIP and directed an employee to check with EOS' competitive department to determine whether EOS had a PIP program. Geddes learned that EOS' competitive department, which he regarded as very competent, did not know what a PIP program was.

 Geddes then called Halpern, whom he had just agreed to hire but who continued to work for another firm until December 20, to set up a demonstration of Continental's PIP program at her office in the Atrium, 19th and Market Streets, Philadelphia. He specifically asked her to set up the demonstration with Tom Licorish, a Continental salesperson whose name was known to Morris, Geddes and Raybuck. Halpern arranged the demonstration for December 7, 1982 by representing to Licorish that she was a consultant for a law firm interested in Continental's PIP and no-fault programs.

 Halpern and Geddes met in Halpern's office prior to the demonstration and discussed how Geddes should be introduced:

 
"Q. Okay. Prior to the demonstration did Jim Geddes come to your office?
 
A. Right before the demonstration.
 
Q. Okay. Did you talk with him before?
 
Q. Do you recall what name?
 
A. No, I don't." (Halpern Dep. 21).

 In fact, Geddes and Halpern did so represent at the demonstration. At no time during the demonstration did Geddes represent his true name, his employer or the purpose for which he wanted the demonstration because Geddes feared that if he did so, Licorish would not go ahead with the demonstration.

 During the demonstration, which lasted two hours, Continental's word processing software was run on a Xerox 820 computer system. Between one hour and one and one half hours were devoted to explaining and discussing Continental's no-fault and personal injury software. That software was not demonstrated on the Xerox computer, but Licorish discussed all aspects of the software with Halpern and Geddes in order to make a sale. As part of his sales presentation and in response to their questions, ...


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