In an earlier case the New Jersey court had refused an injunction restraining the defendants from violating a contract not to divulge to anyone where or from whom their former employer purchased his materials or to whom he sold his goods or the price at which he bought or sold, the court saying that an agreement of this nature might well be regarded in the absence of anything to the contrary in its terms, as limited in its obligation to the time of the employment.1 DIRECTORS OF CORPORATIONS MAY NOT DISCLOSE CONFIDENTIAL INFORMATION. The obligation not to disclose or make use of confidential information obtained in the course of employment has been held applicable to the director of a corporation. Thus, where a corporation conducted a business which was dependent for its success largely upon a secret formula which it had purchased in a foreign country, it was held that a director, who had acquired a knowledge of the formula by reason of his position, as well as other employees of the company to whom it was necessary to disclose it, could not use it in a rival business, notwithstanding the fact that the formula was known to others and the further fact that subsequent to the filing of the suit the rival corporation had purchased the formula from a party in Europe who claimed to be the true owner. Likewise the secretary of a corporation was held to be justified in forcibly taking its letter files from one of the directors who was securing data there from for the benefit of a rival corporation, in the organization and management of which he was active.3 A similar doctrine was applied by the Iowa courts, where it was held that a corporation might lawfully

1 Salomon v. Hertz et al., 40 N. J. Eq., 400 (1885). Cf. Gorham Mfg. Co. v. EmeryBird-Thayer Dry Goods Co. et al., 92 Fed., 774 (C. C., 1899); affd. 104 Fed., 243 (C. C. A., 1900). This was an action in form to restrain the defendants from passing off inferior silverware as that of the complainants' manufacture. At the trial, however, it appeared that the real purpose of the action was to prevent the defendants from selling the complainants' silverware at lower prices than those maintained by retail jewelers, and with this end in view several of the defendants' employees were asked, on cross-examination, from whom they purchased goods of the complainants' manufacture. The witnesses refused to answer, and their action in so doing was upheld on the ground that the information requested was a trade secret and that its disclosure was not essential to the proper maintenance of the complainants' suit.

Vulcan Detinning Co. v. American Can Co., 67 Atl., 339 (N. J. Court of Errors and Appeals, 1907). Per Garrison, J.: “What I wish to point out is that the real gravamen of the complainant's bill, as amplified in the proofs, is not that the defendants are threatening to destroy the value of an absolute secret by imparting it to the public, but that the defendants, while keeping the secret of the process to themselves, are making a use of it that is inequitable as to the complainant. In fine, the main and immediate need of the complainant, as shown by the testimony, is to be protected from the inequitable competition to which it had been exposed by a breach of confidence. * * I am not suggesting that the complainant is not entitled to an injunction enjoining publication, for I think that it is; but I am now saying that the main ground for relief disclosed by the complainant's case is the existence of inequitable competition arising from a breach of trust, and hence referable to general principles of equity, and not to those special doctrines by which unpatented secrets are protected. In the application of these general principles the secrecy with which a court of equity deals is not necessarily that absolute secrecy that inheres in discovery, but that qualified secrecy that arises from mutual understanding and that is required alike by good faith and by good morals."

3 Heminway v. Heminway, 58 Conn., 443 (1890).

refuse to transfer shares of its stock to a purchaser who was a party to a conspiracy to boycott the business of the corporation and who desired to become a stockholder for the express purpose of discovering its source of supply.1

ENGLISH DECISIONS.

The English courts have for many years restrained the use or communication of trade secrets or confidential information, imparted to employees or associates in confidence or necessarily acquired by them in the course of employment, where to permit such use or disclosure would be a violation of an express or implied contract or would amount to a breach of trust. Persons acquiring a knowledge of such secrets, with notice of their confidential nature, have, also, been enjoined from using or disclosing them.

It was early held by the English courts that the use or betrayal of secret formulas or processes by faithless employees could be restrained by a court of equity. In 1820 Lord Chancellor Eldon granted an injunction restraining a former employee of a manufacturer of proprietary remedies from using in a rival business, or from disclosing to others, recipes surreptitiously copied from the books of his employer. In a leading English case on this subject, decided in 1851, one of the partners in a company, engaged in the manufacture of a medicinal preparation according to a secret formula, disclosed the formula to his son in violation of the terms of his partnership con

1 Funck v. Farmers' Elevator Co. et al., 142 Iowa, 621 (1909). The following from the Report of the Commissioner of Corporations on the Petroleum Industry, Pt. I (p. 153), indicates that this method of acquiring a competitor's secrets is not unusual:

"In the case of the United States Pipe Line Co. the Standard obtained a minority of the stock and has been able to secure representation upon the directorate, so as to be familiar with the business secrets of its competitor."

See also Carter v. Producers' Oil Co. (Ltd.), 182 Pa. St., 551 (1897), and U. S. v. Standard Oil Co. of N. J. (C. C., E. D., Mo.); Brief of facts and argument for petitioner, Vol. I, pp. 231-235.

And see brief for the United States in United States v. American Tobacco Co. et al., where it was urged that "one use of supply' companies was to obtain through them information about the business of competitors. The Mengel Box Co., for example, was required to report monthly the number of boxes which it sold to independents. (R. II, 663.)" (On appeal from the Circuit Court of the United States for the Southern District of New York, p. 217.) See also Monarch Tobacco Works v. American Tobacco Co. et al., 165 Fed.. 774 (C. C., 1908).

2 Lord Justice Turner in Morison v. Moat, 9 Hare, 241, 255 (1851), said: "That the court has exercised jurisdiction in cases of this nature does not, I think, admit of any question. Different grounds have indeed been assigned for the exercise of that jurisdiction. In some cases it has been referred to property, in others to contract, and in others, again, it has been treated as founded upon trust or confidence, meaning, as I conceive, that the court fastens the obligation on the conscience of the party and enforces it against him in the same manner as it enforces against a party to whom a benefit is given the obligation of performing a promise on the faith of which the benefit has been conferred; but upon whatever grounds the jurisdiction is founded, the authorities leave no doubt as to the exercise of it."

Yovatt r. Winyard, 1 Jacob & Walker, 394 (1820).

tract, with which the latter was familiar. The court held that the formula had been revealed in breach of trust and of contract, and granted an injunction restraining the party to whom it had been disclosed from selling or compounding any medicine according to the secret recipe, and from in any manner using the secret or any part thereof.1 Similarly where a manufacturer of disinfectants sold his business and covenanted not to disclose the secret process, nor engage in the same business for 14 years, the contract was held enforcible.2 So, also, a contract whereby an employee agreed not to use or disclose any of his employer's secret formulas, processes, or machinery for making typewriter ribbons and carbon paper, was held valid and the employee enjoined from violating it. In like manner, where an employee of a company was informed that its process of manufacture was secret, but on acquiring an imperfect knowledge of it entered the service of a competitor and was attempting to use the process and to secure the parts of it with which he was not familiar from the original inventor, it was held that an injunction should issue to prevent him from using the process.*

The same legal principles under which secret formulas or processes are protected have been invoked by the English courts to prevent the unfair use by competitors of other trade secrets or confidential information. Thus a company engaged in the manufacture of fire engines has been granted an injunction restraining a former employee and his new master from using a table of dimensions of its engines which the employee had made and carried away with him." But where a telegraph company in London made arrangements with individuals in Australia, described as agents of the company, for the transmission of its messages, using certain code words to indicate the names of firms or persons in Australia to whom messages were frequently sent, it was held that the Australian agents, on starting a similar business, could make use of this code, the property in it, if there was any, being in the telegraph company's patrons, not in the company. On the other hand, it has been held that the publisher of a trade directory, consisting principally of classified advertise⚫ments, could restrain former employees from using for the benefit of a rival company blocks, or cuts, and other materials made up while in

1 Morison v. Moat, 9 Hare, 241 (1851).

Hagg v. Darley, 47 L. J. Ch., 567 (1878).

3 Caribonum Co. v. Le Couch, 109 Law Times Reps., 385 (1913), s. c., ib., 587. See also Rylands v. Ashley's Patent Bottle Co., 7 R. P. C., 175 (Ct. of Appeal, 1890).

4 Amber Size & Chemical Co. v. Menzel, L. R. (1913), 2 Ch., 239. See also Liquid Veneer Co. v. Scott et al., 29 R. P. C., 639 (Ch. Div., 1912); Litholite, Ltd., v. Travis and Insulators, Ltc., 30 R. P. C., 532 (Ch. Div., 1913).

Merryweather & Sons v. Moore, 61 L. J. Ch., 505 (1892).

Reuter's Tel. Co. v. Byron, 43 L. J. Ch. (N. S.), 661 (1874). See also Reddaway v. Flynn et al., 30 R. P. C., 16 (1912).

his employ and for his use.1 And where the Queen and Prince Albert made a number of etchings which they had not published, and others surreptitously secured them and had impressions made for their own private use, it was held that they should be enjoined from making engravings or copies of the etchings or from publishing or selling a descriptive catalogue of them.2 Likewise, where an engraver was employed to make copies of a drawing and secretly made copies for himself, which he sold in competition with the owners, it was held that the latter were entitled to an injunction to prevent the sale of the copies thus secretly made, and to damages.3

The English courts, also, hold that lists of customers or of agents are confidential, and that originals of such lists or copies thereof taken away by employees can not be used either by them or by subsequent employers. For example, where the owner of a game farm employed a manager under a contract that he would treat everything in connection with the business as confidential, it was held that the manager must return a list of his employer's customers which he took with him on setting up in business for himself, and must pay the damages resulting from his use of the list. And where an employee of a dealer in mineral waters contracted not to disclose any of the trusts, secrets, or dealings of his employer, but on leaving took with him a memorandum book containing the names and addresses of his employer's customers, the court commanded the return of the memorandum book and enjoined both the employee and his new master, who had notice of the contract, from using the same.5 Similarly a process server was granted an injunction restraining a former employee from making use of any copies or extracts from his register of agents, or index, or any memoranda made by the employee while in his service relating to any persons named on his register or index. And in a Canadian case it was held that lists of customers, and prospective customers, prepared by an agent for the territory assigned him, as well as a similar list for other territory, which he had purchased from another agent, were the property of the employer; but that a list of probable purchasers in all of Canada,

1 Lamb v. Evans, 62 L. J. Ch., 404 (Court of Appeal, 1892). Per Kay, L. J.: "Even if it were established that the plaintiff could not prevent anybody else in the world from publishing or using these materials which the plaintiff wishes to prevent the defendants from using, that would be no answer to the plaintiff's claim for an injunction against the defendants, because the defendants, from the position in which they were, are put under a duty toward the plaintiff not to make this use of the materials."

2 Prince Albert v. Strange et al., 18 L. J. Ch. (N. S.), 120 (1849).

3 Tuck & Sons v. Priester, L. R. (1887), 19 Q. B. Div., 629.

4 Robb v. Green, L. R. (1895), 2 Q. B. Div., 1; s. c., ib., 315.

Summers v. Boyce et al., 97 Law Times Reps., 505 (Ch. Div., 1908).
Louis v. Smellie, 73 Law Times Reps., 226 (Ct. of Appeal, 1895).

Bros. v. Measures, L. R. (1910), 1 Ch., 336.

See also Measures

compiled by the agent, was his own property in which his employer had no rights.1

A Canadian court has, also, held that an employers rate of profit and his cost of production are confidential information for the disclosure of which he may recover damages. In this case former employees of a manufacturer of what was known as the "Loose-leaf Business System of Book and Account Keeping," who were promoting a competing company disclosed to others the company's rate of profit and cost of production, and the court directed an inquiry into the amount of damage resulting from the disclosure as well as from the use of patterns of sheets and records or dimensions of blank sheets, taken from the employer's place of business."

Section 6. Appropriation of values created by competitors' expenditures.

A peculiarly subtle form of competition is disclosed in the appropriation in diverse ways of values created by a competitor's expenditures. Such a method of obtaining a rival's patronage and at the same time profiting by his pioneering in a particular business has been attempted, among other ways, by surreptitiously or openly taking information which another has collected for sale at large expense, and disposing of it in competition with the owner; by duplicating and selling another's articles, where, without the use of the original, a competing article could not be had at all, or could be produced only at great expense; by filling and selling a competitor's receptacles without entirely obliterating his name and that of his product and without any express notice to the purchaser that the receptacle did not contain the same article with which it was originally filled. The cases of this description are apparently limited in number and, while they show a tendency on the part of the courts to prevent one from dishonestly acquiring the benefit of another's investments and labor, the limits of the doctrine do not appear to be as yet well defined.

AMERICAN DECISIONS.

An illustration of the principle is found in a decision of the Supreme Court of the United States in 1905 where it was held that the Chicago Board of Trade, which permitted certain telegraph companies to have its quotations for transmission to parties approved by it, could enjoin a company, which secured the quotations in some unknown manner, from distributing them to others. In this case it was held that the exchange did not lose its property right in the

1 Martin v. Brown, 14 Western Law Reporter, 237 (K. B., Manitoba, 1910). Copeland-Chatterson Co. v. Business Systems (Ltd.), 8 Ont. W. R., 888 (1906); s. c., 10 Ont. W. R., 819 (1907).