## Facts

- Safeway Containers, founded by Leathem D. Smith, designed, manufactured, sold, and leased standardized steel freight containers for integrated rail-and-water shipment.
- After Smith’s death, Safeway’s successors sought to sell the container business; Dravo Corporation explored buying containers or acquiring the enterprise.
- During purchase negotiations, Safeway provided Dravo substantial business and technical material to enable evaluation, including issued patents and pending applications, engineering drawings and blueprints, and customer/prospect information (including inquiry letters and lists).
- No written confidentiality agreement was executed, but the disclosures were made for the limited purpose of evaluating a potential purchase, which Dravo understood.
- Negotiations failed and Dravo declined to buy Safeway; Dravo then entered the freight-container market.
- Dravo’s engineers consulted Safeway’s patent applications and drawings; they admitted using the patent applications in designing Dravo’s container while asserting the purpose was to avoid infringement.
- Dravo produced containers closely resembling Safeway’s, with a key dimensional change (narrower by four inches) that undermined interchangeability and allegedly impaired Safeway’s market position.

## Issues

1. Whether Safeway’s technical and business information constituted protectable trade secrets and, if so, whether a confidential relationship arose by implication during acquisition negotiations absent an express confidentiality promise.
2. Whether Dravo misused Safeway’s trade secrets obtained during negotiations.
3. Whether the asserted patents were valid and, if valid, infringed.

## Decision

- The Seventh Circuit reversed the judgment for Dravo on the trade-secret and unjust-enrichment counts and remanded for further proceedings, including appropriate equitable relief and accounting.
- The court held Safeway disclosed protectable trade secrets and that a confidential relationship could be implied from the circumstances of disclosure during purchase negotiations.
- The court found the district court’s contrary findings on communication and misuse of trade secrets were clearly erroneous given the stipulated disclosures and admissions of Dravo’s engineers.
- The Seventh Circuit affirmed the district court’s holding that the patents at issue were invalid for lack of patentable invention in view of prior art.

## Legal Principles

- A confidential relationship may be implied from circumstances where information is disclosed for a limited evaluative purpose in business-acquisition negotiations, even without an express confidentiality agreement.
- Trade secrets may include detailed engineering drawings, specifications, know-how, and customer/prospect information; public sale of products or partial public disclosures do not automatically eliminate secrecy as to undisclosed details or combinations.
- Misappropriation may be inferred where the recipient receives confidential material to evaluate a transaction, then uses that material to develop a competing product after the transaction fails.
- Trade-secret liability may exist independently of patent rights; a plaintiff can prevail on misuse of confidential information even when related patents are invalid.

## Conclusion

The Seventh Circuit held that Dravo’s receipt and subsequent use of Safeway’s disclosed technical and customer information during acquisition negotiations created an implied duty of confidence supporting trade-secret and unjust-enrichment relief, while separately affirming that Safeway’s asserted patents were invalid for lack of patentable invention.


Smith v. Dravo Corp., 203 F.2d 369 (7th Cir. 1953)