## Facts

- Metallurgical Industries, Inc. operated zinc recovery furnaces to reclaim tungsten carbide and purchased two furnaces from Therm-O-Vac Engineering & Manufacturing Co.
- Metallurgical invested substantial time, money, and effort to modify the furnaces and related process to achieve commercially successful operation and improved output.
- Metallurgical claimed its specific modifications and process know-how provided a competitive advantage and constituted protectable trade secrets.
- Irvin Bielefeldt, formerly associated with Therm-O-Vac, was told that Metallurgical’s process was confidential.
- After Therm-O-Vac’s bankruptcy, Bielefeldt formed Fourtek, Inc., which manufactured and sold zinc recovery furnaces that Metallurgical alleged incorporated Metallurgical’s confidential modifications.
- Metallurgical made disclosures about its process to only two businesses it dealt with, asserting the disclosures were limited and made to advance its economic interests rather than for public dissemination.

## Issues

1. Whether Metallurgical’s specific furnace modifications and process could qualify as trade secrets under Texas law even if basic zinc recovery principles were known in the trade.
2. Whether limited disclosures to a small number of business counterparties for business purposes destroyed the secrecy required for trade secret protection.
3. Whether the district court erred by directing a verdict for Bielefeldt and excluding evidence bearing on secrecy, value, and misappropriation.

## Decision

- The Fifth Circuit affirmed in part, reversed in part, and remanded for a new trial.
- The court held that limited disclosure made for business purposes does not, by itself, destroy trade secret status.
- The court held that a trade secret may exist in a specific combination or application of generally known principles if it is kept sufficiently secret and provides a commercial advantage.
- The court concluded the district court misconceived Texas trade secret law, leading to an erroneous directed verdict for Bielefeldt.
- The court further held the district court abused its discretion by excluding evidence relevant to secrecy, value, and misappropriation, warranting a new trial on the misappropriation claim.

## Legal Principles

- Under Texas law, a trade secret requires (1) a secret, (2) efforts to maintain secrecy, and (3) secrecy that need not be absolute.
- Public knowledge of general scientific or industrial principles does not negate trade secret protection for specific confidential modifications or process implementations that yield superior commercial results.
- A trade secret holder may disclose a limited amount of information to a limited group to advance economic interests without forfeiting trade secret protection, particularly where confidentiality is implied by the circumstances.
- Evidence of competitive advantage and superior product or process results can support trade secret status and the information’s economic value.
- A directed verdict is improper where the trial court applies an incorrect legal standard to the elements of trade secret misappropriation or excludes evidence central to those elements.

## Conclusion

The Fifth Circuit held that Metallurgical’s claimed furnace modifications could qualify as trade secrets despite general knowledge of zinc recovery concepts, and that limited, business-related disclosures did not necessarily destroy secrecy; it reversed the directed verdict based on legal and evidentiary errors and remanded for a new trial on the misappropriation claim.


Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195 (5th Cir. 1986)