Opinion
5:03-CV-165 (HGM/GLS)
April 24, 2003
For Plaintiff: HOGAN HARTSON, LLP, LYNDON M. TRETTER, ESQ., New York, New York. MENTER, RUDIN, TRIVELPIECE, P.C., MITCHELL J. KATZ, ESQ., Syracuse, New York.
For Defendant: BOND, SCHOENECK, KING, PLLC, THOMAS D. KELEHER, ESQ., LOUIS ORBACH, ESQ., Syracuse, New York. JOSEPH J. HEATH, ESQ., Syracuse, New York.
MEMORANDUM — DECISION AND ORDER
The parties, having commenced expedited discovery on March 21, 2003, have reached an impasse regarding certain discovery issues and request the court's intervention to clarify and/or resolve these discovery disputes. Plaintiff maintains that defendant has failed to meaningfully respond to two of its interrogatories while defendant maintains that plaintiff has failed to properly identify the trade secret at issue in this case. In addition, the parties disagree as to whether defendant's co-counsel, Joseph Heath, as defendant's Corporate Secretary and member of its Board of Directors, should have access to plaintiff's documents and information that plaintiff's counsel have designated as: "Confidential/Attorneys' Eyes Only." The court addresses these issues seriatim.
BACKGROUND
On February 7, 2003, plaintiff, Norbrook Laboratories Limited ("Norbrook") filed a complaint against defendant, G.C. Hanford Manufacturing Company, doing business as Hanford Pharmaceuticals ("Hanford"). Norbrook is a corporation organized under the laws of Northern Ireland, with its principal place of business located at Station Works, Newry BT35 6JP, County Down, Northern Ireland. Established in 1969, Norbrook researches, develops, markets, and distributes its own line of veterinary pharmaceuticals to over 110 countries, including the United States. See Dkt. No. 1, Compl. at ¶¶ 1 and 2. Hanford is a corporation organized under the laws of the State of New York, with its principal place of business located at 304 Oneida Street, Syracuse, New York 13216. Established in 1846, Hanford is a pharmaceutical contract manufacturer specializing in injectable cephalosporins, penicillins and penicillin derivatives, including penicillin suspensions for veterinary use. See Dkt. No. 1, Compl. at ¶ 3 and http://www.gchanford.com/index1.html. The parties directly compete in the United States market for injectable veterinary penicillin products See id. at ¶ 4.
In its complaint, Norbrook alleges that Hanford misappropriated its trade secrets and confidential information, specifically the Norbrook Process, to gain an unfair and unearned competitive advantage over it and ultimately to eliminate Norbrook as a competitor in the United States. In addition, Norbrook alleges claims for tortious interference with contract, aiding and abetting breach of fiduciary duty, and unjust enrichment. See Dkt. No. 1, Compl. at ¶¶ 37-67. Norbrook has also recently moved for a preliminary injunction pursuant to Federal Rule of Civil Procedure 65 enjoining Hanford from, inter alia, manufacturing, marketing, selling, advertising for sale or in any other way dealing in injectable antibiotics comprising the suspension of penicillin G procaine ("PGP") where the product is manufactured using any part of Norbrook's Process or confidential information. See Dkt. No. 36, Mot. for Prelim. Inj.
The process at issue involves a suspension of PGP in a liquid solution. PGP is used in veterinary applications most commonly with livestock and farm animals. PGP does not occur naturally. The United States Food and Drug Administration ("FDA") has approved only two methods by which to manufacture PGP. The conventional method entails combining water and excipients, such as buffering agents and preservatives with a costly sterile dry powder form of PGP, most often purchased by the manufacturer from a third party. Hanford has relied upon the conventional method in its production of PGP. The Norbrook Process differs from the conventional method in that it does not utilize the dry powder form of PGP; rather, it directly converts relatively inexpensive penicillin G potassium and procaine hydrochloride without ever having to dry the PGP. See Dkt. No. 1, Compl. at ¶¶ 8-17. The Norbrook Process was developed, refined, and made production-ready by former Norbrook employee Phillip Quinn. See Pl.'s Letter of April 10, 2003, to the Ct. Recently, Hanford consulted with Quinn and has since sought the FDA's approval to amend its PGP production process. See Dkt. No. 1, Compl. at (E.D.N.Y. 2002) ¶¶ 25 and 34. The speculation surrounding Hanford's proposed amendment has given rise to the instant litigation.
DISCUSSION
I. Norbrook's Disputed Interrogatories to Hanford
A. Interrogatory Number 8
In Interrogatory Number 8, Norbrook asked that "[i]f Hanford has obtained advice of counsel, whether oral or written, concerning the hiring, consulting or otherwise discussing pharmaceutical manufacturing processes (including but not limited to the Norbrook Process) with any Norbrook Employee, state from whom, about whom and when this advice was provided and in what form." Pl.'s First Set of Interrogs. Hanford refused to respond to the interrogatory objecting that it sought information protected from disclosure by privilege. See Def.'s Resp. to Pl.'s First Set of Interrogs. Norbrook's counsel attempted to clarify the interrogatory by explaining that it did not seek the disclosure of any actual advice provided, but merely whether Hanford sought legal advice and from whom. Hanford's counsel then dismissed the interrogatory as irrelevant. See Pl.'s Letter of April 10, 2003, to the Ct. The court, however, finds as relevant the question of whether Hanford sought legal advice in its hiring of Quinn, for it bears upon Hanford's defense that it was not aware that Quinn was bound by prior confidentiality agreements that he signed with Norbrook, agreements which prohibit the disclosure of the Norbrook process. Therefore, the court orders Hanford to respond to Norbrook's Interrogatory Number 8.
B. Interrogatory Number 19
Interrogatory Number 19 states: "[d]oes Hanford contend that no Norbrook Employee ever gave it any information that went into or was used in connection with Hanford's Amended Process. If Hanford's answer is `no,' state who gave Hanford such information and describe in reasonable detail the information that the Norbrook Employee provided." Pl.'s First Set of Interrogs. Hanford objected to the interrogatory as vague, ambiguous and irrelevant but responded, without having waived its objections, that "[n]o Norbrook Employee gave Hanford any proprietary information." (emphasis added). Norbrook was not satisfied with Hanford's qualified response and reminded Hanford's counsel that the interrogatory was addressed not merely to "proprietary" information, but rather to any information that Quinn had given Hanford regarding the manufacturing process at issue. See Pl.'s Letter of April 10, 2003, to the Ct. Norbrook's counsel is correct in arguing that Hanford cannot refashion Norbrook's interrogatory such that it requires only a limited and qualified answer. The court orders Hanford to provide Norbrook with any information that Norbrook employees (as defined in the Interrogatories) gave Hanford regarding its amended PGP production process.
II. Hanford's Disputed Interrogatory to Norbrook-Interrogatory Number 2
In its second Interrogatory, Hanford requested that Norbrook identify, by number, each step of Hanford's manufacturing instructions (H000585-H000602) reflecting Hanford's alleged misappropriation of one or more of its trade secrets. For each identified step, Hanford requested that Norbrook describe the trade secrets at issue and identify the earliest document that evidences Norbrook's possession of each such trade secret. See Def.'s First Set of Interrogs. Without waiving its general and specific objections, Norbrook's response, which Hanford characterizes as evasive and unsatisfactory, is as follows:
Norbrook believes that the Hanford process for manufacturing PGP injection, reflected in the manufacturing instruction pages to which this interrogatory is directed, is based, at least in part, on the misappropriated, confidential and trade secret Norbrook manufacturing process, including the use of the specified rates, timing, equipment, temperature, mixing/agitation, micronizing/milling and addition of excipients during the process set forth in steps 2-25 (inclusive) on pages H00585 — H00602. Norbrook's use of these trade secrets are reflected in, among other documents previously produced and produced in response to Hanford's document requests, the PCRs [production control records] attached to the Supplemental Affidavit of William Toner, Norbrook's formulations documents (including those prepared by Quinn), and updated NADA 65-010 (including attached PCRs and formulations testing).
See Def.'s Letter of April 9, 2003, to the Ct. In response to Norbrook's answer, Hanford notes that "[t]ime, temperature, rate, etc. are factors in every chemical reaction," that "milling is a common activity in pharmaceutical manufacturing," and that "excipients are found in all pharmaceutical preparations." Id. Hanford protests that "Norbrook has done nothing to specify with particularity what trade secrets it claims" were misappropriated. See Def.'s Letter of April 9, 2003, to the Ct.
Norbrook claims that its process, as a whole, rather than any particular individual step within the process, is "the" trade secret: "[the trade secret] is the process by which the chemicals are combined — under controlled conditions of relative amounts, sequence, time, rate, and temperature at each stage — and the know-how required to move from lab scale theory to commercial scale production that are the trade secrets." See Dkt. 16, Pl.'s Reply Mem. of Law. Norbrook readily admits that the various factors (ingredients, time, temperature, milling technique etc.) at work in producing a PGP suspension are interdependent, such that changing one factor will require readjustment of the other factors to maintain an acceptable suspension of PGP. Therefore, Norbrook concedes that more than one combination of the factors will produce an acceptable suspension of PGP. Norbrook asserts that Hanford's manufacturing process, when viewed as a whole, is but another iteration or readjustment of the Norbrook process. See Pl.'s Letter of April 10, 2003, to the Ct.
Under New York law, to succeed on a claim for the misappropriation of trade secrets, a plaintiff must demonstrate: (1) that it possessed a trade secret, and (2) that the defendant used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means. N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 43-44 (2d Cir. 1999) (citing Hudson Hotels Corp. v. Choice Hotels Int'l, 995 F.2d 1173, 1176 (2d Cir. 1993) (abrogated on other grounds)). "[A] trade secret is `any formula, pattern, device or compilation of information which is used in one's business, and which gives [the owner] an opportunity to obtain an advantage over competitors who do not know or use it.'" Softel, Inc. v. Dragon Med. Scientific Communications, Inc., 118 F.2d 955, 968 (2d Cir. 1997) (quoting RESTATEMENT OF TORTS § 757 cmt. b (1939)). A trade secret "is not simply information as to single or ephemeral events in the conduct of the business"; rather, it "is a process or device for continuous use in the operation of the business." Id. (quoting Ashland Mgmt. Inc. v. Janien, 82 N.Y.2d 395, 407, 624 N.E.2d 1007, 1013, 604 N.Y.S.2d 912, 918 (1993)) (emphasis added). Under New York law, "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." Integrated Cash Mgmt. Serv., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 174 (2d Cir. 1990). Similarly, as the Seventh Circuit has explained, "in order to be considered a trade secret, a . . . process need not reach the level of invention necessary to warrant patent protection. 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." Minnesota Mining Mfg. Co. v. Pribyl, 259 F.3d 587, 595-96 (7th Cir. 2001). As such, 3M did not need to identify specific items within its 500 pages of materials to claim a trade secret. Id. at 595; cf. Harbor Software, Inc. v. Applied Systems, Inc., 887 F. Supp. 86, 90 (S.D.N.Y. 1995) (explaining that the overall design of a software program may be protectable as a trade secret, even if the individual components of that program are common knowledge in the programming industry); Integrated Cash Mgmt. Serv., Inc. v. Digital Transactions, Inc., 732 F. Supp. 370, 376 (S.D.N.Y. 1989) (explaining that while general concepts are not afforded trade secret protection, the specific implementation involving a particular combination of general concepts may well amount to a trade secret).
New York courts have considered the following factors in determining whether a trade secret exists: (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; and, (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. See Hudson Hotels, 995 F.2d at 1176 n. 1.
At minimum, "a defendant is entitled to know the bases for plaintiff's charges against it. The burden is upon the plaintiff to specify those charges, not upon the defendant to guess at what they are." Xerox Corp. v. Int'l. Bus. Mach Corp., 64 F.R.D. 367, 371 (S.D.N.Y. 1974). A plaintiff must identify in detail the trade secrets and confidential information allegedly misappropriated by a defendant. See Id. at 371. The court finds Norbrook's response has met this standard and orders discovery to proceed without further delay in this regard.
III. Confidential/Attorney's Eyes Only
Norbrook seeks to deny co-counsel for Hanford, Joseph Heath, access to Norbrook materials labeled "Confidential/Attorney's Eyes Only." Mr. Heath serves as Hanford's Corporate Secretary and as a member of Hanford's Board of Directors but not as its "in-house counsel." See Mr. Heath's Letter of April 8, 2003, to the Ct. Hanford separately retained Mr. Heath as outside counsel to work on this litigation, not as part of his duties as secretary and board member, but rather in addition to those duties. Mr. Heath asserts that his duties at Hanford are limited in time and scope, for he attends one monthly meeting of the Board of Directors in which he prepares the Board minutes. See id. Norbrook characterizes Mr. Heath's relationship to Hanford as that of an "insider" and argues that he cannot be made privy to Norbrook's trade secret documents. See Pl.'s Letter of March 28, 2003, to Ct.
The court turns to U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984), the leading authority on protective orders distinguishing between outside and in-house counsel. See also Matsushita Elec. Indus. Co. v. United States, 929 F.2d 1577, 1579 (Fed. Cir. 1991) (applying U.S. Steel analysis). In U.S. Steel Corp., the Federal Circuit cautioned against arbitrary distinctions based on type of counsel employed, noting that in practice the risk of inadvertent disclosure of trade secrets obtains equally for both kinds of counsel. U.S. Steel Corp., 730 F.2d at 1468 ("Thus the factual circumstances surrounding each individual counsel's activities, association, and relationship with a party, whether counsel be in-house or retained, must govern any concern for inadvertent or accidental disclosure."). The Federal Circuit concluded that, to evaluate the risk of inadvertent disclosure, a court should examine the factual circumstances of any counsel's relationship to the party demanding access. See id. ("Whether an unacceptable opportunity for inadvertent disclosure exists, however, must be determined, as above indicated, by the facts on a counsel-by-counsel basis, and cannot be determined solely by giving controlling weight to the classification of counsel as in-house rather than retained.") (emphasis added). The Federal Circuit recognized the phrase "competitive decisionmaking" as a substantial factor in determining whether counsel should be denied access and noted that the phrase appeared "serviceable as shorthand for a counsel's activities, association, and relationship with a client that are such as to involve counsel's advice and participation in any or all of the client's decisions (pricing, product design, etc.) made in light of similar or corresponding information about a competitor." Id. at 1468 n. 3.
For purposes of this decision, whether Mr. Heath is Hanford's in-house counsel is of no consequence. The court finds that Mr. Heath's positions, both as Hanford's Corporate Secretary and as a member of Hanford's Board of Directors, create a serious risk of the inadvertent disclosure of confidential documents and information. While Mr. Heath may not directly participate in competitive decisionmaking — product design, marketing strategy, scientific research, etc. — as a member of the Board of Directors, he sits in the same room as those who are involved in competitive decisionmaking. As such, Hanford's board meetings present an unacceptable opportunity for the inadvertent disclosure of confidential information. While the court does not doubt Mr. Heath's assurances that he will abide by the protective order, it cannot endorse a situation that places Mr. Heath's ethical obligations as an attorney in direct competition with his fiduciary duty to Hanford. Cf. FTC v. Exxon Corp. 636 F.2d 1336, 1350 (D.C. Cir. 1980) ("It is very difficult for the human mind to compartmentalize and selectively suppress information once learned, no matter how well-intentioned the effort may be to do so."). As such, the court denies Mr. Heath access to Norbrook materials marked: "Confidential/Attorney's Eyes Only" under the terms of the Stipulated Protective Order.
The court notes that Hanford is not unduly prejudiced by Mr. Heath's restricted access, because other outside counsel have been involved in the litigation from its outset, and they are fully familiar with the facts and disputes at issue. See A. Hirsh Inc. v. United States, 657 F. Supp. 1297, 1305 (CIT 1987) ("[I]n view of retained counsel's competence, it is not clear how plaintiff's position will be prejudiced by excluding Mr. Hirsh from access to the nonpublic part of the agency record."). Thus, this case is distinguishable form U.S. Steel Corp. where the exclusion of counsel would have forced the party to retain new counsel. See U.S. Steel Corp., 730 F.2d at 1468.
CONCLUSION
WHEREFORE, for the foregoing reasons, it is hereby
ORDERED, that Hanford respond to Norbrook's Interrogatory Number 8 in a manner consistent with this Memorandum — Decision and Order; it is further
ORDERED, that Hanford respond to Norbrook's Interrogatory Number 19 in a manner consistent with this Memorandum — Decision and Order; it is further
ORDERED, that, the court having found Norbrook's answer to Hanford's Second Interrogatory satisfactory, discovery is proceed without further delay in this regard; it is further
ORDERED, that Mr. Heath is denied access to Norbrook materials marked: "Confidential/Attorney's Eyes Only" under the terms of the Stipulated Protective Order. It is further
ORDERED, that the Clerk of the Court serve a copy of this Memorandum — Decision and Order upon the parties by regular mail.
IT IS SO ORDERED.