HERAEUS MEDICAL GMBH v. ESSCHEM, INC.
No. 18-1368
United States Court of Appeals, Third Circuit
June 21, 2019
PRECEDENTIAL. On Appeal from the United States District Court for the Eastern District of Pennsylvania (E.D. Pa. No. 2-14-cv-05169). Honorable Cynthia M. Rufe, U.S. District Judge. Argued: October 23, 2018. Before: KRAUSE, COWEN, and FUENTES, Circuit Judges.
Bruce P. Merenstein
Samuel W. Silver
John R. Timmer
Schnader Harrison Segal & Lewis
1600 Market Street
Suite 3600
Philadelphia, PA 19103
John Nilsson
Matthew M. Wolf [Argued]
Arnold & Porter Kaye Scholer
601 Massachusetts Avenue, N.W.
Washington, DC 20001
R. Reeves Anderson
Arnold & Porter Kaye Scholer
370 Seventeenth St.
Suite 4400
Denver, CO 80202
Counsel for Plaintiff-Appellant Heraeus Medical GmbH
Benjamin P. Gilford
Greenberg Traurig
333 Southeast 2nd Avenue
Suite 4400
Miami, FL 33131
Richard D. Harris [Argued]
Cameron M. Nelson
Gregory E. Ostfeld
Greenberg Traurig
77 West Wacker Drive
Suite 3100
Chicago, IL 60601
Mary F. Platt
Fineman Krekstein & Harris
Ten Penn Center
1801 Market Street, Suite 1100
Philadelphia, PA 19103
Counsel for Defendant-Appellee Esschem, Inc.
KRAUSE, Circuit Judge.
The case before us involves another skirmish in a long-running, cross-border court battle over the alleged theft of a trade secret: Heraeus Medical GmbH‘s recipe for its bone cement. In this appeal, we consider whether Heraeus’ suit against Esschem, Inc.—a company that works as a chemical manufacturer for Heraeus’ main competitor—is barred by the statute of limitations under the Pennsylvania Uniform Trade Secrets Act. At summary judgment, the District Court held that all of Heraeus’ claims, including those for Esschem‘s alleged continuing misappropriation during the three-year limitations period, are time-barred and entered judgment for Esschem. We agree that alleged misappropriations that occurred more than three years before Heraeus filed suit are time-barred, but because we hold that Pennsylvania applies the rule of separate accrual to continuing trade secret misappropriations, Heraeus may sue for misappropriations that occurred within the three-year period before filing. We thus will reverse in part and affirm in part the District Court‘s grant of summary judgment.
Heraeus is a German company that develops and produces Palacos, a bone cement used to anchor artificial joints in joint replacement surgeries. To make Palacos, Heraeus developed its own particular process to manufacture two key components: copolymers known as R262 and R263 (the “copolymers“). Biomet also sells bone cement and is one of Heraeus’ major competitors in this market. To make its bone cement, Biomet uses the same copolymers, which it buys from Esschem, a Pennsylvania company that manufactures acrylic polymers and monomers.
Heraeus holds trade secrets related to the “overall specifications for the . . . bone cement,” including “specifications for [the] copolymers.” App. 81. These trade secrets changed hands several times over the years before allegedly falling into Esschem‘s possession. In 1972, thirteen years after Palacos first came on the market, Heraeus entered into a distribution agreement with Merck, pursuant to which Heraeus disclosed its trade secrets so that Merck could “obtain and maintain regulatory approval” to distribute Palacos. App. 84. Merck was also obligated under the agreement to protect Heraeus’ trade secrets from disclosure to third parties without first obtaining Heraeus’ consent. This arrangement was in place until 1997, when Merck and Biomet entered into a joint venture that took over the distribution of Palacos. At that point, Heraeus agreed to supply the joint venture, and only Merck, pursuant to its confidentiality agreement with Heraeus, had access to the trade secrets covering the copolymers.
In 2004, however, Biomet acquired Merck‘s shares in the joint venture, taking over the distribution agreement and, unbeknownst to Heraeus, also gaining access to Heraeus’ trade secrets. Upon learning of the joint venture‘s sale to its competitor, Heraeus announced it would terminate the distribution agreement in August 2005, but by the time Heraeus severed its ties with Biomet, Biomet had already launched its own competing bone cement—a feat that Heraeus alleges its “competitors had failed to do for decades” and that it contends has since cost it 50 percent of its market share. App. 88. Suspecting that Biomet‘s bone cement was created using its trade secrets, Heraeus acquired and analyzed samples of Biomet‘s bone cement in 2005 and discovered that, except for “[m]inor discrepancies,” it “w[as] virtually identical to” Heraeus’ bone cement and that Esschem was manufacturing the copolymer components for Biomet. App. 89.
Over the next few years, Heraeus took legal action to protect its trade secrets. It filed suit for trade secret misappropriation against Biomet in Germany in December 2008, and shortly thereafter, in aid of that litigation, brought discovery suits in the United States against both Esschem and Biomet.2
Discovery against Esschem ended sometime between August and December 2011, but discovery and litigation against Biomet continued for several more years. In the course of the proceedings against Biomet—specifically, in a December 2011 deposition—Dan Smith corroborated what the e-mail chains had indicated: that Biomet employees were “direct participants,” Appellant‘s Br. 11 (quoting Sealed App. 1703) in the development of the copolymers and that “their work with Esschem . . . ultimately led to the copolymers manufactured by Esschem for use in Biomet‘s bone cement,” id. Heraeus contends it was not until “that time,” i.e., December 2011, that it had “sufficient information to believe that Esschem had actively participated in the misappropriation of [its] trade secrets.” Id. at 12.
Just short of three years later, on September 8, 2014, Heraeus sued Esschem for trade secret misappropriation in the Eastern District of Pennsylvania. The complaint included one count for misappropriation of trade secrets under the Pennsylvania Uniform Trade Secrets Act (PUTSA) and five counts for common law claims.3
Following discovery, Esschem moved for summary judgment, arguing that all of Heraeus’ claims were time-barred. Under the PUTSA, a plaintiff has three years from when “the misappropriation was discovered or by the exercise of reasonable diligence should have been discovered” to bring suit.
In its opposition motion, Heraeus countered that it did not discover the necessary facts to sue for trade secret misappropriation until “the end of 2011,” and that any dispute over when it discovered those facts was an issue of triable fact that precluded summary judgment. App. 663. Heraeus also urged that continuing misappropriations were subject to the separate accrual rule, so that, under the PUTSA, each additional use of Heraeus’ trade secrets within three years of the filing of the complaint
The District Court rejected both of Heraeus’ arguments and ruled that the statutes of limitations had run on its PUTSA and common law claims. At the very latest, the Court found, Heraeus was aware of “the facts supporting its misappropriation claims” against Esschem by January 2009. Heraeus Med. GmbH v. Esschem, Inc., 285 F. Supp. 3d 855, 861 (E.D. Pa. 2018). It also held that Esschem‘s additional uses of the trade secrets between September 2011 and the filing of the complaint in September 2014 were part of a single and time-barred cause of action under the PUTSA because Esschem‘s continued use of the trade secrets was “nothing more than a continuation of the original alleged misappropriation.” Id. at 863. Interpreting the PUTSA to adopt the separate accrual rule, it reasoned, would “eliminate the statute of limitations altogether” by allowing Heraeus to “sit by for nearly a decade” after learning all facts necessary to bring a claim and to obtain damages for the entire period so long as one misappropriation took place within the statute of limitations.4 Id. On that basis, the Court granted summary judgment for Esschem, and Heraeus now appeals.
II. Jurisdiction and Standard of Review
The District Court had diversity jurisdiction under
We review the District Court‘s grant of summary judgment de novo. Faush v. Tuesday Morning, Inc., 808 F.3d 208, 215 (3d Cir. 2015). To prevail at this stage, the moving party must establish that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
III. Discussion
On appeal, Heraeus raises the same two arguments it did below. First, it contends that it did not discover sufficient facts to state a claim against Esschem until December 2011, and therefore its September 2014 suit fell within the three-year limitations period. And to the extent there is a dispute over when Heraeus discovered sufficient facts to state a claim, Heraeus argues, this is a factual dispute for the jury.
A. The Commencement of the Limitations Period
A “limitations period generally begins to run ‘as soon as [an] injury is sustained.‘” Davis v. Wells Fargo, 824 F.3d 333, 344 n.13 (3d Cir. 2016) (quoting Mest v. Cabot Corp., 449 F.3d 502, 510 (3d Cir. 2006)). In Pennsylvania, there are several “exception[s]” to this “general rule.” Pocono Intern. Raceway, Inc. v. Pocono Produce, Inc., 468 A.2d 468, 471 (Pa. 1983). One is the discovery rule, which evolved from the notion that a limitations period should not “run[] against” a plaintiff who is “ignorant of his loss.” Lewey v. H.C. Frick Coke Co., 31 A. 261, 264 (Pa. 1895). When the discovery rule applies, the limitations period only begins to run once the plaintiff is no longer “ignorant of his loss,” id., i.e., once he is able to “ascertain the fact of a cause of action,” Pocono, 468 A.2d at 471. That is not to say the period is suspended until the plaintiff has “acquired finite knowledge of all operative facts.” Id. (emphasis added). Rather, “[f]or the statute of limitations to run, a plaintiff need not know the ‘exact nature’ of his injury, as long as it objectively appears that the plaintiff ‘is reasonably charged with the knowledge that he has an injury caused by another.‘” Mest, 449 F.3d at 510-11 (quoting Ackler v. Raymark Indus., Inc., 551 A.2d 291, 293 (Pa. Super. Ct. 1988)).
The PUTSA explicitly incorporates the discovery rule. Under the statute, a plaintiff has three years to file an action for trade secret misappropriation once she “discover[s]” or “should have . . . discovered” the misappropriation.6
According to Heraeus, it was not until it deposed Biomet‘s Dan Smith in December
But the argument proves too much, for if that information was sufficient to put Heraeus on notice of Esschem‘s scienter, then Heraeus was necessarily on notice nine months earlier when it came into possession of essentially the same information. In a March 2011 discovery production, Heraeus received, among other things, a 2004 e-mail exchange between Smith and Esschem in which Smith attempted to troubleshoot Esschem‘s manufacturing difficulties, and, in declining to provide more detailed copolymer specifications, noted that doing so would disclose non-public information. But follow-up e-mails to Esschem from the other Biomet employee, Rainer Specht, which Heraeus also received in discovery by March 2011, did provide Esschem with those supposedly non-public details. And soon thereafter, as Heraeus was well aware, Biomet released its competing bone cement.
This sequence and the face of these detailed exchanges about the copolymer specifications reveal that the very facts that Heraeus claims it first learned in the December 2011 deposition were in its possession by March 2011: (1) “direct participat[ion]” by Biomet employees in Esschem‘s development of the copolymers; and (2) that this participation is what “ultimately led” to Esschem‘s successful production of the copolymers. Appellant‘s Br. 11. Moreover, the March 2011 discovery revealed the additional fact that Esschem had reason to believe Specht‘s subsequent disclosure of the copolymer specifications constituted non-public information, i.e., information that was “derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy.”
The question remains whether Esschem‘s alleged continued use of Heraeus’ trade secrets between September 2011 and September 2014 is properly viewed as part of one violation that is time-barred in its entirety, as the District Court held, or instead as a series of separate misappropriations that accrued individually and thus were timely asserted. As we explain next, the PUTSA provides the answer.
B. The Timeliness of Claims for Misappropriation After September 2011
The Pennsylvania General Assembly based the PUTSA on the provisions of the Uniform Trade Secrets Act (UTSA). But while it adopted most of those provisions, it opted to diverge from them in certain instances. One such instance is in the treatment of a “continuing misappropriation.” The UTSA provides:
An action for misappropriation must be brought within 3 years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.
An action under this chapter for misappropriation must be brought within three years after the misappropriation was discovered or by the exercise of reasonable diligence should have been discovered.
The parties view the omission of the final sentence very differently. Heraeus argues that the Pennsylvania legislature intended “each wrongful use of misappropriated trade secrets [to] trigger a distinct limitations period” and that, under this separate accrual rule, its claims for misappropriations between September 2011 and September 2014 are timely. Appellant‘s Br. 14. Esschem, on the other hand, defends the District Court‘s rejection of the separate accrual rule as a rule that would nullify the PUTSA‘s statute of limitations, and it urges that we affirm the denial of Heraeus’ PUTSA claims as a single, time-barred cause of action.
As explained below, Heraeus has the better of the argument. The District Court erred in treating Esschem‘s continued use of Heraeus’ trade secrets as a single misappropriation for three reasons: (1) the text of the PUTSA; (2) Pennsylvania‘s common law rule of separate accrual, which provided the backdrop against which the PUTSA was drafted; and (3) Pennsylvania‘s adoption of the Restatement of Torts, which also endorses the separate accrual rule for continuing misappropriations. We address these in turn.
1. The PUTSA Treats Continuing Misappropriations as Separate Violations Subject to the Separate Accrual Rule
a. The Text of the PUTSA
The UTSA, by its terms, treats a continuing misappropriation as a single claim, but Pennsylvania, like some other states, opted not to enact that particular provision. See, e.g.,
Pennsylvania law provides that “[t]he object of all interpretation and construction of statutes is to ascertain and effectuate the intention of the General Assembly.”
Esschem, however, asks us to ignore the significance of the second sentence‘s omission and to imply the General Assembly‘s rejection of the separate accrual rule into the first sentence. But in interpreting a statute, “language should not be implied where excluded,” and we will not contravene legislative intent by reading into
The comments to the UTSA reinforce this reading of
We decline to adopt Esschem‘s reading. Instead, we glean from the text of the statutes that the UTSA adopted the discovery rule and single-claim treatment for continuing misappropriations, and the PUTSA embraced the UTSA‘s discovery rule but declined its single-claim treatment in favor of the separate accrual rule.
b. Pennsylvania‘s Common Law Rule of Separate Accrual
That the Pennsylvania legislature intended to follow the separate accrual rule is all the more apparent when we consider the omission of the UTSA‘s second sentence against the backdrop of Pennsylvania common law.
As explained by our former Chief Judge Edward Becker when he sat on the District Court in Anaconda Company v. Metric Tool & Die Company, Pennsylvania courts have adopted the “property” view of trade secrets, under which the basis of a claim for trade secret misappropriation is the violation of a property right, in contrast to the “confidential relationship” view, under which a misappropriation is based on a violation of a duty of confidentiality. 485 F. Supp. 410, 425–26 (E.D. Pa. 1980).10 And the property view provides the theoretical underpinnings for the separate accrual rule: While a breach of confidentiality only occurs upon the initial misappropriation, and the “fabric of the [confidential] relationship once rent is not torn anew with each added use or disclosure,” under the property view, a trade secret “is in the nature of property[] [and] is damaged or destroyed by the adverse use,” such that “each use is a new wrong.” Monolith Portland Midwest Co. v. Kaiser Aluminum & Chem. Corp., 407 F.2d 288, 293 (9th Cir. 1969). It is for that reason, as Judge Becker held in applying Pennsylvania‘s common law of trade secrets, that “the statute of limitations for the tort of wrongful use begins to run at the time of the wrongful use, and not at the time of the initial misappropriation.” Anaconda, 485 F. Supp. at 426. He recognized, in other words, that Pennsylvania‘s common law embraced the separate accrual rule.
Esschem takes issue with Anaconda‘s holding on the ground that no Pennsylvania court “ever applied the separate accrual rule to common law trade secret claims.” Appellee‘s Br. 49-50. But Anaconda‘s reasoning is sound, and although no Pennsylvania court has explicitly discussed this reasoning, other courts have, confirming the separate accrual rule‘s roots in the property view and its
We hold today that this common law rule was not displaced by the PUTSA. The Pennsylvania Supreme Court has long instructed that “provisions in derogation of the common law are to be held strictly,” Gibson v. Commonwealth, 87 Pa. 253, 256 (1878), and that “[s]tatutes are never presumed to make any innovation in the rules and principles of the common law or prior existing law beyond what is expressly declared in their provisions,” Rahn v. Hess, 106 A.2d 461, 464 (Pa. 1954). The PUTSA “expressly declare[s]” only that trade secret misappropriation claims are subject to the discovery rule. So by omitting the UTSA‘s second sentence, the General Assembly in effect codified Pennsylvania common law, foregoing the single-claim approach in favor of the separate accrual rule and harmonizing the PUTSA with Pennsylvania‘s property view of trade secrets. Far from abrogating the common law rule of separate accrual then, the PUTSA was drafted to preserve it.
c. Pennsylvania‘s Adoption of the Restatement of Torts
Our reading of the PUTSA is also in line with the approach taken by the Restatement of Torts, which courts in Pennsylvania “have generally accepted . . . as the basic outline for [Pennsylvania‘s] trade secrets law.” O.D. Anderson, Inc. v. Cricks, 815 A.2d 1063, 1070 (Pa. Super. Ct. 2003); see Coll. Watercolor Grp., Inc. v. William H. Newbauer, Inc., 360 A.2d 200, 204 (Pa. 1976) (“The standard for determining whether one is liable for the use or disclosure of another‘s trade secret is set forth in the Restatement, Torts, [§] 757 (1939) and in Van Products . . . .“); Den-Tal-Ez, Inc., 566 A.2d at 1228 (noting the same). The Restatement recognizes a cause of action not only for the initial disclosure of a trade secret—the confidential relationship view—but also for the wrongful use of a trade secret, explaining that a trade secret holder “may be harmed merely by the disclosure of his secret to others as well as by the use of his secret in competition with him.” Restatement (First) of Torts § 757 cmt. c (1939). As we just discussed, harm arising from wrongful use is the hallmark feature of the property view, and the Restatement embraces this theory by providing a cause of action for both disclosure and use of a trade secret. Id. § 757. Pennsylvania‘s adoption of the Restatement, then, lends further support to the conclusion that Pennsylvania followed the separate accrual rule for misappropriation claims prior to the PUTSA and that the PUTSA was deliberately drafted to preserve it.
Ultimately, the General Assembly drafted the PUTSA against the backdrop of Pennsylvania‘s adoption of the Restatement of Torts and its common law rule of
2. Esschem‘s Arguments to the Contrary Are Unavailing
Esschem raises two primary objections to this application of the separate accrual rule. Neither is persuasive.
First, following the District Court‘s lead, Esschem argues that applying the separate accrual rule to a claim for a continuing misappropriation “would nullify the . . . statute of limitations provision.” Appellee‘s Br. 41–42. A “continuing misappropriation” subject to the separate accrual rule may be a “continuing violation” in the colloquial sense, but it is conceptually distinct from the “continuing violation doctrine.” The District Court appears to have conflated the two.
The “continuing violation doctrine” applies only to a narrow class of continuing violations for which courts have concluded that a claim accrues over time as a result of a “continuing pattern, practice, [or] policy” that is unlawful in nature. Havens Realty Corp. v. Coleman, 455 U.S. 363, 381 (1982); see also Randall v. City of Phila. Law Dep‘t, 919 F.3d 196, 198 (3d Cir. 2019) (“This doctrine applies ‘when a defendant‘s conduct is part of a continuing practice.‘” (citation omitted)). In such cases, “[n]o single act may be enough to make out a claim[, s]o the statute of limitations runs from the last act of the illegal conduct,” and a plaintiff “may sue for all acts that make out his claim, even acts that predate the limitations period.” Blake, slip op. at 10 (citing Nat‘l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 118, 122 (2002)).
The same is not true for continuing violations subject to the separate accrual rule, where each violation “starts the statutory period running again” and “the commission of a separate new overt act [within the limitations period] generally does not permit the plaintiff to recover for the injury caused by old overt acts outside the limitations period.” Klehr v. A.O. Smith Corp., 521 U.S. 179, 189 (1997). Because the separate accrual rule is sometimes referred to with terminology similar to “continuing violation,” see, e.g., Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Inc., 805 F.3d 701, 704 (6th Cir. 2015) (noting that the “‘continuing wrong’ approach[] [is] also known as [the] ‘separate-accrual’ rule“), it is perhaps unsurprising that courts and litigants confuse the two, see Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 671 n.6 (2014) (warning against this exact mix-up); Blake, slip op. at 9-11 (describing confusion in the parties’ arguments about which doctrine applies).
But the separate accrual rule does not “eliminate the statute of limitations altogether” or allow a plaintiff to “sit by for nearly a decade and . . . override PUTSA‘s three-year statute of limitations,” Heraeus, 285 F. Supp. 3d at 863; it merely allows the plaintiff to claim as separate misappropriations those wrongful uses of a trade secret that occurred within three years of the complaint‘s filing. The three-year statute of limitations thus remains in full force under the separate accrual rule and is far from “toothless,” Appellee‘s Br. 44.
Second, Esschem contends that Heraeus cannot benefit from the separate accrual rule because it did not “assert [in its complaint] distinct claims for each new batch of copolymers that Esschem has sold to Biomet,” and cannot do so because Esschem‘s “ongoing sale of products” does not constitute a continuing misappropriation. Appellee‘s Br. 53. Because the alleged misappropriation is not a continuing one, the argument goes, but a singular one with lingering effects, Heraeus’ claim is time-barred even under the separate accrual rule.
Esschem is right that an injury that is “the lingering effect[] of past unlawful conduct” is “not a continuing violation and . . . thus not actionable in [its] own right.” Elad Peled, Rethinking the Continuing Violation Doctrine: The Application of Statutes of Limitations to Continuing Tort Claims, 41 Ohio N.U. L. Rev. 343, 366 (2015). And though we recognize that courts, legislators, and academics may disagree on the exact bounds of a continuing violation,12 we are persuaded that Esschem‘s alleged continued use of Heraeus’ trade secrets is within those bounds.
The PUTSA‘s broad definition of misappropriation includes a trade secret‘s “use,” which Black‘s Law Dictionary defines as “[t]he application or employment of something; esp., a long-continued possession and employment of a thing for the purpose for which it is adapted, as distinguished from a possession and employment that is merely temporary or occasional.” Black‘s Law Dictionary (10th ed. 2014). The wrongful use that Heraeus claims against Esschem is not merely sales, but the continued employment of Heraeus’ trade secrets in Esschem‘s manufacturing process. Such conduct, if proven, is well within the broad meaning of “use” and in line with other courts’ understanding of continuing misappropriations. See Underwater Storage, 371 F.2d at 951–52 (use of misappropriated fuel tank designs to create similar fuel tanks); Anaconda, 485 F. Supp. at 417–19 (use of a machine that was designed based on misappropriated trade secrets to produce telephone cord armor); Cadence Design Sys., Inc. v. Avant! Corp., 57 P.3d 647, 648–49 (Cal. 2002) (use of misappropriated source code to create new software). And because the separate accrual rule applies, injuries Heraeus suffered due to any such uses after September 2011 are actionable under the PUTSA.
IV. Conclusion
For the foregoing reasons, we will reverse in part and affirm in part the District Court‘s grant of summary judgment and remand for proceedings consistent with this opinion.