CVD Incorporated v AS Markham Corp-Hunter Harvard Case Solution & Analysis

CVD Incorporated v AS Markham Corp-Hunter Case Solution

Introduction

Bob Donadio and Joe Connolly were scientists and colleagues at Markham Corporation, which was a billion dollar defense contractor. Both friends were satisfied with the employer, as well as they had real feelings about Markham. Later on, Donadio decided to start his company along with his colleague, Connolly, to supply ZnS/cvd, and ZnSe/cvd a chemical process to optical fabricators, which wasused to make output windows for commercial high energy laser (HEL).

Donadio and Connolly asked his supervisor, Dr. Smith, to leave the company and start CVD processing company. Moreover, Dr. Smith told them they hadto appear before Markham’s lawyers, therefore in order to protect their rights, they hired Jerry Cohen, an attorney specializing in intellectual property, and they discussed Proprietary Information and trade secrets.

In January 1993, they started CVD Incorporation, where they used their knowledge of Chemical vapor disposition (CVD) manufacturing process to become the supplier of infrared materials. However,they knew that the threat was a long and costly lawsuit and that Markham may reduce its prices of products and services.

In attempts to raise the capital, they had to target the market with a good image because investors were reluctant to invest in a company that may face the lawsuit later, therefore they decided to acquire the license from Markham on the royalty of 15% and 8% of net sales. Moreover, they had to pay a huge amount for royalty, and it resulted in negative net income, due to which they requested Markham to renegotiate the terms of the license, but they refused, which frustrated them to not pay royalty until negotiations. Thus,they filed a complaint against Markham Corporation in federal court by hiring the services of the antitrust specialist, Mr. Blair L. Perry.

Facts of Case

Proprietary Information or Trade Secret

Proprietary information is not publically available, such as confidential financial data, formulas of some manufacturing processes, and results of the research tests, or trade secrets.

This information of manufacturing process or secret formulas are kept confidential from everyone, because the trade secret means that the company has a unique way of producing something that gives it a competitive advantage over the competitors in the market.

Although Chemical Vapor disposition is generally considered as a process in the industry, which a competent engineer can produce such information because such knowledge is taught in college level. Furthermore, Markham’s CVD research was funded by government contracts, therefore it was a part of public domain.

Markham neither had patents regarding chemical vapor disposition nor did itwarn its employees that this information is their trade secret, and it should not be disclosed in public, or it should not be used to start a new business that has same processes. Moreover, Donadio and Connolly started the company, because they had enough expertise in CVD processing, and they were never told to consider this information as their trade secret or proprietary information. Furthermore, Cohen provided evidence from publically available government documents.

Monopoly of Markham Corporation

Markham Corporation has claimed the information as its proprietary information or trade secret, whereas Donadio and Connolly formed this company, however no other investor was ready to invest in CVD Inc. because everyone feared about the possible lawsuit upon CVD Inc. due to the claim of Propriety information, and trade secrets by Markham Corp.

In frustrated attempts to raise capital, Donadio failed to find investors, therefore he decided to sign a license with Markham corp., and the terms of the license were clearly defined that CVD Inc. would pay 15%, 8% of net sales price of supply ZnS/cvd, and ZnSe/cvd respectively for ten years as royalty to Markham Corp........................

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