Materials Processing Technology, Inc. v. the Clorox Company

95-2125 (U.S. Dist. Ct., D. N.J. 1997) (Unpublished)
  • Opinion Date: September 10, 1997

CONFIDENTIALITY; TRADE SECRETS—The protection of trade secrets in a manufacturer-supplier relationship requires an express agreement. If a subsequent trade secret agreement does not cover previously disclosed information, that information is not covered.

A manufacturer enlisted the help of a supplier to refine and develop a component for the manufacturer’s bleach products. In the course of its work, the supplier further developed the component and altered the formula given to it by the manufacturer. The manufacturer then contracted with the supplier to be exclusive supplier of the component, but the contract did not discuss ownership of proprietary rights to the component. Two years later, the parties entered into a confidentiality agreement protecting the proprietary rights of both parties. After expiration of the initial contract the manufacturer transferred production of the component, giving the new supplier the formula and process for making the component. The initial supplier brought an action alleging breach of the confidentiality agreement, misappropriation of trade secrets, and breach of an oral promise to indefinitely renew the original supply contract. The manufacturer moved for summary judgment, arguing that the supplier did not own any of the trade secrets or confidential information or, alternatively, if the supplier did own them, it failed to properly protect itself.

The District Court granted the manufacturer’s motion, finding no express agreement protecting the supplier’s trade secrets at the time those secrets were disclosed to the manufacturer. The confidentiality agreement protecting the supplier’s proprietary rights was executed after disclosures had been made, and the plain language of that agreement protected only future disclosures. Therefore, the Court held that the manufacturer could not have breached any express agreement by revealing prior disclosures to the new supplier. The supplier also claimed it owned the trade secrets by implied agreement. The Court disagreed, citing cases holding that the manufacturer-supplier relationship requires an express agreement. Furthermore, the Court stated that the new formula became the property of the manufacturer as a matter of law since the manufacturer hired the supplier and evaluated and approved all changes to the component.
The Court then addressed the supplier’s claim of misappropriation of trade secrets and enumerated the five elements required to succeed with such a claim: (1) the existence of a trade secret; (2) communicated in confidence to a defendant; (3) disclosed by defendant in breach of that confidence; (4) acquired by a competitor with knowledge of the breach of confidence; and (5) used by the competitor to the detriment of the plaintiff. New Jersey law further requires that plaintiff demonstrate that precautions were taken to maintain the secrecy of the information. The District Court found that the supplier did not own the trade secrets so there could not have been misappropriation. Furthermore, the supplier disclosed the confidential information to the manufacturer without taking adequate precaution before the disclosure to ensure that the manufacturer maintained the secrecy of the information. The Court stated that it was not enough to take precautions after disclosure.

Finally, the Court ruled that the manufacturer’s failure to renew the original agreement was not actionable since there was only an oral “agreement to agree.” The Court held that both parties knew there was only an agreement to negotiate, and not an intent to be bound unless and until the manufacturer gave further assurances of renewal.