Wyeth v. Natural Biologics, Inc.

• Decision Date: 24 January 2005
• Docket Number: No. 03-3652.,No. 03-3651.,03-3651.,03-3652.
• Parties: WYETH, formerly known as American Home Products Corporation, a Delaware corporation, Appellee, v. NATURAL BIOLOGICS, INC., a Minnesota corporation, Defendant, Natural Biologics, LLC, a Minnesota limited liability company, Appellant. Wyeth, formerly known as American Home Products Corporation, a Delaware corporation, Appellee, v. Natural Biologics, Inc., a Minnesota corporation, Appellant, Natural Biologics, LLC, a Minnesota limited liability company, Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

395 F.3d 897

WYETH, formerly known as American Home Products Corporation, a Delaware corporation, Appellee, v. NATURAL BIOLOGICS, INC., a Minnesota corporation, Defendant, Natural Biologics, LLC, a Minnesota limited liability company, Appellant.

Wyeth, formerly known as American Home Products Corporation, a Delaware corporation, Appellee, v. Natural Biologics, Inc., a Minnesota corporation, Appellant, Natural Biologics, LLC, a Minnesota limited liability company, Defendant.

No. 03-3651.

No. 03-3652.

United States Court of Appeals, Eighth Circuit.

Submitted: November 19, 2004.

Filed: January 24, 2005.

Richard G. Mark and Eric J. Magnuson, argued, Minneapolis, MN (Peter D. Gray, Diane B. Bratvold, Eric J. Rucker and Jason R. Asmus, on the brief), for appellant.

Calvin L. Litsey, argued, Minneapolis, MN (David J.F. Gross, Bruce Jones, John E. Connelly and Kara L. Benson, on the brief), for appellee.

Before WOLLMAN and HEANEY, Circuit Judges, and HOLMES,¹ District Judge.

HEANEY, Circuit Judge.

Wyeth brought an action against Natural Biologics, Inc. and Natural Biologics, LLC ("Natural Biologics") for misappropriation of a trade secret, in violation of the Minnesota Uniform Trade Secrets Act, Minnesota Statute sections 325C.01 — .08 ("MUTSA"). Wyeth alleged that Natural Biologics illegally acquired Wyeth's trade secret process for producing bulk natural conjugated estrogens used in the development of Premarin, the only hormone replacement therapy drug on the market derived from a natural source.² In an order dated September 12, 2003, the district court³ found that Natural Biologics misappropriated Wyeth's trade secret process and permanently enjoined Natural Biologics from using or disclosing any information it obtained related to Wyeth's process. Natural Biologics appeals, asserting that: (1) Wyeth failed to protect the secrecy of its trade secret, (2) Wyeth is barred by the three-year statute of limitations period under Minnesota Statute section 325C.06 from raising its trade secret misappropriation claim, and (3) the district court abused its discretion by permanently enjoining Natural Biologics from using the misappropriated trade secret. We affirm the district court.

Wyeth manufactures and sells Premarin, which is prescribed for the treatment of symptoms associated with menopause. Premarin has been on the market since 1942 without any natural generic substitute. Wyeth manufactures natural conjugated estrogens at its Brandon, Manitoba facility using a process called the Brandon Process.

Natural Biologics, founded by David Saveraid, manufactures natural conjugated estrogens. In 1991, Saveraid began to explore manufacturing conjugated estrogens, and over a decade later, in March 2002, Natural Biologics entered into an agreement with Barr Laboratories, Inc., under which Barr agreed to purchase material from Natural Biologics and convert the material into a tablet to sell as a generic form of Premarin, pending FDA approval. Natural Biologics claims to have independently developed its extraction process through review of Wyeth's expired patents, scientific literature, and Wyeth's Brandon Facility waste manifests, which reveal the names and volumes of chemicals used at the Brandon Facility. Saveraid also collaborated with scientists and pharmaceutical companies to develop Natural Biologics's process. In October 1994, Saveraid began communication with former Wyeth chemist Dr. Douglas Irvine, and within a year, Natural Biologics's extraction process yielded material that was the same as Premarin.

I. The Brandon Process As a Trade Secret

We review the district court's findings of fact for clear error. Vekamaf Holland B.V. v. Pipe Benders, Inc., 696 F.2d 608, 610 (8th Cir.1982). We must first decide whether the district court erred in holding that Wyeth's Brandon Process is a trade secret. Under MUTSA, a trade secret is information that: (1) is not generally known or readily ascertainable, (2) has value as a result of its secrecy, and (3) is the subject of reasonable efforts under the circumstances to protect its secrecy. Minn.Stat. § 325C.01, subd. 5.

Natural Biologics apparently concedes that the Brandon Process is not generally known or readily ascertainable, and that it has value as a result of its secrecy. It contends, however, that Wyeth failed to adequately secure its trade secret in many ways: non-Wyeth employees toured the Brandon Facility without having signed confidentiality agreements; there were no posted signs inside the facility indicating that the Brandon Process information was confidential; unmarked⁴ Brandon Process documents were left on the manufacturing floor and unsecured in Wyeth's Brandon Facility; not all Wyeth employees or vendors involved in the Brandon Process signed confidentiality agreements; Wyeth identified chemicals used in the extraction process in two newsletters; unmarked documents were sent to third parties; and Wyeth allegedly failed to follow its own security policies.

The district court held that the Brandon Process is a trade secret, and that Wyeth had implemented reasonable efforts to maintain the secrecy of the Brandon Process. The court noted that no one had previously duplicated the Brandon Process, and found it unlikely that Natural Biologics had succeeded in doing so legally. The court explained,

Based on the lack of repeated losses of confidential information regarding the Brandon Process and Wyeth's use of physical security, limited access to confidential information, employee training, document control, and oral and written understandings of confidentiality, the Court concludes that Wyeth subjected the Brandon Process to efforts that are reasonable under the circumstances to maintain its secrecy.

(Order at 41.) Absolute secrecy is not required by MUTSA. See Surgidev Corp. v. Eye Tech., Inc., 828 F.2d 452, 455 (8th Cir.1987) ("Only reasonable efforts, not all conceivable efforts, are required to protect the confidentiality of putative trade secrets."); Lasermaster Corp. v. Sentinel Imaging, 931 F.Supp. 628, 635 (D.Minn.1996) (noting "absolute secrecy" is not required to maintain trade secret's confidential nature). Furthermore:

The existence of a trade secret is not negated merely because an employee or other person has acquired the trade secret without express or specific notice that it is a trade secret if, under all the circumstances, the employee or other person knows or has reason to know that the owner intends or expects the secrecy of the type of information comprising the trade secret to be maintained.

Minn.Stat. § 325C.01, subd. 5. Having considered the totality of the circumstances, we hold the court below did not clearly err in finding that Wyeth took appropriate steps to maintain the secrecy of the Brandon Process.

We next consider whether Natural Biologics misappropriated the Brandon Process. A defendant is liable for misappropriation of a trade secret if the defendant has acquired the trade secret through improper means. Minn.Stat. § 325C.01, subd. 3. In some instances, the secret is so unique that the emergence of a similar, slightly altered product gives rise to an inference of misappropriation. See Pioneer Hi-Bred Int'l v. Holden Foundation Seeds, Inc., 35 F.3d 1226, 1239-40 (8th Cir.1994) (interpreting similar Iowa state trade secret law).

David Saveraid engaged in communications with Dr. Irvine from October 1994 through early 1996. Saveraid's subsequent attempts to conceal such communications, Natural Biologics's financial motives for copying the Brandon Process, Saveraid's questionable ability to develop an extraction process identical to the Brandon Process,⁵ the similarity between the Brandon Process and Natural Biologics's process, and the absence of a credible record of how Natural Biologics developed its extraction process, support the district court's conclusion that Natural Biologics acquired Wyeth's trade secret through improper means. Although Natural Biologics may have devoted its own resources and ingenuity to the development of an extraction process, this is irrelevant because Natural Biologics also engaged in illegal conduct by misappropriating Wyeth's trade secret. Concluding that the district court's holding that Natural Biologics misappropriated the Brandon Process was not clearly erroneous, we affirm on this matter.

II. Statute of Limitations

Natural Biologics next asserts that Wyeth's misappropriation claim is barred by MUTSA's statute of limitations. "An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." Minn.Stat. § 325C.06 (2000).

Natural Biologics argues that Wyeth should have discovered its claim before November 17, 1995, more than three years prior to the commencement of the action. It asserts that Wyeth received a brochure from Natural Biologics in August 1994 announcing that Natural Biologics was in possession of a trade secret for the estrogen extraction process. In September 1994, Dr. Michael Dey, vice president and general manager of a generic subsidiary of Wyeth, ESI Pharma, called David Saveraid about Natural Biologics's products, and in December 1994, Saveraid left Dr. Dey a voice message regarding natural conjugated estrogen supply, the pilot manufacture of material, and whether Wyeth might be interested in Natural Biologics's supply. Natural Biologics asserts that had Wyeth been diligent, and had it accepted Saveraid's offer to supply material, or...