Business Ethics: The Doctrine of Secrecy

In the late 18th century, after developing the world’s first cotton-spinning machinery, Britain took strong steps to protect its technological lead. Textile workers were forbidden to leave England, and those who did forfeited their property and citizenship. From such harsh precedent has developed over the years a formidable file of U.S. court decisions covering the protection of trade secrets. Last week, in two separate lawsuits, U.S. corporations were again testing the subject.

Memory’s Tricks. The contenders in one case were the B. F. Goodrich Co.. developer, with the Navy, of the Mercury astronauts’ suits, and International Latex Corp.. which recently underbid Goodrich on a NASA contract for Apollo moon-exploration space suits. In an Akron court, Goodrich asked that its former manager of space-suit engineering, Donald H. Wohlgemuth, be enjoined from taking a similar job at International Latex. Wohlgemuth, 36, had worked six years for Goodrich, rising after 15 pay increases to a salary of $10,600. Shortly after International Latex won its NASA contract, it hired Wohlgemuth away for $13,700.

Pointing out that Goodrich had 28 years’ experience in pressure-suit design, Attorney Ray Jeter argued that Goodrich had taught Wohlgemuth whatever he knew about the subject and that it was for this knowledge that Latex wanted him. Goodrich conceded that Wohlgemuth carried away no written information. But, said Goodrich witnesses, he has a prodigious memory.*

In rebuttal, Latex brought one of its employees into court in a space suit of its own design to prove that it needed no Goodrich secrets. Latex Attorney Richard Chenoweth scoffed at Goodrich’s claim that Wohlgemuth was ”a key man.” Said Chenoweth: “His pay was below the salary schedule of some labor classifications in his own division.”

Paint & Precedent. The other suit involved Du Pont and American Potash & Chemical Corp.. both of which have undertaken to produce titanium dioxide for paint pigments in new California plants. Recently, after helping design the Du Pont plant, Chemical Engineer Donald E. Hirsch, 38, a Du Pont employee for twelve years, was hired away by American Potash, whose plant is not yet completed. Du Pont pleaded that it had spent $15 million developing the process, and argued that Hirsch could not work for a competitor without giving away Du Pont secrets. American Potash insisted it had already acquired the knowledge necessary to set up its plant through an arrangement with Britain’s Laporte Industries Ltd., and had hired Hirsch ”for experience, not specific know-how.”

In both the Du Pont and Goodrich suits, the judges issued temporary restraining orders, then settled back to probe precedent before making final decisions. Many decisions seem to favor the complaining companies. In one 1944 case a New York court allowed a Fairchild aircraft vice president to go to work elsewhere but enjoined him for five years from any activity remotely linked to a then-secret Fairchild process for cooling aircraft engines. The problem of trade secrets has lately become more acute: much of today’s corporate research is done under Government contract and hence cannot be patented. Often, too, technology moves faster than patent procedures. In such circumstances, the courts tend to uphold the right to trade secrecy.

* It was one man’s memory that undid Britain’s efforts to keep its textile machinery monopoly. In 1789, after memorizing the designs, Derbyshire Millworker Samuel Slater slipped off in disguise to Rhode Island, where he duplicated Britain’s cotton-spinning equipment and founded the New England textile industry.