brought a higher rental than they actually did. And the misrepresentation has been held to rescind the contract where the misstatement was not made directly to the vendee, but to a third party who communicated it, with the vendor's knowledge, to the vendee. On the other hand, the duty is imposed upon the vendee to act at once upon learning the facts which justify a rescission. Where he fails to do so he will be bound by his contract, and his remedy lies in an action for damages,73 as he may recover damages without rescinding the contract.74 Whenever the false representations amount to a warranty, an action for damages will lie even in the absence of proof of fraud. Otherwise the burden is upon the vendee to show that the representation was fraudulently made.75 The measure of damages in such case is the difference between the actual value of its property at the time of the purchase, and its value if the property had been what it was represented or warranted to be.76 Covenants against re-engaging in business may be specifically enforced, as we have seen, or the vendor may be enjoined from their violation. It has been held in England that with an action for specific performance a claim for damages may be made as an alternative.77 It has been held that a debtor's goodwill can not be reached by a creditor's bill, because it is not subject to levy, in satisfaction of their debts.78 The application for injunctive relief is governed by the rules concerning similar applications in trademark cases. A plaintiff need not allege or prove damage as a prerequisite to an injunction to restrain a defendant from reengaging in business, in breach of a covenant between the parties.79 When a vendee in applying for an injunction also asked judgment for the possession of the books and papers used by the vendor in the business in which it had engaged in violation of its covenant the order was refused because there was a remedy at law for their recovery.8 80 In cases where the vendor of a goodwill is sought to be restrained from re-engaging in business in violation of his covenant, the amount in controversy is the value of the goodwill, and the federal courts can not acquire jurisdiction unless the value of the goodwill exceeds $3,000.81 A violation of a covenant not to re-engage in business is a defense to a suit by the vendor upon notes given by the vendee for the purchase money.82 Where the covenant not to re-engage is incorporated in the bill of sale, the consideration paid has been held to be not only for the stock of goods, but for the agreement not to re-engage.83 $107. Remedy as to infringement of trademarks and tradenames identified with goodwill.-Many of the actions for breach of contract in relation to the sale of goodwill have had for their object the restraint of the vendor in the use of the tradename under which the business had been conducted. Where the goodwill and tradename have been sold, the subsequent use of the name by the vendor will be enjoined, even where the vendor has reserved the right to resume business under any other than the old name.84 The relief will be granted where there has been a contract to convey the tradename and goodwill, and the consideration has been paid, though the vendor has not made a formal assignment of the goodwill and name.85 The relief will be granted where the vendee does not continue the use of the old name, but conducts the business under his own name.86 The cases have gone so far as to hold that "the purpose of the law in the protection of trademark rights is to conserve the goodwill of the owner's business, indicated by the use of the mark, rather than to protect the purchasing public against the imposition of buying goods believed to be of an origin different from their actual origin.''87 80-Lawrence v. Times Printing Co., 90 Fed. Rep. 24-26. 81-Lawrence v. Times Printing Co., 90 Fed. Rep. 24-26. 82-Townsend v. Hurst, 37 Miss. 679. 83-Eisel v. Hays, 141 Ind. 41; 40 N. E. Rep. 119. 84-Burckhardt V. Burckhardt, 42 Ohio St. 474; 51 Am. Rep. 842. 85-United States Cordage Co. v. Wm. Wall's Sons Rope Co., 35 N. Y. Supp. 978; 90 Hun, 429. 86-Grow v. Seligman, 47 Mich. 607; 41 Am. Rep. 737; 11 N. W. Rep. 404. 87-Grubb, J., in Joseph Schlitz Brew. Co. v. Houston Ice & Brew. Co., 241 Fed. Rep. 817-820. CHAPTER VII. TRADE SECRETS; RIGHT OF PRIVACY. § 108. Trade secrets-Introductory.-"A secret in trade is fully recognized as property in equity, the disclosure of which will be restrained by injunction." A contract in reference to such a secret can not be in restraint of trade, "because the public has no rights in the secret." 2 When the name applied to a secret preparation is a trademark, no one but the owner of the mark can apply it to the preparation. But if it be not a valid trademark, then the manufacture of the secret preparation, and the placing of it upon the market under the same name, is open to any one who can lawfully discover the secret process. But "it 1-Smith, P. J., in Champlin v. Stoddart, 30 Hun, 300-302. 2-Morse Machine Co. v. Morse, 103 Mass. 73-75; Fowle v. Park, 131 U. S. 88: 33 L. Ed. 67; Vickery v. Welsh, 19 Pick. 523-527. "Upon the sale of a secret process, a covenant, express or implied, that the seller will not use the process himself or communicate it to any other person is lawful, because the process must be kept secret to be of any value, and the public has no interest in the question by whom it is used." Gray, J., in Central Transportation Co. v. Pullman's Palace Car Co., 139 U. S. 24; 35 L. Ed. 69; citing Fowle v. Park, 131 U. S. 88, 97; Vickery v. Welsh, 19 Pick. 523527; Peabody v. Norfolk, 98 Mass. 452-460. 3-Watkins v. Landon, 52 Minn. 389; 54 N. W. Rep. 193; 19 L. R. A. 236; Davis v. Kendall, 2 R. I. 3 566; Siegert v. Findlater, L. R. 7 Ch. D. 801; Comstock v. White, 18 How. Fr. 421; Condy v. Mitchell, 37 L. T. N. S. 268; James v. James, L. R. 13 Eq. 421; Canham v. Jones, 2 V. & B. 218; J. R. Watkins Medical Co. v. Sands, 83 Minn. 326; 86 N. W. Rep. 340. "It may also be observed, in this connection, that the word 'property,' as applied to trade secrets and inventions, has its limitations; for it is undoubtedly true that when an article manufactured by some secret process, which is not the subject of a patent, is thrown upon the market, the whole world is at liberty to discover, if it can by any fair means, what the process is, and, when discovery is thus made, to employ it in the manufacture of similar articles. In such a case, the inventor's or manufacturer's property in his process is gone; but the authorities all hold that, while 253 is settled that a secret art is a legal subject of property. and its owner has a vested right to the secrecy of all those who occupy a fiduciary relationship to his business. So that no one who obtains knowledge of the secret by fraud or unfair means will be permitted to avail himself of the fruits of his fraud, by disclosing the secret or manufacturing under it." The converse of this rule is that unless the defendant is the guilty receiver and user of a stolen process, or has unfairly obtained or used information concerning the secret process, he is not to be enjoined at the suit of the alleged owner of the secret process. 5a The assignability of secret processes has been established in a number of cases. Where equity will not interfere.-"Courts of equity will not interfere by injunction in disputes between the owners of quack medicines, meaning thereby remedies or specifics whose composition is kept secret, and which are sold to be used by the purchasers without the advice of regular or licensed physicians."7 And in 1817, Lord Eldon said: "I do not think that the court ought to struggle to protect this sort of secrets in medicine." 8 Broadly stated, equity will not disclosure of secrets by means of committed." interfere to prevent the which frauds have been For Then there are limits to the extent of the injunction, which will be suggested by the facts in each particular case. example, in one case which has been frequently cited, the knowledge obtained in this manner is perfectly legitimate, that which is obtained by any breach of confidence can not be sanctioned." Adams, J., in Eastman Co. v. Reichenbach, 20 N. Y. Supp. 110116; affirmed, 29 N. Y. Supp. 1143; 79 Hun, 188. 4-Gray, J., in Peabody v. Norfolk, 98 Mass. 452. To the same effect, see Stewart v. Hook, 118 Ga. 445; 45 S. E. Rep. 369; 63 L. R. A. 255; Dobson v. Graham, 49 Fed. Rep. 17. 5-Salomon v. Hertz, 40 N. J. Eq. 400; Little v. Gallus, 38 N. Y. Supp. 487. 5a-Nulomoline Co. v. Stromeyer, 245 Red. Rep. 195, 200. 6-Simmons Medicine Co. v. Simmons, 81 Fed. Rep. 163; Fowle v. Park, 131 U. S. 88; 33 L. Ed. 67; Thum Co. v. Tloczynski, 114 Mich. 149; 72 N. W. Rep. 140; 38 L. R. A. 200; 68 Am. St. Rep. 469; Tode v. Gross, 127 N. Y. 480, 485; 28 N. E. Rep. 469; 13 L. R. A. 652; 24 Am. St. Rep. 475; Vulcan Detinning Co. v. American Can Co., 67 N. J. Eq. 243; 58 Atl. Rep. 290. 7-Shiras, Circuit Justice, in Kohler Mfg. Co. v. Beeshore (2), 59 Fed. Rep. 572-574; 8 C. C. A. 215. 8-Williams v. Williams, 3 Mer. 157; Seb. 26. 9—Follet v. Jeffreyes, 1 Sim. N. S. 1; Gartside v. Outram, 3 Jur. N. plaintiff was a tanner and manufacturer of leather, owning secret processes relating to the treatment of leather. Two of his former employes were enjoined, on his application, from disclosing any of his secret processes, but, in the absence of any proof of an express agreement of secrecy, the court refused that portion of his prayer for relief which asked that the defendants be enjoined from disclosing "where or from whom the complainant buys his materials, and to whom he sells his goods, or the prices at which he buys or sells"; the chancellor remarking that an agreement in reference to such matters "may well be regarded, in the absence of anything to the contrary in its terms, as limited in its obligation to the time of employment. He (the employe), notwithstanding such agreement, might himself, after leaving the employment, use the knowledge he had obtained. He might sell to the customers of his late employer, and buy of those from whom the latter purchased, and do both in competition with him.'10 Changes in formula as affecting trade secret.-If as a result of experience ingredients are added or minor changes made to improve the product, the company rightfully in the business has the right to make such changes without affecting its rights.10a § 109. Protection in equity.-Equity will always act to protect trade secrets, and this protection may be either affirmative or negative in character. In its affirmative form, relief is granted by injunction to restrain the unlawful use of such secrets. In its negative form, equity protects parties and witnesses against the compulsory disclosure of trade secrets.1 11 The plaintiff's witness who testifies merely to the uses and effects of a secret process is privileged from answering questions on cross-examination disclosing the ingredients of such secret process.12 Accordingly where the defense to an action for trademark infringement is that plaintiff's goods are injurious, the defendant was not permitted to examine him as to the ingredients of which his goods were composed, the court saying, "if these questions must be answered, every manufacturer will be at the mercy of any one who desires to extort from him an 10-Runyon, C., in Salomon v. Hertz, 40 N. J. Eq. 400. 10a-Germo Mfg. Co. v. Combs, 209 Mo. App. 651, 240 S. W. Rep. 872, 879; Eastman Co. v. Reichenbach, 29 N. Y. Supp. 110-112. 11-Taylor Iron & Steel Co. v. Nichols, 70 N. J. Eq. 541; 65 Atl. 12-Moxie Nerve-Food Co. V. Beach, 35 Fed. Rep. 465. |