Unpublished Disposition, 872 F.2d 427 (9th Cir. 1988)

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US Court of Appeals for the Ninth Circuit - 872 F.2d 427 (9th Cir. 1988)

ECO-SEPARATOR CO., INC., Plaintiff-Appellant, Cross-Appellee,v.SHELL CANADA LTD., Defendant-Appellee, Cross-Appellant.

Nos. 88-5807, 88-5902.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 5, 1988.Decided April 13, 1989.

Before JAMES R. BROWNING, SCHROEDER and NOONAN, Circuit Judges.


MEMORANDUM* 

Eco-Separator Co., Inc. ("Eco-Separator") appeals a directed verdict for Shell Canada Ltd. ("Shell") in a diversity action against Shell for misappropriation of Eco-Separator's trade secrets. We affirm.

* Early in this litigation Shell moved for dismissal asserting ineffective service of process, absence of personal jurisdiction, and forum non conveniens. CR 3. Shell reasserts these claims in this court without discussion. Shell Opening Br. at 1.

Because Shell conceded below that Eco-Separator had accomplished effective service, CR 17 at 1-2, we do not address this claim.

The district court found Shell had insufficient contacts with California to establish general jurisdiction, but found enough litigation-specific contacts to support jurisdiction over Shell in this action. Id. at 5-10. We review de novo. Haisten v. Grass Valley Medical Reimbursement Fund, Ltd., 784 F.2d 1392, 1396 (9th Cir. 1986). We agree the following contacts with California are sufficient to establish personal jurisdiction for this claim: (1) Shell called Eco-Separator in California to inquire about its process; (2) Shell employees visited Eco-Separator's facility in Ventura, California on two occasions; (3) Shell sent two barrels of waste oil to California for testing; (4) Shell negotiated with Eco-Separator for access to its process and equipment by letters and phone calls to California; and, (5) much of the information allegedly misappropriated by Shell was acquired in California.1  See id. at 1397; Data Disc, Inc. v. Systems Technology Assocs., Inc., 557 F.2d 1280, 1287 (9th Cir. 1977).

The district court also concluded Shell had not made the showing required by Miskow v. Boeing Co., 664 F.2d 205, 207-08 (9th Cir. 1981), to justify a dismissal under the forum non conveniens doctrine. CR 17 at 12. We review for abuse of discretion. Miskow, 664 F.2d at 207. We agree with the district court that while the balance of conveniences may have tipped toward a Canadian forum, no "oppression and vexation" sufficient to justify dismissal appears. Cf. id. at 208.

We conclude the district court had jurisdiction over the action and we have jurisdiction over Eco-Separator's appeal.

However, we lack jurisdiction over Shell's cross appeal.2  The district court entered judgment February 8, 1988. ER 248. Eco-Separator filed its notice of appeal March 3, 1988. ER 250. Therefore a notice of cross-appeal would be timely only if filed by March 17, 1988. Fed. R. App. P. 4(a) (3). Shell filed its notice March 30, 1988. ER 252. Accordingly, we dismiss the cross appeal, number 88-5902, for lack of jurisdiction.

II

After the close of Eco-Separator's case, the district court granted Shell's motion for directed verdict because it did "not ... think that any jury could reasonably find that Shell Canada took or used any trade secrets of the plaintiff." ER 95.

We review a directed verdict de novo. Los Angeles Memorial Coliseum Comm'n v. NFL, 791 F.2d 1356, 1360 (9th Cir. 1986). We must determine if, viewing the record as a whole and in the light most favorable to Eco-Separator, the only reasonable conclusion to be drawn from the evidence is that Shell is entitled to judgment as a matter of law. Id. To gain reversal, Eco-Separator must demonstrate that every necessary element of its case is supported by evidence sufficient to permit a fair-minded jury to return a verdict in its favor. "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

Eco-Separator's trade secret claim had four essential elements: (1) Eco-Separator must have identified the trade secret, Forro Precision, Inc. v. IBM, 673 F.2d 1045, 1057 (9th Cir. 1982) (applying California law); (2) Eco-Separator must have maintained the secrecy of the alleged trade secret, Futurecraft Corp. v. Clary Corp., 205 Cal. App. 2d 279, 289 (1962); (3) Shell must have received the trade secret in confidence or obtained it by improper means, Restatement of Torts Sec. 757 (1939) (adopted by Sinclair v. Aquarius Electronics, Inc., 42 Cal. App. 3d 216, 221 (1974)); and, (4) Shell must have improperly used or disclosed the trade secret, id. We conclude the record does not contain evidence from which the jury could reasonably have concluded Shell used or disclosed the alleged trade secret.

"The protection accorded the trade secret holder is against the disclosure or unauthorized use of the trade secret." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475 (1974) (emphasis added) (applying Restatement of Torts Sec. 757 (1939)). A trade secret is "used" and liability is imposed if a defendant relied on the trade secret to hasten its own development efforts. Winston Research Corp. v. Minnesota Mining & Mfg. Co., 350 F.2d 134 (9th Cir. 1965) (applying California law). See also Engelhard Indus., Inc. v. Research Instrumental Corp., 324 F.2d 347, 353 (9th Cir. 1963) (applying federal law). Eco-Separator was required to offer evidence that would allow a reasonable jury to find that Shell either disclosed Eco-Separator's secret or utilized it to hasten the development of a process to separate Shell's oil and water emulsion.

Eco-Separator sought to establish that Shell provided the trade secret to Blaw Knox to assist Blaw Knox in producing a separator for Shell's use. Eco-Separator asserts that the individual pieces of technical advice assembled in response to Shell Canada's particular requirements and problems at their Peace River oil project constituted a "total body of knowledge" that Shell Canada used to educate Blaw Knox to a new configuration of its existing equipment, allowing a new application. A trade secret may consist of a novel combination of familiar principles to produce a new result, Cybertek Computer Prods., Inc. v. Whitfield, 203 U.S.P.Q. (BNA) 1020, 1024 (Cal.Super.Ct.1977), or of a familiar principle applied to a new use, Head Ski Co., Inc. v. Kam Ski Co., Inc., 158 F. Supp. 919, 923 (D. Md. 1958) (applying Restatement Sec. 757). See generally 1 R. Milgram, Milgram on Trade Secrets Sec. 2.08 (1988) (collecting cases). The evidence upon which Eco-Separator relies to establish disclosure to Blaw Knox is of three kinds: (1) Blaw Knox had not sold separation equipment to the oil industry until Shell contacted them following Shell's contact with Eco-Separator, ER 147; SER 227-28; RT 884, 1044; (2) Shell provided some of the parameters Blaw Knox used in developing a system for Shell's use, ER 160, 188, 201; and, (3) Blaw Knox believed it had developed an "interesting and new" system and informed its sales force the process was "something to sell," ER 132, 139; RT 1091.

Evidence under the first and third headings demonstrates Blaw Knox developed a separator for Shell's oil-water emulsion only after Blaw Knox was contacted by Shell. However, Eco-Separator had published its discovery that oil field wastes could be processed by the use of "parallel plate heat exchange in combination with efficient inertial separation," ER 120, and the record shows Shell was aware of that publication. ER 114. Shell's instigation of Blaw Knox's development efforts may reflect the use of an idea Eco-Separator had made public but not use of Eco-Separator's secrets.

Evidence under the second heading identifies three parameters Shell instructed Blaw Knox to use in developing separation equipment for Shell. First, a Blaw Knox test report stated: "Although Blaw Knox believed they were using a short length of inlet pipe to the separator, it was 10 pipe diameters long as required by Shell specs." ER 160. This demonstrates Shell provided some data for the design of a separator, but does not show use of Eco-Separator's trade secret. The utility of a short inlet pipe had been publicly disclosed in a patent granted to Einar Palmason, Eco-Separator's founder, and subsequently obtained by Blaw Knox in its acquisition of the Parkson Company, a prior venture of Einar Palmason. SER 190. Palmason admitted the publication in that patent of the utility of a short inlet pipe was "a clear disclosure of that feature of [Eco-Separator's] trade secret." SER 88.

Second, a letter from Blaw Knox to Shell suggests Shell specified "the use of 310? F. steam and operating the product at atmospheric conditions." ER 188. This is not evidence of use of Eco-Separator's secret. Exhibit 14 does not specify a steam temperature of 310? Fahrenheit, ER 110-12, and the temperatures it does specify were not secret. Palmason testified Shell provided the inlet temperature based on the capacity of the existing heater in its slop tank, SER 55, and that the outlet temperature could be readily calculated given the nature of the system and the material to be processed. SER 98-100. Development of a separator that operated at atmospheric pressure is not evidence of disclosure of Eco-Separator's secret. The article Eco-Separator published disclosed operation at atmospheric pressure. ER 120.

Third, Eco-Separator claims, without citation to the record, that Robert Davis, a Shell employee, "advised Blaw-Knox that the overhead vapors 'are expected to contain about 15 percent by volume of nap [h]tha at 33? A.P.I. (SGO.86).' " Eco-Separator Reply Br. at 5. This figure does appear in notes Davis made at Eco-Separator's plant, ER 201, but does not match the results of Eco-Separator's tests on Shell's slop oil, ER 199-200. In any event, as Shell argues, the composition of the overhead vapors "was necessarily based on knowledge of composition of the feed--which came from Shell Canada, not Eco-Separator." Shell Reply Br. at 5.

In sum, the evidence Eco-Separator offered to establish use or disclosure of its trade secret is of little probative value. On the other hand, the record contains abundant evidence the Blaw Knox system was developed without recourse to Eco-Separator's secrets. In this case the two systems differed in critical respects, but proof of independent development would defeat a trade secret claim even if the two process were identical. See Sinclair, 42 Cal. App. 3d at 226.

Eco-Separator's system used welded plates, the design of which Eco-Separator has never revealed, ER 111; SER 48, 70-72, 120; Blaw Knox used a gasketed-plate design acquired in the purchase of the Parkson Company, SER 144-45, 156, 227-28. Palmason acknowledged "the use of a gasketed plate would not be a use of [Eco-Separator's] trade secret." SER 72.

Eco-Separator's design called for a single pass of the slop oil through the separator; Blaw Knox's design utilized multiple passes. SER 79-80. Again, Palmason testified the difference was important. SER 80-81. Finally, as noted above, the Eco-Separator design featured a low pressure drop while the Blaw Knox design did not, a distinction Palmason labeled "critical." SER 87. We note, parenthetically, that Eco-Separator's process apparently worked, ER 199-200, while the Blaw Knox design proved impracticable. ER 66; SER 232-36.

The existence of these essential differences undermines the inference that the Blaw Knox system resulted from misappropriation of Eco-Separator's trade secret. On the other hand, the uncontradicted direct evidence was that the Blaw Knox system was independently designed. A Blaw Knox employee testified that Blaw Knox proposed its own design, SER 166; that substantial testing had been required to develop its system, SER 130, 159, 169; that Shell did not specify the number of passes through the separator, the use of a plate and frame heat exchanger, or of gasketed plates, SER 144-45, 180-81; and that Shell did not provide drawings, documentation, or specifications for the separator Blaw Knox was to build, SER 124.

Palmason's testimony makes clear that similarities between the Eco-Separator and Blaw Knox systems are readily explained by Blaw Knox's prior acquisition of the Parkson Company and its patents on Palmason's prior designs, by the prevalent use of common design details by engineers, or by the requests for design elements that Shell made of both Eco-Separator and Blaw Knox. Blaw Knox's use of a Parkson condenser originated in Parkson's technology, SER 114-15; Palmason admitted welded fittings were commonly used and were not unique to Eco-Separator, SER 87; and he admitted Shell requested the use of low carbon steel construction, SER 98, and specified the feed rate and inlet temperature which Shell's slop tank pump and heater would provide. SER 55.

Eco-Separator has failed to provide sufficient evidence to support an inference that the technical advice it disclosed in response to Shell's particular requirements, alone or in combination, provided Shell or Blaw Knox with any advantage that hastened development at the Peace River project. Viewing this record as a whole and in the light most favorable to Eco-Separator, we conclude that no rational jury could find Shell used or disclosed Eco-Separator's alleged trade secret. Accordingly, the directed verdict must be affirmed. Anderson, 477 U.S. at 252.

We deny Shell's request for fees and costs on appeal. While Eco-Separator's arguments are ultimately unconvincing, they are not sanctionably frivolous.

The judgment in number 88-5807 is AFFIRMED. The cross appeal in number 88-5902 is DISMISSED.

 *

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3

 1

Both parties and the district court assume the activities of Shell Canada Resources may be attributed to its parent, Shell Canada Ltd., the named defendant. See Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 419-20 (9th Cir. 1977) (subsidiary's acts attributable to parent for jurisdictional analysis if common law agency is found). Shell has given us no reason to question that assumption

 2

Although neither party objects to our exercise of jurisdiction over the cross-appeal, we must examine this issue sua sponte. Liberty Mutual Ins. Co. v. Wetzel, 424 U.S. 737, 740 (1976)