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Rockwell wins one in case vs. Tensor.

AFTER A DOZEN years of tangled litigation against cloners of its Goss Community press, Rockwell Graphics recently won a victory in the 7th Circuit U.S. Court of Appeals: the right to yet another day in court.

The appellate decision clears the way for Rockwell to press its allegation that Tensor Group Inc. used engineering drawings stolen from Rockwell to manufacture its versions of the Community press, which Tensor markets as the Horizon 1400.

In addition, the three-judge panel declared Rockwell is entitled to try to prove that Tensor is bound by the same injunction against using Rockwell trade secrets as is the now-defunct DEV Industries. In a concurring opinion giving Rockwell even more legal ammunition, one of the judges said the lower court erred in ruling that Tensor could not be considered a successor company to DEV.

DEV was the press maker that went out of business in 1993, seven months after a federal jury found the company and its top officers guilty of stealing Rockwell engineering drawings and other trade secrets to build a Community clone. In 1984, Rockwell sued DEV and its officers, alleging they bought drawings and trade secrets from employees.

With the appeals court decision, Rockwell also can now pursue its claim that DEV president Toshio Yamagata has violated the injunctions arising from the DEV litigation.

Tensor executives vigorously dispute Rockwell's suggestions that the company is nothing more than another version of DEV Tensor began in business by buying at bankruptcy auction DEV's parts inventory, customer list and engineering drawings that were not part of the Rockwell case. Tensor says it reverse engineered the missing key parts and made some improvements to the DEV versions.

Marketing its presses as high quality at competitive prices, Tensor has landed some significant sales in international markets and says it is on track to attaining $20 million in revenues this year. (E&P, June 15, p.54)

In one sense, Rockwell won only a limited procedural victory in the appeals court. Formally, the appellate judges vacated an order by U.S. District Court Judge Ann C. Williams denying Rockwell's motion for a hearing on its allegations against Tensor and Yamagata. The appellate judges did not specifically order Williams to hold such a hearing-just to have "further proceedings" to consider the allegations.

Yet, taken in its entirety, the 16-page decision amounts to a sweeping endorsement of Rockwell's position against Tensor and Yamagata.

Time and again, the judges adopt Rockwell's version of events as the facts of the case. For instance, the opinion by Judge Michael Kanne says there"was undisputed evidence presented in the DEV . . trial that reverse engineering a commercial printing press similar to the (DEV) Horizon 1400 would take approximately eight years."

Tensor maintains the task was far simpler. It contracted an engineering firm, Castle Engineering, that was able to reverse engineer key parts quickly--and legally.

The appeals court opinion refers to Tensor as "Yamagata's brainchild" and says "Yamagata conceived Tensor in order to purchase DEV's assets"--assertions Tensor has vigorously denied.

In remanding the case back to the lower court for fact-finding, the appeals court indicated it is especially interested in the question of whether Yamagata illegally provided Tensor with DEV drawings, including drawings incorporating Rockwell trade secrets.

Quoting from a deposition that has not been publicly on file at the courthouse, the latest opinion says that at some point between December 1992 -- in other words, just as DEV was found guilty of misappropriating trade secrets -- and July 1993," Yamagata arranged for the duplication of 2,000 to 3,000 DEV drawings on microfilm, including drawings containing Rockwell trade secrets .... At (a Dec.23, 1993) deposition,Yamagata admitted to possessing the film and also stated that the safety deposit box (where it was stored) was registered to him personally."

Rockwell asserts that the improbable similarities between the Tensor specifications and the misappropriated trade secrets in the DEV drawings lead to only one conclusion: Yamagata provided Tensor with the microfilmed DEV drawings, and Tensor used them to design its D-1400 and D-2400 printing presses," the opinion states, referring to the Horizon 1400 and Horizon 2400 presses.

The appeals court said judge Williams erred by leaving unresolved the factual questions of whether Yamagata kept copies of the "tainted" DEV drawings in violation of the injunction; whether Yamagata gave them to Tensor; and whether Tensor used them to build presses. In addition, appellate court Judge Robert Eschbach said the lower court erred by ruling that Tensor could not be subject to injunctions against DEV because it was a third-party that bought "untainted" DEV assets at a public auction.

"The fact that Tensor acquired some DEV assets through a bankruptcy auction does not extinguish privily (a successive relationship) where Tensor has acquired the tainted DEV assets through other channels. DEV cannot 'launder' the tainted assets by their acquisition of untainted assets," Eschbach wrote in a concurring opinion.

Tensor's vice president of administration, John Regan, said the company will be vindicated by further litigation."We believe this litigation is unwarranted and are disappointed that it will continue, but we are confident the courts will find that Tensor has always acted in a fully legal and ethical manner. Our actions and intentions are honorable, and we regret Rockwell portrays us as acting otherwise," Regan said in a prepared statement.

"These proceedings will be just another step in the process of clearing our reputation," Regan added."While our investment to legally protect our good name is worth it, we look forward to the day Rockwell chooses to compete solely in the marketplace and not in the courtroom."

Rockwell Graphic Systems -- which agreed in May to be sold to a private investment firm and will be known as Goss Graphic Systems when the sale closes -- declined to comment on the appellate decision.
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Title Annotation:court ruling in Rockwell Graphics case against Tensor Group
Author:Fitzgerald, Mark
Publication:Editor & Publisher
Date:Aug 31, 1996
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