Revere Transducers, Inc. v. Deere & Company

Tortious Interference with Contractual Relations - Trade Secrets - Civil Conspiracy - Plaintiff, Revere Transducers, Inc., is a Delaware corporation
with its principal place of business in California, and operates a
facility in Connecticut. Revere is engaged in the manufacture,
marketing and sale of devices called resistive strain gauge force
transducers. A force transducer is a device which measures force.
A strain gauge is an electrical conductor which measures strain
and is a component part of a force transducer.

Defendant Deere & Company is a Delaware corporation with its
principal place of business in Illinois. Deere is engaged in the
manufacture of tractors and has a facility in Waterloo, Iowa.

In the mid-1980s Deere became interested in locating a company to
develop and manufacture a draft sensor device which, when
installed on its tractors, would regulate the depth of an attached
plow in the ground and monitor the forces on the plow as the
tractor was plowing.

In 1986, Deere contacted a number of different manufacturers of
strain gauge sensing devices, including plaintiff Revere. Revere
and Deere discussed the possibility of using a "Gozinta." A
Gozinta is a strain gauge force sensor device developed and
manufactured by Revere under the registered trademark "Gozinta."

The Gozinta is a metal capsule or cylinder-shaped device,
approximately two inches long. One end of the Gozinta has a ridged
or "knurled" surface, similar to the edge of a coin. The Gozinta
is pressed into a hole in a member or metal strap and the knurled
surface accomplishes an interference fit between the Gozinta and
the receiving member. In oversimplified terms, the Gozinta
measures the strain produced in the member in which it is
inserted.

Inside the metal capsule is a disc with four evenly spaced holes
which channel the stress toward four strain gauges mounted on the
disc. The holes have a minimum diameter of one-eighth of an inch.
Wire pins extend through the holes to the strain gauges and
connect the strain gauges to an electric circuit board, or
amplifier. The wire pins transfer the strain gauge signal or
changes in resistance back through the printed circuit board or
amplifier. The signal would eventually be transmitted to the
tractor's computer. By drilling a hole in a hitch that attaches a
plow to a tractor, and placing a Gozinta in the hole, the force on
the plow can be calculated.

The concept of using Revere's Gozinta as a draft sensor in a Deere
product was unique. Deere had experience using strain gauges in
testing application, but had never used strain gauges in a
product.

To formalize their business relationship, Revere and Deere signed
an agreement entitled "Non-Disclosure Agreement for Proprietary
Information" in June 1986 to protect the proprietary information
of the parties.

The initial plan was that Revere would manufacture the Gozinta at
its plant in Connecticut. The Gozinta would then be inserted into
a Deere designed strap made of forged steel. The Deere metal strap
was to be manufactured by a third party. The decision was later
made that Revere would be responsible for assembling the completed
device, that is, inserting the Gozinta into Deere's metal strap.

Deere was to provide the funding for the unique tooling which
would be necessary for the manufacture, assembling and testing of
the Gozinta. Deere agreed to purchase a fixed total quantity of
Gozintas from Revere, pursuant to a blanket purchase order. The
purchase order included language stating that Deere, at its
discretion, could terminate the purchase order with 120 days
notice. The parties estimated that production quantities of the
Gozinta would increase from 5000 in 1989 to 30,000 in 1991. The
original price of the Gozinta to Deere was estimated at $129.50
per part but later increased to $138.22.

Revere and Deere worked jointly on the project, and development of
the Gozinta draft sensor device consumed the efforts of Deere and
Revere over a three to four-year period. Each party had a team of
engineers working on the project.

Francis Delfino, a manufacturing engineer, was a member of the
Revere team. Delfino was responsible for designing the processes
and equipment to manufacture the Gozinta and played an important
role in its development. Delfino was hired by Revere on September
15, 1986.

Greg Eckart was another member of the Revere team. Eckart was not
an engineer but was a product manager and was the primary contact
between Revere and Deere for the Gozinta/Deere project. Eckart was
hired by Revere on August 26, 1986.

At the time they were hired, Delfino and Eckart signed agreements
whereby they agreed to disclose any inventions or discoveries they
made during their employment to Revere and also agreed not to
disclose any such inventions or discoveries to others without
Revere's consent. The agreement further stated that Delfino and
Eckart agreed not to disclose any inventions or discoveries
relating to Revere's methods, processes, or apparatus or
production of goods or materials for a period of one year
following termination from Revere's employment. Delfino and Eckart
also agreed to assignment of their rights to Revere in any
invention or discovery made by them during their employment by
Revere and agreed not to disclose to others at any time during
their employment any confidential information, knowledge or data
belonging to Revere without first obtaining Revere's written
consent. Delfino and Eckart were not bound by any other employment
agreement or noncompete agreement and thus were considered at-will
employees.

B. Production problems arose. According to Revere, Deere was late
in supplying the funding for the tooling which prevented Revere
from proceeding with development of the Gozinta. The strap forging
company chosen by Deere also was late in providing the forged
steel straps to Revere. Due to these delays, Revere was forced to
begin actual production of the Gozinta without an opportunity to
perform preproduction testing or a pilot run.

Revere began actual production of the Gozinta in December 1988.
Production was not immediately successful. Problems developed in
that the Gozinta produced an excessive output signal and produced
an unpredictable output of the sensor when no load was applied.
Initial yields during the first few months of production were in
the 17-20% range. (Yield is defined as the percentage of parts
produced that passed post-production tests and were actually
shipped to Deere.) Because of the low yields, Deere was forced to
ship tractors to customers with a temporary part that would have
to be replaced later.

Both Deere and Revere worked to solve the problems encountered in
manufacturing the Gozinta. After testing and analysis, it was
determined that problems with the product were related to the
physical dimensions of the Deere metal strap. Deere, however,
believed that some of the problems were due to the poor quality of
the knurls on the Gozinta that Revere was receiving from its
vendor. Deere later learned that Revere had changed suppliers for
the knurl, but had not informed Deere.

While Revere and Deere were working to solve the problems
associated with the Gozinta/Deere project, Revere was experiencing
significant downsizing in its personnel following its purchase in
1988 by Dobson-Park, an English corporation. Several Revere
employees who worked on the Gozinta/Deere project either left or
were laid off.

Eckart and Delfino were concerned about their positions at Revere.
Eckart was informed by his supervisor that Revere's Connecticut
plant would be closed in July 1989 and that he should start
looking for another job. Delfino was initially assured by his
supervisor that his job was secure and that he had nothing to
worry about. That particular supervisor was laid off two weeks
later. In early 1989, Delfino and Eckart told David Ramsey of
Deere that they were scheduled to be let go from Revere.

C. Deere's search for another sensor supplier. Although yields of
the Gozinta had improved to 95% in the summer of 1989, the Revere
Gozinta never completely met Deere's engineering qualification
tests. Deere was also concerned about whether Revere would be a
long-term viable supplier. Based on these concerns, in addition to
the turnover in Revere personnel, Deere, unknown to Revere,
started looking for an alternative part for the Gozinta.

To address some of the problems associated with the project, Deere
and Revere held a meeting in Waterloo in February 1989. Eckart was
not present at the meeting. During the meeting, Ramsey, a Deere
engineer, suggested that perhaps the sensor could be welded rather
than pressed into place. According to Deere employees, John
Elengo, Revere's vice president of engineering, said that he did
not think that welding the device would work because it would put
too much stress on the sensor and cause it to fail.

In early 1989, Eckart, Revere's product manager for the Gozinta
project, was having frequent conversations with Carl Kunath
concerning product shipments of the Gozinta and problems
associated with it. Kunath was employed by Deere as a
buyer/purchasing agent of electronic and mechanical parts for
Deere tractors and was Deere's primary contact with Revere on the
Gozinta project. During a conversation in early March 1989, the
subject of personnel changes at Revere came up. At some point
during the conversation, Eckart told Kunath that he intended to
leave Revere and develop a consulting engineering business and
that he had ideas for installing Gozintas into new products, some
of which may be applicable to Deere. Kunath testified he told
Eckart that, if he had any ideas, to send Deere a proposal. Kunath
testified that he did not invite or solicit Eckart to submit a
proposal, but that Eckart mentioned he had an idea and wanted to
know if Deere was interested. Kunath told Eckart that he would
have to submit the proposal to Deere's engineering department
because he was not in the position to receive proposals on
engineering ideas or concepts.

After this conversation, Eckart approached Delfino, a lead Revere
manufacturing engineer working on the Gozinta/Deere project, and
inquired if he would be interested in developing a new draft
sensor for Deere that would be welded, rather than pressed, into a
hole. Delfino and Eckart agreed to meet one day after work to
discuss their ideas. Delfino and Eckart eventually met with a
lawyer at Delfino's suggestion. The record contains a letter from
an attorney dated March 10, 1989, addressed to Delfino and Eckart
regarding their potential liability concerning the manufacture of
a welded-in disc sensor. The letter stated that if Delfino and
Eckart decided to develop the welded-in sensor, it was extremely
important for them not to take any documents, models, or
engineering drawings from Revere. The letter also indicated that
Delfino and Eckart's contractual obligation regarding disclosure
of inventions and discoveries presented the most risk and that the
possibility of liability hinged on the definition of inventions
and discoveries, but that what Delfino and Eckart were considering
was not an invention or discovery in the narrower sense.

Sometime thereafter, but before March 12, Delfino and Eckart
formed a company called D E Sensor Manufacturing, Inc.

On March 12, 1989, Delfino and Eckart, through their company D E
Sensor, wrote to Kunath at Deere. The letter contains a quotation
of estimated cost for "the development and manufacturing of a
functional equivalent to sensor assembly part number RE30962 rev
H," a replacement part for the Gozinta. The letter also discusses
payment schedules for development of the sensor. Attached to the
letter were a number of drawings for a new strap assembly and
draft sensor components.

Sometime thereafter, Delfino, Eckart and Kunath of Deere met in a
hotel in Connecticut to discuss D E's proposal for a welded-in
sensor. Neither Delfino nor Eckart informed Revere of the meeting.

On April 11, 1989, Kunath of Deere wrote to Eckart confirming its
intention to provide a purchase order in the amount of $172,900
for design and development work by D E of a welded-in sensor,
known as a "weldzinta," to replace the Gozinta.

On April 19, Delfino notified Revere that he was terminating his
employment effective May 5. On April 26, Eckart notified Revere
that he was terminating his employment effective April 28.

Subsequently, in July 1990, Kunath wrote to Revere stating that
Deere was canceling its contract for purchasing Gozintas. The
letter also stated that "we [Deere] have developed a new product
that replaces RE30962 [the Gozinta]," that will begin production
at Deere's facility on October 29, 1990.

D. The Connecticut and present litigation. Revere eventually
discovered that Delfino and Eckart were making a sensor similar to
the Gozinta and sued Delfino and Eckart in federal district court
in Connecticut in December 1992 for patent and trademark
infringement and breach of contract. A noncompete injunction was
entered against D E on February 4, 1993.

Revere later filed a petition in the present action against
defendant Deere in Iowa district court on August 24, 1993, seeking
damages for tortious interference with contractual relations,
misappropriation of trade secrets, and civil conspiracy.

On November 30, 1993, Revere dismissed its claims against Delfino
and Eckart in the Connecticut federal court action pursuant to a
settlement agreement. In return for settlement of all pending
disputes against them, and subject to any rights which Revere
might have against Deere, Delfino and Eckart executed a promissory
note in the amount of $60,000 in favor of Revere. Upon consent of
the parties, the district court entered a permanent injunction
which permanently enjoined Delfino and Eckart, acting through D E,
from manufacturing certain types of sensors.

The jury returned verdicts for compensatory damages in plaintiff Revere's favor concerning the tortious interference with a contract and the civil conspiracy claims, and awarded $350,000 and $200,000 in damages on those respective claims. The jury found in defendant Deere's favor regarding Revere's claim for misappropriation of trade secrets. The jury also awarded Revere punitive damages in the amount of $450,000, but also found that Deere's acts were not directed against Revere.

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Affirmed in part, reversed in part and remanded by the Supreme Court of Iowa on June 3, 1999. See: 595 N.W.2d 751 (6-3-99).