Life Spine, Inc. v. Aegis Spine, Inc.

• Decision Date: 09 August 2021
• Docket Number: No. 21-1649,21-1649
• Parties: LIFE SPINE, INC., Plaintiff–Appellee, v. AEGIS SPINE, INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

8 F.4th 531

LIFE SPINE, INC., Plaintiff–Appellee,

v.AEGIS SPINE, INC., Defendant–Appellant.

No. 21-1649

United States Court of Appeals, Seventh Circuit.

Argued July 21, 2021

Decided August 9, 2021

Daniel R. Lombard, Attorney, Jonathan C. Bunge, Attorney, John M. Robinson, Attorney, Quinn Emanuel Urquhart & Sullivan, LLP, Chicago, IL, for Plaintiff-Appellee.

Gregory A. Castanias, Attorney, Shehla Wynne, Ph. D., Attorney, Jones Day, Washington, DC, for Defendant-Appellant.

Before Scudder, St. Eve, and Kirsch, Circuit Judges.

St. Eve, Circuit Judge.

This trade secret case arises from a short-lived business relationship between two companies that sell spinal implant devices. Life Spine, Inc. makes and sells a spinal implant device called the ProLift Expandable Spacer System. Aegis Spine, Inc. contracted with Life Spine to distribute the ProLift to hospitals and surgeons. In the distribution agreement, Aegis promised to protect Life Spine's confidential information, act as a fiduciary for Life Spine's property, and refrain from reverse engineering the ProLift. Despite these promises, Aegis funneled information about the ProLift to its parent company, L&K Biomed, Inc., to help L&K develop a competing spinal implant device. Shortly after L&K's competing product hit the market, Life Spine sued Aegis for trade secret misappropriation and breach of the distribution agreement. Following a nine-day evidentiary hearing, the district court granted Life Spine's motion for a preliminary injunction barring Aegis and its business partners from marketing the competing product.

Aegis now appeals. It submits that the district court's injunction rests on a flawed legal conclusion—namely, that a company can have trade secret protection in a device that it publicly discloses through patents, displays, and sales. We see the issue differently, however. As a legal matter, we do not dispute—nor does Life Spine—that information in the public domain cannot be a trade secret. But the issue here is factual: Did Life Spine publicly disclose the specific information that it seeks to protect by patenting, displaying, and selling the ProLift? The district court found that the answer was no, and Aegis must show that its finding was clear error. It has not done so. Finding no basis to upset the district court's meticulous analysis, we affirm.

I. Background

A. Factual Background

Plaintiff Life Spine is an Illinois company that makes and sells surgically implanted medical devices that treat spine disorders

. Its best-selling device is the ProLift—an expandable spinal implant that treats degenerative disc disease. The ProLift consists of an implant, or "cage," and an installer. The cage has five main components, shown in the drawing below: an upper endplate, a lower endplate, a nose ramp, a base ramp, and an expansion screw. Dovetail-shaped grooves connect the different components. The installer is used to insert the cage into a patient's spine and expand it to restore spinal disc height.

ProLift cage (exploded)

Expandable cages are intricate devices with many small component parts. Precise engineering is necessary to ensure that they can withstand decades of intense spinal pressure. Life Spine spent more than three years designing and developing the ProLift. To do so, it studied publicly available information about other expandable cages, including patents, and went through an exhaustive trial-and-error process. During the trial-and-error process, Life Spine repeatedly redesigned the device, sometimes by adjusting the size of its components by fractions of a millimeter. In March 2016, the FDA approved Life Spine's application to market the ProLift. In October 2017, Life Spine obtained a patent for the ProLift. Life Spine's patent includes various drawings and figures (including the drawing above), along with descriptions of the components and their interaction.

Life Spine considers "the precise dimensions and measurements of the ProLift components and subcomponents and their interconnectivity" to be confidential trade secrets. A key fact in dispute is whether third parties can access those precise specifications without first signing confidentiality agreements. The district court found that the answer was no: Third parties can only learn such information if they have unfettered access to the device and specialized measuring equipment, and Life Spine does not allow third parties such access unless they first sign confidentiality agreements. The precise specifications of the ProLift are not available from marketing materials, which include only "rounded approximations" of the components. Nor are they available from patent materials, which disclose the components and their interaction but not their precise measurements or dimensions. Life Spine displays the ProLift at industry conventions, but it supervises anyone who handles the device. And while Life Spine sells the ProLift to hospitals and surgeons, it is not available for the public to purchase. Rather, Life Spine (through its distributors) sells the device to hospitals and surgeons, who purchase the device for use in scheduled surgeries. Moreover, Life Spine requires its distributors to oversee each ProLift device that they sell up until surgery.

Defendant Aegis is a Colorado company that sells medical devices to treat spinal conditions. Aegis does not make medical devices, but its parent company, L&K, does. Based in South Korea, L&K is the majority owner of Aegis and a direct competitor of Life Spine. Aegis and L&K have a close relationship; Aegis supplies information to L&K upon request, and several of the companies’ top managers have worked at both companies. Around April 2016, L&K and Aegis decided that, to remain competitive in the United States market, L&K should design and develop an expandable cage product.

In October 2017—while Aegis and L&K were still planning the launch of a new expandable cage product—Aegis contacted Life Spine about serving as a distributor of the ProLift. In connection with this proposal, Aegis asked Life Spine for a ProLift device, explaining that certain customers wanted to see it for demonstration purposes. Life Spine agreed, but first required Aegis to promise in writing that it would protect Life Spine's confidential information, use the confidential information only in furtherance of the parties’ business relationship, and refrain from sharing the ProLift with anyone who intended to use it for purposes of reverse engineering, copying, or otherwise competing with Life Spine. After making these promises, Aegis showed the ProLift device to a surgeon and asked the surgeon to help it and L&K develop a competing expandable cage. The surgeon agreed.

In January 2018, Life Spine and Aegis signed a formal distribution agreement. The agreement (which superseded earlier agreements) allowed Aegis to solicit sales of the ProLift from a list of surgeons, including two surgeons who had agreed to help L&K develop a competing expandable cage. In return, Aegis promised to act as a fiduciary for Life Spine's property. Aegis also promised not to copy, reverse engineer, or create derivative products based on the ProLift. The agreement contained confidentiality provisions barring Aegis from sharing Life Spine's confidential information or using it for any non-contractual purpose. It further required Aegis to train its employees on complying with these provisions and provided that the obligations would "survive the expiration" of the agreement.

In March 2018, Aegis held a kickoff meeting for L&K's forthcoming expandable cage product, the AccelFix–XT. Aegis brought a ProLift set to the meeting, and its surgeon consultants examined it. The surgeon consultants continued to help Aegis and L&K throughout the design process; they purchased and used the ProLift in surgeries and gave feedback to Aegis and L&K on the device's performance. Aegis and L&K incorporated their feedback into the design process.

In May 2018, Aegis sent L&K a ProLift cage. A month later, Aegis sent L&K a full ProLift set (cage and installer). L&K had asked to see the devices to help develop the AccelFix–XT. Aegis sent the devices to L&K without Life Spine's knowledge or consent. After receiving the installer, L&K told Aegis that it was copying the basic design of the ProLift installer. Materials from a meeting a few months later show that L&K designed the AccelFix–XT installer to be compatible with the ProLift cage.

The district court described the evidence surrounding these device shipments as "murky." L&K's head of Research and Development claimed that he never saw the cage that Aegis sent over in May 2018. As for the full ProLift set that Aegis sent over in June, he testified that he decided not to open the package because he did not want L&K to have to pay for it. He maintained that L&K returned the unopened box to Aegis, but he could not recall any details about returning it, nor was there any other evidence to verify the return. Aegis eventually told Life Spine that Aegis had received an empty box from Life Spine, without a cage in it. But Life Spine was skeptical; it had never had such a problem in the past, and a photo of the "empty box" showed that someone had affixed a second antitampering sticker over the original one. Life Spine suspected that someone had opened the box, removed the cage, and then tried to cover it up. The district court ultimately agreed, concluding that L&K's explanation to the contrary was not credible.

The distribution agreement between Life Spine and Aegis expired on August 31, 2018, but the parties chose to continue their arrangement for the time being. In September 2018, Aegis and Life Spine orally agreed that the parties would continue to operate under the terms of the distribution agreement while they negotiated a new contract. Aegis continued to submit purchase orders, and Life Spine continued to fill them.

Around the same time, Aegis asked Life Spine for a custom installer to show its customers....