Daniels Health Sciences, L.L.C. v. Vascular Health Sciences, L.L.C.

• Decision Date: 05 March 2013
• Docket Number: No. 12–20599.,12–20599.
• Citation: 710 F.3d 579
• Parties: DANIELS HEALTH SCIENCES, L.L.C., Plaintiff–Appellee v. VASCULAR HEALTH SCIENCES, L.L.C., Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

710 F.3d 579

DANIELS HEALTH SCIENCES, L.L.C., Plaintiff–Appellee

v.VASCULAR HEALTH SCIENCES, L.L.C., Defendant–Appellant.

No. 12–20599.

United States Court of Appeals,Fifth Circuit.

March 5, 2013.

Jared Gregory LeBlanc, John E. Chapoton, Jr., Leif A. Olson, Welsh & Chapoton L.L.P., Houston, TX, for Plaintiff–Appellee.

Douglas Ron Wilson, Austin, TX, Nathan James Davis, Micah John Howe, Miranda Yan Jones, Leslie V. Payne, Heim, Payne & Chorush, L.L.P., Houston, TX, for Defendant–Appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before WIENER, CLEMENT, and PRADO, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

This dispute arises from the marketing and sale of the cardiovascular health drug Arterosil. Daniels Health Sciences (“DHS”) engaged Vascular Health Sciences (“VHS”) to market and sell the drug Provasca. After that relationship ended, VHS began to manufacture, market, and sell Arterosil, a product similar in many respects to Provasca. DHS sued VHS for misappropriation of trade secrets, breach of contract, and trademark violations. The district court first granted a temporary restraining order on the grounds that DHS would likely succeed on its breach of contract and misappropriation of trade secrets claims. It later granted a preliminary injunction on the same grounds, also finding a substantial threat of irreparable injury absent an injunction, that the balance of hardships favored the plaintiff, and that the public interest would not be disserved by a grant of injunctive relief. VHS filed a motion in this court requesting a stay of the injunction, which was granted, and now appeals the grant of the preliminary injunction and its scope. We AFFIRM the preliminary injunction, lift the stay, and remand to the district court with instructions to expedite trial and to attempt to narrow its preliminary injunction.

FACTUAL AND PROCEDURAL BACKGROUND

In 2007, a dietary supplement company called Endomatrix filed for bankruptcy. One of its researchers, Dr. Daniels, purchased Endomatrix's intellectual property out of the bankruptcy estate. This property included the trademark for a dietary supplement named Provasca and the leftover inventory and raw materials for the supplement. Dr. Daniels approached his brother, David, and a marketing executive, Robert Long, in 2010 to help him secure funding for further research and marketing of Provasca. They formed two entities in 2011: DHS to research Provasca and VHS to market the supplement. Dr. Daniels compiled a distilled version of the science and research behind Provasca into a PowerPoint presentation titled “The Path to Provasca” to educate David Daniels and Long on the supplement and help them communicate its potential to investors. Dr. Daniels required that VHS receive his approval before it presented potential investors with information on the supplement, including The Path to Provasca, and also that VHS have them sign a Confidentiality and Non–Disclosure Agreement (“CNDA”) prior to the presentation. He also prohibited VHS from presenting information on the supplement to venture capital groups and others that might seek to use it independently. Moreover, according to DHS's complaint, before sharing information with VHS, “Dr. Daniels made it clear that the information he was sharing needed to be kept confidential.” If VHS principals had not agreed to those terms, “Dr. Daniels wouldn't have shared [the information] with them.”

A year after assembling The Path to Provasca, Dr. Daniels also had VHS sign a CNDA. DHS was less successful, however, in reaching a licensing agreement with VHS, and in February 2012, VHS called off the deal. Despite severing its ties with DHS, VHS continued to attempt to secure investors for a supplement. It also developed a rival product, Arterosil. Provasca and Arterosil both contain the same seaweed extract alleged to help repair and maintain blood vessel walls. But Provasca's other ingredient is L–Arginine, an amino acid, while Arterosil has a blend of fruit and vegetable extracts in addition to the seaweed extract.

DHS filed suit, asserting that VHS violated the CNDA by using confidential information to develop and market Arterosil. It also alleged misappropriation of trade secrets and trademark violations, among several other claims. It requested and obtained a temporary restraining order to prevent VHS from using DHS's confidential information to research or sell Arterosil. It then filed for a preliminary injunction. Following briefing, the district court heard two days of testimony on the merits of the injunction. Three weeks later, the court granted the injunction. The court concluded, based on its factual findings, that DHS was substantially likely to succeed on its breach of contract and trade secret misappropriation claims. It went on to determine that DHS faced a substantial threat of irreparable injury absent an injunction, which outweighed the harm that might result if the injunction was granted. Finally, it concluded that an injunction would not disserve the public interest. VHS moved to clarify the scope of the injunction, and the court denied the motion.

VHS appeals, arguing that this court should vacate the injunction because DHS did not sustain its burden of proof, and because the injunction covered activities that did not involve the use of DHS's alleged confidential information. A panel of this court granted VHS's motion to stay the preliminary injunction pending appeal and expedited the appeal.

STANDARD OF REVIEW

Reviewing a district court's grant of a preliminary injunction, this court asks “whether the issuance of the injunction, in the light of the applicable standard, constitutes an abuse of discretion.” Concerned Women for Am., Inc. v. Lafayette Cnty., 883 F.2d 32, 34 (5th Cir.1989) (citation and alterations omitted). “[F]indings of fact that support the district court's decision are examined for clear error, whereas conclusions of law are reviewed de novo.” Affiliated Prof'l Home Health Care Agency v. Shalala, 164 F.3d 282, 284–85 (5th Cir.1999).

DISCUSSION

VHS asks the court to vacate the district court's preliminary injunction. It contends that DHS did not offer proof that it met the standard for a preliminary injunction. VHS also argues that the court did not limit the injunction to use of DHS's alleged confidential information.

I. The district court's grant of the preliminary injunction

VHS first argues that the district court erred when it found that DHS carried its burden of proof for each of the four requirements for a preliminary injunction: substantial likelihood of success on the merits, substantial threat of irreparable harm absent an injunction, a balance of hardships in DHS's favor, and no disservice to the public interest. Byrum v. Landreth, 566 F.3d 442, 445 (5th Cir.2009). Because the district court found sufficient facts to support its conclusion that the four requirements were met, however, it did not abuse its discretion by granting the injunction.

A. Likelihood of success on the merits

VHS argues that the district court erred in determining that DHS was likely to succeed on its breach of contract and misappropriation of trade secrets claims. To show a likelihood of success, the plaintiff must present a prima facie case, but need not prove that he is entitled to summary judgment. See Janvey v. Alguire, 647 F.3d 585, 595–96 (5th Cir.2011). With respect to the contract claim, VHS first contends that DHS did not show damages. It is true that the court did not specifically discuss damages in the section of its opinion on the merits of DHS's contract claim. But it later expressly observed that VHS's alleged breach and misappropriation would impair Provasca's chances at FDA approval for medical use and make it difficult for DHS to secure research funding for the drug. These findings are sufficient to support the court's conclusion that DHS likely will be able to prove damages at trial.

Next, VHS argues that the district court did not identify the confidential information that VHS allegedly used in breach of its agreement with DHS. But the court found that “Dr. Daniels disclosed [in meetings with VHS] new scientific and clinical research, some of which he found in the public domain, but had compiled and distilled.” It also found that “the compilation was not public knowledge” and that Dr. Daniels “later expanded that compilation into a presentation entitled ‘The Path to Provasca.’ ” The court went on to explain:

The evidence shows that after learning the science and reviewing the compilation of research that Dr. Daniels generated and produced for fundraising, [VHS] and its operatives set out to delegitimatize Provasca and produce their own product, all without notice or [DHS's] permission. The CNDA prohibits this conduct; hence, the Court is of the view that a factfinder will concludethat [VHS] breached its agreement with [DHS].

These findings specifically identify the confidential information that VHS misused and how it misused that information in breach of the CNDA. Although, under VHS's interpretation of the CNDA, the agreement does not cover this information, the district court did not err in determining that the ultimate factfinder would likely agree with DHS that the information is covered. In particular, the district court noted that the CNDA broadly includes “all confidential or proprietary written, recorded, electronic or oral information ... (whether such confidentiality or proprietary status is indicated orally or, whether or not the specific words ‘confidential’ or ‘proprietary’ are used).”

VHS also argues that DHS did not offer sufficient evidence for the district court to conclude that DHS likely would succeed on its trade secrets claim. To establish trade secret misappropriation in Texas, a plaintiff must show “(a) the existence of a trade secret; (b) a breach of a confidential relationship or improper discovery of the trade...