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Jack and Linda Krafft v. Lawrence M. and Jane A. Downey

May 17, 2013

JACK AND LINDA KRAFFT, APPELLEES
v.
LAWRENCE M. AND JANE A. DOWNEY, APPELLANTS



Appeal from the Judgment entered February 24, 2012, Court of Common Pleas, Potter County, Civil Division at No. 2007-579

The opinion of the court was delivered by: Donohue, J.

BEFORE: DONOHUE, ALLEN and STRASSBURGER*, JJ. OPINION BY DONOHUE, J.:

Lawrence M. and Jane A. Downey ("the Downeys") appeal from the judgment entered against them following a jury verdict in favor of Jack and Linda Krafft ("the Kraffts"). Specifically, the Downeys challenge the denial of their motion for attorney fees under the Pennsylvania Uniform Trade Secrets Act ("the PUTSA"), 12 Pa.C.S.A. §§ 5301-5308. After careful review, we vacate the trial court's order and remand for further proceedings.*fn1

The record reflects the following facts and procedural history relevant to this appeal. The Kraffts operated a business called "Framing on Stone," selling pieces of flagstone that portrayed images transferred from photographs and works of art. Linda Krafft learned how to transfer images onto ceramics in 1995 while in Alberta, Canada by taking a course on the subject. After several years of experimenting and fine-tuning the process to work on flagstone, she began selling images she transferred onto flagstone at craft shows.

The Downeys, who were the Kraffts' neighbors and friends, expressed interest in creating and selling the flagstone art. On April 13, 2004, the two parties entered into a "Franchise Contract." In relevant part, the contract permitted the Downeys to use the name "Framing on Stone," and provided that the Kraffts would teach the Downeys the process used to transfer the images onto flagstone and identify the chemicals used in the process in exchange for $20,000.00 plus ten percent of the Downeys' net sales. The contract further prohibited the Downeys from revealing the process used to create the flagstone art to anyone.

The Downeys ceased paying commissions to the Kraffts in 2007. They also stopped using the name "Framing on Stone," and began selling flagstone art, made using the same process, under the name "Rock of Ages." On December 3, 2007, the Kraffts filed the original Complaint in this matter alleging that the Downeys were in breach of contract. On January 4, 2008, the Downeys filed an Answer, New Matter and Counterclaim. The Counterclaim included two counts: breach of contract by the Kraffts and fraudulent inducement based upon the Kraffts' representation that the process used was secret and proprietary.

On January 10, 2008, at the request of the Kraffts, the trial court held an injunction hearing.*fn2 At that hearing, Linda Krafft testified, inter alia, that she was aware that the process she was using to transfer images to flagstone was already "out there," and that she previously investigated having the process patented through an attorney and learned that "[i]t could not be patented." N.T., 1/10/08, at 16, 21. She testified that she nonetheless believed it to be "a secret process," id. at 27, because of the steps she took to refine and modify it, e.g., painting the stones first, coating the prints four times, applying the coats in opposite ways, specifying the temperature of the water, sanding the stones, and using oil base. Id. at 28. She believed the process to be her own, without conducting any research, based upon the fact that she had "never seen anybody else do it." Id. at 27. At that hearing, in opposition to the entry of an injunction against their use of the transfer process, the Downeys presented various exhibits revealing that the process was not only the subject of an expired patent, but readily discoverable in multiple books and articles available on the internet. Id. at 29-31, 33-34.

Following the injunction hearing, the trial court entered an order denying the requested relief. In its findings of facts and conclusions of law accompanying the order, the trial court stated the following:

While plaintiffs may have refined and made minor changes and improvements in the technology, the process of transferring images on to stone is in the public domain as it has been the subject of various expired patents.

The process used in creating images on stone by the plaintiffs and defendants is essentially in the public domain, and is not new or unique to the parties of this agreement.

Findings of Fact, Conclusions of Law and Discussion on Preliminary Injunction, 2/19/08, at ¶ 7 (Findings of Fact),

¶ 3 (Conclusions of Law) (emphasis added). The Kraffts did not appeal this decision although, pursuant to Rule of Appellate Procedure 311(a)(4), this denial of a request for a preliminary injunction was immediately appealable.

Thereafter, on August 1, 2008, the Kraffts filed an Amended Complaint, raising (I) a violation of the PUTSA, (II) conversion of trade secrets, (III) breach of contract, and (IV) breach of implied duty of good faith. The Downeys filed an Answer, New Matter and Counterclaim to the Kraffts' Amended Complaint on September 22, 2008, averring, inter alia, that the Downeys are entitled to attorney's fees because the Kraffts brought claims (I) and (II) ("the Trade Secret Claims") in bad faith. The Kraffts filed a Reply to the New Matter and Counterclaim on October 30, 2008.

On November 20, 2009, the Downeys filed a motion for partial summary judgment on the Trade Secret Claims based upon the Kraffts' inability to prove that the process they used to transfer images to flagstone was a trade secret. On January 4, 2010, the ...


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