Opinion
No. 217-2014-CV-604
09-07-2016
Vention Medical Advanced Components, Inc. d/b/a Advanced Polymers, a Vention Medical Company v. Nikolaos D. Pappas and Ascend Medical, Inc.
ORDER
The Plaintiff, Vention Medical Advanced Components, Inc., d/b/a Advanced Polymers, a Vention Medical Company ("Vention"), brought suit against the Defendants, Nikolaos D. Pappas and Ascend Medical, Inc. (collectively "Pappas"), asserting claims for (1) breach of contract; (2) misappropriation of trade secrets under RSA chapter 350-B; (3) breach of fiduciary duty; and (4) intentional interference with contractual relations. Vention's requested relief includes a long-term injunction and attorneys' fees and costs. Pappas asserts counterclaims for (1) violation of R.SA chapter 358-A; and (2) business disparagement. Pappas's requested relief includes the full amount of the posted injunction bond, actual and treble damages pursuant to RSA 358-A:10, I, a permanent injunction, damages for reputational harm, and reasonable attorneys' fees and costs. The Court held an eight-day bench trial beginning June 14, 2016. For the reasons set forth in this narrative order, the Court grants judgment in favor of Vention and awards relief as delineated herein.
I. The Parties and the Technology
A. Vention's Heat Shrink Technology
Vention is a medical components manufacturer in the medical device industry that makes, among other products, three niche products: highly specialized medical balloons and [Redacted] specialized medical tubing, and ultra-thin polyethylene ("PET") and non-PET (urethane) heat shrink tubing ("HST") with enhanced tensile strength. Vention's current Chief Technology Officer, Mark Saab, and his wife co-founded Advanced Polymers in 1989. Saab graduated from the University of Massachusetts Lowell ("UMass Lowell") in 1980 and worked at USCT/Bard for a brief period. (Tr. Vol. 4, 1079:18-1080:10, June 20, 2016.) While at Bard, Saab worked on developing a [Redacted] made of PET. As part of this project, Saab had the idea to [Redacted] for making balloons, which he ultimately adopted as the subject of his master's thesis. Out of this idea, he came up with the goal of making ultra-thin-walled, high strength, seamless, small diameter tubing and HST. Therefore, with Bard's permission, Saab began developing technology for manufacturing [Redacted] while working on his master's thesis. (Tr. Vol. 4, 1080:11-1083:15.)
All references are to the rough transcript,
Based on this technology, Saab formed Advanced Polymers in 1989. In the beginning, Advanced Polymers manufactured only PET balloons and HST, but it eventually expanded into the manufacture of medical balloons and began using other materials, including polyurethanes and nylons. All of its products rely on the technology, materials, and equipment required to manufacture [Redacted] (Tr. Vol. 4, 1084:22-1086:7.) Saab served as the President of Advanced Polymers until KRG Capital Management ("KRG") acquired the company in 2010. (Tr. Vol. 4, 1079:23-1080:6.)
KRG is a private equity firm with the goal of investing and controlling middle market companies to accelerate their growth and then sell them. (Tr. Vol. 1, 4:3-9, June 14, 2016.) KRG is a major shareholder in Vention. Stewart Fisher, a managing director at KRG, is one of four KRG employees who oversee the Vention platform. He is chairman of the board of Vention Medical Holdings, Inc. (Tr. Vol. 1, 4:10-25.) Stewart became interested in acquiring Advanced Polymers because it "was the recognized leader in two important areas: heat shrink tubing and complex medical balloons," and it was "well known for their technology, proprietary technology and market position." (Tr. Vol. 1, 8:5-11.) He therefore believed KRG could create an investment platform based on "unique and proprietary technology." (Tr. Vol. .1, 8:11-13.)
Prior to the acquisition, KRG conducted its due diligence to validate Advanced Polymer's market position and technology, which Stewart ultimately found based on his industry and financial knowledge, Advanced Polymer's competitive position, and customer feedback. (Tr. Vol. 1, 8:17-24.) An internal KRG investment committee memorandum indicates that Advanced Polymer's "proprietary heat shrink tubing capabilities offer [Redacted] with significant trade secret protection," which was a core consideration in KRG's decision to purchase Advanced Polymers. (Pl.'s Ex. 20; Tr. Vol. 1, 11:4-14.) KRG's decision also relied on customer feedback gleaned from in-depth phone interviews, including two customers who indicated Advanced Polymers [Redacted] (Pl.'s Ex. 21, at VM6003578.) According to Fisher, KRG [Redacted] (Tr. Vol. 1, 15:16-19.) Fisher also stated Advanced Polymers had the [Redacted] he had ever seen. (Tr. Vol. 1, 23:25-24:10.)
Based on its research, KRG reached a purchase price [Redacted] (Pl.'s Ex. 22, at VM6000027.) In reaching this price, KRG concluded Advanced Polymers was "the [Redacted] in heat shrink tubing and complex medical balloons that had [Redacted] that [KRG] believed were sustainable for many, many years [and] would generate substantial and growing cash flow in the future." (Tr. Vol. 1, 16:23-17:4.) It therefore believed its purchase price reflected trade secret protection for both Vention's medical balloons and HST. (Tr. Vol. 1, 16:23-17:11.) After the acquisition, Vention and its subsidiaries conducted a financial analysis to allocate the purchase price among a number of categories. The analysis attributed [Redacted] as the value of its unpatented technology. (Tr. Vol. 1, 19:17-21:6.)
Vention undertakes a number of measures to preserve the value of this confidential technology and information, including always locking the facility with only keycard access, restricting access to certain areas of the facility to only necessary personnel, imposing software access restrictions, requiring employee and customer confidentiality agreements, and reminding staff about confidentiality obligations. (Tr. Vol. 4, 1107:17-1108:16; Tr. Vol. 5, 1200:21-1203:19, June 21, 2016.)
B. Vention's Technology
Vention utilizes two primary processes for manufacturing [Redacted] a [Redacted] Vention uses the [Redacted] Using its PET heat shrink tubing machine, Vention [Redacted] as the tube is [Redacted] The [Redacted] nature of this process allows Vention to make [Redacted] PET HST by beginning with [Redacted]
[Redacted] to [Redacted] to expand [Redacted] This process can produce [Redacted] and the process parameters utilized. In Vention's [Redacted] an [Redacted] is placed inside a [Redacted] which is then [Redacted] The starter tube is then [Redacted] using a [Redacted] and [Redacted] using [Redacted] Vention's process requires [Redacted] and [Redacted]
While [Redacted] can produce HST, the [Redacted] appropriate when using polymers that [Redacted] Therefore, a number of polymers- [Redacted] -require a [Redacted] those materials as they expand. (Tr. Vol. 2, 495:5-16, June 15, 2016.) Critically, [Redacted] utilize [Redacted] at [Redacted] and [Redacted] in order to enhance the product's [Redacted] This enhanced [Redacted] is a product characteristic unique to Vention because Vention's process [Redacted] while traditional HST only exhibits a 10 to 20 percent increase in [Redacted] (Tr. Vol. 2, 496:8-497:6.)
To achieve the [Redacted] expansion and [Redacted] necessary for [Redacted] and the resulting enhanced [Redacted] a critical component of Vention's machine is the [Redacted] used to hold the starter tube and introduce [Redacted] into the starter tube. (Tr. Vol. 1, 234: 6-24; Tr. Vol. 5, 1326:23-1328:6.) Dr. Amad Tayebi, a retired professor in mechanical and plastics engineering with 37 years of experience, testified that he had never seen a [Redacted] like that used by Vention and Ascend. (Tr. Vol. 2, 355:9-10.) Dr. Tayebi identified four primary components of Vention's [Redacted] (Pl.'s Ex. 380.)
Dr. Tayebi holds a Bachelor of Science in textile engineering from Alexandria University, a master's degree in textile technology from the Massachusetts Institute of Technology, a mechanical engineering degree from the Massachusetts Institute of Technology, a Doctor of Science in mechanical engineering from the Massachusetts Institute of Technology and a law degree. He has taught at the Massachusetts Institute of Technology and Georgia Tech, and taught plastic engineering courses, mechanical engineering courses, and business law courses at UMass Lowell from 1978 until 2014. He is still a Professor Emeritus. (Tr. Vol. 2, 326:4-327:25.) Dr. Tayebi holds 38 patents. (Tr. Vol. 2, 333:11-12.)
[Redacted] The starter tube runs through all of the components. When the components are [Redacted] causing it to [Redacted] perimeter and at its ends. This [Redacted] the starter tube because it places [Redacted] causing it to [Redacted] (Tr. Vol. 2, 343:20-345:23.) Dr. Tayebi credibly identified that the assembly of these [Redacted] the [Redacted] because it provides a [Redacted] provides a [Redacted] the [Redacted] to [Redacted] to [Redacted] (Tr. Vol. 2, 346:22-347:11.)
The [Redacted] also uses [Redacted] the tube, but as [Redacted] to prevent [Redacted] from escaping. With the exception of the [Redacted] all of these components are designed and fabricated specifically and are not available on the open market. (Tr. Vol. 2, 346:8-21.) Dr. Tayebi testified that the [Redacted] Hoes not exist anywhere, and even if one were to order a [Redacted] from the McMaster catalog to make a [Redacted] it would still be necessary to specify [Redacted] and then machine it to the appropriate internal diameter. Moreover, Vention's [Redacted] s made of a specific type of [Redacted] which is critical to its [Redacted] but there are many choices of materials, such as [Redacted] and raw [Redacted] and multiple types of [Redacted] (Tr. Vol. 2, 352:4-353:17.) Similarly, no literature teaches the use of a [Redacted] to [Redacted] an [Redacted] but Vention's [Redacted] is [Redacted] The [Redacted] Vention's [Redacted] is important because its [Redacted] is approximately 112 percent higher than that of a [Redacted] and the whole mechanism works depending on the amount of [Redacted] (Tr. Vol. 2, 354:20-355:8.)
Apparently, McMaster is a supplier of mechanical components.
A [Redacted] used for [Redacted] HST must be able to [Redacted] However, Dr. Tayebi testified that there is no formula available to calculate the [Redacted] Therefore, Dr. Tayebi credibly opined that the only way to develop Vention's [Redacted] is by trial and error. (Tr. Vol. 2, 353:18-354:17.)
Dr. Chris Rauwendaal has worked for 43 years in plastics extrusion. (Tr. Vol. 2, 444:4-7.) He worked at Raychem Corporation from 1977 to 1990. Raychem Corporation developed heat shrink tubing in the 1950s and much of his work involved heat shrink tubing. Dr. Rauwendaal has been involved in issues of polymer [Redacted] since he began working and has acted as a consultant on the design of equipment and extrusion components since 1990. (Tr. Vol. 2, 447:3-448:8.) Dr. Rauwendaal testified that the technology Vention used to create heat shrink tubing was proprietary and not generally known in the industry, and that the technology Ascend used was essentially the information used by Vention. Dr. Rauwendaal testified that in his 43 years of experience in the plastics industry, specifically extrusion of heat shrink tubing, he had never seen [Redacted] used in making heat shrink tubing. (Tr. Vol. 2, 482:8-14.)
Rauwendaal holds a Master's degree in mechanical engineering from Delft University and a doctorate in mechanical engineering, specializing in polymer processing, from Twente University, both in the Netherlands. (Tr. Vol. 2, 443:14-21). He has authored seven books, including one on statistical process control and extrusion and injection molding and approximately 300 articles. (Tr. Vol. 2, 447:13-20.)
Dr. Rauwendaal testified that a number of features in the Vention process were proprietary, including the fact that its process operates at [Redacted] and the process it uses has a unique proprietary [Redacted] (Tr. Vol. 2, 502:6-503:11.) Dr. Rauwendaal testified that in his experience, these proprietary factors gave Vention a unique position in the industry because it could make products that no one else can make with properties that no one else can approach. (Id.) Dr. Rauwendaal found a remarkable level of congruity between Vention's technology and Pappas's technology, outlined in Plaintiff's Exhibit 422.
Dr. Rauwendaal compared the resins used by Pappas and by Vention and found them identical. (Tr. Vol. 3, 534:11-18, June 16, 2016.) He found that the same technique of [Redacted] was used by both Vention and Pappas. (Tr. Vol. 3, 534:19-544:11.) Both technologies utilized the technique of [Redacted] at [Redacted] which is [Redacted] the technique used in conventional heat shrink tubing. (Tr. Vol. 3, 535:14-24.)
Vention's proprietary [Redacted] system is critical in this process because it allows [Redacted] to be introduced to one side; Pappas uses the same type of [Redacted] (Tr. Vol. 3, 536:1-10.) Dr. Rauwendaal noted that the [Redacted] is essential because of the [Redacted] involved in both systems. (Tr. Vol. 3, 536:1-19.) Dr. Rauwendaal testified that both Pappas and Vention use virtually identical [Redacted] and [Redacted] and virtually identical [Redacted] (Tr. Vol. 3, 537:24-538:6.) Both Vention and Ascend use [Redacted] in approximately the same range, and both [Redacted] which the polymer to [Redacted] (Tr. Vol. 3, 536:11-537:22.) Both Vention and Ascend have identical [Redacted] characteristics; they are [Redacted] the wall thickness is in the same range and both processes occur [Redacted] of the polymer. (Tr. Vol. 3, 541:9-542:11.) Dr. Rauwendaal opined that reverse engineering of HST is not possible because when [Redacted] [Redacted] were. (Tr. Vol. 3, 544:8-15.)
Both Dr. Tayebi and Dr. Rauwendaal testified credibly that Pappas could not have duplicated Vention's technology, based upon the timeframe in question and the lack of documentation of experimentation, without copying it. Dr. Tayebi's testimony was succinct: after examining all the records Pappas produced, he determined that none of them showed that trial and error were done in the design of a [Redacted] and that a purchase order was sent as early as March 2014, only two months after Pappas had left Vention's employ. He credibly concluded that this confirmed copying of Vention's design. (Tr. Vol. 2, 385:4-387:7.) Similarly, Dr. Rauwendaal concluded from review of the Pappas records that no experiments explained Pappas's decisions to use necessary technology. (Tr. Vol. 2, 510:5-511:9.) He found it very unusual that no prototypes had ever been created. (Tr. Vol. 2, 510:14-511:14.)
Patent attorney David Brooks testified credibly that after review of the patents identified by the Defendant, which it contended made Vention's trade secrets generally known or available, it was his opinion that none of the patents, either individually or in combination, made Vention's trade secrets generally known. (Tr. Vol. 3, 767:1-14.)
C. Pappas's Technology
Pappas began working at Vention after he graduated from the University of Massachusetts Lowell with a Bachelor's of Science in plastics engineering and a Master's Degree in innovative and technological entrepreneurship. In his coursework, Pappas studied polymer [Redacted] shrinkage of polymers, and machine design, but he did not specifically study HST. Pappas did not otherwise have any experience working with medical balloons or HST prior to working at Vention.
At the start of his employment, Pappas signed an "Employee Invention Assignment and Confidentiality Agreement" (the "Agreement"), which prohibited him from taking property or proprietary information from Vention, required him to maintain confidentiality of all proprietary information during and after employment, and assigned all of Pappas's inventions developed during employment, including all inventions that "(a) are developed using equipment supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company's business or current or anticipated research and development." (Pl.'s Ex. 6, ¶ 3.) The Agreement also included a 60-month non-compete clause specific to "the manufacture or sale of products or technology for polyester heat shrink tubing and/or balloons and/or the manufacture or sale of products or technology for [Redacted] (Pl.'s Ex. 6, ¶ 6.)
During his employment at Vention, Pappas had knowledge about Vention's business and marketing information and strategies. Specifically, he was aware of the [Redacted] of HST with the [Redacted] (Pl.'s Exs. 47: 48; 310 at VM 002302.) Pappas was also exposed to Vention's confidential balloon and HST technology and information. When he began at Vention, Pappas worked primarily in balloon design but was occasionally involved with HST. At the time he resigned, Pappas was serving as the engineering manager of the balloon and HST departments. E-mails and Vention specification records show, for example, that Pappas was involved in manufacturing [Redacted] [Redacted] (Pl.'s Exs. 274; 15; 16; 52; 57; 285 at VM6002329.) As Pappas recognized in one e-mail, to make a [Redacted] (Pl.'s Ex. 52.) Mr. Pappas's employee records establish that he worked with HST and began experimenting with nylon and Pebax balloons. (Pl.'s Ex. 310, at VM002210.)
After working at Vention for about ten years, Mr. Pappas resigned from Vention in December 2013. Forensic Expert James Berriman testified that a search of Mr. Pappas's computer files establish that Mr. Pappas's review of substantive confidential files increased substantially in the months leading up to his resignation. While there were only two files first accessed in January, three accessed in February, one in June, and five in July, there were 27 files first accessed in September, 30 first accessed in October, 37 first accessed in November, and 44 files first accessed in December 2013. (Pl.'s Ex. 206; Tr. Vol. 1, 84:1-85:25.) Almost immediately after leaving Vention, Mr. Pappas established Ascend. There is little doubt that Mr. Pappas was considering leaving Vention by the middle of 2013. He consulted with Attorney Anne Marie Rourke about his obligations under the agreement requiring him to hold confidential Vention's proprietary information. In late December 2013 and January 2014, Pappas communicated with an equipment vendor (Pl.'s Ex. 62), began working with a website developer (Pl.'s Ex. 63), and provided an initial machine design to another equipment vendor providing extensive detail and critical specifications of the equipment he wanted built including (1) [Redacted] (2) [Redacted] range [Redacted] (3) [Redacted] [Redacted] (4) [Redacted] and (5) clear specifications (Pl.'s Ex. 74.)
By August 2014, eight months after leaving Vention, Pappas began actively marketing nylon HST when he announced he had developed "the World's First Medical Grade Nylon Heat Shrink Tubing" available in lengths [Redacted] After Pappas launched his nylon HST, Vention requested more information about his products. Pappas sent Vention samples of his Nylon 12 HST on August 26, 2014, and then sent samples of his Pebax HST, which he had not yet publically announced, on September 9, 2014.
Both Nylon 12 and Pebax are nylon polymers. The use of "nylon" in this Order therefore includes both Nylon 12 and Pebax.
Within weeks after leaving Vention, Pappas began designing his machine based on a commercially available [Redacted] machine built by [Redacted] Like the [Redacted] machine, Pappas's design included [Redacted] meaning the machine can process [Redacted] and up to [Redacted] (Pl.'s Ex. 62; Def.'s Ex. D-249.) Pappas included a [Redacted] mechanism and a robust [Redacted] mechanism. Pappas's initial January 2014 design called for a [Redacted] with a [Redacted] and a [Redacted] ; [Redacted] with individual [Redacted] controls; [Redacted] and [Redacted] ; and a [Redacted] with a [Redacted] and a minimum [Redacted] , but a preferred [Redacted] (Pl.'s Ex. 74.) Pappas characterized these specifications as "stakes in the ground." (Tr. Vol. 1, 188:16-190:8.) With the help of [Redacted] the vendor Pappas chose to build his machine, the design process evolved until Pappas executed a purchase order on February 5, 2014. (Pl.'s Exs. 67, 73, 79, 83, 86, 88, 90, and 91.) Like Vention's [Redacted] , Pappas's machine also uses a [Redacted] and a [Redacted] (Tr. Vol. 1, 192:7-12.) The specifications of the [Redacted] are virtually identical to Vention's.
Pappas knew he needed to have a [Redacted] mechanism with certain capabilities in order to [Redacted] his HST. (Tr. Vol. 1, 189:22-190:8.) [Redacted] assisted Pappas with the design and component selection of the [Redacted] mechanism after Pappas sent it an initial CAD illustration on January 17, 2014. (Pl.'s Ex. 74.) The illustration called for [Redacted] and [Redacted] each with a [Redacted] of [Redacted] and operated by [Redacted] with a [Redacted] Additionally, each [Redacted] also called for a [Redacted] (Pl.'s Ex. 74.) Pappas also characterized these specifications as a "stake in the ground." (Tr. Vol. 1, 190:4-8.)
Although Pappas claims to have developed Ascend's technology independently of Vention, there is very little documentation of experimentation that would explain how he came to design his machines and select the parameters on which they ran and select the materials he used. He worked virtually alone on the project; he was assisted by an unpaid assistant, a friend named Chris Mourtzinis, who had training in plastics engineering, but left the field, and had been working in his parents restaurant business and worked with Pappas to regain his knowledge of the field to enable him to reenter the job market. Both Dr. Tayebi and Dr. Rauwendaal found the lack of documentation of experimentation essential to their conclusion that Mr. Pappas copied Vention's technology. The Court credits their conclusions.
II. Vention's Claims
Vention asserts four claims against Pappas; (A) misappropriation of trade secrets under RSA chapter 350-B; (B) breach of contract; (C) breach of fiduciary duty; and (D) intentional interference with contractual relations. The Court first addresses the misappropriation of trade secrets.
A. Vention's Misappropriation of Trade Secrets Claim
Vention contends its trade secrets include its unique processes for manufacturing HST and balloons using various materials, specific components of its equipment that implement the proprietary processes, and the materials used. It maintains the precise combination of materials, components, equipment, and processes—including the use of [Redacted] to make HST, Vention's [Redacted] design, choice of [Redacted] , use of [Redacted] , and the [Redacted] , [Redacted] , and [Redacted] specifications—are not generally known or readily ascertainable by proper means and are not in the public domain.
Put simply, Pappas maintains he made a different product—nylon HST—using a different, independently designed machine, and he then developed his own specifications through experimentation. Pappas disputes Vention's contention that using [Redacted] at [Redacted] and [Redacted] to create products with [Redacted] and [Redacted] can be considered a trade secret. He claims the process is widely used for many products and points to its disclosure in patents, trade publications, and marketing literature, as well as the fact that it is taught in engineering courses. He further claims the [Redacted] attributable to [Redacted] are also well known, including [Redacted] and tendency to [Redacted] Pappas concludes that, even though Vention may be able to protect specific combinations of process parameters, he could not have misappropriated any trade secret because he did not copy any combination of process parameters to manufacture specific products.
New Hampshire has enacted the Uniform Trade Secrets Act ("UTSA") as RSA chapter 350-B ("NHUTSA"). NHUTSA generally prohibits misappropriation of trade secrets. "Misappropriation" is defined in relevant part as "use of a trade secret of another without express or implied consent by a person who" knows or has reason to know that the trade secret was acquired by improper means. RSA 350-B:1, II. A trade secret is defined as:
[I]nformation, including a formula, pattern, compilation, program, device, method, technique, or process that: (a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.RSA 350-B:1, IV. Other courts have recognized that a "trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret." Integrated Cash Mgmt. Servs., Inc. v. Dig. Transactions, Inc., 920 F.2d 171, 174 (2d Cir. 1990) (quotation omitted); see also Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125, 1130 (10th Cir. 2003). To succeed on a trade secret claim, it is generally said that:
[T]he claimant must establish [1] that it is the owner (or at least the
exclusive licensee) of matter that qualifies as a trade secret, [2] that the information has been received by the other party in a protected relationship (such as one with a contractual duty not to use or disclose or in a relationship that the law regards as a confidential one, such as employer-employee) or was taken in an unlawful manner and [3] that the other party has used or is about to use the information to plaintiff's detriment.R. Milgrim, Milgrim on Trade Secrets § 15.o1[1], at 15-4 (2016) ("Milgrim"). Sole industry standing can be sufficient to prove information is a trade secret. See, e.g., Zotos Int'l, Inc. v. Young, 830 F.2d 350, 353 (D.C. Cir. 1987); see also Milgrim § 15.01[1][a][ii], at 15-98.20 ("[W]here a plaintiff is the sole producer of a particular product, that alone may provide a basis for determining that the process or formula used to make the product constitutes a trade secret.").
a. Vention is the Owner of a Trade Secret
Vention satisfies the first element of its misappropriation claim because it has presented sufficient evidence to demonstrate that its trade secret is its technology and equipment necessary to manufacture [Redacted] medical HST with [Redacted] through a [Redacted] The confidential design of Vention's [Redacted] and its use of proprietary processes allow it to [Redacted] , thereby [Redacted] of its HST. The enhanced characteristics of Vention's products are unmatched by other company's products, thereby affording Vention a competitive economic advantage. Furthermore, Vention has undertaken efforts to protect the confidentiality of these secrets. (Tr. Vol. 4, 1038:11-1045:12.)
Dr. Rauwendaal, an engineer specializing in polymer processing with 43 years of experience in polymer extrusion, credibly testified that he has never encountered any other company using [Redacted] to manufacture medical HST with the same characteristics as Vention's HST—namely ultra-thin walls and [Redacted] (Tr. Vol. 2, 494:3-497:6.) In comparing traditional HST to Vention's HST manufactured through either Vention's [Redacted] , Dr. Rauwendaal observed:
The [Redacted] that are produced in the Vention process are significantly higher than traditional heat shrink tubing. [In] [t]raditional heat shrink tubing [Redacted] is moderate, maybe 10-20 percent. The Vention process by the [Redacted] relatively [Redacted] at [Redacted] So there is a very, very [Redacted](Tr. Vol. 2, 496:11-21.)
Dr. Rauwendaal credibly testified, and the Court finds, that Vention's HST process contains a number of proprietary processes, including operation of the process at [Redacted] , [Redacted] of the polymer that there is [Redacted] and that there is [Redacted] (Tr. Vol. 2, 502:6-503:9.) Further, Dr. Tayebi's testimony comparing Vention and Pappas's [Redacted] designs was persuasive. Dr. Tayebi is an amply qualified expert in plastics and mechanical engineering. Dr. Tayebi was a professor at the University of Massachusetts Lowell between 1978 and 2010, where he developed and taught courses in subjects relating to plastics and mechanical engineering, including one course on the principles of design of automated assembly systems. Compellingly, Dr. Tayebi taught both Saab and Pappas, which made it difficult for him to take the stand. (Tr. Vol. 2, 326:6-328:21.)
As detailed above at length, Dr. Tayebi credibly explained why Vention's [Redacted] design offers a competitive advantage to constitute a trade secret. In his extensive experience, he has never seen another such [Redacted] design with such [Redacted] except for Pappas's design. Furthermore, the [Redacted] design is not readily ascertainable because it can only be achieved through trial and error since there is no formula for determining [Redacted] and its components are custom fabricated and not readily available in the market.
Pappas contends three other [Redacted] designs are functionally equivalent to Vention's [Redacted] the [Redacted] the [Redacted] connector, and the [Redacted] Dr. Tayebi persuasively rejected each of these alternative [Redacted] as functional equivalents of Vention's [Redacted] First, Dr. Tayebi rejected that the [Redacted] fitting constituted a functional equivalent. The [Redacted] is an adapter that allows a fluid conduit to be [Redacted] but it is used for medical purposes and is specifically designed to [Redacted] and to allow for [Redacted] Moreover, unlike Vention's [Redacted] the [Redacted] is not capable of handling the [Redacted] of the [Redacted] (Tr. Vol. 2, 356:8-358:4.) Next, Dr. Tayebi rejected Pappas's contention that a [Redacted] component is a functional equivalent to Vention's [Redacted] Dr. Tayebi characterized it as a connector between a source and delivery point of high [Redacted] which is not designed to [Redacted] but designed only as a [Redacted] (Tr. Vol. 2, 358:23-359:14.) Finally, Dr. Tayebi rejected the [Redacted] as a functional equivalent of Vention's [Redacted] Although the [Redacted] also uses a [Redacted] it is only [Redacted] in diameter at most, which would result in [Redacted] Additionally, the [Redacted] does not use a [Redacted] Instead, it uses an [Redacted] which also [Redacted] by [Redacted] internally when [Redacted] force is applied. However, unlike Vention's [Redacted] the [Redacted] have less [Redacted] , and therefore have a [Redacted] (Tr. Vol. 2, 359:24-362:11.)
Although Pappas attempted to introduce evidence that two other companies, [Redacted] and [Redacted] used similar technology to produce similar products, the Court similarly finds that evidence unpersuasive. [Redacted] and [Redacted] product—as advertised—does not exhibit the same [Redacted] as Vention's HST and is not used for medical applications. (Pl.'s Ex. 397; Tr. Vol. 5, 1180:5-1182:5; Tr. Vol. 8, 2163:14-2168:22.)
The evidence clearly shows this proprietary HST technology derives an economic, competitive advantage because it allows Vention to serve a niche market in which it is the only company capable of manufacturing such products with the degree of enhanced characteristics. Based on its research showing Advanced Polymers was some customers' sole source supplier because it filled a niche market, KRG reached a purchase price of [Redacted] (Pl.'s Ex. 22, at VM6000027.) In reaching this price, KRG concluded Advanced Polymers was "the market leader in heat shrink tubing and complex medical balloons that had [Redacted] would generate substantial and growing cash flow in the future." It therefore believed its purchase price reflected trade secret protection for both Vention's medical balloons and HST. (Tr. Vol. 1, 16:23-17:11.) After the acquisition, Vention and its subsidiaries conducted a financial analysis to allocate the purchase price among a number of categories. The analysis attributed [Redacted] as the value of its unpatented technology. (Tr. Vol. 1, 19:17-21:6.)
Pappas argued that Vention's technology was essentially technology that belonged to Bard. However, evidence produced at trial, by Bard's former director of manufacturing, Joanne Duncan established that since her employment began in 1978 Bard has not made HST. (Tr. Vol. 3, 706:10-12.) In fact Bard purchased HST, first from Raytown, and then from Vention. (Tr. Vol. 3, 706:13-19.) Similarly, Richard Florence, who designed a [Redacted] that Bard used, testified to the differences between the two [Redacted] and that the Vention [Redacted] was entirely different from the Bard [Redacted] (Tr. Vol. 3, 713:22-714:15.) There is simply no basis to suggest that this information is either readily ascertainable or in the public domain.
Finally, the evidence clearly shows Vention has undertaken a number of measures in order to preserve the value of this confidential technology and information, including always locking the facility with only keycard access, restricting access to certain areas of the facility to only necessary personnel, imposing software access restrictions, requiring employee and customer confidentiality agreements, and reminding staff about confidentiality obligations. (Tr. Vol. 4, 1107:17-1108:16; Tr. Vol. 5, 1200:21-1203:19.) In all but a few circumstances, Vention did not disclose the resin it would use in any product to a customer unless the customer specified a resin, and an "occasional slipup," such as the evidence here shows, is not fatal to secrecy. See H. Perrit, Trade Secrets § 4.06, at 4-6 (2014) ("Perrit"). Accordingly, Vention has satisfied the first element of its misappropriation claim.
(Def.'s Exs. 325; 326; 327.)
b. Vention's Information was Provided to Pappas in a Protected. Relationship
The second element is clearly satisfied because the evidence shows Pappas had access to and knowledge of all of Vention's HST and balloon technologies. At the time he resigned, Pappas was serving as the engineering manager of the balloon and HST departments, which gave him ample access to Vention's confidential manufacturing information. E-mails and Vention specification records show, for example, that Pappas was involved in manufacturing [Redacted] — [Redacted] employing [Redacted] in a [Redacted] (Pl.'s Exs. 274; 15; 16; 52; 57; and 285, at VM6002329.) As Pappas recognized in one e-mail, to make [Redacted] he would have to use a [Redacted] in a [Redacted] (Pl.'s Ex. 52.) Similarly, Pappas had access to Vention's marketing information; he knew what Vention's [Redacted] were and in fact [Redacted] those [Redacted] when he went to market. (Def.'s Ex. 310; Pl.'s Ex. 47; Tr. Vol. 1, 161:20-163:9.) Consequently, the evidence shows Pappas would have had access to Vention's proprietary information.
c. Pappas Misappropriated Vention's Trade Secret
Trade secret litigation often requires a plaintiff to build his case on circumstantial evidence. The United States District Court for the Eastern District of Pennsylvania has put the matter succinctly:
Plaintiffs in trade secret cases, who must prove by a fair preponderance of the evidence disclosure to third parties and use of the trade secret by the third parties, are confronted with an extraordinarily difficult task. Misappropriation and misuse can rarely be proved by convincing direct evidence. In most cases plaintiffs must construct a web of perhaps ambiguous circumstantial evidence from which the trier of fact may draw inferences which convince him that it is more probable than not that what plaintiffs allege happened did in fact take place. Against this often delicate construct of circumstantial evidence there frequently must be balanced defendants and defendants' witnesses who directly deny everything.Greenberg v. Croydon Plastics Co., 378 F. Supp. 806, 814 (E.D. Pa. 1974).
Vention has produced evidence necessary to meet the third and last element of its misappropriation claim because it has satisfactorily show that Pappas misappropriated Vention's trade secrets. First, it has proved that Pappas's [Redacted] design is integral to producing HST with the high degree of [Redacted] Dr. Tayebi credibly testified that Pappas's [Redacted] substantially identical in dimension, including the way it is oriented and threaded. Further, there are no public records showing the [Redacted] components assembled in this way. Perhaps most compelling is that both [Redacted] were originally ordered from McMaster at [Redacted] inch, at an identical diameter, and in identical [Redacted] material, even though there is no evidence that Pappas experimented with different sizes or materials as would be necessary to develop this [Redacted] Both Vention and Pappas use a [Redacted] from McMaster that is advertised as [Redacted] not a [Redacted] with [Redacted] Lastly, both Vention and Pappas label the [Redacted] Dr. Tayebi concluded that it would defy the logic of probability to find the similarities in the [Redacted] designs to be coincidence because there are simply too many coincidences. (Tr. Vol. 2, 377:4-388:15.)
Second, Dr. Rauwendaal credibly testified that the Vention process and the Pappas process for producing heat shrink tubing are virtually identical. Dr. Rauwendaal, with 43 years of experience in the plastics industry, credibly testified that it was his opinion that a company undertaking to develop Vention's technology ''simply would not be successful." He based his conclusion upon the fact that when he first saw Vention's process it was completely different from what he had expected, despite his experience in HST, and in addition, no company had been able to develop technology similar to Vention's over the past 26 to 27 years. (Tr. Vol. 3, 563:5-24.) He testified that assuming the process could be duplicated, he believed it would take a period of four to five years to develop it and that it would take a team of people, including material science people, processing people, machinery people, and testing people as well as considerable resources, not only in terms of people, but in terms of equipment. (Tr. Vol. 3, 564:4-17.) He credibly testified that it would be virtually impossible for one person to do it in a period of less than a year, and that it would be even more impossible to do it based on six or seven experiments on one resin. (Tr. Vol. 3, 564:18-23.)
Mr. Pappas worked alone at Ascend, but, as noted above, had an unpaid assistant.
Pappas contends his machine is distinguishable from Vention's [Redacted] machine because it produces products [Redacted] of Vention's products, it uses [Redacted] instead of [Redacted] and it uses different [Redacted] According to Pappas, these differences demand using different process parameters as those used by Vention, and these parameters and the resulting differing product characteristics—not the general process—are at the core of any such trade secret. However, Pappas produced no credible expert testimony to support this proposition. Moreover, even if there were merit to this argument, Pappas's products could not achieve such a degree of enhanced characteristics without the use of Vention's proprietary [Redacted] design that [Redacted] thereby allowing Pappas to [Redacted] his HST at [Redacted]
The thrust of Pappas's arguments in this case have revolved around the fact that he intended to sell Nylon HST. He alleges that as of the date of the lawsuit, "Vention had never manufactured nylon heat shrink tubing, and thus it did not have trade secrets in 'the process technology and know-how' necessary to make this product." (Def.'s Post-hearing Mem. 1, 11.) However, this case is not about a product, but a process; nylon is simply a polymer which can be subjected to Vention's process. There is no dispute that Vention has and does make [Redacted] and in fact the basis for Vention's [Redacted] Mark Saab credibly testified that Vention had. been aware of the technology necessary to produce nylon HST for many years. (Tr. Vol. 5, 1253:23-1256:20.)
Mr. Saab testified that he had a conversation with Mr. Pappas at which he told him that Vention would never [Redacted] because it would [Redacted] (Tr. Vol. 5, 1215:8-1217:5.) The Court finds this testimony particularly credible because Mr. Pappas testified that he believed he was permitted to make nylon HST tubing and that it. would not violate his confidentiality agreement. (Tr. Vol. 5, 2205:11-21.) The Court believes that Mr. Pappas probably erroneously believed, based upon his conversations with Attorney Roark and Mr. Saab, that he would not infringe Vention's market if he manufactured nylon HST, and decided to do so.
Pappas has argued throughout this case that Vention has brought this action in order to steal its trade secret, because it does not know how to make nylon HST. In light of these allegations, the Court treated Pappas as a counterclaim trade secret plaintiff. However, Pappas has essentially abated its claim that it had a trade secret—which leads one to question why, if it had no trade secret, the Court should credit its claim that Vention was attempting to steal its technology. In any event, Pappas produced no credible expert testimony that any technology has been independently invented by Mr. Pappas.
Pappas makes much of the existence of Project 250, which was an attempt made by Vention [Redacted] in 2014. Pappas claims that Vention instituted this litigation in order to eliminate a competitive threat posed by the fact that Pappas had already introduced nylon heat shrink tubing. (Def.'s Post-hearing Mem. 1, 11.) The evidence at trial conclusively established that Vention has long been aware of the materials, process, equipment, and technology necessary to produce nylon HST. There was no evidence at trial that there is, in fact, a [Redacted] for nylon HST, and the Court credits the testimony that Vention's decision not to go forward with it and commercialize it was a [Redacted] (Tr. Vol. 5, 1213:8-1222:4.) Critically, the evidence demonstrates that there is nothing in Ascend's supposed technology that would have been of value to Vention; for that reason, the argument that the existence of Project 250 somehow shows that Vention did not know [Redacted] and launched this litigation to crush a competitor falls of its own weight. Pappas also argues that Vention was not candid in its request for injunctive relief; that it "misled the court into believing it already was manufacturing nylon heat shrink tubing." (Pl.'s Post-hearing Mem. 1, 63.) But this statement is flatly inconsistent with the Court's January 8, 2015 Order, which recites that "Saab testified credibly that Advanced Polymers has manufactured heat shrink tubing products [Redacted] but made a business decision not to [Redacted] because the nylon product would [Redacted] (Order, Vention v. Pappas, January 8, 2015, at 15.)
Therefore, Vention has shown Pappas has misappropriated its proprietary processes including its proprietary [Redacted] design and satisfies the third element of its misappropriation claim. As Vention has satisfied all three elements, it is entitled to judgment on its misappropriation claim.
B. Breach of Contract Claim
Pappas signed a document called "Employee Invention Assignment And Confidentiality Agreement" while employed by Vention. (Pl.'s Ex. 6.) The document required him to keep proprietary information in strict confidence and not use it without the prior consent of the Company both during and after his employment. (Pl.'s Ex. 6, ¶ 5). It also purported to limit his employment for a period of 60 months in the business of polyester heat shrink tubing or balloons anywhere in the world. (Pl.'s Ex. 6, ¶ 6.)
"The public policy of New Hampshire encourages free trade and discourages covenants not to compete," which are generally considered to be in restraint of trade. Concord Orthopaedics Prof'l Ass'n v. Forbes, 142 N.H. 440, 442 (1997). For that reason, such agreements are narrowly construed. Merrimack Valley Wood Prods. v. Near, 152 N.H. 192, 197 (2005). "[R]estrictive covenants are valid and enforceable if the restraint is reasonable, given the particular circumstances of the case." Id. Additionally, a covenant not to compete must be supported by consideration. Smith, Batchelder & Rugg v. Foster, 119 N.H. 679, 682 (1979). Continued employment constitutes consideration for a covenant not to compete. Id. at 683.
To determine the reasonableness of a covenant not to compete, the New Hampshire Supreme Court has applied a three-pronged test: "first, whether the restriction is greater than necessary to protect the legitimate interests of the employer; second, whether the restriction imposes an undue hardship upon the employee; and third, whether the restriction is injurious to the public interest." Syncom Indus., Inc. v. Wood, 155 N.H. 73, 79 (2007). This three-part test apparently finds its genesis in the Restatement (Second) of Contracts. See Technical Aid Corp. v. Allen, 134 N.H. 1, 8 (1991) (citing Restatement (Second) of Contracts § 188 (1979)).
The Court noted in its order on Vention's request for a preliminary injunction on January 8, 2015 that the noncompetition agreement was probably overbroad on its face, but did not address whether it could be narrowed, since Vention was not seeking to enforce the noncompetition portion of the agreement. Similarly, in this case, Vention does not seek to enforce the restrictive covenant, but seeks to enforce the requirement that Mr. Pappas hold proprietary information confidential.
Pappas conflates the law with respect to noncompetition agreements and agreements to hold proprietary information confidential: "[t]o determine the enforceability of such a nondisclosure agreement, courts should use the same three-pronged test used to evaluate the reasonableness of noncompetition covenants." (Def's Post-hearing Mem. 1, 50.) But an obligation not to disclose trade secrets is generally not considered to be limited by time under the NHUTSA. As Milgrim
While there is some (and, in your author's view, fundamentally misconceived) authority for the proposition that covenants not to disclose must also be reasonable as to duration, such view is patently unsound because the covenant simply ceases to be enforceable upon the underlying matter's becoming generally known or otherwise ceasing" to be a trade secret, and hence such restriction can never be unreasonably enforced. Given the inherently indeterminate life of trade secrets and a practical inability to enumerate specific trade secrets which may be known to the employee as a consequence of the ensuing employment, the notion that restrictions on use and disclosure must be limited as to time is both unreasonable and harsh.Milgrim § 4.02.
Milgrim notes that the better view—that restrictions on use and disclosure should not be limited as to time—is taken by the Uniform Trade Secrets Act, which has been enacted in New Hampshire as RSA chapter 350-B. RSA 350-B:2, I provides that:
Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation. (emphasis added.)A majority of courts also take this view. See, e.g., Milliken & Co v. Morin, 731 S.E.2d 288, 293 n.5 (S.C. 2012); Wang Labs., Inc. v. CFR Assocs., Inc., 125 F.R.D. 10, 13 (D. Mass. 1989). Indeed, even courts which, unlike New Hampshire, refuse to modify overbroad noncompetition agreements uphold covenants prohibiting disclosure of trade secrets because "a covenant not to disclose trade secrets is significantly different from a covenant not to compete. The former is consistent with public policy, whereas the latter is not." Hi-Line Elec. Co. v. DowCo Elec. Prods., 765 F.2d 1359, 1363 n. 5 (5th Cir. 1985) (applying Texas law); see also Johns-Manville Corp. v. Guardian Indus. Corp., 586 F. Supp. 1034, 1074 (E.D. Mich. 1983) (applying Michigan law). There is a strong public policy against restricting a person's ability to obtain employment, but there is no public policy which encourages the theft of intellectual property.
Thus, Vention may maintain its claim for equitable relief based on the contract between the parties as well as the NHUTSA.
C. Vention's Breach of Fiduciary Duty and Interference with Advantageous Contractual Relations Claims
The NHUTSA, RSA chapter 350-B, and specifically RSA 350-B:7, "displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret." The preemption provision does not affect contractual remedies, whether or not based upon misappropriation of a trade secret, other civil remedies not: based on misappropriation of a trade secret, or criminal remedies.
The New Hampshire Supreme Court has emphasized that the UTSA was established "to create a uniform business environment that created more certain standards for protection of commercially valuable information." Mortg. Specialists, Inc. v. Davey, 153 N.H. 764, 775-76 (2006) (quotation omitted). The preemption provision works "to preserve a single tort action under state law for misappropriation of a trade secret as defined in the statute and thus to eliminate other tort causes of action founded on allegations of misappropriation of information that may not meet the statutory standard for a trade secret." Id. at 776 (quotation omitted). The Supreme Court has stressed a construction of the preemption provision that "effectuates the purpose of making uniform the law among states that have adopted the UTSA." Id. at 777. Thus, the provision is interpreted to preempt "claims that are based upon the unauthorized use of information, regardless of whether that information meets the statutory definition of a trade secret." Id. Save for the exceptions provided in RSA 350-B:7, II, "information is classified only as either a protected 'trade secret' or unprotected 'general knowledge.'" Id. (quotation omitted). Ultimately, then, a court need not make a "determination of whether the information at issue constituted a trade secret under the NHUTSA prior to determining whether . . . [the] common law claims [are] preempted." Id.
In order to determine whether the UTSA preempts a particular claim, the Court must consider "whether the claim 'conflicts' with the NHUTSA," Id. at 778. To determine what is in conflict, the Court must "examine[] the facts underlying the claim" and not just "the label attached to the claim." Id. at 778; see also Onesky Litigation Trust v. Sullivan, No. 10-cv-344-LM, 2012 WL 124739, at *6 (D.N.H. Jan. 17, 2012). A "claim is preempted when it is based solely on, or to the extent [that it is] based on, the allegations or the factual showings of unauthorized use of . . . information or misappropriation of a trade secret." Mortg. Specialists, Inc., 153 N.H. at 778 (citations and quotations omitted); see also Stonyfield Farms, Inc. v. Agro-Farma, Inc., No. 08-CV-488-JL, 2009 WL 3255218, at *9 (D.N.H. Oct. 7, 2009). On the other hand, a "claim is not preempted where the elements of the claim require some allegation or factual showing in addition to that which forms the basis for a claim of misappropriation of a trade secret." Mortg. Specialists, Inc., 153 N.H. at 779.
The New Hampshire rale is called the ''same elements test." It is more liberal than the "same proof" test, which provides that claims are preempted under the UTSA if the claim "rises or falls based on whether the defendant is found to have "misappropriated" a "trade secret" as those two terms are defined in the UTSA." BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 235 P.3d 310, 315 (2010).
Vention points to no element of its claim for breach of fiduciary duty that differs from its claim for breach of NHUTSA. Accordingly, it is not entitled to relief on that claim.
Similarly, Vention points to no facts other than those alleged to assert its claim under NHUTSA in its intentional interference with adverse contractual relations claim, and it is therefore preempted by NHUTSA. See Wilcox Indus. Corp. v. Hansen, 870 F. Supp. 2d 296, 303-04 (D.N.H. 2010). Alternatively, Vention does not seek damages, but only injunctive relief and it produced no evidence that it was damaged as a result of any interference with its advantageous contractual relations by Pappas. Intentional interference with advantageous contractual relations is a tort, and an element of the tort is damages:
To establish liability for intentional interference with contractual relations, a plaintiff must show: (1) the plaintiff had an economic relationship with a
third party; (2) the defendant knew of this relationship; (3) the defendant intentionally and improperly interfered with this relationship; and (4) the plaintiff was damaged by such interference.Tessier v. Rockefeller, 162 N.H. 324, 337 (2011) (quotation omitted); see also Restatement (Second) of Torts § 766. The Plaintiff has not proved damages, and therefore cannot succeed on its intentional interference with advantageous contractual relations claim. III. Pappas's Counterclaims
Pappas asserts two counterclaims: (1) a violation of RSA chapter 358-A for improperly using this lawsuit to stifle competition, and for misappropriating Pappas's trade secrets through discovery and (2) business disparagement. Because the Court finds Pappas has not introduced sufficient evidence to succeed on these claims, the Defendants are not entitled to judgement on their counterclaims against Vention. IV. Vention's Remedy
Vention does not seek damages, but seeks injunctive relief. It has submitted a proposed order, which, in substance, seeks that the defendants be permanently enjoined and restrained from utilizing its confidential information.
RSA 350-B:2, I provides that:
Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.
The Uniform Trade Secrets Act, from which the NHUTSA is derived, adopts the position of authority "limiting the duration of injunctive relief to the extent of the temporal advantage over good faith competitors gained by a misappropriator." Perritt § 13:2.5, at 13-44 (citing UTSA § 2 cmt., 14 U.L.A. at 449-50). This is so, because a trade secret ceases to exist when information becomes generally known to good faith competitors, or when products become available which can be reverse engineered to reveal the trade secret:
Usually the duration of an injunction is designed to preclude defendant's wrongful activities for a period of time reasonably necessary to protect plaintiff's interests; the period of time that would be required for independent development is the most commonly employed standard.Milgram § 15.02[1][d], at 15-246—15-247.
Application of the traditional rule in this case is difficult for two reasons. First, Vention has proved that its product cannot be reverse engineered. Second, the evidence at trial has disclosed that the process of developing Vention's technology was a matter of trial and error, which occurred over a number of years. Vention cites to the record to illustrate the fact that it took many years to develop its processes, by process of trial and error; from three years for its [Redacted] technology through 17 years for [Redacted] function. (Pl.'s Post-hearing Mem. 1, 45.) Dr. Rauwendaal expressed doubt that a company undertaking to develop this technology would be successful, but opined that if successful, the project would take at least [Redacted] years and involve many people and many resources. (Tr. Vol. 3, 563:11-564:17.) The difficulty in providing a time frame for development is illustrated by the fact that Vention has proved that its process has not been duplicated by any competitor, since Vention has the sole product on the market with the characteristics it advertises.
The Court does not credit the testimony of Pappas's expert, Mr. [Redacted] that Vention's products could be developed in a year. [Redacted] was asked by Pappas to project the timeline for a concept on how to make [Redacted] In the first place, as pointed out in Plaintiff's post-hearing memorandum, he was incrementally provided instructions that were intended to guide him to the end result desired by the Defendants. For example, they instructed him only to consider Nylon 12 as opposed to any other resin, and that he only had to project the timeline to achieve the tube dimensions, and nothing more. (Pl.'s Post-hearing Mem. 1, 35-36.) Critically, [Redacted] testified that when he proposed utilizing the [Redacted] he was aware of from having [Redacted] he did not consider what [Redacted] had to be achieved in the [Redacted] (Tr. Vol. 8, 1293:19-1294:15, June 24, 2016.) Yet he admitted that [Redacted] of the HST would be an important parameter to establish before a viable HST could be announced to the market. (Tr. Vol. 8, 2295:13-2296:4.) Therefore, his estimates of how long it would take to develop the product independent of Vention's trade secret are inherently speculative.
[Redacted] holds a bachelor's degree in plastics engineering and an MBA; he holds no patents, has written no articles and admitted that he did not consider himself an expert in [Redacted] (Tr. Vol. 8, 2284:12-2285:4.)
Courts are willing to impose perpetual injunctions when needed to accomplish an equitable result. See generally E.I. DuPont de Nemours & Co. v. Kolon Indus., Inc., 894 F. Supp. 2d 691, 719-21 (E.D. Va. 2012) (where after years of unsuccessfully trying to make a product to compete with Kevlar, defendant hired former DuPont employees and enticed them to disclose DuPont's trade secrets, an injunction against further use was proper, even though it meant defendant could not manufacture its product, thus causing hardship, since the harm was inflicted). Permanent injunctions have been awarded in cases in which the product is unique and other competitors have not been able to manufacture it. Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 407 N.E.2d 319, 326 (Mass, 1980). Illustrative is Wyeth v. Nat. Biologics, Inc., No. Civ. 98-2469(NJE/JGL, 2003 WL 22282371, at *27 (D. Minn. Oct. 2, 2003), aff'd, 395 F.3d 897 (8th Cir. 2005), in which the court stated:
Normally, the duration of an injunction is designed to preclude defendants' wrongful activities for a period of time reasonably necessary to protect plaintiff's interest; the period of time that would be required for independent development of the protected information is the prevailing standard, In its decades-long history, nobody has legitimately replicated the Brandon Process despite its value. The Court therefore concludes that a permanent injunction is appropriate. (internal citation and quotations omitted.)
A perpetual injunction is particularly appropriate in this case. Vention has proved that its product is unique, and that no other competitors are able to manufacture HST with the characteristics of its product. It has also proved that its product cannot be reverse engineered. The Court considers a perpetual injunction equitable in the circumstances of this case. Milgram notes that:
In all events, the potential "punitive" effect of a perpetual permanent injunction is mitigated by two factors. First, once the subject trade secret becomes publicly available, defendant may apply to have the injunction terminated. Second, a perpetual permanent injunction does not inherently bar a defendant from independently developing the information it needs to compete with the trade secret owner.Milgram § 15.02[1][e], at 15-259-15-260; see also Halliburton Energy Servs., Inc. v. Axis Techs., LLC, 444 S.W.3d 251, 259-60 (Tex. Ct. App. 2014).
The critical issue in this case is, of course, what the injunction should involve. Vention has argued that the trade secret in this case is not a product, but a process. Indeed, the Court accepts that argument, and finds no relevance to any distinction between Nylon 12 and the other raw materials from which Vention's process can make HST. Nonetheless, the difficulty in framing the precise parameters of an injunction can be daunting. Milgram has stated that "in the trade secret context, thoughtful courts will regard it as 'eminently sensible' to enforce an injunctive decree which refers to an attachment, under seal, in which the trade secret aspects and other specifics of the enjoined conduct were set out," despite the provisions of Fed. R. Civ. P. 65(d), which require an injunctive decree be specific and not incorporate by reference another document. Milgram § 15-02[1][g], at 15-264.3-.4.
The Employee Invention Assignment and Confidentiality Agreement signed by Pappas requires him to "keep and hold all [] Proprietary Information in strict confidence and trust and . . . not use or disclose any [] Proprietary Information without the prior written consent of the Company, except as may be necessary to perform [his] duties as an employee of the Company." (Pl.'s Ex. 6, ¶ 5.) As a result of the Order in this case, Pappas is bound by this agreement, but the critical question is the definition of "proprietary information." It seems that the interests of both parties in quantifying and clarifying prohibited conduct can be best served by providing a bright line: that Defendants are enjoined from utilizing Vention's trade secrets to manufacture the specified products at issue in this case; if they are able to produce such products without the use of Vention's trade secrets, then they may petition to modify this injunction. See Halliburton Energy Servs., 444 S.W.3d at 259-60.
Accordingly, the Court orders that:
1. The Defendants are hereby permanently enjoined and restrained from directly or indirectly disclosing or utilizing in any way any confidential or proprietary information, trade secrets, designs, inventions, intellectual property, and moral rights or processes of the Plaintiff.
Vention submitted a proposed order seeking Defendants be enjoined from design manufacture and consulting on certain [Redacted] (Proposed Order ¶¶ 5-6.) The issue of whether or not the [Redacted] products upon which Vention seeks relief are proprietary in nature was not at issue in the case, and the Court declines to issue a specific order. However, in doing so the Court does not find that no proprietary rights exist in this technology, but only that Vention has not established that it has been or is likely to be infringed; it is therefore not entitled to an injunction from this Court at this time. --------
2. The Defendants are hereby permanently enjoined and restrained from directly or indirectly designing, manufacturing, producing, selling, or consulting on polyester heat shrink tubing with a wall thickness of [Redacted]
3. The Defendants are hereby enjoined and restrained for ten years from directly or indirectly designing, manufacturing, producing, selling, or consulting on heat shrink tubing made with materials other than polyester with a wall thickness [Redacted] ;
4. The Defendants are hereby permanently enjoined from directly or indirectly designing, manufacturing, producing, selling, or consulting on a [Redacted] system substantially similar to the [Redacted] system employed by the Plaintiff currently reflected in the Plaintiff's trial Exhibit 330;
5. The Defendants are ordered to destroy all their equipment, designs, and testing within 30 days of this Court's order and provide certification of such destruction. To the extent the records are retained because of this lawsuit or any other legal reason, such records shall be maintained by defense counsel and notice to the Plaintiff of any such retention shall be provided; and
6. The parties shall comply with the requirements for return and destruction of materials as provided for in the Protective Order in this matter.
Vention has also sought an award of attorney's fees. Under RSA 350-B:4 the Court may award attorney's fees to the prevailing party when willful and malicious appropriation exists.
The traditional rule in New Hampshire is that attorney's fees will be awarded if "litigation is instituted or unnecessarily prolonged through a party's oppressive, vexatious, arbitrary, capricious, or bad-faith conduct," or if "a party must litigate against an opponent whose position is patently unreasonable." LaMontagne Builders, Inc. v. Brooks, 154 N.H. 252, 259 (2006). A trial court has the authority to award attorney's fees in a case in which the action is "commenced, prolonged, required or defended without any reasonable basis in the facts provable by evidence, or any reasonable claim in the law as it is, or as it might arguably be held to be." Keenan v. Fearon, 130 N.H. 494, 502 (1988).
It is true, as Vention has proved that Pappas engaged in intentional misappropriation of Vention's intellectual property. For example, there can be no doubt that he willfully and intentionally copied the [Redacted] that Vention created and which was a linchpin to its HST process. On the other hand, Pappas acted reasonably in consulting with counsel before proceeding and, whether due to his insufficient disclosure to her or due to her misunderstanding of the technology, she advised him that he was able to proceed producing nylon HST. Moreover, Vention appears to have suffered no significant financial harm from the misappropriation, likely because it was aggressive in protecting its rights. While this case is a close one, the Court declines to exercise its discretion to award attorney's fees against the Defendants.
Finally, the Court recognizes the majority of this Order is under seal. However, recognizing the public's right to access Court documents, the Court orders the parties to meet and confer and provide a redacted copy of this Order to the Court within 20 days of the Clerk's notice of this Order.
SO ORDERED.
9/7/16
DATE
/s/_________
Richard B. McNamara,
Presiding Justice