Syntex Ophthalmics, Inc. v. Tsuetaki

• Decision Date: 02 March 1983
• Docket Number: Nos. 82-1837,82-2581 and 82-2582,82-2019,s. 82-1837
• Citation: 219 USPQ 962,701 F.2d 677
• Parties: SYNTEX OPHTHALMICS, INC. and Arapahoe Chemicals, Inc., Plaintiffs-Appellees, v. George F. TSUETAKI, Fused Kontacts of Chicago, Inc. and Nick N. Novicky, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 677

701 F.2d 677

219 U.S.P.Q. 962

SYNTEX OPHTHALMICS, INC. and Arapahoe Chemicals, Inc. Plaintiffs-Appellees, v. George F. TSUETAKI, Fused Kontacts of Chicago, Inc. and Nick N. Novicky, Defendants-Appellants.

Nos. 82-1837, 82-2019, 82-2581 and 82-2582.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 10, 1982.

Decided March 2, 1983.

Gerald S. Geren, Epton, Millin, Segal & Druth, Ltd., Keith V. Rockey, McDougall, Hersh & Scott, Chicago, Ill., for defendants-appellants.

James Gould, Morgan, Finnegan, Pine, Foley & Lee, New York City, for plaintiffs-appellees.

Before WOOD and ESCHBACH, Circuit Judges, and BARTELS, Senior District Judge. ^*

BARTELS, Senior District Judge.

In consolidated appeals Nick N. Novicky, George F. Tsuetaki and Fused Kontacts of Chicago, Inc. appeal from a preliminary injunction issued on May 26, 1982, by the United States District Court for the Northern District of Illinois restraining use of certain trade secrets and from a subsequent order, issued on September 8, 1982, interpreting and delineating the scope of the preliminary injunction.

Prior Proceedings

This action was brought by Syntex Ophthalmics, Inc. and Arapahoe Chemicals, Inc. (collectively referred to as "Syntex") against Novicky, a former employee, and George F. Tsuetaki and Fused Kontacts of Chicago, Inc. (collectively referred to as "Tsuetaki"), Novicky's subsequent employer, for misappropriation of trade secrets and patent infringement. The complaint alleged that Syntex was entitled to certain patents owned by Novicky and Tsuetaki and sought injunctive and monetary relief for patent infringement and misappropriation of trade secrets. Initially, after hearing some live testimony, the court denied two motions by Syntex for a preliminary injunction because Syntex at the time had not met its substantial burden of proving that it was entitled to such relief. Extensive pretrial discovery ensued. The record grew to include over 1,000 pages of deposition testimony and exhibits supporting Syntex's claim of misappropriation of its trade secrets, and over 1,000 pages of memoranda, deposition testimony and exhibits submitted by Tsuetaki and Novicky. In addition it included a state court transcript of a 16-day bench trial in which Tsuetaki had sued Novicky and in which the Illinois state court had decided that Tsuetaki was entitled to trade secret protection from Novicky for much of the same information that is at issue in the present case. After reviewing the voluminous record, the district court concluded that Syntex was reasonably likely to succeed on the merits; its remedy at law was inadequate; it would experience irreparable injury without injunctive relief which outweighed the threatened harm such an injunction might cause Tsuetaki and Novicky; and the injunction would not disserve the public interest. Therefore, it granted Syntex the preliminary injunction.

The preliminary injunction order enjoined defendants from using certain silicone monomers (chemical compounds) used in the formulation of rigid gas permeable contact lenses ("silicon-PMAA contact lenses") and certain process steps contained in the so-called "Arapahoe process sheets." Recognizing that certain information incorporated in those process sheets could be obtained from publicly held information, the court specified in the order that defendants would be entitled, with leave of court, to use any information "described but not claimed in any patent or publication," since such information was not subject to trade secret protection. ¹

On June 3, 1982, Tsuetaki and Novicky made an emergency motion for stay of the preliminary injunction order pending appeal, and on June 17, 1982, this court denied that motion. Subsequently, in accordance with the preliminary injunction, Novicky and Tsuetaki filed motions with the trial court for leave to use information they claimed was not barred by the injunction. Each of the motions presented a list of process steps which that particular defendant sought leave to use in the preparation of silicone-PMAA contact lenses, and both appellants also sought leave to use a chemical compound claimed in Dow's Quaal U.S. Patent No. 3,377,371. In addition, Tsuetaki sought leave to use one purportedly "novel" compound--the "Tsuetaki proposed monomer"--and Novicky requested leave to use two "novel" chemical compounds--"silicone A" and "silicone B" and the resulting monomeric chemical structures designated as "I" and "II." To aid it in the resolution of these motions, the court appointed a patent lawyer, Warren D. McPhee, as its own expert. McPhee filed his report with the court on August 5, 1982, and on August 18 and 19, 1982 was examined in open court by all parties. The parties submitted written comments on McPhee's report and testimony but were not allowed to present testimony of their own experts.

On September 8, 1982, the district court issued its opinion, adopting McPhee's report, and granting in part and denying in part defendants' motions. Specifically, the court granted both defendants leave to use the process steps specified in their motions and the compounds described in the Quaal patent. It concluded, however, that the three "novel" compounds, while not identical to the monomers proscribed by the preliminary injunction, represented "a continued benefit from the misappropriation of Syntex's trade secrets." Applying the doctrine of equivalents, the court denied defendants the use of these "novel" monomers.

Although the court's September opinion and the proceedings leading up to its issuance occurred after appeal from the preliminary injunction order, they are included in this record, pursuant to Fed.R.App.P. 10(e) and Circuit Rule 4, since they were before the trial court in a proceeding interpreting that order.

Background

For a thorough analysis of the factors necessary to support the preliminary injunction, a detailed background is appropriate. In 1977 Syntex bought two patents, U.S. Patent No. 3,808,178 and U.S. Patent No. 4,120,570, designated as the "Gaylord patents," which formed the basis for a research project, named the "Polycon project," the purpose of which was to develop a contact lens material from which rigid (or "hard") gas permeable contact lenses could be made. Up until that time hard contact lenses were made from a plastic material called polymethyl methacrylate ("PMMA") that did not allow the transmission of oxygen to the wearer's cornea. Because of the lenses' lack of oxygen permeability, the user could not wear them for extended periods, and sometimes the wearer developed a condition known as corneal edema. It was believed that a gas permeable lens would allow the user extended lens wear and would lower the incidence of corneal edema.

Contact lenses are made by reacting certain chemical compounds ("monomers") into plastics ("copolymers") by a process called "polymerization." The lens material is then formed into rods, which are subsequently sliced into discs ("buttons") which are then ground into the lenses themselves. The purpose of the Polycon project was commercial development of specific monomers which, when polymerized with PMMA and other compounds, would yield an oxygen permeable lens material. Applying the information embodied in the Gaylord patents, Syntex estimates that it spent more than an additional one million dollars and twenty man-years of time to develop and obtain Federal Drug Administration ("FDA") approval for its commercially feasible oxygen permeable polycon lens material ("Polycon").

Novicky, a chemist employed by Syntex since 1973, was assigned to the Polycon project in May, 1977, and he worked in the project until he quit his employment at Syntex on May 12, 1978. Throughout Novicky's tenure at Syntex, the terms of his employment were governed by a written agreement in which he agreed to disclose and assign all ideas and inventions he developed to Syntex and to keep all Syntex's ideas and developments confidential. On December 15, 1977, Novicky prepared a patent disclosure statement concerning certain silicone monomers he had developed, which he claimed produced a material five to ten times more permeable than the Polycon lens material Syntex was developing. These compounds, and the processes Novicky developed for preparing the desired chemical reactions, form the basis for two patents Novicky later obtained in 1980 and 1981, U.S. Patent No. 4,242,483 and U.S. Patent No. 4,248,989.

On May 16, 1978, four days after Novicky terminated his employment at Syntex, he prepared a second patent disclosure statement revealing the discovery of additional chemical compounds for use in making gas permeable lens material. One of these was later designated the "S-9" monomer and patented under U.S. Patent No. 4,216,303. Novicky claims that the development of his new monomers was independent of his earlier work at Syntex. Syntex contends that the May 16 discovery was actually conceived and developed by Novicky during his employment there.

In August, 1978, Novicky contacted Tsuetaki and subsequently made available to Tsuetaki the formulae and processes contained in the May 16 disclosure, a sample rod Novicky had made using his S-9 monomer, and some of the Arapahoe process sheets Novicky had prepared while he was with Syntex. After reviewing this material, Tsuetaki agreed to purchase Novicky's new technology for $20,000 and to hire Novicky as a chemist whose job would be developing commercially marketable gas permeable contact lenses. Among other services for his new employer, Novicky prepared process sheets describing the processes for formulating his chemical compounds, which the district court found were copied almost verbatim from approximately 100 pages of the Arapahoe process sheets Novicky had appropriated from Syntex.

In May, 1982, Novicky resigned from Tsuetaki, and two months later Tsuetaki sued him in Cook County Circuit Court for breach of his employment...