to the programmers he employed to develop the software for his five programs; the evidence establishes that these methodologies were developed by plaintiffs' employees during their employment with plaintiffs.
Although defendant did demonstrate that plaintiffs had, on a limited number of occasions, given presentations concerning their hospital management systems in general, no evidence was presented that the methodologies of these systems ever were revealed to even a limited segment of the general public. Therefore, the methodologies constitute confidential information within the meaning of defendant's employment agreement.
The use of such confidential information would constitute a breach of the employment agreement. The evidence presented would support a finding that such a breach began prior to the termination of defendant's employment with plaintiffs and that it is of an ongoing nature; defendant derived the software systems he is marketing from plaintiffs' methodologies and has been utilizing plaintiffs' confidential information in his ongoing consulting arrangement with Altoona Hospital.
2. The Employment Agreement: Products Developed During Defendant's Employment
In addition to the provision concerning the preservation of confidential information, defendant's employment agreement states that all "products, processes, methodologies and services, including but not limited to systems and software developments and improvements . . . developed by [defendant] alone, or in conjunction with any other person or persons during his employment with HAS which in any way relate to the future business of HAS shall be the sole and exclusive property of HAS." Defendant does not dispute that he developed his five software programs during the period of time that he was employed by HAS, i.e., between 1984 and 1987. Defendant argues, however, that he performed the work associated with the programs' development at home, and not during the hours for which he was being paid by HAS.
While the evidence submitted on this point was not substantial, that which was introduced tends to contradict defendant's assertions that all of the development of the five programs was done on defendant's own time. This fact is not dispositive of the issue, in any case. It is abundantly clear that the five software programs which defendant has developed are products which defendant was assigned the task of developing as part of his normal job duties as a consultant with HAS. Defendant failed to develop the programs as assigned; rather, utilizing the methodologies, confidential information and trade secrets of plaintiffs (see infra), he developed five products which fulfilled the customer needs which plaintiffs' had foreseen and were attempting to serve. Defendant agreed that any software which he developed during his employment which "in any way relate[d] to the present or future business of HAS" belongs to HAS. Consequently, plaintiffs have made a substantial showing of likelihood of success on the merits of their claim that the five software programs developed by defendant in fact are the property of HAS, and that defendant has no right to the use of the same.
3. Trade Secrets
Under the law of Pennsylvania, in order to be entitled to injunctive relief against an employee for misappropriation of trade secrets, the employer bears the burden of demonstrating the following factors: (1) that there is a trade secret or secret process of manufacture; (2) that it is of value to the employer and important in the conduct of its business; (3) that by reason of discovery or ownership the employer has the right to use an enjoyment of the secret; and (4) that the secret was communicated to the employee while he was employed in a position of trust and confidence, under such circumstances as to make it inequitable and unjust for him to disclose it to others, or to make use of it himself, to the prejudice of his employer. Felmlee v. Lockett, 466 Pa. 1, 8, 351 A.2d 273, 277 (1976); Air Products and Chemicals, Inc. v. Johnson, 296 Pa. Super. 405, 442 A.2d 1114 (1982).
Section 757, comment B, of the Restatement of Torts, § 757, comment B, which has been adopted as the law of Pennsylvania, is determinative of the existence of a trade secret. See, e.g., Felmlee v. Lockett, supra; Air Products and Chemicals, Inc., supra. Section 757, comment B, provides as follows:
A trade secret may consist of 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 competition 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. . . . A trade secret is a process or device for continuous use in the operation of the business.
Trade secrets, in order to be entitled to protection, must be "particular secrets of the complaining employer and not general secrets of the trade in which he is engaged." Capital Bakers v. Townsend, 426 Pa. 188, 231 A.2d 292 (1967). Computer software programs are a proper subject of trade secret protection. Computer Print Systems, Inc. v. Lewis, 281 Pa. Super. 240, 422 A.2d 148 (1980).
In determining whether given information constitutes a trade secret, this Court is required to examine the following factors: the extent to which the information is known outside of the owner's business; the extent to which it is known by employees and other involved in the owner's business; the extent of measures taken by the owner to guard the secrecy of the information; the value of the information to the owner and to his competitors; the amount of effort or money expended by the owner in developing the information; and the ease or difficulty with which the information could be properly acquired or duplicated by others. S. I. Handling Systems, Inc. v. Heisley, 753 F.2d 1244, 1256 (3d Cir. 1985).
As the foregoing factual findings establish, plaintiffs have presented substantial evidence going to each of the aforesaid six factors. Plaintiffs' methodologies have been developed by plaintiffs through the expenditure of considerable employee time and financial resources. These methodologies could be developed by others only via an equivalent expenditure of time and money. Plaintiffs have been careful to guard against the unauthorized disclosure of their methodologies to persons outside Blue Cross and HAS and have not revealed the methodologies to the general public. Access to the methodologies within plaintiffs' business structure has been on a limited, need-to-know basis. Maintenance of the confidentiality of the methodologies is essential to the future conduct of plaintiffs' hospital management consulting business. Therefore, the methodologies constitute trade secrets within the meaning of § 757.
Plaintiffs also must establish that the trade secret is of value to them and important in the conduct of their business. As stated above, and set forth in the factual findings, plaintiffs' status in the hospital management consulting field depends in large measure upon their continued exclusive use of their methodologies; therefore, this element is satisfied.
Plaintiffs likewise must establish that, by reason of discovery or ownership thereof, they have the right to use and enjoyment of the trade secret. The testimony establishes that plaintiffs' employees developed the methodologies during their employment with plaintiffs. Therefore, plaintiffs have the right to use the enjoyment of the same.
The final element which the plaintiffs must establish is that the trade secret was communicated to the employee while he was employed in a position of trust and confidence, under such circumstances as to make it inequitable and unjust for him to disclose it to others or to make use of it himself. Under the law of Pennsylvania, a confidential relationship between employer and employee is created where the employer turns over to the employee a pre-existing trade secret. "A pledge of secrecy is impliedly extracted from the employee, a pledge which he carries with him even beyond the ties of his employment relationship." Wexler v. Greenberg, 399 Pa. 569, 160 A.2d 430 (1960). During his employment with plaintiffs, defendant had access to the methodologies at issue herein for the express purpose of developing and enhancing the same. Defendant, rather than developing plaintiffs' programs, as he had been directed to do, used plaintiffs' existing methodologies to develop five software programs which he intended to put to his own personal use. It would be inequitable for defendant to utilize these trade secrets for his own benefit.
In summary, plaintiffs have sustained their burden of demonstrating a substantial likelihood of success on the merits of their trade secret claim and, accordingly, are entitled to injunctive relief.
C. Scope of Appropriate Relief
Defendant makes two arguments directed to the scope of injunctive relief which might be granted in this action. First, he contends that he cannot be enjoined from using the knowledge he acquired during the years employed by plaintiffs. In S. I. Handling Systems, Inc., supra, the Third Circuit observed that:
The concept of a trade secret does not include a man's aptitude, his skill, his dexterity, his manual and mental ability, and such other subjective knowledge as he obtains while in the course of his employment. . . . The right to use and expand these powers remains his property. 753 F.2d at 1256 (citing Pittsburgh Cut Wire Co. v. Sufrin, 350 Pa. 31, 35, 38 A.2d 33, 34 (1944)).
While this may be the law of Pennsylvania, the Court concludes that defendant has waived any right to unrestricted use of the "subjective knowledge" that he acquired during the course of his employment with plaintiffs; to the extent such knowledge is of "customer needs and requirements, . . . existing software and software under development, marketing plans, pricing information, employee lists, salaries and benefits, . . . and information relating to the business and affairs of persons and entities with whom HAS has business relations which is not generally available to the public," it constitutes confidential information within the purview of the employment agreement; therefore, by virtue of his agreement to the terms thereof, defendant is restricted from making any use of such confidential information, on his own behalf or on behalf of any other person or entity. See, e.g., Ogontz Controls Co. v. Pirkle, 346 Pa. Super. 253, 499 A.2d 593 (1985).
Secondly, defendant argues, since he developed the SBSS system himself, without substantial input and effort by other employees of plaintiffs, no "implied pledge of secrecy" can be said to arise. Defendant cites the case of Wexler v. Greenberg, supra, wherein the Pennsylvania court held that where an employee turns over to his employer a trade secret which he, the employee, has developed, no implied agreement to maintain the trade secret confidential exists. 160 A.2d at 434.
The facts of Wexler are clearly distinguishable from the instant case. Defendant herein has entered into an agreement with plaintiffs under the terms of which he agreed (1) that any products, processes and methodologies developed by him during his employment with HAS is the property of HAS, and (2) to preserve the confidentiality of plaintiffs' methodologies, which would include that of the SBSS system. As the Pennsylvania Superior Court noted in Ogontz Controls Company, supra, the defendant's presence in the market as a seller of the product allegedly developed while he was employed by plaintiff "is precisely the harm sought to be avoided by [plaintiff] when both defendant and the company entered into the employment contract." 499 A.2d at 597. This statement applies with equal force in the case at hand. Plaintiffs employed defendant for the express purpose of having him develop and enhance the hospital management systems at issue in this action. Defendant agreed that his efforts to that end would inure to plaintiffs' benefit. Equity will not permit him to appropriate plaintiffs' systems, methodologies and programs for his own personal benefit.
II. Harm to Plaintiffs, Defendant and Third Parties
Defendant's actions threaten irreparable harm to plaintiffs. As discussed above, the revelation of their confidential information and trade secrets to the general public would have a serious detrimental effect upon plaintiffs' standing in the hospital management consulting field. Plaintiffs are acknowledged as a leader in this field, based largely upon the fact that they offer a unique range of consulting services and associated software.
The harm to plaintiffs easily outweighs the harm to third parties, such as Altoona Hospital, which will suffer a temporary inconvenience during the transition to a new management consultant. The harm which will be sustained by defendant as a consequence of the grant of injunctive relief is afforded comparatively little weight in the balancing of harms which this Court is required to undertake, given the strong showing plaintiffs have made in this action.
In summary, the Court finds that plaintiffs have made a substantial showing that defendant has misappropriated plaintiffs' confidential information and trade secrets and has used the same to develop his five software programs which he has used to his own benefit. Defendant has the capability to continue to use these programs. Such continued use would result in serious irreparable injury to plaintiffs' competitive status in the hospital management consulting field.
An appropriate Order will be issued.
Date: August 11, 1988
AND NOW, this 11th day of August, 1988, after hearing on Plaintiffs' Motion for a Preliminary Injunction and in accordance with this Court's Findings of Fact, Memorandum Opinion and Conclusions of Law filed herewith,
IT IS HEREBY ORDERED that said Motion is GRANTED and that defendant Lippany is hereby ENJOINED from:
1. making any use of the confidential information of plaintiffs either on his own behalf or in behalf of or in conjunction with any other person or entity. Confidential information includes all information that concerns the business or affairs of HAS which is not generally available to the public at large, including, but not limited to, customer lists, customer needs and requirements, knowledge relating to plaintiffs' existing software and software under development, marketing plans, pricing information, employee lists, employee salaries and benefits, information relating to the business and affairs of persons and entities with whom HAS has business relations which is not generally available to the public at large which has come to defendant's attention in the course of his employment by HAS;
2. making use in any form whatsoever of plaintiffs' trade secrets including specifically the five hospital management systems at issue in the above captioned action and their associated methodologies;