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SI HANDLING SYS. v. HEISLEY

November 7, 1986

SI Handling Systems, Inc.
v.
Michael E. Heisley, Heico, Inc., Philip L. Bitely, Richard O. Dentner, Eagle Sheet Metal Mfg. Co., Inc., Thomas H. Hughes, Sy-Con Technology Inc., Russell H. Scheel, Stanley K. Gutekunst, Barry L. Ziegenfus, Frank W. Possinger



The opinion of the court was delivered by: TROUTMAN

 TROUTMAN, S.J.

 This case, now before the Court for consideration of defendants' motion for summary judgment, involves complex questions of liability for alleged misappropriation and misuse or trade secrets, breach of contract, interference with contract, conspiracy, antitrust violations and RICO violations.'

 The trade secret issues were the subject of a twenty-nine day hearing on plaintiff's application for a preliminary injunction. Defendants seek summary judgment on all claims asserted by the plaintiff.

 In large part, all of plaintiff's claims are based upon or derived from the allegation that defendants misappropriated and wrongfully used plaintiff's proprietary information, including trade secrets, to build a competitive business.

 Before considering defendants' contentions, we shall review the applicable summary judgment standards because some of defendants' arguments and contentions seem to rest upon an erroneous view of the respective burdens resting upon the parties and the proper role of the Court in considering the instant motion. In addition, to clarify the issues, we shall briefly relate the procedural history of the case, particularly as it concerns the granting of a preliminary injunction in March, 1984, and its termination in March, 1985. We do so because the defendants repeatedly rely upon said order, contending it is dispositive of various issues.

 Accordingly, we note the two essential conditions which must exist before summary judgment may properly be granted under Fed. R. Civ. P. 56, viz., the absence of genuine issues as to material facts and the movant's entitlement to judgment as a matter of law.

 In two recent cases, the Supreme Court reiterated the need for the party opposing summary judgment to produce some evidence which could support a favorable jury verdict when confronted with competent evidence produced by the movant in support of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The Court reemphasized that the trial court must neither weigh the evidence produced by the parties, nor conduct a "trial on affidavits". Anderson, 91 L. Ed. 2d at 216.

 The party opposing summary judgment may show the existence of genuine issues of material fact "by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings themselves". Catrett, 91 L. Ed. 2d at 275. Thus, affidavits in support of summary judgment possess no talismanic significance as compared to other kinds of evidence. The party opposing the motion is not required to produce counter affidavits so long as he is able to show the existence of genuine issues of material fact by other proper means. Moreover, any affidavits produced by either party must meet the standards set forth in Rule 56(e), i.e., that the affidavits contain facts admissable in evidence, be made on personal knowledge, and show that the affiant is competent to testify to the matters set forth therein.

 Finally, even if the movant succeeds in establishing that there is no material issue of fact in dispute or, as sometimes occurs, if the movant concedes that the opposing party's version of the facts is accurate, he must then demonstrate that he is entitled to judgment as a matter of law. This is usually accomplished by citing relevant precedent to convince the Court that there is no legally cognizable theory upon which the opposing party could obtain a judgment in his favor. Stated another way, it will avail the proponent of summary judgment nothing to establish the lack of a factual dispute if the issue in question is not an essential element of the opponent's claim or defense, i.e., is not material or is not otherwise legally determinative of the outcome of the case.

 With these standards in mind, we turn to a brief summary of the history of this case with respect to the preliminary injunction and its aftermath. *fn1"

 In March, 1984, the Court issued a preliminary injunction prohibiting the defendants from engaging in that aspect of the materials handling industry which would utilize the car-on-track technology developed by plaintiff SI Handling. Upon appeal, the case was remanded for the entry of a more narrowly drawn injunctive order to conform to the Third Circuit Court of Appeals' determination that some of the "trade secrets" as determined and identified by this Court were not legally cognizable as such under the law of Pennsylvania. See, SI Handling Systems, Inc. v. Heisley, et al., 753 F.2d 1244 (3d Cir. 1985).

 In attempting to "recast" the preliminary injunction order, we properly considered the opinion of the Court of Appeals with respect to the desirability of so-called "lead-time" injunctions. Id., at 1266. Ultimately, we dissolved the preliminary injunction on March 27, 1985, after it had been in effect for approximately thirteen months. That decision is the first of defendants' several purported independent bases for summary judgment as to plaintiff's trade secret claims. Accordingly, it is there that we begin our detailed consideration of defendants' motion.

 I. Reverse Engineering

 Whether CARTRAC can be reverse engineered is a question of fact. At the preliminary injunction stage of the controversy, this Court and the Circuit Court of Appeals were required to determine the facts established by a limited record and for the sole purpose of determining the issue of injunctive relief. This Court, affirmed by the Circuit Court, found and concluded that plaintiff had supported its claim that it possesses certain described trade secrets which were misappropriated by the defendants. Presently, in deciding whether to grant defendants' motion and remove some or all of the plaintiff's claims from a jury's consideration, we are obliged to determine, without reference to the prior findings of this Court and the Circuit Court, whether there are any genuine issues of material fact in dispute requiring the findings of a jury. Stated another way, we decide only whether there is sufficient conflict in the record before the Court to require a jury determination that SI has satisfied all the prerequisites for trade secret protection. Anderson v. Liberty Lobby, Inc., supra. The issue, whether CARTRAC can be reverse engineered, is but one aspect of that factual inquiry.

 The defendants erroneously argue that our decision dissolving the preliminary injunction has negated plaintiff's trade secret claims, despite the affirmance by the Court of Appeals of eight trade secrets identified by this Court. Defendants erroneously characterize our use of the term "reverse engineering" as a "holding" that SI's CARTRAC product can be reverse engineered and is thus not entitled to trade secret protection under the law of Pennsylvania. Again the defendants ignore, as already stated, that this Court was there determining the issue of injunctive relief in the light of equitable principles particularly applicable to preliminary injunctive relief.

 Contrary to defendants' assertions, the testimony which they characterize as an admission by SI that CARTRAC is susceptible to reverse engineering, and referred to by the Court in terminating the preliminary injunction, is not conclusive on that issue. While it is true that one of plaintiff's witnesses, Robert Hale, testified that CARTRAC could be reverse engineered and this Court referred to that testimony in attempting to determine a proper "life-span" for injunctive relief, the testimony and our use of it must be placed in context.

 In the first instance, defendants' counsel defined the term "reverse engineering" for the witness:

 
Now, Mr. Hale, if a group of engineers -- and I will assume they have no experience in the material handling industry, or at least in the car-on-track-type industry -- if a group of engineers were given the opportunity to take a car-on-track system apart and measure its various components and see it in operation, could they, on the basis of those measurements and that inspection, reverse engineer it to the extent that they could then design and produce drawings for an operational system? Now, remember, when I said operational system, I said a system that works, moves something from one place to another, not as well necessarily as SI's system functions and as long as SI's system.

 (Preliminary Injunction Hearing Transcript, Vol. XIV at 100, 101.) (Emphasis added). Counsel for the defendant did not ask whether the engineers he described could produce an actual working system. Rather, he asked whether the engineers could, from a working model, produce drawings from which a similar system could be built. Hale's affirmative answer to that question cannot be construed as an abandonment of SI's position that CARTRAC embodies trade secrets which would not be disclosed even if a competitor were to dismantle a CARTRAC system, measure and test its component parts and even build an exact duplicate of it. Indeed, elsewhere in his testimony, Hale was specifically asked whether certain aspects of the CARTRAC system were disclosed and could be copied from it and he answered those queries in the negative. (See, e.g., Preliminary Injunction Hearing Transcript Vol. X at 46, 64; Vol. XI at 30, 89; Vol. XIII at 29). How such conflicting testimony should be construed is an issue of fact, not to be resolved by the Court on a motion for summary judgment.

 Second, our reference to Hale's testimony was not a holding that CARTRAC can be reverse engineered in the sense that all of SI's claimed trade secrets could be duplicated by tearing down the product. This Court was instructed by the Circuit Court to consider the proper life span of injunctive relief in this case. We were required to strike a balance among competing interests, as noted in our Memorandum and Order of March 27, 1985.

 The situation we faced was unique, with no easy or precise solution. On the one hand, we had determined that SI had protectible trade secrets, the use of which by defendants could be enjoined. On the other hand, the individual defendants were instrumental in developing the system which embodied the trade secrets. Presumably, with their expertise and training, the use of which could not be enjoined, they would be able to solve the same problems and come to the same juncture in the development of a spinning tube, car-on-track materials handling system at which SI had arrived, albeit with a lower investment of time and money. The injunction that was in place for over a year was the only remedy at our disposal to compensate SI for the shorter development period available to the defendants. *fn2"

 At the heart of the matter in 1985 was the determination of an appropriate period of time for continued injunctive relief. Having already rejected the testimony of defendants' expert that the CARTRAC system could be reverse engineered in an exceptionally short period of time, we necessarily turned to the testimony of Robert Hale, the plaintiff's witness. Although we used the terminology employed by counsel, i.e., "reverse engineering" it occurs to us that the term "re-engineer" might better describe what we are seeking to express. In any event, that phase of the litigation is concluded. The Court is no longer the fact finder. Therefore, defendants' attempts to transmute our efforts into both a factual determination and a conclusion of law upon which they may obtain summary judgment is simply overreaching.

 II. Other Trade Secret Issues

 Defendants have also advanced additional theories upon which they contend summary judgment should be granted as to plaintiff's trade secret claims. Most depend upon what defendants characterize as incontrovertible facts contained in various depositions and affidavits. For the reasons that follow, we conclude that defendants have failed to establish the absence of genuine issues of material fact and have, accordingly, failed to demonstrate that they are entitled to judgment as a matter of law as to SI's trade secret claims.

 A. Identification of Trade Secrets; Proof of Defendants' Use Thereof.

 Defendants do not support their argument that plaintiff's alleged failure, to date, to specify their claimed trade secrets to defendants' satisfaction entitles them to judgment as a matter of law. Such a requirement has not been imposed by Pennsylvania law, or by the Third Circuit. Rohm and Haas Co. v. Adco Chemical Co., 689 F.2d 424 (3d Cir. 1982). Thus, even if true, defendants are not entitled to summary judgment on that basis. Defendants' contention is also belied by the fact that this Court, as well as the Circuit Court, was able to identify, from the testimony presented at the preliminary injunction hearing, several discrete elements of CARTRAC which were entitled to trade secret protection. Further, we are puzzled as to the ability of some defendants to present sworn affidavit testimony that they never used the "trade secrets" which they also claim were not and cannot be identified. Moreover, as a practical matter, a jury may not have to be as precise as the Court needed to be in identifying the trade secrets. At trial, the inquiry may be less specific in that the jury will have to decide whether CARTRAC contains trade secrets without necessarily specifying in precise detail what they are. It will, of course, be the Court's task to be certain that the plaintiff has put into the trial record sufficient evidence from which the jury can properly find that CARTRAC contains trade secrets which the defendants misappropriated before allowing the case to go to the jury. *fn3"

 The affidavits which purportedly support defendants' contention that they were unaware of SI's claims to trade secret protection are unavailing for two reasons. First, some of the affidavits are, in part, based upon personal belief, not personal knowledge as to the existence of certain alleged trade secrets embodied in CARTRAC. As such, those affidavits are legally insufficient to support summary judgment. (See, e.g., Affidavits of Stanley Gutekunst, Russell Scheel and Barry Ziegenfus, referring to fit, dimensions and tolerances between the drive tube and tube plug, Exhibit Q to Defendants' Motion for Summary Judgment, Doc. # 234). Second, and more important, all of the affidavits have been sufficiently countered by other evidence of record so as to preclude the granting of summary judgment in favor of the defendants.

 This case is in the unusual posture of having had the sufficiency of the evidence through which plaintiff proposes to establish the elements necessary to support its trade secrets claim analyzed for a different purpose, i.e., injunctive relief, at both the trial and appellate levels. None of the factual findings upon which this Court relied in granting the motion for a preliminary injunction were held to be clearly erroneous by the Court of Appeals. *fn4" That evidence is already on the record in this case and, presumably, may be offered at trial. *fn5" Thus, the inescapable conclusion is that there are material issues of fact in dispute with respect to plaintiff's trade secret claims, including those already identified by this Court and affirmed by the Court of Appeals. *fn6"

 Defendants' denials that they were aware of SI's claim of trade secrets, as well as their denials that they used those items which SI claimed as trade secrets, create additional issues of fact for the jury's consideration. By the same token, those portions of the deposition testimony of some of plaintiff's witnesses which contradicts or appears to contradict testimony given at the preliminary injunction hearing may make for effective arguments to the jury, but the purported contradictions do not entitle the defendants to summary judgment.

 Finally, we see no need to enter judgment with respect to the "trade secrets" which this Court identified but which the Court of Appeals held not to be trade secrets as a matter of law. Obviously, plaintiff will not be permitted to prove or attempt to prove that those items are trade ...


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