Legal Briefing: Pizza Hut small sausage supplier sues for misappropriation of trade secrets

C & F Packing Co., 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, C&F had perfected its revolutionary sausage-making process. The C&F process resulted in a sausage topping which tasted better, looked better, and cost less than pre-cooked sausage made by other methods. C & F patented both its sausage-making process and its sausage-making apparatus.

In 1985, Pizza Hut was showing a great deal of interest in C & F's product. Pizza Hut told C&F 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 C & F's sausage-making process. It also wanted C&F to divulge its sausage-making technique to its other, larger suppliers. C&F complied with its side of the bargain. In late 1985, according to a confidentiality agreement, C&F executives disclosed its secret process to Pizza Hut. C & F also provided four Pizza Hut meat suppliers with complete access to its trade secrets.

Nearly a year later, despite repeated requests from C&F, the promised long-term contract had not materialized. On March 4, 1986, Pizza Hut told C&F 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. C&F said 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 C&F process. Pizza Hut correspondingly ratcheted down its purchases from C&F. A tour of the IBP factory in 1993 increased C&F's suspicion that Pizza Hut had disclosed its secret process. Within days of C&F's visit to IBP, Pizza Hut terminated C&F as a supplier.

In 1993 C & F sued Pizza Hut and IBP for misappropriation of trade secrets. A jury awarded C & F a multi-million dollar verdict in its case against IBP. However, as against Pizza Hut, the judge concluded that C & F should have known in 1986 that Pizza Hut had misappropriated its trade secrets. Since C & F waited until 1993 to sue Pizza Hut, the judge determined that the three-year statute of limitations in Kansas barred C & F from suing Pizza Hut.

The case ended up in the United States District Court For The Northern District Of Illinois which said the three-year statute of limitations in Kansas did not bar C & F from having a full trial on the merits of its claim and, accordingly, C & F could proceed with its case.

Source: C&F Packing Co. v. Pizza Hut, Inc., 2001 U.S. Dist. LEXIS 244 (United States District Court For The Northern District Of Illinois) (January 12, 2001)

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