## Facts

- Basil W. Smith, Jr. created a modified ratchet by combining parts of two existing tools.
- Smith presented the ratchet to a Snap-On independent dealer and submitted the idea to Snap-On using the company’s standard “tool suggestion” process.
- Snap-On later manufactured and sold a similar ratchet without paying Smith.
- Smith sued in federal court alleging misappropriation of a trade secret under Wisconsin law, asserting the submission was made in confidence.
- The district court found for Smith, concluding the design was a trade secret, a confidential relationship existed, and Snap-On misappropriated the design.
- The district court awarded damages as a reasonable royalty of 2.5% of Snap-On’s gross sales of the ratchet plus prejudgment interest.

## Issues

1. Whether the evidence supported a finding that Snap-On owed Smith a duty of confidentiality (i.e., a confidential relationship) sufficient to establish the “breach of confidence” element of trade secret misappropriation under Wisconsin law.
2. If liability were established, what damages measure was proper (Snap-On’s profits versus a reasonable royalty), and whether prejudgment interest and the royalty’s scope/duration were proper.

## Decision

- The Fifth Circuit reversed the judgment for Smith.
- The court held the record did not support the finding of a confidential relationship between Smith and Snap-On.
- Because breach of confidence is an essential element under Wisconsin law, Smith failed to establish trade secret misappropriation.
- In light of the dispositive failure of proof on confidentiality, the court did not definitively resolve other disputed issues (including whether the design was an actual trade secret and the proper damages measure).

## Legal Principles

- Under Wisconsin law, misappropriation of trade secrets requires two essential elements: (1) an actual trade secret and (2) a breach of confidence.
- The tort focuses on inequitable use; liability depends on acquisition or use of the information contrary to a duty of confidentiality.
- Even if information qualifies as a trade secret, a party who learns it legitimately and without any duty of confidentiality may use it.
- A routine idea or product suggestion submission, without an express or implied agreement of confidentiality supported by the evidence, does not by itself establish a confidential relationship.

## Conclusion

The Fifth Circuit set aside the district court’s trade-secret liability and royalty award because the evidence did not show that Snap-On accepted Smith’s submission under circumstances creating a duty of confidence, a required element for misappropriation under Wisconsin law.


Smith v. Snap-On Tools Corp., 833 F.2d 578 (5th Cir. 1987)