FALL 2008

Trade Secrets

 

Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
dratler@uakron.edu
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.


Surgidev Corp. v. Eye Technology, Inc.

828 F.2d 452, 4 U.S.P.Q.2d (BNA) 1090 (8th Cir. 1987)

Ross, * Circuit Judge, Henley, Senior Circuit Judge, and John R. Gibson, Circuit Judge.

* The Honorable Donald R. Ross, an active Judge of this court at the time this case was submitted, took senior status on June 13, 1987.

[*453] John R. Gibson, Circuit Judge

Eye Technology, Inc., and four of its associates (collectively, "ETI"), all former employees of Surgidev Corporation, appeal from the district court's orders enjoining ETI from engaging in certain business activities as a result of its misappropriation of Surgidev trade secrets and its tortious interference with Surgidev's contractual relations.[*454]  ETI challenges certain factual findings supporting the propriety and length of the injunction, disputes the conclusion that ETI tortiously interfered with one of Surgidev's contractual relationships, and contests the district court's refusal to modify its order based on ETI's acquisition of another company.  We affirm the orders of the district court.

The district court's opinion outlines the factual background of this litigation in generous detail.  Briefly, Surgidev manufactures intraocular lenses ("IOLs"), devices that are surgically implanted by ophthalmologists to restore the vision of many cataract patients.  The primary buyers of IOLs are the approximately five thousand ophthalmologists certified to implant IOLs; of these ophthalmologists, however, about ten percent of them, the so-called high volume implanters, perform sixty to seventy percent of all implantations.

Surgidev was founded in 1976 by Myron Lippman, an electrical engineer who developed technologies for manufacturing IOLs.  In 1979, Dennis Grendahl purchased eighty percent of Surgidev from Lippman, and those two along with Robert Fitzsimmons, an IOL sales and marketing veteran, combined to make Surgidev a dominant IOL manufacturer by 1982. A chief reason for this success was that Surgidev was the first to produce haptics, the devices that connect the IOL lens to the human eye, made entirely of polymethylmethacrylate ("PMMA").  Lippman developed this process, known as the PMMA monofilament process.  In October 1982, disagreements between Grendahl and Lippman forced Lippman to leave Surgidev.  Before departing, Lippman and Surgidev entered an agreement, titled the "Deal Memo," in which Lippman transferred to Surgidev the PMMA monofilament process.

The individual defendants in this litigation were all at one time key employees of Surgidev's marketing and sales division.  Between February and August of 1985, they all resigned from their positions at Surgidev, and, subsequently, joined the newly formed ETI, a competitor of Surgidev's in the IOL industry.

Surgidev brought this action alleging, among other things, that ETI misappropriated Surgidev trade secrets and tortiously interfered with Surgidev's contractual relations.  Surgidev sought injunctive relief aimed in part at preventing ETI from engaging in business activities relating to these trade secrets and to Surgidev's contractual relations with Lippman.  After a trial, the district court granted in part Surgidev's requested injunctive relief, which, most significantly for purposes of this appeal, prohibited ETI from soliciting any of Surgidev's customers that qualify as high volume implanters through December 31, 1987.  After the issuance of this order, ETI filed a motion for reconsideration, which was denied in all respects relevant to this appeal

ETI raises four issues on appeal: (1) whether the district court's factual findings supporting its conclusion that ETI misappropriated Surgidev trade secrets are clearly erroneous; (2) whether the length of the injunction is inequitable; (3) whether the district court erred in concluding that ETI unlawfully interfered with contractual relations between Surgidev and Lippman; and (4) whether the district court abused its discretion in refusing to modify the injunction based on ETI's acquisition of another IOL company.

I

ETI challenges the district court's factual findings supporting its conclusion that ETI misappropriated Surgidev trade secrets.  In many instances, ETI unabashedly asks this court to evaluate the evidence before the district court and reject the district court's detailed factual findings.   Accordingly, a brief discussion of our limited standard of review is appropriate.  Pursuant to Fed. R. Civ. P. 52(a)'s clearly erroneous rule, a district court's factual findings may not be reversed unless "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed."  Anderson v. City of Bessemer City, 470 U.S. 564, 573 [*455] 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).  Appellate courts must defer to the factual findings of trial judges who, by virtue of their opportunity to hear and evaluate the witnesses and their expertise acquired over the course of many factfinding proceedings, are eminently more qualified to make factual findings.  The clearly erroneous rule saves judicial resources, and assures the parties that the trial is the principal factfinding proceeding, rather than just a "tryout on the road."

Therefore, the clearly erroneous standard does not allow an appellate court to reverse a factual finding simply because it is convinced it would have decided the case differently.  Id. at 573.  Moreover, "where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous."  Id. at 574 (emphasis added). . . .

ETI first disputes the district court's finding that Surgidev treated its customer information as confidential.  Surgidev was required to take efforts "reasonable under the circumstances" to maintain the secrecy of its customer information.  Uniform Trade Secrets Act ("UTSA") 1(4)(ii), 14 U.L.A. 542 (1980).(1)  In support of its finding that Surgidev treated this customer information as confidential, the district court found that Surgidev put its employees on notice by requiring employees to sign non-disclosure agreements, Surgidev restricted visitor access to its sales and administrative headquarters, Surgidev kept customer information documents in locked files, and Surgidev distributed customer information data only on a "need-to-know" basis. Notwithstanding these conclusions, ETI argues that the district court's confidentiality finding is clearly erroneous because Surgidev failed to warn departing employees who took jobs with other IOL companies of the secrecy of Surgidev's customer information.  Even if this assertion were true, it does not render the district court's confidentiality finding clearly erroneous.  Only reasonable efforts, not all conceivable efforts, are required to protect the confidentiality of putative trade secrets. See UTSA 1(4)(ii) Commissioners' Comment, 14 U.L.A. at 543; cf. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 901-03 (Minn. 1983) (inadequate efforts).  Even if Surgidev failed to remind departing employees of the secrecy of its customer information, the actions the district court found it did take were sufficient to "signal[] to its employees and to others that certain information is secret and "should not be disclosed."  Electro-Craft, 332 N.W.2d at 902.  We thus reject ETI's contention that the district court clearly erred in finding that Surgidev took reasonable efforts to protect the secrecy of its customer information.(2)

ETI next contests the district court's finding that the identity of Surgidev's high volume implanters is not generally [*456] known or readily accessible to others. The district court premised its finding primarily on the testimony of three witnesses, each an employee of a Surgidev competitor.   In sum, they testified that the identity of an IOL company's high volume implanters is considered confidential and that they did not know the identity of Surgidev's high volume implanters. ETI now attacks the credibility of these witnesses and points to alleged inconsistencies in their statements.  Accordingly, ETI contends that we should disregard this testimony in favor of the testimony of their expert witness, who stated that while he was an executive at two IOL companies those companies were able to learn the identity of Surgidev's customers.  Factual findings based on the credibility of witnesses can "virtually never" be clear error.  The district court was in the best position to assess the arguably contradictory testimony of both sides.  After reviewing this evidence, we tend to agree with the district court's assessment, and we certainly are not left with a definite and firm conviction that the district court mistakenly found that the identity of Surgidev's high volume implanters is not generally known to others in the IOL industry.

Finally, ETI challenges the district court's findings that ETI intended to use the information concerning Surgidev's high volume implanters and that this information could provide ETI with a competitive advantage.  The district court specifically detailed the evidence it relied on to find that "defendants have solicited Surgidev's high volume implanters and intend to do so in the future."  ETI argues that this evidence is capable of a different interpretation, one which indicates that ETI did not use its knowledge of Surgidev's high volume implanters for ETI sales purposes.  Even if we accepted this contention, we still could not conclude that the district court's findings were clearly erroneous, for "where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous."  Bessemer City, 470 U.S. at 574.  ETI also urges that "in sharp contrast to Surgidev's weak circumstantial evidence * * * stands defendants' sworn testimony that none of them has ever used any information they believe to be a trade secret of Surgidev."  While self-serving denials are generally an inappropriate basis on which to premise a clearly erroneous finding, the sworn testimony relied on by ETI is especially unconvincing since the defendants have asserted throughout this litigation that they do not believe the identity of Surgidev's high volume implanters is a trade secret.  We thus hold that the district court did not clearly err in finding that ETI intended to use the information regarding Surgidev's high volume implanters.

We likewise reject ETI's argument that the court erred in finding that the identity of Surgidev's high volume implanters would provide a competitor with a competitive advantage.  The district court reasoned that "the fact that defendants have exhibited an intention to use this information, as discussed above, is circumstantial proof of its value."   This inference was proper under Minnesota Law.

II.

The district court enjoined ETI from, among other activities, soliciting Surgidev's high volume implanters through December 31, 1987.  ETI argues that the length of this injunction is inequitable.  In determining this length, the district court appropriately considered "the period of time that would be required for independent development of the protected information."  Cf. UTSA 2 Commissioners' Comment, 14 U.L.A. at 544 (injunction should terminate when former trade secret becomes known or generally knowable to good faith competitors).  To upset the district court's conclusion that "fifteen months is a reasonable approximation * * as to how long a diligent salesperson in the [*457] industry would require to develop the protected customer information," we must find that the district court abused its discretion in fashioning this equitable remedy.

ETI first contends that the injunction is inequitable because Surgidev allowed other employees to leave Surgidev and work for another IOL company "when their new positions would inherently require disclosure or use of Surgidev's confidential information."  This contention has no factual basis.  The district court did find that Surgidev failed to attempt to enforce its invalid non-competition agreements, but nothing in the record suggests that Surgidev acquiesced to use by past employees of its trade secrets or that any of these employees unlawfully misappropriated Surgidev trade secrets.  ETI also contends that it was subject to a de facto injunction from June 1985 until March 1986 because during that "lead time" it failed to make use of Surgidev's trade secrets.  This argument contravenes the district court's finding, affirmed here, that ETI used information regarding Surgidev's high volume implanters to its advantage during that period.  Moreover, even if ETI had not used the confidential information during that period, the length of the injunction would still be warranted under Minnesota law to ensure that plaintiff was reasonably protected against further injury from the wrongful taking and that defendants were not unjustly enriched by their prior misconduct.  The district court did not abuse its discretion in enjoining ETI from soliciting Surgidev's high volume implanters through December 31, 1987. * * * [*458]


The orders of the district court are affirmed.

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Footnotes



1.   [court's footnote 2] The trade secrets issues in this appeal are governed by Minnesota and California law. Both Minnesota and California have adopted the Uniform Trade Secrets Act.  See Minn. Stat. 325C.01-.08 (1984); Cal. Civ. Code 3426.1-.10 (Deering 1987).


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2.   [court's footnote 3] Similarly, we reject ETI's argument that Surgidev has waived its right to assert or is estopped from arguing that its customer information was confidential.  In contrast to its failure to attempt to enforce the non-competition clause of its employee agreements, Surgidev engaged in a continuing course of conduct aimed at protecting the secrecy of customer information, and by no means did it intentionally relinquish its statutory and contractual right to protection against misappropriation of trade secrets.


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