A conceived a secret process for the continuous freeze-drying of foodstuffs and related products and constructed a

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A conceived a secret process for the continuous freeze-drying of foodstuffs and related products and constructed a small pilot plant that practiced the process. A, however, lacked the financing necessary to develop the commercial potential of the process and, in hopes of obtaining a contract for its development and the payment of royalties, disclosed it in confidence to B, a coffee manufacturer, who signed an agreement not to disclose it to anyone else. At the same time, A signed an agreement not to disclose the process to any other person as long as A and B were considering a contract for its development. Upon A’s disclosure of the process, B became extremely interested and offered to pay A the sum of $1,750,000 if, upon further development, the process proved to be commercially feasible. While negotiations between A and B were in progress, C, a competitor of B, learned of the process and requested a disclosure from A, who informed C that the process could not be disclosed to anyone unless negotiations with B were broken off. C offered to pay A $2,500,000 for the process, provided it met certain defined objective performance criteria. A contract was prepared and executed between A and C on this basis, without any prior disclosure of the process to C. Upon the making of this contract, A rejected B’s offer. The process was thereupon disclosed to C, and demonstration runs of the pilot plant in the presence of C’s representatives were conducted under varying conditions. After three weeks of conducting experimental demonstrations, compiling data, and analyzing results, C informed A that the process did not meet the performance criteria in the contract and that for this reason C was rejecting the process. Two years later, C placed on the market freeze-dried coffee that resembled in color, appearance, and texture the product of A’s pilot plant. What are the rights of the parties?

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Smith and Roberson Business Law

ISBN: 978-0538473637

15th Edition

Authors: Richard A. Mann, Barry S. Roberts

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