Business Adventures

by John Brooks

  Having heard the evidence and the lawyers’ summations, Judge Harvey reserved decision until a later date and issued an order temporarily forbidding Wohlgemuth to reveal the alleged secrets or to work in the Latex space-suit program; he could go on the Latex payroll, but he had to stay out of space suits until the court’s decision was handed down. In mid-December, Wohlgemuth, leaving his family behind, went to Dover and began working for Latex on other products; early in January, by which time he had succeeded in selling his house in Wadsworth and buying one in Dover, his family joined him at his new stand.

  IN Akron, meanwhile, the lawyers had at each other in briefs intended to sway Judge Harvey. Various fine points of law were debated, learnedly but inconclusively; yet as the briefs wore on, it became increasingly clear that the essence of the case was quite simple. For all practical purposes, there was no controversy over the facts. What remained in controversy was the answers to two questions: First, should a man be formally restrained from revealing trade secrets when he has not yet committed any such act, and when it is not clear that he intends to? And, secondly, should a man be prevented from taking a job simply because the job presents him with unique temptations to break the law? Having scoured the lawbooks, counsel for the defense found exactly the text quotation they wanted in support of the argument that both questions should be answered in the negative. (Unlike the decisions of other courts, the general statements of the authors of law textbooks have no official standing in any court, but by using them judiciously an advocate can express his own opinions in someone else’s words and buttress them with bibliographical references.) The quotation was from a text entitled “Trade Secrets,” which was written by a lawyer named Ridsdale Ellis and published in 1953, and it read, in part, “Usually it is not until there is evidence that the employee [who has changed jobs] has not lived up to his contract, expressed or implied, to maintain secrecy, that the former employer can take action. In the law of torts there is the maxim: Every dog has one free bite. A dog cannot be presumed to be vicious until he has proved that he is by biting someone. As with a dog, the former employer may have to wait for a former employee to commit some overt act before he can act.” To counter this doctrine—which, besides being picturesque, appeared to have a crushingly exact applicability to the case under dispute—Goodrich’s lawyers came up with a quotation of their own from the very same book. (“Ellis on trade secrets,” as the lawyers referred to it in their briefs, was repeatedly used by the two sides to belabor each other, for the good reason that it was the only text on the subject available in the Summit County law library, where both sides did the bulk of their research.) In support of their cause, Goodrich counsel found that Ellis had said, in connection with trade-secrets cases in which the defendant was a company accused of luring away another company’s confidential employee: “Where the confidential employee left to enter defendant’s employment, an inference can be drawn to supplement other circumstantial evidence that the latter employment was stimulated by a desire by the defendant to learn plaintiff’s secrets.”

  In other words, Ellis apparently felt that when the circumstances look suspicious, one free bite is not permitted. Whether he contradicted himself or merely refined his position is a nice question; Ellis himself had died several years earlier, so it was not possible to consult him on the matter.

  On February 20th, 1963, having studied the briefs and deliberated on them, Judge Harvey delivered his decision, in the form of a nine-page essay fraught with suspense. To begin with, the Judge wrote, he was convinced that Goodrich did have trade secrets relative to space suits, and that Wohlgemuth might be able to remember and therefore be able to disclose some of them to Latex, to the irreparable injury of Goodrich. He declared, further, that “there isn’t any doubt that the Latex company was attempting to gain [Wohlgemuth’s] valuable experience in this particular specialized field for the reason that they had this so-called ‘Apollo’ contract with the government, and there isn’t any doubt that if he is permitted to work in the space-suit division of the Latex company … he would have an opportunity to disclose confidential information of the B. F. Goodrich Company.” Still further, Judge Harvey was convinced by the attitude of Latex, as this was evidenced by the conduct of its representatives in court, that the company intended to try to get Wohlgemuth to give it “the benefit of every kind of information he had.” At this point in the opinion, things certainly looked black for the defense. However—and the Judge was well down page 6 before he got to the “however”—what he had concluded after studying the one-free-bite controversy among the lawyers was that an injunction cannot be issued against disclosure of trade secrets before such disclosure has occurred unless there is clear and substantial evidence of evil intent on the part of the defendant. The defendant in this case, the Judge pointed out, was Wohlgemuth, and if any evil intent was involved, it appeared to be attributable to Latex rather than to him. For this reason, along with some technical ones, he wound up, “It is the view and the Order of this Court that Injunction be denied against the defendant.”

  Goodrich promptly appealed the decision, and the Summit County Court of Appeals, pending its own decision on the case, issued another restraining order, which differed from Judge Harvey’s in that it permitted Wohlgemuth to do space-suit work for Latex, but still forbade him to disclose Goodrich’s alleged trade secrets. Accordingly, Wohlgemuth, with an initial victory under his belt but with a new legal struggle on his behalf ahead, went to work in the Latex moon-suit shop.

  Jeter and his colleagues, in their brief to the Court of Appeals, stated unequivocally that Judge Harvey had been wrong not only in some of the technical aspects of his decision but in his finding that there must be evidence of bad faith on the defendant’s part before an injunction can be granted. “The question to be decided is not one of good or bad faith, but, rather, whether there is a threat or a likelihood that trade secrets will be disclosed,” the Goodrich brief declared roundly—and a little inconsistently, in view of all the time and effort the company had expended on attempts to pin bad faith on both Latex and Wohlgemuth. Wohlgemuth’s lawyers, of course, did not fail to point out the inconsistency. “It seems strange indeed that Goodrich should find fault with this finding of Judge Harvey,” they remarked in their brief. Quite clearly, they had conceived for Judge Harvey feelings so tender as to border on the protective.

  The decision of the Court of Appeals was handed down on May 22nd. Written by Judge Arthur W. Doyle, with his two colleagues of the court concurring, it was a partial reversal of Judge Harvey. Finding that “there exists a present real threat of disclosure, even without actual disclosure,” and that “an injunction may … prevent a future wrong,” the court granted an injunction that restrained Wohlgemuth from disclosing to Latex any of the processes and information claimed as trade secrets by Goodrich. On the other hand, Judge Doyle wrote, “We have no doubt that Wohlgemuth had the right to take employment in a competitive business, and to use his knowledge (other than trade secrets) and experience for the benefit of his new employer.” Plainly put, Wohlgemuth was at last free to accept a permanent job doing space-suit work for Latex, provided only that he refrained from disclosing Goodrich secrets in the course of his work.

  NEITHER side carried the case above the Summit County Court of Appeals—to the Ohio Supreme Court and, beyond that, to the United States Supreme Court—so with the decision of the Appeals Court the Wohlgemuth case was settled. Public interest in it subsided soon after the trial was over, but professional interest continued to mount, and, of course, it mounted still more after the Appeals Court decision in May. In March, the New York City Bar Association, in collaboration with the American Bar Association, had presented a symposium on trade secrets, with the Wohlgemuth case as its focus. In the later months of that year, employers worried about loss of trade secrets brought numerous suits against former employees, presumably relying on the Wohlgemuth decision as a precedent. A year later there were more than two dozen trade-secrets cas
es pending in the courts, the most publicized of them being the effort of E. I. du Pont de Nemours & Co. to prevent one of its former research engineers from taking part in the production of certain rare pigments for the American Potash & Chemical Corporation.

  It would be logical to suppose that Jeter might be worried about enforcement of the Appeals Court’s order—might be afraid that Wohlgemuth, working behind the locked door of the Latex laboratory, and perhaps nursing a grudge against Goodrich, would take his one free bite in spite of the order, on the assumption that he would not be caught. However, Jeter didn’t look at things that way. “Until and unless we learn otherwise, we assume that Wohlgemuth and International Latex, both having knowledge of the court order, will comply with the law,” Jeter said after the case was concluded. “No specific steps by Goodrich to police the enforcement of the order have been taken, or are contemplated. However, it if should be violated, there are various ways in which we would be likely to find out. Wohlgemuth, after all, is working with others, who come and go. Out of perhaps twenty-five employees in constant touch with him, it’s likely that one or two will leave Latex within a couple of years. Furthermore, you can learn quite a lot from suppliers who deal with both Latex and Goodrich; and also from customers. However, I do not feel that the order will be violated. Wohlgemuth has been through a lawsuit. It was quite an experience for him. He now knows his responsibilities under the law, which he may not have known before.”

  Wohlgemuth himself said late in 1963 that since the conclusion of the case he had received a great many inquiries from other scientists working in industry, the gist of their questions being, “Does your case mean that I’m married to my job?” He told them that they would have to draw their own conclusions. Wohlgemuth also said that the court order had had no effect on his work in the Latex space-suit department. “Precisely what the Goodrich secrets are is not spelled out in the order, and therefore I have acted as if all the things they alleged to be secrets actually are secrets,” he said. “Nevertheless, my efficiency is not impaired by my avoiding disclosure of those things. Take, for example, the use of polyurethane as an inner liner—a process that Goodrich claimed as a trade secret. That was something Latex had tried previously and found unsatisfactory. Therefore, it wasn’t planning to investigate further along those lines, and it still isn’t, I am just as effective for Latex as if there had never been an injunction. However, I will say this. If I were to get a better offer from some other company now, I’m sure I would evaluate the question very carefully—which is what I didn’t do the last time.” Wohlgemuth—the new, post-trial Wohlgemuth—spoke in a noticeably slow, tense way, with long pauses for thought, as if the wrong word might bring lightning down on his head. He was a young man with a strong sense of belonging to the future, and he looked forward to making, if he could, a material contribution to putting man on the moon. At the same time, Jeter may have been right; he was also a man who had recently spent almost six months in the toils of the law, and who worked, and would continue to work, in the knowledge that a slip of the tongue might mean a fine, imprisonment, and professional ruin.

  12

  In Defense of Sterling

  I

  THE FEDERAL RESERVE BANK of New York stands on the block bounded by Liberty, Nassau, and William Streets and Maiden Lane, on the slope of one of the few noticeable hillocks remaining in the bulldozed, skyscraper-flattened earth of downtown Manhattan. Its entrance faces Liberty, and its mien is dignified and grim. Its arched ground-floor windows, designed in imitation of those of the Pitti and Riccardi Palaces in Florence, are protected by iron grilles made of bars as thick as a boy’s wrist, and above them are rows of small rectangular windows set in a blufflike fourteen-story wall of sandstone and limestone, the blocks of which once varied in color from brown through gray to blue, but which soot has reduced to a common gray; the façade’s austerity is relieved only at the level of the twelfth floor, by a Florentine loggia. Two giant iron lanterns—near-replicas of lanterns that adorn the Strozzi Palace in Florence—flank the main entrance, but they seem to be there less to please or illuminate the entrant than to intimidate him. Nor is the building’s interior much more cheery or hospitable; the ground floor features cavernous groin vaulting and high ironwork partitions in intricate geometric, floral, and animal designs, and it is guarded by hordes of bank security men, whose dark-blue uniforms make them look much like policemen.

  Huge and dour as it is, the Federal Reserve Bank, as a building, arouses varied feelings in its beholders. To admirers of the debonair new Chase Manhattan Bank across Liberty Street, which is notable for huge windows, bright-colored tiled walls, and stylish Abstract Expressionist paintings, it is an epitome of nineteenth-century heavy-footedness in bank architecture, even though it was actually completed in 1924. To an awestruck writer for the magazine Architecture in 1927, it seemed “as inviolable as the Rock of Gibraltar and no less inspiring of one’s reverent obeisance,” and possessed of “a quality which, for lack of a better word, I can best describe as ‘epic’” To the mothers of young girls who work in it as secretaries or pages, it looks like a particularly sinister sort of prison. Bank robbers are apparently equally respectful of its inviolability; there has never been the slightest hint of an attempt on it. To the Municipal Art Society of New York, which now rates it as a full-fledged landmark, it was until 1967 only a second-class landmark, being assigned to Category II, “Structures of Great Local or Regional Importance Which Should Be Preserved,” rather than Category I, “Structures of National Importance Which Should Be Preserved at All Costs.” On the other hand, it has one indisputable edge on the Pitti, Riccardi, and Strozzi Palaces: It is bigger than any of them. In fact, it is a bigger Florentine palace than has ever stood in Florence.

  The Federal Reserve Bank of New York is set apart from the other banks of Wall Street in purpose and function as well as in appearance. As by far the largest and most important of the twelve regional Federal Reserve Banks—which, together with the Federal Reserve Board in Washington and the sixty-two hundred commercial banks that are members, make up the Federal Reserve System—it is the chief operating arm of the United States’ central-banking institution. Most other countries have only one central bank—the Bank of England, the Bank of France, and so on—rather than a network of such banks, but the central banks of all countries have the same dual purpose: to keep the national currency in a healthy state by regulating its supply, partly through the degree of ease or difficulty with which it may be borrowed, and, when necessary, to defend its value in relation to that of other national currencies. To accomplish the first objective, the New York bank coöperates with its parent board and its eleven brother banks in periodically adjusting a number of monetary throttles, of which the most visible (although not necessarily the most important) is the rate of interest at which it lends money to other banks. As to the second objective, by virtue of tradition and of its situation in the nation’s and the world’s greatest financial center, the Federal Reserve Bank of New York is the sole agent of the Federal Reserve System and of the United States Treasury in dealings with other countries. Thus, on its shoulders falls the chief responsibility for operations in defense of the dollar. Those responsibilities were weighing heavily during the great monetary crisis of 1968—and, indeed, since the defense of the dollar sometimes involves the defense of other currencies as well, over the preceding three and a half years.

  Charged as it is with acting in the national interest—in fact having no other purpose—the Federal Reserve Bank of New York, together with its brother banks, obviously is an arm of government. Yet it has a foot in the free-enterprise camp; in what some might call characteristic American fashion, it stands squarely astride the chalk line between government and business. Although it functions as a government agency, its stock is privately owned by the member banks throughout the country, to which it pays annual dividends limited by law to six per cent per year. Although its top officers take a federal oath, they are not appointe
d by the President of the United States, or even by the Federal Reserve Board, but are elected by the bank’s own board of directors, and their salaries are paid not out of the federal till but out of the bank’s own income. Yet that income—though, happily, always forthcoming—is entirely incidental to the bank’s purpose, and if it rises above expenses and dividends the excess is automatically paid into the United States Treasury. A bank that considers profits incidental is scarcely the norm in Wall Street, and this attitude puts Federal Reserve Bank men in a uniquely advantageous social position. Because their bank is a bank, after all, and a privately owned, profitable one at that, they can’t be dismissed as mere government bureaucrats; conversely, having their gaze fixed steadily above the mire of cupidity entitles them to be called the intellectuals, if not actually the aristocrats, of Wall Street banking.

  Under them lies gold—still the bedrock on which all money nominally rests, though in recent times a bedrock that has been shuddering ominously under the force of various monetary earthquakes. As of March, 1968, more than thirteen thousand tons of the stuff, worth more than thirteen billion dollars and amounting to more than a quarter of all the monetary gold in the free world, reposed on actual bedrock seventy-six feet below the Liberty Street level and fifty below sea level, in a vault that would be inundated if a system of sump pumps did not divert a stream that originally wandered through Maiden Lane. The famous nineteenth-century British economist Walter Bagehot once told a friend that when his spirits were low it used to cheer him to go down to his bank and “dabble my hand in a heap of sovereigns.” Although it is, to say the least, a stimulating experience to go down and look at the gold in the Federal Reserve Bank vault, which is in the form not of sovereigns but of dully gleaming bars about the size and shape of building bricks, not even the best-accredited visitor is allowed to dabble his hands in it; for one thing, the bars weigh about twenty-eight pounds each and are therefore ill-adapted to dabbling, and, for another, none of the gold belongs to either the Federal Reserve Bank or the United States. All United States gold is kept at Fort Knox, at the New York Assay Office, or at the various mints; the gold deposited at the Federal Reserve Bank belongs to some seventy other countries—the largest depositors being European—which find it convenient to store a good part of their gold reserves there. Originally, most of them put gold there for safekeeping during the Second World War. After the war, the European nations—with the exception of France—not only left it in New York but greatly increased its quantity as their economies recovered.