Salsbury Laboratories v. Merieux Laboratories

• Citation: 735 F. Supp. 1545
• Decision Date: 23 March 1988
• Docket Number: Civ. No. 87-56-ATH.
• Parties: SALSBURY LABORATORIES, INC., Plaintiff, v. MERIEUX LABORATORIES, INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Georgia

735 F. Supp. 1545

SALSBURY LABORATORIES, INC., Plaintiff, v. MERIEUX LABORATORIES, INC., et al., Defendants.

Civ. No. 87-56-ATH.

United States District Court, M.D. Georgia, Athens Division.

March 23, 1988.

Peter D. Murray and John P. White, Cooper, Dunham, Griffin & Moran, New York City, and Gary B. Blasingame and Andrew J. Hill, III, Athens, Ga., for plaintiff Salsbury Laboratories, Inc.

Kenneth L. Millwood and Joyce B. Klemmer, Smith, Gambrell and Russell, Atlanta, Ga., for defendant Merieux Laboratories, Inc.

FITZPATRICK, District Judge.

Plaintiff Salsbury Laboratories, Inc. (Salsbury) brought this action in July of 1987 alleging misappropriation of trade secrets, breach of contract, interference with contract, and unfair competition. On August 26, 1987 the court denied Plaintiff's request for a preliminary injunction. The case was then tried before the court sitting without a jury in October of 1987. At the conclusion of the trial, Defendants moved to dismiss those counts of Plaintiff's Complaint which alleged breach of contract and interference with contract, claiming that the non-disclosure and non-use covenants in the contracts were void under the constitutional, statutory, and common law of Georgia. The court heard oral argument on Defendants' Motion on December 3, 1987. The court's findings of fact and conclusions of law as to this Motion are set forth below.¹

I. FINDINGS OF FACT

Salsbury is a leading developer and producer of veterinary products in the United States. Salsbury maintains its headquarters and primary research and development facilities in Charles City, Iowa. Defendants Donald Hildebrand and Jack Berg are former employees of Salsbury. Both of these Defendants now work for the corporate Defendant, Merieux Laboratories, Inc. (Merieux). Merieux, which maintains its corporate headquarters in Athens, Georgia, was set up as a wholly-owned subsidiary of Rhone-Merieux Laboratories-France, an international developer and producer of veterinary products. Merieux competes with Salsbury in the production and sale of animal products.

In 1966 Defendant Hildebrand began working as a Biologics Production Technician for Fromm Laboratories, Inc., a subsidiary of Salsbury. In 1973 Salsbury transferred Hildebrand to its headquarters in Charles City, and promoted him to Biologics Production Manager. On October 27, 1975, Hildebrand signed a "Patent Assignment and Trade Secrecy Agreement" which prohibited him from disclosing Salsbury's trade secrets and confidential information at any time during or after his period of employment with Salsbury. Hildebrand signed the Agreement in Iowa, and both parties to the Agreement were citizens of Iowa at the time the Agreement was executed. By 1982 Salsbury had promoted Hildebrand to the position of Director of Biological Operations. In this position Hildebrand oversaw the production of numerous veterinary products that were being developed at Salsbury.

In the fall of 1984, Hildebrand was offered the general manager's position at Merieux Laboratories. In late October of 1984, Hildebrand decided to accept the offer. He gave his notice of resignation to Salsbury on November 2, 1984, and was asked to leave Salsbury permanently that same day. Hildebrand began his employment with Merieux two weeks later.

Defendant Berg began working for Salsbury as a Biologics Production Supervisor in November of 1976. On November 23, 1976 Berg signed a "Patent Assignment and Trade Secrecy Agreement" which was identical to the Agreement signed by Hildebrand in October of 1975. This Agreement prohibited the disclosure of Salsbury's trade secrets or confidential information at any time during or after Berg's period of employment with Salsbury. Berg signed the Agreement in Iowa, and both parties to the Agreement were citizens of Iowa at the time of its execution.

In January of 1983, Berg moved to Salsbury's subsidiary, Fromm Laboratories, Inc. In the fall of 1985, Hildebrand contacted Berg in an attempt to persuade Berg to come to work for Merieux. During two separate meetings in October of 1985, Hildebrand and Berg discussed the possibility of Berg's becoming the Operations Manager at Merieux. On January 3, 1986 Berg resigned from Fromm Laboratories, and shortly thereafter, took a position with Merieux.

During their respective periods of employment with Salsbury, both Hildebrand and Berg played key roles in the development of a vaccine that prevents a respiratory and reproductive disease in poultry caused by the bacterium Mycoplasma gallisepticum (MG). Salsbury spent several years developing this commercial vaccine, and in February of 1982, the United States Department of Agriculture (USDA) issued a license to Salsbury authorizing the production and sale of the vaccine under the trademark MG-BAC. At the time it received its USDA license, Salsbury was the only company in the United States producing a commercial inactivated MG vaccine.

In October of 1984, Salsbury improved its MG-BAC vaccine. Both Hildebrand and Berg worked on the improvements. The 1984 improvements saved Salsbury approximately $100,000.00 per year in the production of the vaccine. Salsbury informed the USDA of the improvements and received approval to sell the new and improved vaccine.

Since joining Merieux, both Hildebrand and Berg have been influential in working on and overseeing the development of an inactivated MG vaccine which is similar to Salsbury's MG-BAC. The MG vaccine developed at Merieux is aimed at curing the same respiratory and reproductive disease in poultry that MG-BAC is aimed at curing. On April 16, 1987, the USDA issued Merieux a license to produce this inactivated vaccine under the trademark Gallimune.

Plaintiff claims that Defendants Hildebrand and Berg breached their Patent Assignment and Trade Secrecy Agreements by using the trade secret and confidential information they obtained while at Salsbury to produce an MG vaccine at Merieux. Defendants claim that these Agreements are unenforceable under Georgia law because they are overly broad and have no time limitations. The parties have requested that the court issue a ruling on Defendants' Motion to Dismiss prior to ruling on the misappropriation of trade secrets claim. The parties contend, and the court agrees, that a ruling on the Motion to Dismiss will give the parties guidance as to what issues should be addressed in the post-trial pleadings.²

II. CONCLUSIONS OF LAW

The issue before the court concerns the validity of paragraphs one through three of the Patent Assignment and Trade Secrecy Agreements signed by Defendants Hildebrand and Berg during their terms of employment at Salsbury Laboratories. Paragraphs one through three provide as follows:

1. THAT I shall at no time use independently of my work for the Laboratories, nor at any time divulge to others information regarding any of the records, data, methods, processes, inventions, business plans, programs and/or practices acquired by me during my employment and held, owned and conceived on behalf of and as such identified by the Laboratories.

2. THAT if during any such employment I conceive or perfect a development, improvement, invention, design or discovery of any description whatsoever applicable to any chemical compound, product, working material, process, method, system, device, machine or design, whether of patentable or unpatentable nature, then or thereafter usable or actually used by the Laboratories, then every such development, improvement, invention, design or discovery shall automatically become the property of the Laboratories.

3. THAT I shall promptly upon conception of any such development, improvement, invention, design or discovery disclose all the particulars of the same to the responsible officers of the Laboratories; that I shall consider them as trade secrets of the Laboratories; and that I shall neither reveal the same nor permit them to be revealed in any manner to third persons without written authority of the Laboratories.

In determining whether the Agreements are valid and enforceable, the court must decide whether the law of Iowa or the law of Georgia should be controlling on the question of validity.

A. State Law

Subject matter jurisdiction in this suit is based on diversity of citizenship. When considering a choice of law question, a federal court sitting in diversity is bound by the forum state's conflict of laws rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Gen. Tel. Co. of the Southeast v. Trimm, 706 F.2d 1117 (11th Cir.1983). In contract cases involving a conflict of laws question, Georgia courts have adopted the traditional rule that lex loci contractus shall control. Gen. Tel. Co. of the Southeast v. Trimm, 252 Ga. 95, 311 S.E.2d 460 (1984). Under this rule, "`contracts are to be governed as to their nature, validity and interpretation by the law of the place where they were made, except where it appears from the contract itself that it is to be performed in a State other than that in which it was made, in which case ... the laws of that sister State will be applied....'" Id. at 95, 311 S.E.2d at 461, (quoting Tillman v. Gibson, 44 Ga.App. 440, 442-43, 161 S.E. 630, 632 (1931) (emphasis added)).

In determining where a contract was made, "the court must determine where the last act essential to the completion of the contract was done." Id. at 95, 311 S.E.2d at 461; see also Continental Casualty Co. v. Synalloy Corp., 667 F.Supp. 1523, 1534 (S.D.Ga.1983). The "last essential act" noted in Trimm refers to an act going to the execution of the contract, not an act going to the performance of the contract. Najran Co. v. Fleetwood Enter., Inc., 659 F.Supp. 1081, 1095 n. 3 (S.D.Ga.1986).³ In the instant case, all the parties to the Agreements were residents of Iowa at the time the Agreements were executed. The parties signed the Agreements in Iowa before an Iowa notary public. Moreover, Hildebrand...