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the judgment must be modified to correct errors

Supreme Judicial Court of Massachusetts, arising from the transposition of certain


Middlesex. accounting figures. As recomputed, the damages
JET SPRAY COOLER, INC., et al. assessed should be $254,114.79. See note 16
v. Infra.As so modified, we affirm the judgment of
Gifford K. CRAMPTON et al. the Superior Court.
Argued Oct. 5, 1978.
Decided Jan. 26, 1979. This action commenced with a bill of complaint
in equity filed in the Superior Court in 1964.
Before HENNESSEY, C. J., and QUIRICO, Three years later, the Superior Court judge
KAPLAN, WILKINS and ABRAMS, JJ. severed the issues of liability and damages and
committed the case to a master (liability
ABRAMS, Justice. master).
Both the plaintiffs and the defendants appeal
from a judgment of the Superior Court adopting After initially confirming the report of the
as modified the report of a master on the issue liability master which found that the defendants
of damages.[FN1] The judgment held the had misappropriated certain trade secrets
defendants jointly and severally liable to the belonging to the plaintiffs, the Superior Court
plaintiffs in the amount of $282,100.83, plus judge ordered the bill dismissed as to all
interest from the date of the filing of the defendants. We reversed the dismissal in Jet
master's report. Spray Cooler, Inc. v. Crampton, 361 Mass. 835,
845, 282 N.E.2d 921 (1972).[FN2]
FN1. The issue of liability was resolved
by this court in Jet Spray Cooler, Inc. v. FN2. Details as to the facts of the case as
Crampton, 361 Mass. 835, 282 N.E.2d they relate to liability are found in our
921 (1972). original opinion. Jet Spray Cooler, Inc.
v. Crampton, supra at 836-838, 282
The defendants appeal from the rejection of an N.E.2d 921.We do not repeat them here.
earlier master's report (first damage master), and
argue that the judge's order of reference to Thereafter, the Superior Court judge referred the
another master (second damage master) was issue of damages to the first damage master in
based on incorrect legal principles of damage 1972.[FN3]The master held hearings and filed
assessment in cases involving the his report in 1975, including both subsidiary and
misappropriation of trade secrets. They also general findings of fact.[FN4]
appeal from certain of the judge's modifications
of the second master's report. FN3. This case was committed to the
first damage master prior to the effective
The plaintiffs maintain that the rejection of the date of the Massachusetts Rules of Civil
first damage master's report was proper, and Procedure. However, this fact does not
contend that the judge's order of reference to the alter the result in this case. See Jones v.
second damage master for the determination of Wayland, --Mass. --, -- n.5
damages was correct. Nevertheless, the (Mass.Adv.Sh. (1978) 157, 163 n.5), 373
plaintiffs also appeal from certain of the judge's N.E.2d 199 n.5 (1978); Reporters' Notes
modifications of the second damage master's to Mass.R.Civ.P. 53, reprinted in J.W.
report and from the judge's method of Smith & H.B. Zobel, Rules Practice 270,
computing interest on the award. We agree in 272 (1977).
substance with the judgment entered. However,
FN4. The first damage master also Federal courts) that a master is rarely
included with his report a transcript of ordered to report the evidence heard by
the evidence and proceedings and the him.” Michelson v. Aronson, 4
exhibits. The order of reference to the Mass.App. 182, --, 344 N.E.2d 423, 426
first damage master did not authorize (1976).
him to report the evidence. Nearly three
years later, after the hearings had Massachusetts Rule of Civil Procedure
concluded, the order of reference was 53(e)(1) allows the judge in his
amended by consent of the parties to discretion to order a report of the
require the master to submit a transcript evidence. However, this discretion
of the evidence and the proceedings. The should infrequently be exercised. See
same motion allowed the master Peters v. Wallach, 366 Mass. 622, 626,
additional time in which to prepare his 321 N.E.2d 806 (1975); Shelburne Shirt
report. Co. v. Singer, 322 Mass. 262, 265, 76
N.E.2d 762 (1948). See generally J.W.
It is generally inappropriate to amend the Smith & H.B. Zobel, Rules Practice s
order of reference to require a transcript 53.9 (1977).
of the evidence and the proceedings after
the hearings before the master have Hearings on the claim for damages began in
terminated. Cf. American Agricultural January, 1973. The hearings were then
Chem. Co. of Mass. v. Robertson, 273 suspended until February. The docket entries
Mass. 66, 80, 172 N.E. 871 (1930). It is reflect continuance of the order resuming the
clearly inappropriate to order a report of hearings until March, 1973. The next docket
the evidence to assist parties who have entry relating to the hearings is a motion to
delayed proceedings by continuances. enlarge time for filing the master's report filed
on April 15, 1975. The report itself was not filed
Massachusetts Rule of Civil Procedure in court until July 24, 1975, more than three
53(e)(1), 365 Mass. 817 (1974), years after our opinion in Jet Spray Cooler, Inc.
provides that the master is to file a v. Crampton, and two and one-half years after
transcript of the evidence and the the order of reference.
proceedings only “when directed by the
order of reference.”This rule, like its Hearings before the second damage master were
predecessor Rules 86-90 of the Superior to begin in January, 1976. The docket entries
Court, “was carefully guarded to avoid reflect at least five continuances of the master's
the evils of delay, prolixity and hearings covering a six-month period. Then
unnecessary expense which are often there were continuances to enlarge the time for
associated with reports of evidence.” filing the master's report. The report was filed
Morin v. Clark, 296 Mass. 479, 483, 6 on April 20, 1977, some four years and eleven
N.E.2d 830, 832 (1937). To accomplish months after our 1972 opinion, and well over
this result, Mass.R.Civ.P. 53(e)(1) one and one-half years after the second order of
pointedly does not adopt the prevailing reference.
Federal rule. Compare Fed.R.Civ.P.
53(e)(1) (1977).“This deviation in the This case has been pending in the Superior
language of the Massachusetts rule from Court since 1964 and has been before three
that of the Federal rule on which it was masters. It has been continued indiscriminately
based reflects the traditional practice in by numerous judges, apparently without regard
our courts (unlike the practice of the to the effect excessive continuances and
extensions have on court delay, as well as on the year for a competent engineer with the benefit
confidence of the public and litigants in the of the Foster-Miller Associates Report to
administration of justice. conceive, design and develop the Crathco
dispenser, and about three months additional
The snail's pace of this litigation in our courts without the benefit of the information contained
makes the comment of Chief Justice Vanderbilt in the report.”
with regard to the effect of references
appropriate here. In his work, Cases and FN6. The information contained in the
Materials on Modern Procedure and Judicial Foster-Miller report involves
Administration (1952), he states: “There is one engineering improvements in the dome
special cause of delay in getting cases on for and cooling processes. We do not discuss
trial that must be singled out for particular these “improvements” in further detail
condemnation, the all-too-prevalent habit of since the plaintiffs claim that the report
sending matters to a reference. There is no more still remains a trade secret. See, e. g.,
effective way of putting a case to sleep for an Black, Sivalls & Bryson, Inc. v.
indefinite period than to permit it to go to a Keystone Steel Fabrication, Inc., 584
reference with a busy lawyer as referee. Only a F.2d 946, 949 (10th Cir. 1978); A. O.
drastic administrative rule,[FN5] rigidly Smith Corp. v. Petroleum Iron Works
enforced, strictly limiting the matters in which a Co. of Ohio, 73 F.2d 531, 539 Note (6th
reference may be had and requiring weekly Cir. 1934), modified on other grounds,
reports as to the progress of each reference will 74 F.2d 934, 935 (6th Cir. 1935);
put to rout this inveterate enemy of dispatch in Macbeth-Evans Glass Co. v. Schnelbach,
the trial of cases.”Id. at 1240-1241.See O'Brien 239 Pa. 76, 81, 86 A. 688 (1913). See
v. Dwight, 363 Mass. 256, 279-280, 294 N.E.2d generally Annot., 62 A.L.R.2d 509, 532
363 (1973). (1958). But see note 13 Infra and the
concurring opinion of Justice Kaplan.
FN5. See Rule 49 of the Superior Court
(1974). It may also be desirable for a However, the first damage master then found
judge to require any request for that taken as a whole the recommendations of
continuance of a master's hearing to be the Foster-Miller report “involved no creativity,
signed by the litigants as well as by were not novel, new, unobvious or patentable,
counsel. Further, it is appropriate for the and were matters of common knowledge to a
motion to state in writing the reasons for person of ordinary skill in the field of heat
granting a continuance, so that the public transfer.”He further found that the only damage
may know the reasons for delay. to the plaintiffs was the three-month head start
gained by the defendants, which he
I. The Rejection of the Report of the First characterized as having a “negligible” effect on
Damage Master. the profits of either the plaintiffs or the
defendants. Therefore, the first damage master
The first damage master found that the concluded that the plaintiffs' damages should be
defendants had incorporated information limited to the $1,400 which the plaintiffs had
contained in the Foster-Miller report [FN6] into originally paid for the Foster-Miller report.
each of the visual display beverage dispensers
which Crathco, the corporate defendant, sold The judge rejected the first damage master's
after 1962. The first damage master also report in its entirety. The defendants challenge
incorporated in his report the finding by the the judge's ruling on the ground that the first
liability master “that it would ordinarily take a damage master applied correct legal principles
in his assessment of the plaintiffs' and Procedure, s 2614, at 811 (1971)
damages.[FN7]Moreover, the defendants (findings of the master “infected by a
contend that the first damage master's legal error” cannot stand).
conclusions were legally correct in light of our
opinion in Jet Spray Cooler, Inc. v. Crampton, Furthermore, where it is impossible to
supra.We disagree. separate the findings which are “infected
by a legal error” from those which are
FN7. The defendants ground their not, the judge does not abuse his
argument that the judge improperly discretion by rejecting the entire master's
rejected the first damage master's report report and recommitting the case with
on the language of Mass.R.Civ.P. instructions. Haverhill Gazette Co. v.
53(e)(2), 365 Mass. 817 (1974).Rule Union Leader Corp., 333 F.2d 798, 808
53(e)(2) provides in pertinent part that (1st Cir. 1964). See Mass.R.Civ.P.
“(i)n an action to be tried without a jury 53(e)(2).
the court shall accept the master's
findings of fact unless clearly erroneous. The essence of an action for the wrongful use
. . . The court after hearing may adopt of trade secrets is the breach of the duty not to
the report or may modify it or may reject disclose or to use without permission
it in whole or in part or may receive confidential information acquired from another.
further evidence or may recommit it with See Junker v. Plummer, 320 Mass. 76, 80, 67
instructions.” N.E.2d 667 (1946); E. I. duPont de Nemours
Powder Co. v. Masland, 244 U.S. 100, 102, 37
However, the “clearly erroneous” S.Ct. 575, 61 L.Ed. 1016 (1917). See generally
standard of Rule 53(e)(2) does not Restatement of Torts s 757 (1939);
relieve the judge of the obligation to Developments in the Law Competitive Torts, 77
ensure that the report of the master Harv.L.Rev. 888, 948-949 (1964). In the context
correctly interprets and applies of an employer-employee relationship, we have
controlling legal principles. General consistently held that where an employee
Plywood Corp. v. Georgia-Pacific Corp., acquires such confidential information in the
362 F.Supp. 700, 704 (S.D.Ga.1973), course of his employment, he may be
aff'd, 504 F.2d 515 (5th Cir. 1974). prohibited, after the termination of his
W.R.B. Corp. v. Geer, 313 F.2d 750, 753 employment, “from using or disclosing
(5th Cir. 1963), cert. denied, 379 U.S. confidential information so acquired.” Jet Spray
841, 85 S.Ct. 78, 13 L.Ed.2d 47 (1964). Cooler, Inc. v. Crampton, supra, 361 Mass. at
The judge must reject the master's report 839, 282 N.E.2d at 924, quoting from New
where the master's findings are “vitiated England Overall Co. v. Woltmann, 343 Mass.
in view of the controlling law.” 69, 75, 176 N.E.2d 193 (1961). See Eastern
Wormstead v. Town Manager of Saugus, Marble Prods. Corp. v. Roman Marble, Inc.,372
366 Mass. 659, 660, 322 N.E.2d 171, Mass. --, -- - --, [FNA] 364 N.E.2d 799 (1977).
172 (1975), quoting from Selectmen of Aronson v. Orlov,228 Mass. 1, 4-5, 116 N.E.
Hatfield v. Garvey, 362 Mass. 821, 825, 951,cert. denied, 245 U.S. 662, 38 S.Ct. 61, 62
291 N.E.2d 593 (1973). See Gil-Bern L.Ed. 536 (1917).
Constr. Corp. v. Medford, 357 Mass.
620, 623, 260 N.E.2d 160 (1970). See FNa. a. Mass.Adv.Sh. (1977) 1408,
generally J.W. Smith & H.B. Zobel, 1415-1416.
Rules Practice s 53.11 (1977); 9 C.A.
Wright & A.R. Miller, Federal Practice The protection which we afford to trade secrets
[FN8] against one who wrongfully uses them is or improvement.”
grounded on principles of public policy to
which we have adhered since Peabody v. General Laws c. 266, s 60A, inserted by
Norfolk, 98 Mass. 452, 457 (1868): “It is the St.1967, c. 817, s 2, provides that
policy of the law, for the advantage of the “(w)hoever buys, receives, conceals,
public, to encourage and protect invention and stores, barters, sells or disposes of any
commercial enterprise.”[FN9]This trade secret, or pledges or accepts as
encouragement and protection is afforded trade security for a loan any trade secret,
secrets because the public has a manifest regardless of value, knowing the same to
interest not only in commercial innovation and have been stolen, unlawfully converted,
development, but also in “(t)he maintenance of or taken, shall be punished by
standards of commercial ethics.” Kewanee Oil imprisonment for not more than five
Co. v. Bicron Corp., 416 U.S. 470, 481, 94 S.Ct. years or by a fine of not more than five
1879, 1886, 40 L.Ed.2d 315 (1974). hundred dollars and imprisonment in jail
for not more than two years. The term
FN8. In addition to the protection which ‘trade secret’ as used in this section shall
we have afforded to trade secrets have the same meaning as is set forth in
through civil actions for injunctive relief section thirty.”
and damages, the Legislature has
provided criminal penalties for the Moreover, the Legislature has provided a
misappropriation of trade secrets. civil remedy in addition to the criminal
penalties. General Laws c. 93, s 42,
General Laws c. 266, s 30(4), inserted by inserted by St.1967, c. 817, s 3, provides
St.1967, c. 817, s 1, provides that that “(w)hoever embezzles, steals or
“(w)hoever steals, or with intent to unlawfully takes, carries away, conceals,
defraud obtains by a false pretense, or or copies, or by fraud or by deception
whoever unlawfully, and with intent to obtains, from any person or corporation,
steal or embezzle, converts, secretes, with intent to convert to his own use,
unlawfully takes, carries away, conceals any trade secret, regardless of value,
or copies with intent to convert any trade shall be liable in tort to such person or
secret of another, regardless of value, corporation for all damages resulting
whether such trade secret is or is not in therefrom. Whether or not the case is
his possession at the time of such tried by a jury, the court, in its
conversion or secreting, shall be guilty discretion, may increase the damages up
of larceny, and shall be punished by to double the amount found. The term
imprisonment in the state prison for not ‘trade secret’ as used in this section shall
more than five years, or by a fine of not have the same meaning as is set forth in
more than six hundred dollars and section thirty of chapter two hundred and
imprisonment in jail for not more than sixty-six.”See also G.L. c. 93, s 42A
two years. The term ‘trade secret’ as (injunctive relief).
used in this paragraph means and
includes anything tangible which General Laws c. 93, s 42, was enacted in
constitutes, represents, evidences or 1967, three years after the original bill in
records a secret scientific, technical, equity in this action was filed. Neither
merchandising, production, or party has raised the issue, and the judge
management information, design, did not increase the damages beyond
process, procedure, formula, invention “the amount found.” Thus we do not
decide whether this statute applies to this the employer in developing the
action. See, e. g., Cudlassi v. information; and (6) the ease or
MacFarland, 304 Mass. 612, 613, 24 difficulty with which the information
N.E.2d 512 (1939); Wild v. Boston & could be properly acquired or duplicated
Maine R. R., 171 Mass. 245, 248, 50 by others.” Jet Spray Cooler, Inc. v.
N.E. 533 (1898). Cf. Porter v. Clerk of Crampton, supra, 361 Mass. at 840, 282
the Superior Court, 368 Mass. 116, 118, N.E.2d at 925.Restatement of Torts s
330 N.E.2d 206 (1975). Nevertheless, 757, Comment b (1939).
the statute does provide guidance as to
the view of the Legislature with regard Early Federal decisions are remarkably similar.
to principles of damage assessment in In Fowle v. Park, 131 U.S. 88, 97, 9 S.Ct. 658,
cases involving business torts. 662, 33 L.Ed. 67 (1889), the Supreme Court
held that “(t) he policy of the law is to
Furthermore, Mass.R.Civ.P. 26(c)(7), encourage useful discoveries by securing their
365 Mass. 772 (1974), provides for the fruits to those who make them.”In Board of
issuance of protective orders to avoid the Trade of Chicago v. Christie Grain & Stock Co.,
disclosure of trade secrets given in the 198 U.S. 236, 250, 25 S.Ct. 637, 639, 49 L.Ed.
context of judicial proceedings, and G.L. 1031 (1905), Mr. Justice Holmes said that the
c. 93A, s 6(5), protects against the board had “the right to keep the work which it
disclosure of trade secrets in the context has done, or paid for doing, to itself. The fact
of investigations by the Attorney that others might do similar work, if they
General. In re a Civil Investigative might, does not authorize them to steal the
Demand Addressed to Yankee Milk, Inc., plaintiff's.”Again in Dr. Miles Medical Co. v.
372 Mass. --, -- - -- (Mass.Adv.Sh. 729, John D. Park & Sons, 220 U.S. 373, 402, 31
735-740), 362 N.E.2d 207 (1977). See S.Ct. 376, 382, 55 L.Ed. 502 (1911), the Court
also G.L. c. 4, s 7, Twenty-sixth (g). held that “(t)he complainant relies upon the
ownership of its secret process and its rights are
FN9. We have frequently indicated, to be determined accordingly. Anyone may use
however, that “(a) trade secret need not it who fairly, by analysis and experiment,
be a patentable invention.” J. T. Healy discovers it. But the complainant is entitled to
& Son v. James A. Murphy & Son, 357 be protected against invasion of its rights in the
Mass. 728, 738, 260 N.E.2d 723, 730 (secret) process by fraud or by breach of trust or
(1970). See generally Schneider & contract.”Further, in E. I. duPont de Nemours
Halstrom, Trade Secret Protection in Powder Co. v. Masland, 244 U.S. 100, 102, 37
Massachusetts, 56 Mass.L.Q. 239, 243- S.Ct. 575, 576, 61 L.Ed. 1016 (1917), the
246 (1971). In determining whether Supreme Court said that an employee “shall not
certain information qualifies as a trade fraudulently abuse the trust reposed in him.”In
secret, we consider “(1) the extent to Becher v. Contoure Laboratories, Inc., 279 U.S.
which the information is known outside 388, 391, 49 S.Ct. 356, 357, 73 L.Ed. 752
of the business; (2) the extent to which it (1929), the Court recognized a cause of action
is known by employees and others against an employee for “breach of a contract or
involved in the business; (3) the extent wrongful disregard of confidential
of measures taken by the employer to relations.”Finally, in United States v. Dubilier
guard the secrecy of the information; (4) Condenser Corp., 289 U.S. 178, 186, 53 S.Ct.
the value of the information to the 554, 557, 77 L.Ed. 1114 (1933), the Court held
employer and to his competitors; (5) the that an inventor “may keep his invention secret
amount of effort or money expended by and reap its fruits indefinitely.”See generally
Waters Servs., Inc. v. Tesco Chems., Inc., 410 accomplishes a result which gives the holder a
F.2d 163, 171 (5th Cir. 1969); Hutter, Trade competitive advantage due to his own ingenuity,
Secret Misappropriation: A Lawyer's Practical research and development. Moreover, “the fact
Approach to the Case Law, 1 W. New England that the secret was easy to duplicate does not
L.Rev. 1, 9 (1978). militate against its being a trade secret. The
important point is that the owner and those to
Consistent with these principles, once whom it was necessary to reveal the secret knew
information is demonstrated to be “of an of the trade secret.”Maruchnics, Industrial Trade
appropriate nature to qualify” the information as Secrets, Their Use and Protection, 4 Clev.-
a trade secret, any inquiry into the misuse of the Mar.L.Rev. 69, 71-72 (1955). Thus, the first
trade secret must focus on the conduct of the damage master erred as matter of law in failing
defendant. Jet Spray Cooler, Inc. v. Crampton, to focus on the abuse of the confidential
supra 361 Mass. at 843, 282 N.E.2d 921.If the relationship and on the secrecy attached to the
defendant has acquired the information as a report which was designed to improve the
result of a confidential relationship which he plaintiffs' product and give it a competitive
enjoyed with the plaintiff, and, if the defendant advantage. By not focusing on the defendants'
has used the information without the conduct and on the secrecy attached to the
permission of the plaintiff, then the defendant's Foster-Miller report, the first damage master
use of the information is wrongful, and the erred in his assessment of damages.
defendant is liable to the plaintiff in
damages“for the wrongful use of the The measure of damages in cases involving
information.” Id. at 845, 282 N.E.2d at 927. business torts such as the misappropriation of
trade secrets entitles a plaintiff to recover full
The first damage master apparently did not compensation for his lost profits and requires a
focus on the facts found in the case on liability. defendant to surrender the profits which he
The liability master found that “(s)ince their realized from his tortious conduct. See, e. g.,
inception the plaintiffs have conducted an National Merchandising Corp. v. Leyden, 370
extensive research and development program in Mass. 425, -- - --, 348 N.E.2d 771 (1976)
a constant effort to improve their products and (interference with contractual relations); Forster
have, on occasion, consulted with independent Mfg. Co. v. Cutter-Tower Co., 215 Mass. 136,
engineering firms to help develop new products 139-140, 101 N.E. 1083 (1913) (misuse of trade
as well as to improve their existing products.” name); Regis v. H. A. Jaynes & Co., 191 Mass.
Jet Spray Cooler, Inc. v. Crampton, supra at 836, 245, 249-250, 77 N.E. 774 (1906) (infringing
282 N.E.2d at 923.Additionally, in Jet Spray trademark). See Restatement of Restitution s
Cooler the plaintiffs had maintained sufficient 136, Comment a (1937); Restatement of Torts s
secrecy to protect the confidentiality of the 757, Comment e (1939).“Public policy requires
information in the Foster-Miller report. Id. at that unfair competitors must not be allowed to
844, 282 N.E.2d 921. profit by their wrongful methods and that those
who have been injured by them should receive
The first damage master apparently attached no adequate compensation for the loss or injury
importance to either of these factors and they have suffered.” 2 H. Nims, Unfair
concentrated on the lack of novelty rather than Competition and Trade-Marks s 419 at 1324-
on the impropriety of the method used to 1325 (4th ed. 1947).
procure the secret. The fact that a process is the
combination and adaptation of old principles to Of course, a plaintiff is not entitled to both the
new purposes does not prevent the process from profits made by the defendant and his own lost
being a trade secret if the process as distilled profits. See Forster Mfg. Co. v. Cutter-Tower
Co., supra 215 Mass. at 139, 101 N.E. 1082.See the defendants to plaintiffs' customers to the
generally Telex Corp. v. International Business extent that the plaintiffs' profits would have
Machs. Corp., 510 F.2d 894, 931 (10th Cir.), exceeded the profits made by the defendants
cert. dismissed, 423 U.S. 802, 96 S.Ct. 8, 46 thereon.”[FN10]Nonetheless, the first damage
L.Ed.2d 244 (1975); Johnson, Remedies in master disregarded this information and refused
Trade Secret Litigation, 72 Nw.U.L.Rev. 1004, to assess damages based on the defendants'
1023 (1978); Hutter, Trade Secret profits or the plaintiffs' lost profits because he
Misappropriation: A Lawyer's Practical found that the only effect of the defendants'
Approach to the Case Law, 1 W. New England wrongful use of the Foster-Miller report was the
L.Rev. 1, 39 (1978); R.M. Milgrim, Trade fact that the defendants were able to enter the
Secrets s 7.08(3) at 7-155 (1978). market in competition with the plaintiffs three
months earlier than they could have done
However, while a plaintiff is not entitled to a without the benefit of the information
double recovery, “the plaintiff is entitled to the contained in the report.[FN11]
profit he would have made had his secret not
been unlawfully used, but not less than the FN10. The first damage master's
monetary gain which the defendant reaped from subsidiary findings reveal that he found
his improper acts” (footnotes omitted). 2 that the “royalty” value of the report did
Callman, Unfair Competition, Trademarks and not exceed $1,400. In a case involving
Monopolies s 59.3 at 496 (3d ed. 1968). Clark v. the misappropriation of trade secrets,
Bunker, 453 F.2d 1006, 1011 (9th Cir. 1972). we recognize that “the ‘reasonable
Cf. Sperry Rand Corp. v. A-T-O, Inc., 447 F.2d royalty’ measure of damages is taken to
1387, 1392-1393 (4th Cir. 1971), cert. denied, mean more than simply a percentage of
409 U.S. 892, 93 S.Ct. 117, 34 L.Ed.2d 150 actual profits” and is based on “a
(1972). Only in this way can we ensure that an reasonable estimate of value” of the
unfair competitor will not be encouraged to misappropriated trade secrets.
proceed with his unfair methods in the hope University Computing Co. v. Lykes-
“that his profits might exceed the injured party's Youngstown Corp., 504 F.2d 518, 537
losses.” National Merchandising Corp. v. (5th Cir. 1974). See Structural Dynamics
Leyden, supra 370 Mass. at --, 348 N.E.2d Research Corp. v. Engineering
776.Therefore, a plaintiff in an action involving Mechanics Research Corp., 401 F.Supp.
the misappropriation of trade secrets may 1102, 1119 (E.D.Mich.1975). However,
proceed in the alternative to determine whether the “reasonable royalty” measure of
the defendant's wrongful profits exceed the damages is only appropriate where the
plaintiff's losses caused by the misuse of the defendant has made no actual profits and
plaintiff's trade secrets. See Id. at 771 & n.16, the plaintiff is unable to prove a specific
348 N.E.2d 771 & n.16. loss. See University Computing Co. v.
Lykes-Youngstown Corp., supra at 536.
We now consider the first damage master's See generally Johnson, Remedies in
method of assessing damages in light of Trade Secret Litigation, 72 Nw.U.L.Rev.
traditional principles. The first damage master 1004, 1025-1026 (1978); Hutter, Trade
found that “(t)he plaintiffs introduced detailed Secret Misappropriation; A Lawyer's
evidence in relation to the period from the Practical Approach to the Case Law, 1
inception of Crathco . . . concerning alleged W. New England L.Rev. 1, 41-42 (1978).
profits made by the defendants year by year on
sale of their units, and concerning alleged FN11. To the extent that the first damage
plaintiffs' loss year by year of profits on sales by master's findings with regard to the
three-month period of time may be of a head start rule. In support of their
interpreted as applying a “head start argument, the defendants rely on
rule” in assessing damages in this action, National Rejectors, Inc. v. Trieman, 409
such a measure of damages is improper. S.W.2d 1 (Mo.1966), and Structural
The application of a “head start” Dynamics Research Corp. v.
approach would limit damages to that Engineering Mechanics Research Corp.,
period of time in which “others in the 401 F.Supp. 1102 (E.D.Mich.1975).
trade are likely, through legitimate However, in National Rejectors, the
business procedures, to have become Supreme Court of Missouri held that no
aware of these secrets.” Analogic Corp. trade secrets belonging to the plaintiffs
v. Data Translation, Inc., 371 Mass. 643, had been misappropriated by the
--, 358 N.E.2d 804, 808 (1976). defendants. Id. at 34.In Structural
Dynamics, not only was the remedy
Generally, the “head start rule” has been based on a “reasonable royalty” because
applied in cases where the plaintiff's the defendants had made no profits, Id.
product, including the trade secret, has at 1119, but also the plaintiffs had
been marketed. The marketing of the marketed products containing the trade
product gives competitors a legitimate secrets. Id. at 1109.
opportunity to study the product and to
learn the principles of the trade secret But the Value of the misappropriated trade
through reverse engineering or similar secrets to the defendants is not the basis of the
procedures. See, e. g., Eastern Marble defendants' liability, and the value of the
Prods. Corp. v. Roman Marble, Inc., 372 misappropriated trade secrets should not form
Mass. --, -- (Mass.Adv.Sh. (1977) 1408, the basis of the plaintiffs' recovery. See
1417) 364 N.E.2d 799 (1977); Analogic generally National Merchandising Corp. v.
Corp. v. Data Translation, Inc., supra Leyden, supra 370 Mass. at -- - --, 348 N.E.2D
371 Mass. at -- - --, 358 N.E.2d 804.Cf. 771. accoRd, g.l. C. 93, s 42. therEfore, by
Carboline Co. v. Jarboe, 454 S.W.2d focusing on the value of the misappropriated
540, 552-553 (Mo.1970). trade secrets, and not on the wrongful conduct
of the defendants, the first damage master's
In a petition for injunctive relief, we assessment of damages was legally incorrect.
have indicated that the time necessary to The judge properly rejected the master's report
engineer in reverse is one factor to be and committed the case to a second damage
considered in determining the propriety master. Cf. Wormstead v. Town Manager of
of the duration of injunctive relief. See Saugus, 366 Mass. 659, 660, 322 N.E.2d 171
Eastern Marble Prods. Corp. v. Roman (1975).
Marble, Inc., supra 372 Mass. at --
(Mass.Adv.Sh. (1977) at 1417, 364 II. The Report of the Second Damage Master.
N.E.2d 799);Analogic Corp. v. Data
Translation, Inc., supra 371 Mass. at -- The judge's order of reference to the second
(Mass.Adv.Sh. (1976) at 2977, 358 damage master instructed the master: “(1) to
N.E.2d 804). We have not applied this find the extent of the use made by the
theory in an action for damages. The defendants of the trade secret (Foster Miller
defendants contend that the actual Report); (2) To find the amount of profits made
marketing by the plaintiffs of a product by the defendants on the sale of units
incorporating the trade secrets in incorporating the trade secret; and (3) To find
question is irrelevant to the application the amount of the plaintiffs' loss of profits due
to the defendants' sales of such dispensers to the plaintiffs suggested the possibility of
plaintiffs' customers to the extent such loss a new action against the defendants
exceeds the defendants' profits on these same which would claim damages beyond
sales.”This order of reference is consistent with September 30, 1975, the end of the
our traditional principles of damage assessment accounting period utilized by the second
in cases involving business torts.[FN12]The damage master. Of course, such a
second damage master made specific findings suggestion brings no issue before us and
with regard to each of the three issues which the we do not decide whether the filing of a
judge had instructed him to examine. second action based on these facts is
permissible.
FN12. The defendants object to certain
findings of the second damage master It is clear that the information contained
concerning the question whether the in the Foster-Miller report is now
misappropriated trade secrets themselves approximately twenty years old. The
Caused the defendants' profits. They plaintiffs have never marketed a product
allege that the findings exceeded the incorporating the information. From the
scope of reference to the master. outset, the information, while
appropriate to qualify it as a trade secret,
The order of reference to the second seems to have been the type of
damage master adequately required a development which “was the result of
finding of causation. The master was ordinary mechanical skill.” A. O. Smith
directed to find whether the defendants' Corp. v. Petroleum Iron Works Co. of
profits accrued from the sale of products Ohio, 73 F.2d 531, 538 (6th Cir. 1934).
incorporating the misappropriated trade Accord, Restatement of Torts s 757,
secrets. See, e. g., Eno v. Prime Mfg. Comment b (1939).
Co., 314 Mass. 686, 695-696, 50 N.E.2d
401 (1943); Adolph Gottscho, Inc. v. Therefore, in the event of any future
American Marking Corp., 26 N.J. 229, litigation there must be a new evaluation
240, 139 A.2d 281 (1958). The second of the information in the Foster-Miller
damage master was also directed to find report “to determine if the process truly
the amount of the plaintiffs' lost profits remains a trade secret.”Eastern Marble
“due to” the defendants' sales of Prods. Corp. v. Roman Marble, Inc., 372
products utilizing the trade secrets. Mass. --, -- (Mass.Adv.Sh. (1977) 1408,
1418) 364 N.E.2d 799, 804 (1977). See
First, the second damage master addressed the Jet Spray Cooler, Inc. v. Crampton, 361
extent to which the trade secrets had been used Mass. at 840, 282 N.E.2d 921.See also
by the defendants. He found that each visual note 9 Supra, and the concurrence of
display beverage dispenser unit sold by the Justice Kaplan.
corporate defendant from 1963 to September 30,
1975 (the accounting period) incorporated the Second, the master computed the net profits of
trade secrets contained in the Foster-Miller the defendants during the accounting period
report.[FN13]The second damage master also from sales incorporating the trade secrets. Since
found that during the accounting period the all the sales of the defendants incorporated the
defendants sold 27,110 dispensers with gross trade secrets, the second damage master
sales of $6,322,357.18. computed the total net profits of the
defendants.[FN14] He found that the records
FN13. During oral argument, counsel for submitted by the corporate defendant showed
total net profits of $67,604.80 during the profits from sales of units incorporating
accounting period.[FN15] He rejected a claim the misappropriated trade secrets was
by the defendants that $15,422.20 in losses proper.
incurred during two of the years of the
accounting period should be deducted from their FN15. Both the second damage master
total net profits. He also disallowed certain other and the judge correctly computed
deductions claimed by the defendants and added damages based on the defendants' net
them to the defendants' net profits: profits, rather than on gross profits. See,
e. g., MacDonald v. Page Co., 264 Mass.
FN14. Once the plaintiffs demonstrate 199, 206-208, 162 N.E. 364 (1928).
that the defendants have made profits
from sales of products incorporating the (a) $105,553.17 in legal fees and expenses in
misappropriated trade secrets, the burden defending this action.
shifts to the defendants to demonstrate
the portion of their profits which is not (b) $19,759.61 in Federal income taxes paid by
attributable to the trade secrets. Cf. the corporate defendant during the accounting
Westinghouse Elec. & Mfg. Co. v. period.
Wagner Elec. & Mfg. Co., 225 U.S. 604,
620, 32 S.Ct. 691, 696, 56 L.Ed. 1222 (c) $21,578.29 in Massachusetts excise taxes
(1912); Callaghan v. Myers, 128 U.S. paid by the corporate defendant during the
617, 666, 9 S.Ct. 177, 32 L.Ed. 547 accounting period.
(1888); Sheldon v. Metro-Goldwyn
Pictures Corp., 106 F.2d 45, 48 (2d Cir. (d) $18,698.03 in bad debts incurred on sales by
1939), aff'd, 309 U.S. 390, 60 S.Ct. 681, the corporate defendant during the accounting
84 L.Ed. 825 (1940). When an period.
apportionment of the defendants' profits
is not possible on the basis of the (e) $681.575.80 in salaries and consultant's fees
evidence, “(t)he fact that he may lose paid to the individual defendants by the
something of his own is a misfortune corporate defendant during the accounting
which he has brought upon himself . . . period.
.” Westinghouse Elec. & Mfg. Co. v.
Wagner Elec. & Mfg. Co., supra 225 (f) $22,508.40 for Key Life insurance premiums
U.S. at 620, 32 S.Ct. at 696.See paid by the corporate defendant on the lives of
generally Johnson, Remedies in Trade the individual defendants during the accounting
Secret Litigation, 72 Nw.U.L.Rev. 1004, period.
1018-1020 (1978).
(g) $17,110.52 for group insurance coverage on
The defendants apparently did not the lives of the individual defendants at various
sustain this burden before the master, times during the accounting period.
who found that “the testimony from
certain of Jet's customers as (to) their The net profits of the defendants as recomputed
reasons for buying from Crathco rather by the second damage master totaled
than Jet was not impressive and raised $954,388.62 during the accounting period.
doubts in my mind as to the weight it
was entitled to as respects Finally, the second damage master considered
credibility.”Therefore, the award of the question of the lost profits of the plaintiffs to
damages based on Crathco's entire the extent that they exceeded the profits of the
defendants. The plaintiffs claimed that their Both the plaintiffs and the defendants filed
profits on the sales made by the corporate objections to the second master's report. On
defendant to the plaintiffs' customers would September 23, 1977, the judge modified and
have totaled nearly $1,500,000 more than then adopted the report of the second damage
Crathco made on the same sales during the master. See Mass.R.Civ.P. 53(e)(2). He
accounting period. The master rejected this accompanied his order with a comprehensive,
claim, finding the plaintiffs' evidence on this well reasoned memorandum of decision.
aspect of damages “conjectural, speculative and
theoretically unsound.” The judge allowed the defendants' deductions
for bad debts and for salaries and consultant's
The second damage master also found that the fees paid to the individual defendants. The judge
individual defendants had made no “profits as then computed the total of the defendants' net
such.” Therefore, he found in favor of the profits at $282,100.83.[FN16]
individual defendants.
FN16. The computation is as follows:

“Profits as shown on Crathco's


books after deducting
losses . . . $ 52,182.76
Added items
-----------
Losses $ 15,422.20
Legal Fees and Expenses 105,553.17
Income and Corporate Excise
Taxes 41,337.90
Premiums for Key Man and
Group Insurance 67,604.80
$229,918.07 229,918.07
Total $282,100.83”
Since Crathco's profits before deducting
It appears that the computation of the losses was $67,604.80 and the losses
defendants' profits may have resulted in claimed were $15,422.20, the figure for
certain mathematical errors. First, the Crathco's profits after deducting losses
total figure for premiums for key man should be $52,182.60. Using the method
and group insurance as found by the of computation adopted by the Superior
master was $39,618.92. In the judge's Court, once these errors are corrected the
computation, the defendants' net profit defendants' net profit figure is
figure for the accounting period seems to $254,114.79.
have been inadvertently used instead of
the proper figure for insurance The judge further modified the second damage
premiums. Second, the master seems to master's finding that the plaintiffs' lost profits
have made a minor error in totaling the could not be computed. He concluded that the
defendants' profits as shown on second damage master's subsidiary findings
Crathco's books after deducting losses. were sufficient on their face to allow him to find
that the plaintiffs' lost profits totaled $257,068. from their gross profits all salaries and
consultant's fees paid to the individual
Finally, the judge rejected the second damage defendants by the corporate defendant. The
master's finding in favor of the individual plaintiffs emphasize that the salaries and fees in
defendants as precluded by our holding in Jet question were paid to individuals who were
Spray Cooler, Inc. v. Crampton, supra 361 defendants in this action. Therefore, the
Mass. at 844, 282 N.E.2d 921.He held the plaintiffs argue that the master properly refused
individual defendants jointly and severally to deduct their salaries and fees from the gross
liable with the corporate defendant. profits of the corporate defendant.[FN17]

Because the plaintiffs' lost profits were a lesser FN17. The master relied on Hyman &
amount than the defendants' profits as computed Co. v. Velsicol Corp., 123 Colo. 563, 233
by the judge, he awarded damages to the P.2d 977 (1951), as authority for his
plaintiffs in the amount of the defendants' net disallowance of the salaries and fees. In
profits. Both the plaintiffs and the defendants Velsicol, the master disallowed a
appeal from certain of the judge's modifications deduction for salaries paid to individual
of the second damage master's report. defendants, and the judge approved the
master's report. Affirming the judgment,
1. Bad Debts. the Supreme Court of Colorado
emphasized that the salaries disallowed
The judge allowed as a deduction from gross were for the period “prior to the
profits all bad debts incurred by the defendants commencement of Julius Hyman &
on sales of the infringing products. See Nelson Company's operations” and did not
v. J. H. Winchell & Co., 203 Mass. 75, 91, 89 disallow any deductions for salaries paid
N.E. 180 (1909). The plaintiffs urge us to adopt during the operation of the business. Id.
the approach taken by the Supreme Court of at 632-633, 233 P.2d 977, 1012.By
Colorado, expressed in Hyman & Co. v. Velsicol contrast, here the salaries allowed as
Corp., 123 Colo. 563, 633, 233 P.2d 977 (1951), deductions by the judge were paid
that bad debts may not be deducted from gross during the operation of Crathco's
profits because a defendant should assume the business.
risk of his extension of credit. This we decline
to do. An accounting of the defendants' profits is We think that the judge correctly allowed the
designed to strip them of their impermissible defendants to deduct the salaries and fees in
gains. Where a defendant has suffered bad debts question from gross profits on the basis of the
resulting from sales of products which he has judge's conclusion that “there are no findings
manufactured, the defendant has incurred that the salaries or consultant's fees were
manufacturing expenses and has reaped no excessive or a disguised distribution of earnings
profits. He should not be required to pay over as or that the corporate defendant to whom the
profits funds never received. See Nelson v. J. H. services were rendered was a sham.”The
Winchell & Co., supra. question whether corporate officers are named
as individual defendants should not determine
2. Salaries and Consultant's Fees Paid to whether their salaries may be deducted from a
Individual Defendants. corporate defendant's profits. The determinative
question should be whether their salaries and
The plaintiffs also appeal from the judge's fees are reasonable in light of their positions as
modification of the second damage master's officers of the corporation “engaged in the
report which allowed the defendants to deduct conduct of the business and in the production of
profits.” John B. Stetson Co. v. Stephen L. our view, in the judge's taking the gross tainted
Stetson Co., 58 F.Supp. 586, 592 sales of (the defendants) as not exceeding the
(S.D.N.Y.1944). See Clair v. Kastar, Inc., 70 sales of which (the plaintiffs were) capable . . .
F.Supp. 484, 487-488 (S.D.N.Y.1946). .” National Merchandising Corp. v. Leyden,
370 Mass. 425, --, 348 N.E.2d 771, 775 (1976).
Since the judge found that the salaries paid to
the individual defendants were reasonable in The second damage master's subsidiary findings
light of their positions in the corporation, he provided sufficient information concerning both
properly allowed their salaries and fees to be the defendants' sales to the plaintiffs' customers
deducted from the gross profits of the corporate and the plaintiffs' “established earnings record”
defendant. to allow the judge to compute the plaintiffs' lost
profits. Matsushita Elec. Corp. of America v.
3. Computation of Plaintiffs' Lost Profits. Sonus Corp., 362 Mass. 246, 264, 284 N.E.2d
880 (1972), quoting from Rombola v. Cosindas,
The second damage master declined to make a 351 Mass. 382, 385, 220 N.E.2d 919 (1966).
finding of the amount of the plaintiffs' lost
profits. He concluded that any figure which he However, where the master reports his
arrived at would be too speculative. subsidiary findings, we, like the judge below,
may draw our own inferences and come to our
The judge, however, modified the second own conclusions from the master's subsidiary
damage master's report and computed the findings. Corrigan v. O'Brien, 353 Mass. 341,
plaintiffs' lost profits at $257,068. To reach this 346, 231 N.E.2d 554 (1967). see Peters v.
result, the judge relied on the second damage Wallach, 366 Mass. 622, 626, 321 N.E.2d 806
master's subsidiary findings that the defendants (1975). See generally J.W. Smith & H.B. Zobel,
had sold dispensers to over sixty of the Rules Practice s 53.11 (1977).
plaintiffs' customers; that had the defendants
sold no dispensers, it was reasonably possible In this action, the second damage master's
that the plaintiffs would have made the sales to subsidiary findings also reveal that during the
these same customers; that the defendants' sales accounting period the plaintiffs never marketed
to these customers totaled $2,856,311.41, and a product incorporating the recommendations
that during the accounting period the plaintiffs' contained in the Foster-Miller report.[FN18]
net profits before taxes averaged nine per cent The master further found that the Crathco
of gross sales. dispenser offered “serious competition” to the
Jet Spray dispenser “because it was superior to
The judge multiplied the total of the defendants' the dispensers produced by other manufacturers
sales to the plaintiffs' customers ($2,856,311.41) and also that Crathco's dispenser was
by the plaintiffs' profit margin (nine per cent). comparable to Jet's particularly since it
He concluded that the resulting total of contained the improvements recommended in
$257,068 was “a sufficient approximation of the the Foster-Miller Report.”
plaintiffs' loss of profits.”
FN18. in 1963, the plaintiffs sold to
The defendants' objection to the judge's more than ninety per cent of the market
computation of the plaintiffs' lost profits rests for visual display beverage dispensers.
solely on the defendants' contention that there is Both masters found that the reason why
no evidence that the plaintiffs would have had the plaintiffs did not market products
the same volume of sales as the defendants. incorporating the information contained
However, “(t)here is nothing unreasonable, in in the Foster-Miller report in 1963 was
that the plaintiffs were saving the They may not insulate themselves from the
information for future development and consequences of their actions by choosing the
marketing. corporate form by which to market their
products. Accord, Donsco, Inc. v. Casper Corp.,
In light of these findings, we cannot determine 587 F.2d 602, 606 (3d Cir. 1978); Clark v.
whether the plaintiffs' lost profits in this action Bunker, 453 F.2d 1006, 1010-1011 (9th Cir.
were “due to” the defendants' sales of products 1972).
utilizing the trade secrets, or whether the
plaintiffs' lost profits were “due to” the III. Interest.
plaintiffs' own business decision to refrain from
marketing products containing the information The judge allowed interest on the plaintiffs'
in the report. See Supra at -- & n.12. [FNB] recovery from the date on which the master filed
Here, the uncertainty in the assessment of his report. See G.L. c. 235, s 8.[FN19] The
damages arises not from any action of the plaintiffs maintain that they are entitled to
defendants, but from the inaction of the interest from an earlier date.[FN20] We think
plaintiffs. Compare National Merchandising the judge correctly allowed interest only from
Corp. v. Leyden, supra 370 Mass. at --, 348 the date of the filing of the master's report.
N.E.2d 771.Therefore, we conclude that the
plaintiffs have not proved their lost profits “due FN19.General Laws c. 235, s 8, as
to” the defendants' sales to the plaintiffs' appearing in St.1973, c. 1114, s 219,
customers with sufficient certainty to allow the provides in pertinent part: “When
plaintiffs to recover damages based on lost judgment is rendered . . . upon the report
profits. of an auditor or master, . . . interest shall
be computed upon the amount of the . . .
FNb. Mass.Adv.Sh. (1979) at 217 & report, from the time when made to the
n.12. time the judgment is entered.”

4. Joint and Several Liability of the Individual FN20. The plaintiffs argue in the
Defendants. alternative that they are entitled to
interest from the date on which they
The judge modified the second damage master's filed the action, that they are entitled to
report to hold the individual defendants jointly interest computed annually on the net
and severally liable with the corporate profits of the defendants, or that they are
defendant. To reach this result, he relied on Jet entitled to interest from September 30,
Spray Cooler, Inc. v. Crampton, supra, where 1975, the end of the accounting period
we held that “(t)he joint involvement of the utilized by the master.
corporate defendant and the (individual)
defendants . . . in utilizing the secrets of the General Laws c. 235, s 8, requires the judge to
Foster-Miller report . . . require(s) that the add interest from the time the master files his
damages, if any, shall be assessed against all of report to the time judgment is entered in any
them.” Id. 361 Mass. at 844, 282 N.E.2d at 927. action where the award is based on the report of
a master. Beyond this statutory mandate, [FN21]
Our resolution of this issue in 1972 is “considerations of relative hardship” should
dispositive of the question of the liability of the govern an addition to the award, which
individual defendants. The individual represents interest from an earlier date. Edgar H.
defendants actively participated in the Wood Assocs. v. Skene, 347 Mass. 351, 366,
misappropriation of the plaintiffs' trade secrets. 197 N.E.2d 886 (1964). Cf. Watertown
Firefighters, Local 1347 v. Watertown, -- Mass. use of the infringing mark. But to hold
--, -- & n.25 [FNC] 383 N.E.2d 494 & n.25 otherwise would give the windfall to the
(1978). wrongdoer”).

FN21. The plaintiffs claim that G.L. c. Here, the plaintiffs have been awarded the
231, ss 6B, 6C, entitles them to interest entirety of the defendants' net corporate profits
from the date on which they filed the from 1964 to 1975.[FN22]This award is made
complaint in 1964. We disagree. Here, because it is impossible for the defendants to
the monetary award is based primarily segregate the portion of their profits which is
on profits and losses incurred subsequent attributable to the misappropriated trade secrets
to the filing of the action. Compare from the portion of their profits which may be
Porter v. Clerk of the Superior Court, attributable to other factors.[FN23]See, e. g.,
368 Mass. 116, 117, 330 N.E.2d 206 Carter Prods., Inc. v. Colgate-Palmolive Co.,
(1975). These statutes were not intended 214 F.Supp. 383, 399 (D.Md.1963). Thus it is
to award interest on damages accruing likely that the “plaintiff may recover more than
after the filing of the action, assuming his exact loss.”National Merchandising Corp. v.
that such interest is not actually an Leyden, supra.
element of the damage itself.
FN22. In many cases involving business
Moreover, the plaintiffs made no torts, a defendant will market a variety
showing to the master that they had of products, only some of which subject
incurred damages in the form of interest him to liability. An accounting for profits
as an element of their lost profits. in such cases Only requires the
Compare MacDonald v. Page Co., 264 defendant to surrender his net profits
Mass. 199, 207-208, 162 N.E. 364 from offending products. See, e. g.,
(1928). Carter Prods., Inc. v. Colgate-Palmolive
Co., 214 F.Supp. 383, 394-400
FNc. Mass.Adv.Sh. (1978) 2956, 2969 & (D.Md.1963). Similarly, where a
n.25. defendant produces a variety of
products, he may deduct from his gross
An award to a plaintiff of the defendant's net profits only that portion of his business
profits is made primarily to ensure that the expenses which he can demonstrate are
defendant is not unjustly enriched as a result of attributable to the production of
his wrongful acts. See, e. g., National offending products. See, e. g., Eno v.
Merchandising Corp. v. Leyden, supra 370 Prime Mfg. Co., 314 Mass. 686, 692, 50
Mass. at --, 348 N.E.2d at 776.Since the award N.E.2d 401 (1943); MacDonald v. Page
of a defendant's net profits is made only where Co., 264 Mass. 199, 207, 162 N.E. 364
the defendant's net profits exceed the plaintiff's (1928).
demonstrable losses, the plaintiff may actually
recover far more than its actual loss. Id. See By contrast, here the defendants
Sammons v. Colonial Press, Inc., 126 F.2d 341, apparently have marketed no product
345-346 (1st Cir. 1942). Cf. Mishawaka Rubber which does not contain the
& Woolen Mfg. Co. v. S. S. Kresge Co., 316 misappropriated trade secrets. Therefore,
U.S. 203, 207, 62 S.Ct. 1022, 1025, 86 L.Ed. their entire net corporate profits are
1381 (1942) (“there may well be a windfall to subject to the accounting.
the trade-mark owner where it is impossible to
isolate the profits which are attributable to the FN23. Profits may not result from a
single source. For example, they may accounting period utilized by the master.
well result from the use of a trade secret However, in both of these cases the
combined with management skill, capital monetary award was grounded on the
investment, and such other factors as plaintiff's injury, and not on the
tend to produce profit in any enterprise. defendant's wrongful profits. Interest in
In this case, however, it appears that the both cases was awarded in order to place
defendants were unable to separate that the plaintiff “in the same position in
portion of profits attributable to the use reference to the injury as if the damages
of the trade secret from that portion directly resulting from the injury had
attributable to other profit factors. See been paid immediately.” Id. at 278,
note 14 Supra. quoting from H. D. Foss & Co. v.
Whidden, supra 254 Mass. at 151, 149
In these circumstances, we do not think that the N.E. at 681.
plaintiffs will be unfairly deprived of
compensation or that the defendants will be No such compensation is necessary in
“unjustly enriched if (they are) not required to this action. See, e. g., L. P. Larson, Jr.,
pay interest on the total profits so Co. v. William Wrigley, Jr., Co., 20 F.2d
awarded.”[FN24] Carter Prods., Inc. v. Colgate- 830, 836 (7th Cir. 1927), rev'd on other
Palmolive Co., supra at 417. The observation of grounds, 277 U.S. 97, 48 S.Ct. 449, 72
the United States Court of Appeals for the L.Ed. 800 (1928).
Seventh Circuit in L. P. Larson, Jr., Co. v.
William Wrigley, Jr., Co., 20 F.2d 830, 836 (7th The judgment of the Superior Court is to be
Cir. 1927), rev'd on other grounds, 277 U.S. 97, modified in accordance with this opinion and, as
48 S.Ct. 449, 72 L.Ed. 800 (1928), is thus modified, is affirmed.
particularly apt here: “The award here in issue is
so palpably and unquestionably ample to fully So ordered.
compensate (the plaintiff) for any and all KAPLAN, Justice (concurring).
invasion of its rights, as to suggest no I join in the decision of the court, but with the
circumstances which invoke the court's feeling that the damages allowed are excessive.
discretion to enlarge it by allowance of interest They are made so by being cast over a period of
back of the date of the master's report . . . .” eleven years. The court indicates at note 13 that
Therefore, the judge properly awarded interest the “secret” was a simple one, a result of
only from the date on which the second damage ordinary mechanical skill, and intimates some
master's report was filed. See G.L. c. 235, s 8. doubt that it could survive as a protectible
Accord, Tilghman v. Proctor, 125 U.S. 136, 160- entity on October 1, 1975. I suspect that it had
161, 8 S.Ct. 894, 31 L.Ed. 664 (1888); Carter perished in that sense some time before; that is
Prods., Inc. v. Colgate-Palmolive Co., supra at to say, in the ordinary course of events the secret
418. in substance would have become known and
available at an earlier date, even if the
FN24. The plaintiffs rely on H. D. Foss defendants had not appropriated it and the
& Co. v. Whidden, 254 Mass. 146, 151- plaintiffs had tried to keep it to themselves.
152, 149 N.E. 679 (1925), and Coyne This, however, was a matter of proof, and the
Indus. Laundry of Schenectady, Inc. v. trouble was, and is, that the record is virtually
Gould, 359 Mass. 269, 278-279, 268 barren of the relevant facts and inferences.
N.E.2d 848, 854 (1971), to support their
claim that they are entitled to interest In adding these remarks, I would like to suggest
from September 30, 1975, the end of the that if, as we are told, the law of trade secrets
does not necessarily conflict with the patent
law,[FN1] there is still excellent reason to apply
it with beseeming modesty.

FN1. Kewanee Oil Co. v. Bicron Corp.,


416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d
315 (1974). Doerfer, The Limits on
Trade Secret Law Imposed by Federal
Patent and Antitrust Supremacy, 80
Harv.L.Rev. 1432 (1967).

Mass., 1979.
Jet Spray Cooler, Inc. v. Crampton
377 Mass. 159, 385 N.E.2d 1349, 203 U.S.P.Q.
363

END OF DOCUMENT

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