Lightlab Imaging, Inc. v. Axsun Techs., Inc.
| Decision Date | 28 July 2014 |
| Docket Number | SJC–11374. |
| Citation | 13 N.E.3d 604,469 Mass. 181 |
| Parties | LIGHTLAB IMAGING, INC. v. AXSUN TECHNOLOGIES, INC., & another. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Kenneth R. Berman (Cynthia M. Guizzetti with him), Boston, for the plaintiff.
William F. Lee (Felicia H. Ellsworth & Laurence A. Schoen with him), Boston, for the defendants.
Present: IRELAND, C.J., SPINA, CORDY, BOTSFORD, GANTS, DUFFLY, & LENK, JJ.
SPINA
, J.
The plaintiff, LightLab Imaging, Inc. (LightLab), prevailed in much of the litigation below, which involved claims of breach of contract and the covenant of good faith and fair dealing, tortious interference with contractual and advantageous business relations, misappropriation of trade secrets and confidential information, unjust enrichment, and violations of G.L. c. 93A. LightLab appeals from three aspects of the judgment pertaining to relief. First, the judge excluded opinion testimony from LightLab's expert economist on the question of future lost profits for twenty years beyond the term of the parties' contract based on yet-to-be conceived future products. Second, the judge denied permanent injunctive relief that LightLab sought for protection against future misappropriation of its trade secrets where, although LightLab had established past misappropriation, it offered no proof of a likely reoccurrence. Third, the judge who entered the amended final judgment declined to include in that judgment a declaration of LightLab's contract rights that mirrored the language of the order for summary judgment concerning contract interpretation. We affirm, but order the inclusion of the declaration sought by LightLab.
1. Background. The trial of this action was conducted in multiple phases. We summarize the various phases.
a. Liability phase. The liability claims, except for the G.L. c. 93A claim and certain of the trade secret claims, were tried to a jury. The jury could have found the following facts at the liability phase. LightLab has manufactured and sold optical coherence tomography
(OCT) systems since 2001, and until recently it was the only company to do so. OCT technology is used to image human coronary arteries for diagnosis and treatment. OCT systems are based on computer analysis of images produced by reflections generated by specialized lasers.
Volcano Corporation (Volcano) is a competitor of LightLab, but it relies on an imaging system based on intra vascular ultrasound (IVUS) technology. IVUS systems have dominated the market because of limitations in OCT laser technology, notwithstanding the poorer image quality of ultrasound systems. The limitations in early OCT laser systems were due to the occlusion
of blood vessels
during imaging, which presented certain risks to patients.
Axsun Technologies, Inc. (Axsun), is a leading manufacturer of industrial lasers. In early 2007, LightLab and Axsun entered into a joint development relationship to develop a tunable laser that would overcome the limitations in existing OCT technology. LightLab shared with Axsun, pursuant to an October 12, 2007, confidentiality agreement, its specifications, techniques to adapt lasers for OCT use, OCT laser performance testing methods, and other confidential information about OCT technology.
By April, 2008, they had developed the Version 5 laser, giving rise to a second confidentiality agreement, dated April 29, 2008. The second agreement gave LightLab exclusive rights (conditioned on LightLab's fulfillment of its minimum purchase volume obligation) to Axsun's OCT lasers together with a specific ban on sales of all lasers to Volcano, for six years until April 29, 2014, with nonexclusive supply rights thereafter. By December, 2008, the Version 6 laser was developed. On December 24, representatives of Axsun and LightLab orally agreed that the April 29 agreement would be modified in writing by substituting the Version 6 laser for the Version 5 laser. These developments were technological breakthroughs that overcame the earlier limitations in OCT technology and gave LightLab a valuable competitive edge in the field of imaging human coronary arteries.
In the meantime, Volcano perceived OCT technology as a significant threat to its IVUS business. It was trying to develop an OCT system but lacked an adequate laser. In mid–2008, after the Version 5 laser was developed, Axsun sought to be acquired. Having learned from LightLab of Volcano's desire to develop an OCT system, Axsun secretly offered itself for sale to Volcano in August, 2008. Volcano recognized this as an opportunity to “leap-frog” LightLab. It developed a plan to “stall” LightLab.
During negotiations with Axsun, Volcano insisted on examining LightLab's laser specifications. Axsun initially resisted, citing its confidentiality agreements with LightLab, but relented after Volcano agreed to indemnify Axsun against liability to LightLab. Following due diligence, Axsun divulged LightLab's specifications for the Version 5 and Version 6 lasers to Volcano, and provided Volcano with a tunable laser prototype called “Alpha 6.” Volcano's head of OCT development viewed the specifications and tested the Alpha 6 laser.
LightLab first learned of Axsun's involvement with Volcano on December 23, 2008, when Volcano publicly announced its acquisition of Axsun. Volcano stated in its announcement that it could leverage Axsun's advanced tunable laser technology know-how to accelerate its OCT product development and gain a competitive advantage in the field of invasive imaging. Volcano intended to use the same Axsun engineers who worked with LightLab to develop a tunable laser for its OCT systems. Shortly after making its public announcement Volcano threatened to terminate LightLab's laser supply. After Axsun agreed orally with LightLab on December 24 to modify their April 29, 2008, agreement to cover sales of Version 6 lasers, Volcano directed Axsun not to communicate with LightLab. Axsun thereafter refused to discuss with LightLab further joint development or tell LightLab how it would protect LightLab's confidential information.
LightLab filed the instant action on January 7, 2009. On January 8, Volcano instructed Axsun to download its technology and make recommendations on OCT laser specifications to Volcano. LightLab obtained a preliminary injunction on January 8, that prevented Axsun from doing so. Volcano employees gained access to a university research laboratory and, unbeknownst to LightLab, downloaded data from a LightLab OCT system that was being used in a clinical trial. Volcano also moved its OCT development staff to Axsun's facility and appointed Axsun's chief laser engineer, who had worked closely with LightLab, to oversee Volcano's laser development program. Volcano induced Axsun to supply Version 5 lasers to LightLab during 2009, rather than Version 6 lasers.
In response to special questions the jury found that:
a. the Alpha 6 laser, and the Version 5 and Version 6 laser specifications, were LightLab trade secrets that Axsun and Volcano had misappropriated and used;
b. Axsun committed a breach of the confidentiality clause in its contract with LightLab by giving the Alpha 6 laser and the Version 5 and Version 6 laser specifications to Volcano;
c. Axsun committed a breach of the exclusivity provision of its contract with LightLab by giving the Alpha 6 laser to Volcano;
d. Volcano tortiously interfered with LightLab's contract with Axsun;
e. Volcano tortiously interfered with LightLab's advantageous business relationship with Axsun;
f. the April 29, 2008, contract between LightLab and Axsun, as orally modified on December 24, 2008, required Axsun to deliver Version 6 lasers rather than Version 5 lasers to LightLab;
g. Volcano was unjustly enriched by LightLab's trade secret information;
h. Axsun committed a breach of the implied covenant of good faith and fair dealing it owed to LightLab.
b. Damages phase. After the jury returned its verdict on February 4, 2010, in favor of LightLab on issues of liability, the damages phase of the trial was scheduled to begin on April 7, 2010. The judge conducted a three-day voir dire of Roy Weinstein, LightLab's designated expert on the issue of lost profits damages. After the hearing, she excluded Weinstein's opinion of lost profits beyond April 28, 2014 (the expiration date of the April 29, 2008, agreement between LightLab and Axsun), as well as Weinstein's opinion on LightLab's lost profits for any future generation (post Version 6) LightLab product containing an Axsun laser. She did not preclude his opinion as to other aspects of lost profits, but cautioned that a proper foundation would be required as to his use of so-called “revenue reduction percentage factors” and related matters. She also indicated that she would have to be satisfied as to the reliability of information provided by Warren Clark, III, LightLab's chief financial officer, before such information could be used as a basis for Weinstein's opinion.
The judge explained that she excluded Weinstein's opinion as to lost profits after April 28, 2014, because it was not based on a demonstrated reliable methodology capable of being validated and tested, particularly as to quantification of a “first mover” advantage. She also concluded that his opinion was too speculative and conjectural as a matter of law. She based this on (1) the absence of approval of LightLab's product by any regulators in the United States, Japan, South Korea, or China; (2) the purely speculative assumption that LightLab would be the market leader in OCT technology through 2038; (3) LightLab's lack of success in obtaining financing; (4) the absence of evidence that the defendants' conduct caused a loss of sales for LightLab anywhere in the world; and (5) LightLab's inability to identify with precision the nature of any new product for which it sought future lost profits damages. In light of this ruling, LightLab determined that it could not proceed with evidence of lost profits...
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