The letter went on to repeat, in a paragraph, that the two constituent ingredients were familiar in cosmetics and that the concept of reacting the first type of ingredient with the second type of ingredient to produce a material with improved hair conditioning and other cosmetic properties was well known.
On April 11, 1977, defendants moved to dismiss Count II of the complaint on the ground that it fails to state a claim upon which relief can be granted. Count II alleges, in substance, that the procedures used to evaluate Zotos' trade secret claim fall short of the requirements of the Due Process Clause of the Fifth Amendment.
On May 13, Zotos filed its opposition to defendants' motion and moved for summary judgment. The Court heard oral argument on the motion to dismiss on January 16, 1978. At the conclusion, the Court indicated that it wished to consider matters outside plaintiff's original pleading and asked defendants to file for summary judgment.
Defendants complied on January 27. In their statement of uncontested material facts, they agreed with plaintiff's allegation that the FDA had not given notice, prior to its "final" action on December 23, 1976, of the references upon which it relied in denying the trade secret request, and that Zotos had not discussed these references itself in any filings prior to the December 23 decision.
Plaintiff argues that due process requires, and the procedure used denied, an opportunity prior to a final determination to examine any adverse evidence in defendants' possession, comment upon or respond to such evidence, receive notice of any tentative or proposed adverse decision, or otherwise rebut material considered by the FDA to run counter to the trade secret claim.
Before the specific requirements of due process in this situation may be examined, the Court must confront a more fundamental question whether a claim of trade secret status is a claim of a property interest deserving of due process protection.
A trade secret "may consist of any formula, pattern, device or compilation of information which is used in one's business and gives him an opportunity to obtain an advantage over competitors who do not know or use it." Restatement of Torts, § 757, Comment b at 5 (1939).
Property interests in trade secrets have been recognized for over a century by English and American courts of equity, which have provided injunctive relief against their disclosure by a private party where the disclosure would violate a contract or a confidential relationship, or where the secret was discovered by improper means. See Morrison v. Moat, 9 Hare, 241, 20 L.J.Eq. 513 (1851); Peabody v. Norfolk, 98 Mass. 452, 96 Am. Dec. 664 (1868); O. & W. Thum Co. v. Tloczynski, 114 Mich. 149, 72 N.W. 140 (1897); Stone v. Goss, 65 N.J.Eq. 756, 55 A. 736 (1903); Restatement of Torts, § 757.
Federal courts in this country have treated trade secrets as property in a number of contexts. See C. F. Simmons Medicine Co. v. Simmons, 81 F. 163, 166 (C.C.Ark.1897) (injunctive relief against private party); Darsyn Labs. v. Lenox Labs., 120 F. Supp. 42, 54 (D.N.J.1954), Aff'd, 217 F.2d 648 (3d Cir. 1954), Cert. denied, 349 U.S. 921, 75 S. Ct. 661, 99 L. Ed. 1253 (1955) (injunctive relief against private party); E. I. Du Pont De Nemours and Company v. United States, 288 F.2d 904, 909-912, 153 Ct.Cl. 274 (1961) (treatment of trade secrets as property within the Internal Revenue Code); Underwater Storage, Inc. v. United States Rubber Co., 125 U.S. App. D.C. 297, 371 F.2d 950 (1966), Cert. denied, 386 U.S. 911, 87 S. Ct. 859, 17 L. Ed. 2d 784 (1967) (money damages for continuing misappropriation of trade secrets by a private party); 1 R. Milgrim, Trade Secrets § 1.01 (1977).
Protection has likewise been extended to trade secrets in federal statutes, in the form of safeguards against disclosure by government officials. See, e.g., 18 U.S.C. § 1905 (1948) ("Disclosure of confidential information generally"); Freedom of Information Act, 5 U.S.C. § 552(b)(4) (1967); Government in the Sunshine Act, 5 U.S.C. § 552b(c)(4) (1976).
While some of these enactments give federal officials a measure of discretion as to whether they may reveal acknowledged trade secrets for reasons of the public interest, the provision under scrutiny here, section 5 of the Fair Packaging and Labeling Act, 15 U.S.C. § 1454, appears to absolutely exempt a holder of a trade secret from its reach. ("(N)othing in this paragraph shall be deemed to require that any trade secret be divulged.")
In considering whether these various indicators establish that trade secrets merit due process treatment, the Court is mindful of the teaching of Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972):
Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law rules or understandings that support claims of entitlement to those benefits.
The state and federal case law analyzing the nature of trade secrets, as well as the explicit protection accorded by the Fair Packaging and Labeling Act, See Mathews v. Eldridge, 424 U.S. 319, 332, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976), represent persuasive "independent sources" in this case. The Court finds that a trade secret is a property interest within the scope of the Due Process Clause of the Fifth Amendment.
This conclusion is supported by dictum in an early opinion of the United States Court of Appeals for the District of Columbia.
In American Sumatra Tobacco Corp. v. Securities and Exchange Comm., 68 App. D.C. 77, 93 F.2d 236 (1937), several corporate parties objected to the disclosure of certain information included in securities registration statements they had filed with the Commission, on the ground, among others, that the information constituted trade secrets. The Commission determined that the public interest warranted disclosure. The issue before the Court of Appeals was not whether the Commission should be upheld on the merits, but whether the Court had jurisdiction to hear a direct appeal from the Commission's decision. In the course of deciding the jurisdictional question in favor of the private parties, the Court stated:
Here the petitions for review allege irreparable injury through the threatened disclosure of the information contained in the applications which the petitions characterize as trade secrets . . . . In such case it is fundamental that the property rights of the citizen may not be put in jeopardy or destroyed in any proceeding before an administrative board without notice, hearing, and judicial review . . . . Id. 68 App. D.C. at 80, 93 F.2d at 239.