Opinion
No. 93 C 1601
January 10, 2001
MEMORANDUM OPINION AND ORDER
This case involves the secret recipe for sausage toppings on Pizza Hut pizza. Beginning in 1982, Plaintiff CF Packing Co. ("CF") supplied defendant Pizza Hut, Inc. ("Pizza Hut") with "casing cooked" Italian sausage pizza topping. Plaintiff says that defendant coerced it into divulging its sausage recipe and then covertly disclosed the recipe to IBP, Inc. — another, larger Pizza Hut meat supplier — which was prepared to make sausage toppings more cheaply. CF sued Pizza Hut and IBP for misappropriation of trade secrets on April 23, 1993.
A jury awarded CF a multi-million dollar verdict in its case against IBP. CF's case against Pizza Hut, however, never got past a motion to dismiss. Judge Williams concluded that CF should have known in 1986 that Pizza Hut betrayed their confidential relationship and misappropriated trade secrets. CF having waited until 1993 to sue, Judge Williams found that its misappropriation claim was barred by the three-year statute of limitations in the Kansas Uniform Trade Secrets Act, K.S.A.§ 60-3325.
The Federal Circuit reversed that dismissal, finding that nothing in Pizza Hut's dealings with CF in 1986 would have informed CF of an intention by Pizza Hut to divulge trade secrets to IBP. The Federal Circuit remanded the case for further fact-finding on the timing of accrual of the cause of action for misappropriation. See CF Packing Co. v. IBP, Inc., 224 F.3d 1296 (Fed. Cir. 2000). Having supplemented the record on appeal with further evidence in support of its statute of limitations defense, Pizza Hut now moves for summary judgment.
I. FACTS
The history of the trade secrets at issue in this case stretches back nearly twenty years. Plaintiff, a small-time sausage supplier for Pizza Hut, came up with an idea about a new way to make pre-cooked sausage topping that would have the appearance and taste of homemade sausage cooked on site. After four years of experimentation, CF had perfected its revolutionary sausage-making process. The CF process resulted in a sausage topping which tasted better, looked better, and cost less than pre-cooked sausage made by other methods. Plaintiff patented both its sausage-making process and its sausage-making apparatus.
In 1985, things were looking good for CF. Pizza Hut was showing a great deal of interest in its product. Pizza Hut told CF that it wanted to buy large quantities of sausage and allegedly promised to enter into a long-term supplier contract. In return, Pizza Hut wanted to know all of the information about plaintiffs sausage-making process; it also wanted CF to divulge its sausage-making technique to its other, larger suppliers.
CF complied with its side of the bargain. In late 1985, pursuant to a confidentiality agreement, CF executives disclosed its secret process to Pizza Hut. It also provided four Pizza Hut meat suppliers with complete access to its trade secrets.
Nearly a year later, despite repeated requests from CF, the promised long-term contract had not materialized. On March 4, 1986, Pizza Hut told CF that Pizza Hut would not buy its sausages in the quantity it had promised and that it would not buy any of its product unless it decreased its prices. Pizza Hut subsequently exacted a series of price cuts.
Pizza Hut sought out IBP, Inc. as a new meat supplier in or around 1989. CF says that it discovered in 1991 that IBP was making "casing cooked" sausage for Pizza Hut. By late 1991, IBP was supplying Pizza Hut with significant levels of sausage allegedly made by the CF process. Pizza Hut correspondingly ratcheted down its purchases from CF. A tour of the IBP factory in 1993 increased CF's suspicion that Pizza Hut had disclosed its secret process. Within days of CF's visit to IBP to investigate its patent infringement claim, Pizza Hut terminated CF as a supplier.
II. ANALYSIS
The sole issue before me is whether CF's complaint is barred by the three-year statute of limitation provision in the Kansas Uniform Trade Secrets Act, K.S.A.§ 60-3325 ("KUTSA"). Under KUTSA, actual knowledge of misappropriation is not required to trigger the statute of limitations. Rather, the statute begins to run "when [plaintiff] reasonably should have known of the defendant's misappropriation."McCaffree Financial Corp. v. Nunnink, 847 P.2d 1321, 1331 (Kan.Ct.App. 1993). To succeed on summary judgment, Pizza Hut must show that there is no material fact as to whether CF discovered, or by the exercise of reasonable diligence should have discovered, Pizza Hut's misappropriation on or before April 29, 1990.
According to Pizza Hut, the record shows that CF should have known long before the alleged disclosures to IBP in 1989/90 that Pizza Hut had misappropriated its trade secrets. Pizza Hut reads the complaint as describing a "continuing misappropriation" beginning in 1985 with Pizza Hut's alleged "project to duplicate" and culminating in the alleged disclosure to IBP. The evidence which, according to defendant, shows that plaintiff should have known of the misappropriation includes:
• testimony by the CF president that he knew by September of 1995 that defendant disclosed plaintiffs process to other suppliers as part of an effort to duplicate the process;
• CF's admissions that it was aware by March 4, 1986 that Pizza Hut had reneged on its alleged promise to enter into a long-term contract;
• CF's receipt on or about July 31, 1986 of Pizza Hut's "standard formulation" for sausage which CF claimed incorporated its trade secrets;
• CF's issuance in November 1987, January 1988, and April 1988 of several "cease and desist letters" to Pizza Hut suppliers alleging misappropriation of trade secrets.
CF's position is that its claim accrued at the earliest in 1992, when CF learned that IBP was making pre-cooked sausage. Even at that point, it says, it had only vague suspicions of Pizza Hut's involvement. It was not until March 1993, when CF officials inspected the IBP factory, that plaintiff argues it "reasonably should have known" of the misappropriation.
I find that defendant is correct in its contention plaintiff clearly became dissatisfied with Pizza Hut's way of doing business at least five years before the filing of the lawsuit. But the issue is not when Pizza Hut began to treat its supplier badly; it is when Pizza Hut began to misappropriate plaintiffs trade secrets by covertly disclosing them to other suppliers.
Under Kansas law, misappropriation means:
"(ii) disclosure or use of a trade secret of another without express or implied consent by a person who . . .
(B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was . . .
(II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use." K.S.A. § 60-3320.
The definition of misappropriation requires both an acquisition of confidential information and an unauthorized disclosure or use of that information. It follows that Pizza Hut's initial acquisition of CF "s trade secrets in the mid- 1980's — even if done with an improper motive — was not on its own an act of misappropriation. Refusal to enter into a promised long-term contract was also not an act of trade secret misappropriation. While it may have foreshadowed bad things to come, a reasonable trier of fact could conclude that CF could not have foreseen, in the failure to offer a long-term contract, that Pizza Hut was about to disclose its trade secrets. Similarly, CF's letter to Pizza Hut (dated May 2, 1988) warning it not to purchase sausage made by the CF process from unlicensed sources does not necessarily show that plaintiff understood Pizza Hut had misappropriated its trade secrets.
Defendant's stronger argument is that CF had clear notice by mid-1986 that Pizza Hut had incorporated CF's trade secrets into Pizza Hut's standard sausage formulation for use with all Pizza Hut suppliers. But even this does not warrant the grant of summary judgment. Although Pizza Hut has proffered testimony by CF executive Joe Freda which purportedly shows that CF knew that the formulation incorporated plaintiffs trade secrets before 1990, plaintiff has offered an explanation for why Freda's testimony does not mean what Pizza Hut says it does. A reasonable finder of fact might credit either side's interpretation. "[W]here there is evidence in dispute as to when plaintiffs injury first became reasonably ascertainable, the question is one for the trier of fact." McCaffree Financial Corp., 847 P.2d at 1330-31.
This record, like the record submitted to the Federal Circuit, does not support a definitive conclusion on an accrual date. The Federal Circuit remanded this case to me for "further factfinding" on the timing of accrual of the cause of action for misappropriation. And further factfinding there shall be. Pizza Hut's motion for summary judgment is denied.