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Case Analysis: Longe Industries v. Archco, JNRP

Extracts from this document...

Introduction

Case Analysis #2 Longe Industries v. Archco, JNRP Background Longe Industries has been in the business of manufacturing trailing axles for dump trucks. They had pioneered their way into the 'trailing axles for dump truck' segment of the market by developing and marketing a series of models that had evolved in design features. Archco manufactures dump beds for dump trucks. Archco entered into a dealership agreement with Longe Industries on April 6, 1992. They also signed a non-compete agreement that included a non-disclosure of information provision. JRNP assists other companies in designing and patenting products. JRNP was contracted by Archco to design a trailing axle known as 'Tough Haul I'. Although this model was never produced, the 'Tough Haul II', which was a twin arm trailing axle, very similar to the one developed by Longe, was manufactured and sold in the market. On October 18, 1998, Longe Industries notified Archco that it was in violation of the non-competition agreement and requested an accounting of all non-Longe trailing axles sold by Archo. Later, on January 4, 1999, Longe Industries filed suit against Archo. JRNP was later added as a defendant. The big issues at hand are misappropriation of trade secrets, fraud, agency relationship/breach of contract, tortious interference and violation of patent law. The analysis will focus on identifying the relevance of these issues, identifying the stances that the plaintiff and defendants will take on these issues and finally providing a managerial perspective on the situation. Longe Industries' point of view Longe Industries, the plaintiff, could contend that the defendants had violated multiple rules by designing, manufacturing and selling the Tough Haul II. Longe Industries should attempt to seek the appropriate damages and also ask that Archco and JRNP be restricted from manufacturing and selling any product type(s) in which Longe Industries engages. They should also seek a similar injunction on selling products against Silent Drive, who was an agent of the plaintiffs'. ...read more.

Middle

Archco should have disclosed their relationship and history of working with JRNP to Longe. Prior to signing the agreements, Archco should also have notified Longe about their plans of developing a trailing axle. The fact that Longe was requesting an accounting of all "non-Longe trailing axles" sold by Archco meant that they were not apprised of this very relevant matter and the numbers related to selling a competing product. Archco seems to be in violation of the duty of notification. The duty of loyalty, which is at the heart of any agency relationship, also was violated by Archco. In an agency relationship, an agent may not: o Accept outside, secret benefits o Represent more than one principal without the consent of the principals. JRNP had a conflicting interest in the design and development of trailing axles, which were very similar to the 7000 series. By signing a contract with JRNP, Archco violated the single principal requirement. This relationship also requires that the agent not disclose or use for his own benefit any confidential information learned during the agency relationship. Archco used the information they had gathered from Longe to work with JRNP in coming up with the Tough Haul II. This information included the training they had received and the manuals that contained technical drawings of the Longe Arm. By sharing this information with JRNP and by saying that they had conceived the idea, Archco seems to be in clear violation of the common law restriction related to the agent's duties. * Tortious interference with contract: Longe Industries could make this claim against JRNP. A tortious or wrongful interference is said to occur when the following elements exist: o A valid, enforceable contract or agreement exists between the plaintiff and a third party: This could be easily proved by the presence of the dealership agreements. o The defendant must know that the contract exists: Based on the fact that Archco and JRNP had been doing business for a number of years, it is conceivable that JRNP was aware of the contracts that were signed between Archco and Longe. ...read more.

Conclusion

* Another perspective that JRNP could look at is the damages that Longe would have tried to recover from JRNP. Given that JRNP and Archco jointly owned the Tough Haul II concept, the damages that would incur should be joint as opposed to each party individually paying damages to Longe Industries. This is mainly because the effect of JRNP's and Archco's actions on Longe Industries' finances was combined i.e. lost sales of their trailing axles. The JRNP management team could definitely have taken certain steps to ensure that they did not become party to the suit filed by Longe Industries'. Just like a new employer should check if the employee has non-compete or non-disclosure agreements with previous employers, JRNP should have checked the agreements that Archco had with Longe Industries and other product vendors. JRNP should have performed due diligence on the information that they were receiving and acting upon. JRNP's role in regards to Smith's work with Longe Industries is unclear. If Smith was an employee i.e. an agent of JRNP, they had the responsibility to ensure that his actions were consistent with JRNP's. It would have been a mistake on JRNP's part to intentionally allow Smith to work for Longe in an attempt to gather information related to the 7000 series. JRNP and Archco seemed to have collaborated on Smith's work with Longe and his subsequent work with Archco on the trailing axle. The case does not provide details on the dynamics of the relationship between these entities and hence assuming that JRNP was a principal of Smith, they should have taken the precautionary measures. Finally, the JRNP management should focus on their core competencies and continue to work on what they are best at i.e. designing and patenting products. If they are interested in being a part of selling the products that they design, they should ensure that they are not violating any laws in doing so. Negligence or ignorance in such major issues could continue to prove detrimental to JRNP if not addressed immediately. The Legal Environment of Business Case Analysis #2 Page 1 of 18 ...read more.

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