Wright Medical Technology, Inc. v. Grisoni

• Decision Date: 18 December 2001
• Docket Number: No. W2000-01302-COA-R7-CV.,W2000-01302-COA-R7-CV.
• Citation: 135 S.W.3d 561
• Parties: WRIGHT MEDICAL TECHNOLOGY, INC., v. Bernard GRISONI and Biogeneration, Inc.
• Court: Tennessee Court of Appeals

135 S.W.3d 561

WRIGHT MEDICAL TECHNOLOGY, INC., v. Bernard GRISONI and Biogeneration, Inc.

No. W2000-01302-COA-R7-CV.

Court of Appeals of Tennessee.

September 17, 2001 Session.

December 18, 2001.

Application for Permission to Appeal Denied by Supreme Court May 20, 2002.

Leo Bearman, Jr., George T. Lewis, III, and Marianne B. Matthews, Memphis, Tennessee, for the Plaintiff/Appellant, Wright Medical Technology, Inc.

Ronald D. Krelstein, Germantown, Tennessee, and Steven M. Markowitz, Memphis, Tennessee, for the Defendant/Appellees, Bernard F. Grisoni, and Biogeneration, Inc.

Michael I. Less and Ted M. Hayden, Memphis, Tennessee, for the Appellee, Travelers Casualty and Surety Company of America.

Lucian T. Pera and W. Bryan Smith, Memphis, Tennessee, submitting Amicus Curiae Brief for William H. Haltom, Jr.

OPINION

HOLLY KIRBY LILLARD, J., delivered the opinion of the court, in which ALAN E. HIGHERS, J. and DAVID FARMER, J., joined.

This case involves the alleged use of confidential information by an ex-employee. The defendant employee worked for the plaintiff employer developing a medical product. The employee signed an agreement prohibiting the use of confidential information after his employment ended, but did not sign a non-competition agreement. The employee was terminated and thereafter began manufacturing a competing medical product. The plaintiff employer sued and obtained a temporary injunction prohibiting the ex-employee from manufacturing the product. The trial court later dissolved the injunction. Subsequently, it found the defendant employer liable for malicious prosecution and punitive damages, awarding damages of over $9 million. The employer appeals. We affirm in part, reverse in part and modify. We reverse the finding of malicious prosecution, holding that the evidence is insufficient to establish malice or lack of probable cause. We also reverse the award of punitive damages. We affirm the trial court's dissolution of the injunction against the former employee, and find that the compensatory damages are limited by the amount of the injunction bond. Consequently, the award of compensatory damages is modified to this amount.

This case involves the alleged use of confidential information by an ex-employee. Plaintiff/Appellant Wright Medical Technology, Inc. (Wright), is a Memphis corporation which develops and markets medical products. Defendant/Appellee Bernard Grisoni ("Grisoni") is a former employee of Wright, and Defendant/Appellee Biogeneration, Inc. ("Biogeneration") is the company Grisoni started after his employment with Wright was terminated.

FACTS AND PROCEEDINGS

Grisoni was hired by Wright in February 1994 as manager of silicone materials and process research. Grisoni holds a bachelor's degree in material science, master's degrees in polymer technology and business administration, and a Ph.D. in manufacturing engineering. Grisoni began working in the field of manufacturing medical devices in 1985. Before coming to Wright, Grisoni worked with silicone materials at Dow Corning. Immediately before joining Wright, Grisoni was the project manager for the development of interocular lenses at Allergan Medical Optics.

When Grisoni became employed at Wright, he was required to sign a confidentiality agreement. The agreement read, in pertinent part:

Other than as required in my duties as an employee of Wright Medical Technology, I will not disclose to anyone or use either during or after my employment; except with the prior written consent of Wright Medical Technology, any trade secret, confidential know-how or confidential business or technical information of Wright Medical Technology. The foregoing obligation shall also apply to any trade secrets or other confidential information of any third party learned by me as a Wright Medical Technology employee and which Wright Medical Technology has an obligation to maintain in secrecy. The obligations of secrecy and non-use of this paragraph shall not apply to any information which has become publicly available through no fault of my own.

Thus, the confidentiality agreement prohibited Grisoni from using or disclosing any confidential information of Wright that had not become publicly available. However, it did not include a noncompetition clause prohibiting Grisoni from developing a competing product after leaving his employment with Wright.

In 1994, Wright began developing calcium sulfate bone void fillers, and soon thereafter it became one of Wright's major priorities. Bone void filler is a material used by an orthopedic surgeon to fill a cavity appearing in a patient's bone, resulting from either traumatic injury or the surgical removal of diseased or infected bone matter. The bone void filler material is grafted over the area of missing bone or void until the area is replenished by the body's own natural bone formation. Use of a bone void filler decreases the risk of infection and harmful scar tissue while the natural bone regenerates. Traditionally, surgeons have transplanted bone matter from other parts of the patient's body, such as the patient's ribs, or implanted pieces of bone from a bone bank. Synthetic materials have also been used with varying degrees of success. Calcium sulfate has been used as an artificial bone void filler for at least a century. The advantage of calcium sulfate is that it is absorbed into the body, that is, it dissolves, at roughly the same rate as the new bone growth. This allows for the cavity to remain filled while the new bone forms directly behind the calcium sulfate filler material.

Wright experimented with several methods of calcium sulfate bone graft production. Calcium sulfate dihydrate, also known as gypsum, is a natural occurring compound which is mined and processed. The resulting powder can be used in both food and pharmaceutical production. Under the "pressed" method of bone void filler production, a small amount of stearic acid is added as a binding agent to the calcium sulfate dihydrate powder. The mixture is then compressed into small tablets or pellets to be surgically grafted into the bone cavity. A second method of bone void filler production involves the removal of water from the calcium sulfate dihydrate, thereby creating calcium sulfate hemihydrate. This can be done by simply heating the compound in order to remove the water, forming beta-type hemihydrate, or by a combination of heat and pressure to crystalize the hemihydrate, forming alfa-type hemihydrate. Regardless of which type of hemihydrate is produced, the calcium sulfate is then combined with a fixed amount of water. This results in a dihydrate in paste form. This paste can then be directly implanted into the bone cavity to solidify, or the paste can be first molded into small pellets, dried, and then surgically implanted at a later time.

Wright and other companies had tried to develop a number of calcium sulfate bone void fillers, but neither Wright nor any of Wright's competitors had gained the necessary FDA approval for the products. FDA approval was essential to developing a commercially viable product. In 1976, Congress amended the Federal Food, Drug and Cosmetic Act, 21 U.S.C.S. §§ 301 et seq. (1984) ("the Act."). The amendments to the Act require FDA clearance before a medical device can be marketed in the United States. The amendments did not cover products which existed in interstate commerce prior to May 23, 1976. New medical devices developed after that date were required to meet certain performance standards established by the FDA. To demonstrate that a product is effective and safe for use for humans, and thus obtain FDA approval, extensive animal and human clinical studies are often required.

The Act allows for clearance of a medical product through an application process whereby the submitting company demonstrates to the FDA that the non-approved device is "substantially equivalent" to a predicate device, either a pre 1976 product or a product which has already been given FDA clearance. This "piggybacking" approval process permits the submitting company to obtain FDA clearance for a medical product without having to engage in the lengthy animal and human clinical studies that would otherwise be necessary. The FDA exercises a great deal of discretion in determining whether a product will be approved as "substantially equivalent" to a predicate product. If the application, known as a 510(k), fails to meet FDA approval, the FDA will usually provide feedback informing the company of the factors it considered in concluding that the two compared products were not "substantially equivalent." The submitting company then has several options to obtain clearance. The company can modify its product to more closely mimic the predicate device, or find a predicate device more similar to its product and resubmit the 510(k) application. If the company's product is not modified or a new predicate product is not found, the company could use an alternate method of demonstrating "substantial equivalency," such as by using more extensive forms of testing or comparing different variables. If FDA approval is not obtained by one of these means, the company would likely be forced to engage in extensive animal and human clinical studies to obtain approval.

Once FDA clearance is given, the FDA provides the public limited access to the submitting company's 510(k) application by placing a summary of it on the FDA's website. Information not included in the FDA summary is normally kept confidential.

Within a few months of beginning his employment with Wright, Grisoni was given responsibility over Wright's calcium sulfate bone void filler project. He worked on this project for the duration of his employment at Wright. Prior to joining Wright, Grisoni had no experience in the area of calcium sulfate bone void filler products and had reviewed no literature on such products. Once Grisoni was given the responsibility for developing...