Synthes, Inc. v. Emerge Med., Inc.

• Decision Date: 05 June 2014
• Docket Number: Civil Action No. 11–1566.
• Citation: 25 F.Supp.3d 617
• Parties: SYNTHES, INC., Synthes USA HQ, Inc., Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC, Plaintiffs, v. EMERGE MEDICAL, INC., John P. Marotta, Zachary W. Stassen, Eric Brown, and Charles Q. Powell, Defendants. Emerge Medical, Inc., Counterclaim–Plaintiff, v. Synthes, Inc., Synthes UUS HQ, Inc. Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC, Counterclaim–Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

25 F.Supp.3d 617

SYNTHES, INC., Synthes USA HQ, Inc., Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC, Plaintiffs,
v.
EMERGE MEDICAL, INC., John P. Marotta, Zachary W. Stassen, Eric Brown, and Charles Q. Powell, Defendants.
Emerge Medical, Inc., Counterclaim–Plaintiff,
v.
Synthes, Inc., Synthes UUS HQ, Inc. Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC, Counterclaim–Defendants.

Civil Action No. 11–1566.

United States District Court, E.D. Pennsylvania.

Signed June 5, 2014

Motions granted in part and denied in part.

[25 F.Supp.3d 628]

Anthony B. Haller, Kevin M. Passerini, Michael P. Broadhurst, Rosemary McKenna, Blank Rome LLP, Philadelphia, PA, Edward N. Cahn, Blank Rome, LLP, Allentown, PA, for Plaintiffs.

Alex G. Romain, Daniel Dockery, Enu Mainigi, Jennifer Wicht, Williams & Connolly LLP, Washington, DC, Andrew C.S. Efaw, Sean G. Saxon, Wheeler Trigg & O'Donnell LLP, Denver, CO, Anne R. Myers, Eileen Monaghan Ficaro, Gregory F. Brown, Irina Volk Rabovetsky, Anna M. Darpino, Kaufman Dolowich & Voluck LLP, Blue Bell, PA, David P. Helwig, Marks O'Neill O'Brien & Courtney, Pittsburgh, PA, Benjamin J. Tursi, Marks O'Neill O'Brien Doherty & Kelly PC, Philadelphia, PA, John P. McShea, McShea Law Firm PC, Philadelphia, PA, for Defendants.

MEMORANDUM
BUCKWALTER, District Judge.

TABLE OF CONTENTS FOR CROSS–MOTIONS FOR SUMMARY JUDGMENT TO LIABILITY

I.
STATEMENT OF FACTS
630

A.
Persons Relevant to the Suit
631

1.	The Parties	631
2.	Other Relevant Individuals	633

B.
Background of the Key Players' Employment With Synthes
634

1.	Defendant Marotta's Employment With Synthes	634
2.	Defendant Brown's Employment With Synthes	636
3.	Powell's Employment With Synthes	637
4.	Trafka's Employment with Synthes and Magnum Tool	639

C.
Written Obligations of the Parties and Other Individuals
640

1.
Synthes Written Obligations
640

a.	Contractual Obligations	640
b.	Employment Policies and Obligations	645

2.	Emerge's Written Contracts and Policies	645
3.	Vendors' Written Contractual Obligations to Synthes	646
4.	SIMS and Customers' Written Contractual Obligations to Synthes	647

D.
The Formation of Emerge Prior to April 15, 2010
647

1.	Brief Background of Emerge	647
2.	Detailed Timeline of Emerge–Related Activities Prior to April 15, 2010	648
3.	Emerge's Business Plans and Investor Materials (Pre–April 2010)	652

a.	The Private Placement Memorandum	652
b.	Investor Presentations	653
c.	Additional Statements Regarding Emerge's Business Model	653

4.	Emerge's Finding of Investors and Raising Money	653
5.	Early Design and Development of Emerge Product	654

E.
Emerge's Use of Synthes Products and Information
655

1.	Acquisition and Use of Synthes Product	655
2.	Acquisition, Use, and Disclosure of Synthes's Confidential and Proprietary Information	655

a.	Information Related to Synthes's Manufacturing Costs	655
b.	Information Related to Synthes' External Fixation and LCP Products	656
c.	Information Related to Synthes's Critical Features, Dimensions, and Tolerances	656
d.	Information Related to Synthes's Engineering Specifications	657
e.	Information Related to Synthes's Cortical and Cancellous Screws	657
f.	Information Related to Synthes's Usage Data in Emerge's Early Accounts	658
g.	Information Related to Synthes's Cannulated Screw Comparison Chart	658
h.	Synthes Documents Marotta Emailed to His Personal Email Address	658
i.	Marotta's & Powell's Retention of Synthes's Emails	659
j.	Information Related to Synthes's Strategic Business Acquisition Discussions	659

F.	Emerge Obtains FDA Clearance	659
G.	Emerge's Pilot Customers	660

1.	Banner Health	660
2.	AOSH/USPI	661
3.	Catholic Healthcare West	662
4.	Other System–Wide Sales and Early Targets	662

H.	Emerge's Sales Process, Strategy, Implementation, and Commingling of Product	662
I.	Cardinal Health	664
J.	Procedural History	665

II.
STANDARD OF REVIEW
665

III.
DISCUSSION
666

A.
Claim Against Marotta for Breach of Fiduciary Duty (Count I)
666

1.	Defendant's Motion for Partial Summary Judgment on Breach of Fiduciary Duty	668
2.	Plaintiffs' Motion for Summary Judgment on Breach of Fiduciary Duty	670

B.	Claim of Aiding and Abetting Breach of Fiduciary Duty Against Emerge	674
C.	Claim Against Marotta for Breach of Contract Under the Non– Competition and Non–Disclosure Agreements (Count II)	678

1.	The Assignment Provision of the Non–Disclosure Agreement	678
2.	The Non–Competition and Non–Solicitation Provisions of the RM NCA	684

a.	Breach of the Non–Competition Provision	685
b.	Breach of the Non–Solicitation of Customers Provision	689
c.	Breach of the Non–Solicitation of Employees Provision	691

3.	Sales Consultant Non–Competition Provision	693
4.	Return of Property Provision and Confidentiality and Non– Disclosure Provisions in the RM NCA and NDA	698

a.	Small Fragment Set	699
b.	Synthes Product in Marotta's Garage	701
c.	Synthes Emails	703

D.
Misappropriation
704

1.
Whether the Items at Issue Constituted Trade Secrets
705

a.	Synthes Information Regarding Manufacturing Costs and Usage Data	705
b.	Product Design Information	707

2.
Whether Emerge Misappropriated Synthes's Trade Secrets
710

a.	Information Regarding Manufacturing Costs and Usage Data	710
b.	Synthes Product Drawings and Information Related to External Fixation Products	712
c.	Synthes Product Drawings and Information Related to Critical Features, Dimensions, and Tolerances for Screws Emerge Developed and Screws Emerge Identified as Additional Product Offerings	712
d.	Synthes Engineering Specifications and Information Related to Products Emerge Designed and Identified as Additional Product Offerings	713
e.	Drawings and Information Related to Synthes Cortical and Cancellous Screws and Product Emerge Identified as Additional Product Offerings	714
f.	Strategic Business Planning Information Related to Companies Affiliated with Prospective Emerge Investors and Advisors	715

3.
Conclusion as to Misappropriation
715

E.	False Advertising Under the Lanham Act	715
F.	Computer Fraud and Abuse Act	718
G.	Trespass to Chattels	721
H.	Fraud	723
I.	Tortious Interference With Contract	727

1.
Tortious Interference with Marotta's Contracts With Synthes
727

a.	Whether Emerge Had Knowledge of Marotta's Contractual Agreements with Synthes	728
b.	Whether Emerge Did Anything to Induce Marotta to Breach Either His NDA, His RM NCA, or His SC NCA With Synthes	729

2.	Tortious Interference with Powell's Non–Compete Agreement With Synthes	731
3.	Tortious Interference With Brown's Agreements With Synthes	733
4.	Tortious Interference With Synthes's Contractual Relationships With Any of Its Customers or Vendors	734

a.	Tortious Interference With Vendors	734
b.	Tortious Interference with Customers	735

5.
Marotta's Tortious Interference With Synthes's Contractual Relations With Other Synthes Employees
735

J.
Civil Conspiracy
735

IV.
CONCLUSION
737

[25 F.Supp.3d 630]

Currently pending before the Court are the Cross-motions for Summary Judgment of Plaintiffs Synthes, Inc., Synthes USA HQ, Inc., Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC (collectively “Synthes”) and Defendants Emerge Medical, Inc., John P. Marotta, and Charles Q. Powell (collectively “Defendants”). For the following reasons, Synthes's Motion is granted in part and denied in part and Defendants' Motion is granted in part and denied in part.

I. STATEMENT OF FACTS ¹

The factual history of this case, while not particularly long in a temporal sense,

[25 F.Supp.3d 631]

contains numerous discrete events and actions that give rise to the multitude of claims at issue. As the parties have already engaged in lengthy motion practice, as well as a preliminary injunction hearing, the general facts are well-known to both the parties and the Court. While the Court declines to recite every fact set forth by the parties, the Court will engage in a somewhat detailed summary in order to encompass the facts pertinent to resolution of the motions at issue.²

A. Persons Relevant to the Suit 1. The Parties

Synthes, Inc. is a Delaware corporation with its principal place of business in Pennsylvania, and is the parent company of the other Plaintiffs, which are also Delaware entities with their principal places of business in Pennsylvania. (Plaintiffs' Statement of Undisputed Facts (“PSUF”) ¶ 1; Defendants' Response to Plaintiffs' Statement (“DRPS”) ¶ 1.) Synthes has been described as a global leader in the highly competitive orthopedic device market. (PSUF ¶ 2; DRPS ¶ 2.) Its sales and marketing plan depends exclusively upon the preferences of orthopedic surgeons to influence the purchasing decisions of the hospitals and surgical centers where orthopedic surgeons practice. (PSUF ¶ 5;DRPS ¶ 5.)

Emerge Medical, Inc. (“Emerge”) is a Colorado corporation formed on January 13, 2010, under the name Emerge Surgical, Inc. (PSUF ¶ 7; DRPS ¶ 7.) On June 23, 2010, Emerge Surgical, Inc. officially changed its name to Emerge Medical, Inc. (PSUF ¶ 8; DRPS ¶ 8.) Emerge competes with Synthes and was formed to produce and sell Generic Device Fixation Hardware “similar, but not identical to” that which Synthes also produces and sells. (PSUF ¶¶ 9–10; DRPS ¶¶ 9–10.) According to Emerge, it has “devised a new approach to the sales of [drill bits, guide wires, and screws] providing the American public with a like-numbered product that is similar to” drill bits, guide wires, and cannulated screws sold by Synthes. (PSUF ¶ 11; DRPS ¶ 11.) As of July 2012, Emerge sold only “drill bits, guide wires, and screws.” (PSUF ¶ 12; DRPS ¶ 12.) Emerge's drill bits, guide...