MEMORANDUM AND ORDER
MacLAUGHLIN, District Judge.
TABLE OF CONTENTS
FACTS.................................................................. 668
The Intraocular Lens Industry............................................ 669
Surgidev................................................................. 672
Non-Disclosure Agreements............................................... 675
ETI ..................................................................... 676
DISCUSSION............................................................ 679
A. Choice of Laws...................................................... 679
B. Trade Secrets........................................................ 680
1. Customer Information............................................ 680
a. Hollingsworth analysis....................................... 681
b. Hospitals and/or Clinics...................................... 686
2. IOL and PMMA Monofilament “Know-How” and New Products..... 687
a. Trade Secret Ownership...................................... 687
(1) Not Generally Known or Easily Ascertainable.............. 688
(a) Not Generally Known — PMMA Monofilament........... 688
(b) Not Generally Known— IOL Manufacturing Know-How...................... 689
(c) Not Generally Known — New Products.................. 689
(d) Not Generally Known— Remaining Categories of Customer Information....... 690
(i) Influential Ophthalmologists....................... 690
(ii) Consultants & Non-Medical Consultants............ 691
(iii) Medical Monitor................................... 691
(2) Provide a Competitive Advantage.......................... 692
(3) Confidentiality............................................ 692
b. Disclosure, Legal Relationship, and Use....................... 694
c. Duration..................................................... 696
C. Breach of Contract................................................... 696
D. Tortious Interference................................................. 699
CONCLUSION........................................................... 700
This matter is before the Court on plaintiffs motion for preliminary and permanent injunctive relief. Plaintiff’s motion will be granted in part and denied in part.
FACTS
Plaintiff Surgidev Corporation (Surgidev) is a California corporation with its principal place of business in Goleta, California, engaged in the manufacture and sale of intraocular lenses (IOLs). Defendant Eye Technology, Inc. (ETI), is a Delaware corporation headquartered in St. Paul, Minnesota, also engaged in the manufacture and sale of IOLs. Defendants Robert J. Fitzsimmons, Frederick G. Kalfon, James A. Greiling and Debra McCoy are former Surgidev officers and employees now associated with ETI. This is an action alleging unfair competition, misappropriation of trade secrets, breach of contract, breach of fiduciary duty, conversion, and tortious interference with contractual relations and prospective economic advantage. Jurisdiction lies under the Court’s diversity powers, 28 U.S.C. § 1332, and venue is proper by virtue of 28 U.S.C. § 1391. Plaintiff seeks preliminary and permanent injunctive relief, as well as compensatory and punitive damages. By stipulation and order dated February 12, 1986, and pursuant to Rule 65(a)(2) of the Federal Rules of Civil Procedure, plaintiff’s motion for preliminary injunctive relief was consolidated with plaintiff’s prayer for permanent injunctive relief. A consolidated hearing was conducted March 10-19, 1986. Additional arguments were heard and evidence taken April 15, 1986, and June 30, 1986.
Plaintiff originally submitted to the Court a proposed form of injunction. The following is taken verbatim therefrom. Plaintiffs seek to enjoin defendants from:
1. Soliciting for employment or attempting to solicit for employment or hire any SURGIDEV employees for a period of two years from [the date of filing];
2. Hiring any SURGIDEV employees for a period of six months after they have left the employment of SURGI-DEV;
3. Having Myron Lippman perform any services on behalf of [ETI] and/or its employees, agents, officers and all persons acting in concert with it with actual notice of this order until October, 1987;
4. Purchasing or obtaining PMMA monofilament from MYRON LIPPMAN, Lippman Engineering Co. (LENCO) and/or L.I.M.R. or their officers, agents, servants, employees and attorneys and any and all persons in active concert or participation with them;
5. Having MYRON LIPPMAN, Lippman Engineering Co. (LENCO) or L.I.M.R. and/or their officers, agents, servants, employees and attorneys and any and all persons in active concert or participation with them make and/or supply PMMA monofilament until 1992;
6. Having Myron Lippman, Lippman Engineering Co. (LENCO) or L.I.M.R. and/or any and all persons in active concert with them teach any of the defendants how to manufacture PMMA monofilament until 1992;
7. Soliciting or attempting to solicit any of the doctors listed on Appendix A hereto as customers and/or shareholders of [ETI] until 1988;
8. Soliciting or attempting to solicit any of the hospitals and/or clinics listed on Appendix B hereto as customers of [ETI] until 1988;
9. Soliciting or attempting to solicit any of the doctors and/or customers listed below from working or cooperating with [ETI] and its officers, directors, employees, agents and those acting in concert with them from designing, developing and/or manufacturing the products indicated below:
Richard Lindstrom Surgical Viscous Adjunct
Richard Lindstrom Super Balanced Salt Solution
L.G. Leiske Posterior Chamber Lens
Evan Jones In the Bag Lens
10. Designing, developing and/or manufacturing any Surgical Viscous Adjunct for a period of two years; and
11. Selling any IOLs made by any of the defendants for a period of nine months.
Plaintiff subsequently amended its proposed form of injunctive relief in certain material respects, as discussed in this memorandum.
By order dated May 22, 1986, the Court entered a partial injunction pending final judgment in the case. This memorandum and order incorporates findings of fact and conclusions of law as required by rule 65 of the Federal Rules of Civil Procedure.
The Intraocular Lens Industry
Both Surgidev and ETI are engaged in the manufacture and sale of IOLs — medical devices implanted by ophthalmologists in the human eye to correct vision loss resulting from removal of the eye’s natural crystalline lens during cataract surgery. A cataract is a progressive clouding or opacification of the eye’s natural lens which obstructs the passage of light and impairs vision. The lens is a transparent structure located behind the iris and the pupil. Together with the cornea, the outermost or external segment of the eye fronting the iris, the lens focuses images onto the retina, the light sensitive tissue that lines the inner rear portion of the eye. Opacification of the lens is an irreversible process occasioned by loss of the lens’ water content. There are three major classes of cataracts: those induced by the natural process of aging (approximately ninety percent of all cataracts), congenital cataracts, and cataracts induced by trauma.
Since at least the mid-1950’s surgical removal of the opacified lens and implantation of an artificial lens has been an accepted technique for treatment of cataracts. 1 The IOL implantation technique was pioneered by Dr. Harold Ridley, an English ophthalmologist. During World War II, Ridley treated British aviators who sustained injuries when fragments of cockpit canopies penetrated their eyes. These canopies were constructed of polymethylmethacrylate (PMMA). Ridley concluded that the PMMA was inert within body tissue. Thereafter, Ridley developed a method whereby an opacified lens may be surgically removed and replaced with an artificial lens composed of PMMA. Due to technical setbacks, the implantation technique did not immediately gain widespread acceptance, and until the mid-1970’s cataract spectacles and contact lenses were the preferred methods of treating cataracts. Since that time, however, medical acceptance of IOL implantation has increased steadily, due primarily to Food and Drug Administration (FDA) approval of new IOL designs, improved microsurgical techniques, and the fact that implantation represents a lesser intrusion on the patient’s lifestyle than do spectacles or contact lenses. Unlike spectacles and contact lenses, IOLs require no maintenance and do not magnify vision or obstruct peripheral vision. Today, ninety-four percent of all cataract patients are treated with IOL implantation.
The most common technique for performing IOL implantation is known as extracapsular extraction, or ECCE. In an ECCE operation the surgeon removes the anterior or front portion of the lens capsule and lens cortex and nucleus while leaving the posterior or rear portion of the capsule intact. A less common technique is intracapsular extraction, or ICCE, whereby the entire lens, including its surrounding cap
IOL implantation may be either primary — simultaneous extraction of the opacified lens and implantation of an artificial lens — or secondary — implantation of an artificial lens in a patient whose natural lens has been removed on some prior occasion. In 1984, of the approximately 800,000 cataract operations performed nationwide, 100,-000 involved secondary implantation and the remainder were primary implants.
All IOLs are composed of a central optic, the actual artificial lens through which light passes, and some variation of haptic, a support system which permits the optic to be securely fastened within the human eye. Lenses are manufactured by one of four methods: the lathe cut method, the injection molding method, the cast molding method, or the compression molding methоd. The central optic is typically composed of PMMA, although some manufacturers use other materials. The haptic may also be composed of PMMA or, more commonly, of polypropylene. Whether PMMA or polypropylene is preferable as haptic material is a debate which continues to rage among ophthalmologists and among IOL manufacturers. In any event, it is clear that several manufacturers, including Surgidev, market lenses with PMMA haptics. In order to manufacture an IOL with PMMA haptics the manufacturer must either purchase or extrude PMMA monofilament. PMMA monofilament is a very fine thread of the PMMA polymer, akin to a plastic fishing line, with a diameter of less than one ten-thousandths of an inch. The process for extruding PMMA monofilament was developed by Surgidev founder Myron Lippman. Prior to Lippman’s innovation, IOL haptics were made of platinum radium wire or titanium. The Lippman method for extrusion of PMMA monofilament is accomplished by first melting or dissolving PMMA pellets, then extruding the dissolved PMMA through a “spinnerette,” and finally stretching the PMMA at elevated temperatures and winding it on a spool. PMMA pellets are commercially available from at least two suppliers, Rohm and Haas and Imperial Chemical Company, and several manufacturers offer PMMA mono-filament for commercial sale, including Polyoptics and Reliable Engineering, a subsidiary of CooperVision. In addition, some IOL manufacturers, including Surgidev, make their own PMMA monofilament.
A recent event in IOL manufacture is the development of blue-tinted PMMA haptics. A dye or pigment is introduced into the extruded PMMA to give it a blue tint, which has the salutary effect of making the haptic more easily visible to the surgeon during implantation. The blue PMMA haptic was first developed by IOL-ab, Inc., an IOL manufacturer, and subsequently has been copied by other manufacturers including Surgidev.
The earliest mass-manufactured lenses were primarily anterior chamber lenses designed for implantation in the front or anterior segment of the eye. The advantages of anterior implantation included reduced likelihood of lens dislocation, a lesser chance of post-operative inflamation, and the fact that the anterior surgical technique is a simpler procedure than is posteri- or implantation. Generic anterior chamber lenses which enjoy widespread popularity include the Leiske lens, the Choyce Mark IX lens, the Simcoe C-loop lens, and the Shepard Universal lens. In recent years, however, the IOL industry has witnessed a dramatic shift away from anterior lens implantation in favor of posterior lens implantation, primarily due to the introduction of compressible posterior chamber IOLs which, although technically more difficult to implant, involve a lesser intrusion to the nаtural anatomy of the human eye. The shift toward posterior implantation has also been spurred by the present preference among ophthalmic surgeons for ECCE surgery, discussed above. Posterior chamber IOLs are typically implanted in those patients who have undergone ECCE surgery, whereas, for patients subjected to ICCE
The market for artificial IOLs has experienced dramatic growth. In 1973 approximately 14,000 lenses were implanted at a dollar volume of $1.7 million. By 1979 the number of lens implantations in the United States had grown to nearly 200,000 at a dollar volume of $41.3 million, and in 1985 some 1.1 million lenses were implanted at a dollar volume in excess of $225 million. The vast majority of IOL implantations are performed on elderly patients suffering from opacification caused by aging. Ninety percent of all IOL implants are subject to Medicare reimbursement. The implementation of medical cost containment measures such as diagnostic related groups (DRGs) has exerted significant downward pressure on IOL prices. While in the past it was not untypical for a hospital or clinic to mark up IOLs for resale anywhere from fifty to three hundred percent, under the DRGs the maximum mark up is expected to be twenty percent or less. Accordingly, while at present IOLs are sold by manufacturers to hospitals or clinics in a price range of $100 to $300, due to increasing price competition in the industry these figures have experienced a steady decline. In addition, the explosive growth in the market has flattened to an annual rate of less than ten percent. One leading analyst has predicted that the rate of increase in the IOL market will decelerate from a 1985 rate of twelve percent per annum to a two percent rate by 1990, resulting in an overall stagnation of lens sales from the 1985 figure of 1.03 million to a projected 1990 figure of 1.15 million. Defendants’ Exh. 181 at 3.
As noted above, the IOL market at present is marked by a significant trend away from anterior lens implantation and toward posterior lens implantation. The market for anterior chamber lenses has experienced a corresponding decline. The industry has also experienced a trend away from hospital implantation in favor of implantation in clinics or on an outpatient basis, due primarily to the cost pressure exerted by DRGs. Presently some sixty-five percent of all implants are performed in hospitals, twenty percent are performed on an outpatient basis, and fifteen percent are performed in clinics.
The primary “customers” of IOL manufacturers are the implanting ophthalmologists, hospitals and/or clinics, and institutional “buying groups.” While in the past the implanting ophthalmologist typically made the lens-buying decision, the recent trend toward price competition in the industry has caused institutional purchasing agents and administrators to play a larger role in the lens-buying decision. In addition, many smaller hospitals/clinics have banded together into “buying groups” for the purpose of obtaining volume price discounts. Buying group purchasing agents and administrators are assuming an ever-increasing role in IOL purchase decisions.
At present, some seventeen to twenty manufacturers vie for supremacy in the IOL marketplace, including: American Medical Optical (AMO), Cilco, Coburn, CooperVision, Copeland, Intermedies, IOLab, Ioptex, McGhan, Optical Radiation Corporation (ORC), Precision-Cosmet, Surgidev, Storz, and STAAR Surgical. In addition, a number of European competitors are active in the world market including Rayner
Surgidev
Surgidev was founded by Myron Lippman in 1976. Lippman is an electrical engineer who corroborated with Dr. Dennis Shepard in the development of McGhan Medical, one of the first IOL manufacturers in the United States. Lippman developed the technology to manufacture IOLs based on his study of European manufacturing facilities. Lippman on behalf of McGhan purchased molding machines from Germany, modified the machines, created fixtures for attaching haptics to PMMA optics, and independently developed a process for the extrusion of PMMA monofilament. In 1976 Lippman left McGhan and founded Surgidev. From 1976 to 1979 Lippman was president, director, and majority shareholder of Surgidev. By 1979 Surgidev had annual IOL sales in excess of $1 million.
In 1979 Lippman sold eighty percent of Surgidev stock to Dennis Grendahl. Grendahl had extensive experience in the medical products field, primarily as a sales representative. Grendahl was introduced to Lippman and Surgidev by Robert Fitzsimmons, with whom Grendahl had previously worked when both men were employed in the medical products division of Minnesota Mining and Manufacturing (3M). Fitzsimmons became familiar with the emerging IOL industry while serving as a manufacturer’s sales representative for IOLab, in connection with his work as the head of a manufacturer’s representative company called Midwest Medical Specialties. When Grendahl inquired of possible development ideas in the medical products field, Fitzsimmons introduced him to Lippman. Through his work in the field Fitzsimmons was aware that Lippman was looking for someone with sales and marketing expertise to purchase a controlling interest in Surgidev. Grendahl and Lippman were able to come to terms and in November, 1979, executed a contract for transfer of eighty percent of Surgidev stock at a price of $1.12 million. Fitzsimmons cosigned a promissory note on behalf of Grendahl. At a subsequent date Fitzsimmons acquired four percent of Surgidev’s stock at a price of $16,000.
From the date of sale through October, 1982, Grendahl, Lippman and Fitzsimmons worked to transform Surgidev into a leading competitor in the IOL marketplace. Grendahl acted as chief executive officer of Surgidev based in the company’s Minneapolis, Minnesota sales and administrative headquarters. Fitzsimmons acted as vice president of marketing and sales, also based in Minneapolis. Lippman acted as president of the company with primary responsibility for Surgidev’s Santa Barbara, California manufacturing facility. Surgidev’s sales rose from just over $1 million in 1979 to $14 million in 1982. Surgidev was able to carve out a dominant position in the anterior lens market, primarily due to its development of the Leiske style 10 anterior chamber lens. In addition, Surgidev was first in the field with IOLs composed completely of PMMA. While most manufacturers had PMMA optics, Surgidev was the first to develop PMMA haptics, made of extruded PMMA monofilament.
Two weeks prior to Lippman’s termination, on October 13, 1982, Lippman and Surgidev had entered into an agreement whereby Lippman transferred to Surgidev the process which he had pioneered for extrusion of PMMA monofilament. This manufacturing process had not been among the assets transferred in the 1979 sale of Surgidev stock to Grendahl. The Lippman-Surgidev “Deal Memo” (the name given to the October 13, 1982 agreement) became the subject of a lawsuit initiated by Surgidev against Lippman shortly following Lippman’s termination. The Lippman-Surgidev litigation took place in California courts and was concluded by the entry of a settlement agreement (hereinafter “Lippman settlement”) in February, 1986. Surgidev subsequently amended paragraphs 3-6 of its proposed preliminary injunction to correspond with the terms of the Lippman settlement, and defendants have expressed their intention to abide by the terms of the Lippman settlement.
From 1982 through 1985 Surgidev experienced a gradual flattening of sales growth. As noted above, during this period the industry witnessed a dramatic shift from anterior to posterior implantation. While Surgidev had a strong array of anterior chamber lenses, it lagged behind its competitors in the development of posterior chamber lenses. In addition, due to the fact that many of Surgidev’s competitors were successful in replicating Surgidev’s popular Leiske style anterior chamber lens, the competition for anterior lens sales stiffened. As the trend toward posterior lenses accelerated, many hospitals with unused anterior lenses in inventory returned the lenses to Surgidev for a cash refund, thus occasioning cash flow difficulties for Surgidev. A flurry of accounting and billing errors followed, leading to customer dissatisfaction. Surgidev’s former vice president of finance, Daniel Binda, described the state of the company’s financial records when he arrived in 1984 as “a mess,” Binda Dep. at 51-53; 56-67, and during this period two reputable certified public accounting firms, Deloitte, Haskins & Sells and Ernst & Whinney, were unable to complete financial audits of Surgidev due to the disarrayed state of corporate financial records. Because Surgidev lacked a strong product in the growing posterior chamber field, 2 Surgidev’s field sales representatives found it increasingly difficult to generate sales commissions, leading in turn to low morale among the sales force, substantial turnover, and a surplus of inexperienced field representatives. In addition, Surgidev found itself shut out of the expanding UV-additive lens market due to its inability to develop and market a UV-additive lens.
Surgidev’s decline led to an exodus of key employees, beginning with the resignation of Robert Fitzsimmons in February, 1985. The precipitating event which triggered Fitzsimmons’ resignation was Grendahl’s implementation of the “Vanguard” marketing program in the latter months of 1984. Vanguard was the brainchild of Surgidev consultants Julian Moody and Gary Janka. Moody and Janka advised Grendahl to concentrate marketing and new product sales on the southern California region, an area where Surgidev traditionally had been weak, and which is perceived to be at the leading edge of new product innovation in the IOL industry. With this purpose in view, Grendahl appointed Fitzsimmons regional director of southern California sales, with a specific directive to increase Surgidev sales in the region from fifty sales per month to three hundred sales per month within a five-month period. While Fitzsimmons expressed initial approval of the Vanguard principle, he found himself unable to carry out the proposed directive, due primarily to a lack of sales representatives and the absence of competitive product in the posterior lens and UV-additive lens fields. When Fitzsimmons urged Grendahl to initiate product development in the posterior lens and UV-additive lens areas, Grendahl responded by saying: “Fitz, you’ve got a hundred thousand Leiske lenses on the shelf. Go sell them.” T. at 768. Frustrated by his inability to move the company forward, Fitzsimmons announcеd his resignation in February, 1985. Fitzsimmons also sold his four percent stock interest in Surgidev to Grendahl for $440,000 at that time.
Thereafter several other key employees departed Surgidev. Each subsequently enlisted with ETI. Frederick G. Kalfon was director of marketing at Surgidev from August 1,1982 through March, 1985, when his title was changed ,to director of sales support and communication. Kalfon resigned from Surgidev effective June 7, 1985. Kalfon is currently vice president of marketing and sales for ETI. Debra J. McCoy was a Surgidev field sales representative from September 14, 1981 through May 31, 1983, and was Surgidev’s manager of manpower development from May 31, 1983 through April 1, 1985, when she was appointed southeastern regional sales manager. McCoy resigned from Surgidev effective May 31, 1985. McCoy is currently vice president of public relations and communications for ETI. James A. Greiling was a Surgidev field sales representative from January 2, 1980 through July 31, 1982, when he was appointed north central regional sales manager. Greiling held this position until his resignation August 2, 1985. Greiling is currently vice president of sales for ETI. William E. Fagan was northeastern regional sales manager for Surgidev from September 7, 1982 until his resignation on August 14, 1985. Fagan is currently vice president of sales for ETI. Fagan, a Rhode Island resident, is not a party to this litigation.
In addition, on August 17, 1985 Myron Lippman, founder and former president of Surgidev, entered into a consulting agreement with ETI, pursuant to the terms of which Lippman agreed to:
(a) prepare for ETI a proposed budget and time schedule for the establishment of an IOL manufacturing facility;
(b) consult with ETI on a monthly basis with respect to establishment of an IOL manufacturing facility;
(c) develop new products for ETI.
In return, ETI pledged to compensate Lippman in the amount of $200,000 payable
Non-Disclosure Agreements
While employed at Surgidev, each of the individual defendants, as well as current ETI officers and/or employees Fagan and Lippman, signed non-disclosure agreements. The agreements signed by each of the individual defendants provide in relevant part:
EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT
This Employee Invention and Non-Disclosure Agreement (the “Agreement”) is entered into between SURGIDEV CORPORATION, a California corporation (“SURGIDEV”), and the undersigned EMPLOYEE.
In consideration for the employment or continued employment of EMPLOYEE by SURGIDEV, EMPLOYEE agrees as follows:
1.2 Confidential Information and Trade Secrets. “Confidential Information and Trade Secrets” means all information, processes, process parameters, methods, practices, fabrication techniques, technical plans, algorithms, computer programs and related documentation, customer lists, price lists, supplier lists, marketing plans, financial information, and all other compilations of information which relate to the business of SURGIDEV and which have not been released by SURGIDEV to the general public.
2. Trade Secrets and Confidential Information.
2.1 Acknowledgement by EMPLOYEE. EMPLOYEE acknowledges that during the term of employment with SURGIDEV, EMPLOYEE will have access to and become acquainted with the Confidential Information and Trade Secrets of SURGIDEV.
2.2 No Use or Disclosure. EMPLOYEE agrees not to use or disclose (directly or indirectly) any Confidential Information and Trade Secrets of SURGIDEV at any time or in any manner, except as required in the course of employment with SURGIDEV. The obligations of this Paragraph are continuing and survive the termination of EMPLOYEE’S employment with SURGIDEV.
2.3. Restriction on Documents and Equipment. All documents and equipment relating to the business of SURGI-DEV, whether prepared by EMPLOYEE or otherwise coming into EMPLOYEE’S possession, are the exclusive property of SURGIDEV, and must not be removed from the premises of SURGIDEV except as required in the course of employment with SURGIDEV. All such documents and equipment must be returned to SURGIDEV when EMPLOYEE leaves the employment of SURGIDEV.
2.4 No Disclosure or Use from Others. EMPLOYEE agrees not to disclose to SURGIDEV or use on behalf of SURGIDEV any confidential information or trade secrets obtained from other companies or persons, and not to bring confidential information or trade secrets of others onto SURGIDEV’s premises.
5. Restrictions on EMPLOYEE.
5.1 No Competitive Planning. While employed by SURGIDEV, EMPLOYEE agrees not to undertake any planning for any outside business activity (i) competitive with the work that EMPLOYEE performs for SURGIDEV, or (ii) competitive with the profit unit of SURGIDEV for which EMPLOYEE works.
5.2 No Hiring of Other Employees. While employed by SURGIDEV and for five (5) years after that employment ends, EMPLOYEE agrees not to employ or attempt to employ, in competition with SURGIDEV, any of SURGIDEV’s other employees who work in any area in which EMPLOYEE has been significantly engaged on behalf of SURGIDEV.
5.3 No Use of Confidential Information and Trade Secrets. While employed by SURGIDEV and for ten (10) years after that employment ends, EMPLOYEE agrees not to enter into any employment competitive with SURGI-DEV in which the complete fulfillment of the duties of the competitive employment would inherently require EMPLOYEE to reveal or use any of the Confidential Information and Trade Secrets of SURGIDEV learned and obtained by EMPLOYEE while employed by SURGI-DEV.
5.4 No Solicitation of Customers. While employed by SURGIDEV and for five (5) years after that employment ends, EMPLOYEE agrees not to divert or attempt to divert (by solicitation or by any other means) the customers of SURGIDEV existing at the time EMPLOYEE’S employment ends.
See Plaintiff’s Exhs. 5-11.
The circumstances leading to execution of these non-disclosure agreements by the individual defendants is the subject of some dispute. Robert Fitzsimmons executed the agreement January 7, 1983. Frederick Kalfon, William Fagan, and James Greiling executed agreements on or about February 12, 1983 in connection with a meeting of Surgidev regional sales managers at the Sheraton Park Place Hotel in Minneapolis. Grendahl and Fitzsimmons were also in attendance аt the February 12, 1983 meeting. Kalfon, Fagan, and Greiling testified that Hugh Jaeger, corporate counsel for Surgidev, distributed the form agreements at the meeting and instructed everyone in attendance to sign and date the forms and stated that copies would be provided to individual signatories at a later date. Fagan and Greiling also testified that when certain attendees expressed reservations about signing the agreements, Jaeger informed them that the agreements were designed primarily to protect inventions and patents developed at Surgidev's California manufacturing plant, that the agreements would not prevent Surgidev employees from leaving the company and taking work with a competitor, and that the agreements were unenforceable in any event. Others at the meeting, including certain parties unconnected to this litigation, dispute that such statements were made. Greiling testified that it was Steve Downing, a Surgidev regional manager unconnected to the instant litigation, who made a comment on the agreements' unenforceability, and that Jaeger did nothing more than fail to affirmatively disagree with Downing’s opinion. Fagan, meanwhile, testified that Jaeger affirmatively stated that the agreements were unenforceable, a contention which Jaeger hotly disputes.
Greiling and Fagan executed the agreements on February 12, 1983. Kalfon executed the agreement a day later, February 13, 1983. Subsequently, each received a copy of the signed agreement.
At the February 12 meeting, each of the regional managers was given blank nondisclosure agreements and instructed to obtain the signatures of each of their field sales representatives. On March 17, 1983 Greiling distributed a copy to Debra McCoy, with instructions to sign and date the form and to return it to him. McCoy at that time was a Surgidev field sales representative in Minnesota and reported to Greiling, regional sales manager for the north central region. McCoy testified that Greiling represented to her that the agreement was unenforceable and was designed primarily to protect inventions and patents developed at Surgidev’s California manufacturing plant. Based upon these representations, McCoy signed the agreement on that date.
ETI
Following his resignation from Surgidev, Fitzsimmons was contacted by Jonnie Williams, a venture capitalist who had played a role in the formation of several medical products start-up companies. At that time Fitzsimmons had plans to reactivate Midwest Medical Specialties (Midwest Medical), an independent distributor of medical products. Fitzsimmons had taken certain steps toward that end, including the acquisition of leased office space.
(a) Raymond Reher, financial officer for CME-SAT, was retained to prepare financial projections for the proposed company, based upon figures and analysis provided to him by Fitzsimmons. Reher completed the projections in April, 1985, and thereafter took a position as vice president-finance of the fledgling concern.
(b) In April, 1985 Fitzsimmons, Williams, and O’Donnell met at the Boston offices of Sam Sears to further discuss the proposed joint venture. The parties made a decision to go ahead with formation of a new IOL company. Sears was retained as corporate counsel and thereafter set about making legal preparations for a public offering of common stock.
(c) On June 20, 1985 an organizational meeting was conducted in St. Paul, Minnesota at the offices of Midwest Medical. In attendance at the meeting were Fitzsimmons, Williams, O’Donnell, Sears, Joseph Schneider, Kalfon, McCoy, and Lippman. After leaving Surgidev Kalfon and McCoy worked as consultants for CME-SAT utilizing Midwest Medical оffice space leased to them by Fitzsimmons. When they learned of the proposed start-up company they asked to be affiliated with the venture. Lippman had contacted Fitzsimmons earlier in the year with a proposal for a new products joint venture. As plans for ETI were developed Fitzsimmons asked Lippman to consider taking a consulting position with the new company. Items of business discussed at the June 20 meeting included equity distribution, the size of the proposed public offering, employee stock options, the role of Lippman in the new company’s development, and a voting trust. A decision was made to forge ahead with incorporation of ETI. Fitzsimmons was appointed president of the company, and Fitzsimmons, O’Donnell, and Sears agreed to act as directors.
(d) ETI was incorporated in Delaware on June 24, 1985. The original shareholders were Fitzsimmons, O’Donnell, and Williams.
(e) ETI entered into employment agreements with Fitzsimmons, (president, CEO, treasurer), Schneider (vice president-operations), Reher (vice president-finance), Kal
(f) On September 29, 1985 ETI filed with the Securities Exchange Commission (SEC) a preliminary prospectus for 2,415,000 shares of common stock at a proposed maximum offering price of $3.00 per share for a net offering of $7,245,000.
(g) In September, 1985 ETI made a private placement of 200,000 shares of common stock at $1.00 per share for a net additional contribution to capital of $200,-000. In order to effectuate the private placement, Fitzsimmons and O’Donnell solicited ophthalmologists familiar with the IOL industry. Ten individuals made purchases of 20,000 shares each. All but one of the private placement investors are practicing ophthalmologists with extensive IOL implantation practices.
(h) On October 30,1985 ETI filed amendment number one to its SEC registration statement, reducing the number of shares offered from 2,415,000 to 1,725,000, at a proposed maximum offering price of $3.00 per share. The effect of the amendment was to reduce the net offering from $7,245,000 to $5,175,000.
(i) On December 10, 1985, ETI filed amendment number two to its SEC registration statement. Amendment number two changed the form of the offering to 750,000 units, each unit consisting of two shares of common stock, at a per unit price of $4.00 for a net offering of $3 million.
(j) On February 3, 1986 ETI filed amendment number three to its SEC registration statement. Amendment number three changed the form of the offering to 1,000,-000 units, each unit consisting of three shares of common stock and a warrant to purchase an additional share of сommon stock at a price of $2.00 per share. The proposed offering of each unit was $3.00 for a total net offering of $3 million. (k) The preliminary prospectus filed by ETI included the following disclosure under the heading “Risk Factors”:
Five of the seven executive officers of the Company, including Robert J. Fitzsimmons, President, Treasurer and Chief Executive Officer, are former employees of Surgidev Corporation (“Surgidev”), a manufacturer of IOLs. The Company expects to compete directly with Surgidev in the IOL market. While employed by Surgidev, each of these officers signed an “Employee Invention and NonDisclosure Agreement,” the terms of which include extensive prohibitions for lengthy periods of time against the disclosure of Surgidev’s “trade secrets,” the employment of Surgidev’s employees, the use of Surgidev’s “confidential information and trade secrets,” and the solicitation of Surgidev’s customers. Each of these five persons has stated to the Company that he/she does not have trade secrets or confidential information of Surgidev, or, if he/she does, that he/she will not use or disclose to the Company any of such secrets and information. The Company does not believe that any of such persons has violated such agreement as a result of his/her activities on behalf of the Company. Moreover, the Company does not believe that such agreements are enforceable, inasmuch as the provisions of such agreements are contrary to the laws of California which govern the agreements. The Company has agreed with these officers to indemnify and hold harmless each of them against any claim by Surgidev of breach of agreement in connection with his/her activities on behalf of the Company. While the Company is confident that it and such executive officers would prevail in any litigation with Surgidev, in the event Surgidev would be successful in obtaining restraining orders against any of such persons, the operation and management of the Company might be materially and adversely affected. Moreover, prolonged litigation with Surgidev would require executives of the Company to spend significant time in thelitigation process, time which otherwise would be expended on behalf of the Company’s affairs.
Myron E. Lippman, a former employee and existing stockholder of Surgidev, and who has entered into an independent contractor agreement with the Company to establish the Company’s manufacturing facilities, is presently named in a lawsuit filed by Surgidev. The dispute, however, is not related to Mr. Lippman’s proposed activities on behalf of the Company or to the disclosure of any confidential information. See “Management of the Company — Independent Contractor Agreement.”
Defendants’ Exh. 108 at 6-7.
(l) On February 12, 1986 ETI’s public offering “went effective.” Shortly thereafter ETI received $2.7 million in net proceeds.
(m) On May 19, 1986 Fitzsimmons, on behalf of ETI, signed a letter of intent with Americal whereby ETI and Americal expressed their mutual intent to effectuate a combination of their businesses. Americal markets and sells in the United States IOLs manufactured in Mexicali, Mexico. DISCUSSION
A. Choice of Laws
The jurisdictional basis of the instant case is the diversity jurisdiction of the federal courts, 28 U.S.C. § 1332. In diversity cases the federal courts are bound to apply the choice of law principles of the forum state.
Klaxon Co. v. Stentor Electric Manufacturing Co. Inc.,
As to plaintiff’s tort law claims, the trade secrets laws of California and Minnesota are substantially similar. Both states have adopted the Uniform Trade Secrets Act.
See
Minn. Stat. § 325C.01
et seq.;
Cal.Civil Code § 3426
et seq.
Before applying the forum state’s choice of law principles the Court must initially determine whether a conflict in fact exists, that is, whether the choice of one state’s law to
B. Trade Secrets
Surgidev claims trade secret protection for four categories of commercial information: (1) customer information; (2) IOL manufacturing “know how;” (3) PMMA monofilament manufacturing “know how;” and (4) new products.
In order to make out its trade secret claims, plaintiff, by the preponderance of the evidence, 4 must prove the following elements:
(1) plaintiff is the owner of a trade secret;
(2) plaintiff disclosed the trade secret to defendant; or defendant wrongfully took the trade secret from plaintiff without plaintiff’s authorization;
(3) defendant was in a legal relation with reference to plaintiff as a result of which defendant’s use of disclosure of the trade secret to plaintiff’s detriment is wrongful;
(4) defendant has used or disclosed (or will disclose) the trade secret to plaintiff’s detriment; or, defendant who knew or should have known of plaintiff’s rights in the trade secret, used such secret to plaintiff’s detriment.
See
2
Milgrim on Trade Secrets
§ 7.07[1] at 7-126 through 7-136;
Cal Francisco Investment Corp. v. Vrionis,
1. Customer Information
Surgidev claims trade protection for the following categories of customer information: (i) the identity of ophthalmologists who implant Surgidev lenses, (ii) the identity of ophthalmologists who implant a high volume of Surgidev lenses, (iii) the lens style preferences of ophthalmologists who implant Surgidev lenses, (iv) the identity of ophthalmologists who have recently converted from another brand to Surgidev brand lenses, (v) the identity of ophthalmologists who do “core” implanting research on behalf of Surgidev, (vi) the identity of institutions which buy a large volume of Surgidev lenses, (vii) the identity of institutions which have recently converted from another brand to Surgidev brand lenses, and (viii) customer price discounting information. 5
Surgidev seeks an order of the Court enjoining defendants from “soliciting or attempting to solicit any of the doctors listed on [plaintiff’s exhibit 53] as customers of EYE TECHNOLOGY until 1988.” Exhibit 53 is a compilation of the names of 235
Category 1 — ophthalmologists who implanted sixty or more Surgidev lenses during the period 11/1/84 to 10/31/85 (high volume implanters);
Category 2 — ophthalmologists who have recently converted to Surgidev lenses, based on a comparison of lens implants for the periods 6/1/84 to 11/30/84 (control period) and 6/1/85 to 11/30/85 (conversion period) (converting implanters);
Category 3 — ophthalmologists who are influential in the profession (influential ophthalmologists);
Category 4 — ophthalmologists who have entered into agreements to do “core” implantation research on behalf of Surgidev (core implanters);
Category 5 — medical specialists and/or ophthalmologists who have entered into agreements to consult with Surgidev or to engage in new product design and development for Surgidev (consultants);
Category 6 — non-medical consultants who have agreed to do research on optics or polymers on Surgidev’s behalf (non-medical consultants);
Category 7 — Surgidev’s medical monitors (medical monitors).
Plaintiff also seeks an order of the Court enjoining defendants from soliciting or attempting to solicit any of the hospitals and/or clinics listed on plaintiff’s exhibit 54. Exhibit 54 is a compilation of 173 hospitals and clinics each of which purchased sixty or more Surgidev lenses during the period 11/1/84 to 10/31/85.
a. Hollingsworth Analysis
Before procеeding to the four-part trade secret misappropriation test set forth above, the Court will analyze Surgidev’s claims for protection of “customer information” under the test set forth in
Hollingsworth Solderless Terminal Co. v. Turley,
(1) the former employee is in possession of trade or business secrets or confidential information, or the like, not readily accessible to others; (2) the former employee solicits the customers of his former employer in a competing business with intent to injure his former employer’s business; (3) the former employee solicits the customers of his former employer, who comprise a list of preferred customers whose trade is profitable to a supplier of a service, knowledge of whom is a trade secret and confidential; (4) one concern is usually patronized by a customer and the lists and names and addresses of the customers are considered secret and have the character of property; (5) there is an established business relationship between the customer and the former employer which, unless interfered with, normally continues.
Hollingsworth,
(1) although in most instances where customer information will be protectible as a trade secret all five of the circumstances described above will be present, California law is best viewed as not requiring a plaintiff to prove all five in order to prevail;
(2) it is not essential for the employer to demonstrate that its efforts, as opposed to the employee’s independent efforts, were principally responsible for development of the customer information, although this is one factor to be considered;
(3) a list of plaintiff’s customers may be a trade secret even where the general class of potential customers is obvious and readily accessible.
See Hollingsworth,
Of the seven categories of individuals included on plaintiff’s exhibit 53, only three are subject to Hollingsworth customer information analysis: category 1, high volume implanters; category 2, converting implanters; and category 4, core implanters. The remaining categories occupy a relationship with Surgidev other than a vendor-customer relationship and will be separately analyzed. 6
The first and most significant consideration is whether the customer information is reаdily accessible to a reasonably diligent competitor.
Hollingsworth,
The Court finds that the identity of Surgidev’s high volume implanters is not readily accessible to others. James Shumate, former president of ORC, testified that the identity of high volume implanters is considered to be confidential in the industry, that while at ORC he did not know the identity of Surgidev’s high volume implanters, and that he would have considered such information to be a valuable asset in marking out competitive strategies. Gene Beckstein, a former executive at Intermedies and at Cobum, stated that while employed at those companies he did not know the identity of Surgidev’s high volume implanters. Bradford Webb, an ETI employee, acknowledged that the identity of high volume implanters would be considered proprietary information by most IOL manufacturers. That the identity of a particular manufacturer’s high volume customers is proprietary information is evidenced by the elaborate security procedures which many competitors in the industry observe, procedures designed to keep customer information confidential. At Intermedies sales employees are required to sign nondisclosure agreements and are precluded from working for competitors in the sales territory which they have developed while at Intermedies. At ORC all sales information is put on computerized discs and a limited number of persons are given access to those records. Further, at both ORC and Surgidev sales information is distributed on a need-to-know basis. Interestingly, employee agreements which Kalfon, Greiling, and Fagan signed with Surgidev include the following language:
Proprietary Information includes, but is not limited to, information contained in or relating to the Company’s product designs, tolerances, manufacturing methods, processes, techniques, treatment or chemical composition of material, plant layout, tooling, marketing plans or proposals, and customer information.
(b) For 360 days after termination of my employment with the Company, I will not attempt to divert any Company business by soliciting, contacting, or communicating with any customers for the Company’s products with whom I, or employees under my supervision, had contact during the year preceding termination of my employment.
Plaintiff’s Exhs. 13, 14, and 15 (emphasis added).
The fact that competitors in the industry safeguard the identities of high volume customers indicates inferentially that such information is not readily accessible, since quite obviously a company would not protect information which is freely obtainable by legitimate means. Defendants argue that the identity of high volume implanters is readily accessible and cite a vast array of industry sources which a diligent salesperson might consult in an attempt to ascertain this information, including: The Red Book of Ophthalmology, the Directory of the American Intraocular Lens Society, industry analysts’ reports such as the Health Products Research (HPR) Report and the Hambrecht & Quist Report, a biannual report produced by Dr. Walter Stark of Johns Hopkins University School of Medicine, various publications concerning the IOL industry, including Ophthalmology Times, the Implant and Refractive Society Journal, the American Journal of Ophthalmology, and lists of ophthalmologists supplied by commercial purveyors of mailing lists. Defendants also claim that a perspicacious industry salesperson could readily obtain this information by making calls on ophthalmologists listed in telephone directories and local yellow pages, by inquiring of hospital personnel including operating room nurses and operating room supervisors, by inquiring of hospital and/or clinic purchasing agents and administrators, and by attending various local, regional, and national medical conventions for the purpose of buttonholing prominent implanting ophthalmologists.
While an industry salesperson might well obtain the identity of implanting physicians in such a manner, such techniques would not necessarily reveal which of these implanters are Surgidev customers. This is the crucial distinction. The identity of potential customers is undoubtedly readily available from public sources. However, parsing from such sources a list of potentially profitable high volume implanters who are known to use Surgidev products would be a costly and time-consuming endeavor. In
Hollingsworth
the following observations were made:
Even if the names of plaintiff’s customers appear in a public directory, however, those names may appear among the names of many other businesses which may be neither actual nor even potential customers of the plaintiff. Hence, it may be costly to parse from such a directory potentially profitable customers from entries not worth pursuing. This might be most true of a directory, such as a telephone book, which included diverse entries. Evidence concerning whether a reasonably diligent salesman could perceive a narrowing classification which reduces substantially the costs of identifying potential customers is thus relevant to determining accessibility____
A list of plaintiff’s customers may be a secret even when the general class of potential customers is obvious and readily accessible. In Reid, ... for example, the court stated:
Defendants argue that the information concerning plaintiffs’ customers was not confidential since no lists were furnished to the salesmen and since each salesman used obvious methods in choosing рrospective customers— telephone directory, newspaper, driving through a town and picking the best looking stores, et cetera. However, these sources would not disclose the persons who ultimately made up the list of plaintiffs’ customers. Some of the merchants approached by plaintiffs’ salesmen declined to purchase this type of advertising. It was the list of persons who did purchase plaintiffs’ services that constituted confidential information.
The second and third considerations set forth in
Hollingsworth
require a showing that defendants have solicited customers of Surgidev. The evidence establishes that defendants have solicited Surgidev’s high volume implanters and intend to do so in the future. For example, during the interim between their departure from Surgidev and their employment by ETI, Kalfon and McCoy did consulting work for CME-SAT, primarily telephonic solicitation of ophthаlmologists. Of the ophthalmologists contacted by McCoy during this period, sixty-five percent were Surgidev customers. Of the ophthalmologists contacted by Kalfon, thirty-six percent were Surgidev customers. In addition, Fitzsimmons solicited ophthalmologists in September, 1985 while pursuing private placement of ETI common stock. Among the ophthalmologists solicited by Fitzsimmons were both of Surgidev’s medical monitors, several of Surgidev’s high volume implanters, ophthalmologists who are consulting with Surgidev on new products, and Surgidev customers. All but two of the ophthalmologists who purchased ETI common stock in the September, 1985 private placement are Surgidev customers and/or consultants. The Court also finds probative the fact that ETI’s two vice presidents in charge of sales, James Greiling and William Fagan, have been assigned sales territories which coincide with the territories covered by them while at Surgidev. Finally, the ETI prospectus states that “[a] major emphasis in [ETI's] business strategy is to establish a strong market presence through an extensive nation-wide direct field sales force. All salespersons will be exclusively employed by [ETI] and [ETI] will hire personnel who have demonstrated previous high performance in the IOL sales field.” Defendants’ Exh. 108 at 13. ETI’s heavy reliance on “experienced” sales personnel gives rise to an inference that these experienced salespersons will use prior customer contacts to initiate sales for ETI. The fact that ETI has chosen to employ only five salespersons, well below the industry average, also indicates inferentially that defendants plan to concentrate their sales efforts on high volume implanters with
The fourth and fifth Hollingsworth factors also support a finding that the identity of high volume implanters and core implanters is protectible. The evidence establishes that most ophthalmologists do not patronize one brand of IOL to the exclusion of all others, and Surgidev admits that it has no exclusivity agreements with any ophthalmologists. However, with regard to high volume implanters, there was at least some evidence of brand loyalty. For example, Dr. O’Donnell testified that he was persuaded to change his allegiance to Surgidev lenses based on the fact that Surgidev’s lenses are composed solely of PMMA, and that he has continued to use Surgidev lenses despite the instant litigation. James Shumate testified that while at ORC he attempted to persuade Dr. Larry Leiske to switch his allegiances from Surgidev to ORC but that Leiske remained loyal to Surgidev. Fitzsimmons testified that among the ophthalmologists whom he solicited in connection with the September, 1985 private placement of ETI common stock was Dr. David Pfoff of Denver, Colorado, but that Dr. Pfoff deсlined Fitzsimmons’ offer to invest because, in Fitzsimmons’ words: “[h]e told me at that time he was doing all ORC lenses and they were making the lens for him.” T. at 828 (emphasis added). In addition, plaintiff’s exhibit 37 is an excerpt from a weekly summary report prepared well in advance of this litigation by Joyce Del Pico, a Surgidev field sales representative. The report includes the following observation:
We lost out on an Equipment/Lens Deal with Dr. Posegate in Springfield, his senior partner refuses to use anything but Intermedies____
Plaintiff’s Exh. 37 (emphasis added). Leiske, O’Donnell, and Pfoff are high volume implanters. Even assuming, however, that brand loyalty is not characteristic of the industry, it cannot be said that a failure of proof as to a single element of the Hollingsworth test defeats plaintiff’s claims.
See Hollingsworth,
Turning to category two, however, with certain exceptions, it cannot be said that the converting implanters identified by plaintiff are engaged in an “established business relationship” with plaintiff. Converting ophthalmologists are physicians who have only recently developed an allegiance to Surgidev lenses. Because the ophthalmologist’s conversion is recent, it cannot be said that the converting physician has an “established” relationship with Surgidev. The relationship may well be firmly established at some future date, but at present it is a merely formative relationship. Further, the evidence of brand loyalty with regard to these converting physicians is far weaker. Perhaps most importantly, given the fact that these ophthalmologists converted to Surgidev
after
most of the individual defendants had already left Surgidev’s employ, it seems unlikely that the individual defendants are aware of the identity of these physicians and even less likely that they will solicit them on behalf of ETI with an intent to injure Surgidev. Fitzsimmons disassociated himself from Surgidev in February, 1985, Kalfon in May, 1985, McCoy in May, 1985, Greiling in July, 1985, and Fagan in August, 1985. The conversion period designated by Surgidev runs from June 1,1985 to November 1, 1985. During this conversion period the individual defendants had little or no contact with Surgidev and little or no contact with Surgidev’s sales records. As to those converting physicians who are on a “pace” to become high volume Surgidev implanters, however, the high volume implanter
With regard to categories one and four the Court finds that plaintiff has met its burden of proving a protectible trade secret under Hollingsworth analysis. Plaintiff has also met its burden as to those category two ophthalmologists on a pace to become high volume implanters. Accordingly, relief will be entered as to these categories of doctors. 7
A finding that plaintiff is entitled to relief as to the identity of its high volume implanters begs a central question: what volume of implants qualifies an ophthalmologist as a “high volume” implanter? Plaintiffs exhibit 53 includes as high volume implanters all ophthalmologists who implanted sixty or more Surgidev lenses during the period November 1,1984 to October 31, 1985: James Shumate testified that in his opinion a high volume implanter is one who implants one hundred or more lenses a year. Quite obviously, the designation of a given level of implants as a “high volume” of implants is not subject to mathematical certainty. However, with the policy rationale underscoring the protectibility of customer information in view, and with regard to the public interest in fair and open competition and the need for practicing ophthalmologists to have a full array of competing products at their disposal, the Court finds that ophthalmologists who implant eighty-four or more lenses yearly are “high volume” implanters for purposes of the present litigation. The evidence establishes that while the “average” ophthalmologist implants 100-110 lenses yearly, this figure is somewhat distorted by the fact that a small universe of “mega-implanters” implants thousands of lenses each year. The median average is six to seven lenses per month, or seventy-two to eighty-four lenses per year. Accepting the higher figure as the median figure, the Court designates eighty-four lenses per year as the cut off point. Category one ophthalmologists who implanted eighty-four or more Surgidev lenses during the time period 11/1/84 to 10/31/85 will be among those as to whom injunctive relief is granted. Injunctive relief will be denied as to all other category one ophthalmologists included on plaintiffs exhibit 53. As to the category two converting ophthalmologists, the Court finds that those converting physicians who implanted forty or more Surgidev lenses during the time period 6/1/85 to 11/30/85 are on a “pace” to become Surgidev high volume implanters. Accordingly, relief will be granted as to all physicians included in plaintiff’s category two who implanted forty or more Surgidev lenses during the 6/1/85 to 11/30/85 time period. Relief will be denied as to all other category two ophthalmologists.
b. Hospitals and/or Clinics
Plaintiff also claims trade secret protection in a list of institutions which have implanted more than sixty Surgidev lenses during the period 11/1/84 to 10/31/85. Plaintiff seeks to enjoin defendants from soliciting these institutions.
The Court finds that the identity of these institutions is readily accessible to others in the industry. Accordingly, plaintiff’s requested relief will be denied. The evidence overwhelmingly establishes that the identity of institutions which do a high volume of implants is well known within the industry. Each of the testifying ophthalmologists was readily able to identify the institutions that did a high level of implants in the geographic area in which they practice, and were also able to identify which brands of lenses these institutions
The evidence further establishes that these institutions typically carry several brands and styles of lenses for the benefit of the ophthalmologists who practice at the institution. These institutions do not typically patronize only one IOL manufacturer. Ascertaining the identity of the brands and styles which a particular institution carries in stock is a relatively simple matter — at most institutions IOL field sales representatives are permitted access to the storage area for the purpose of inventorying the brands and styles there housed. Unlike the high volume ophthalmologists, it cannot be said that these high volume institutions exhibit any brand loyalty whatsoever.
2. IOL and PMMA Monofilament “Know-How” and New Products
The remaining categories of information as to which plaintiff claims trade secret protection are IOL manufacturing know-how, PMMA monofilament manufacturing know-how, 8 and new products. These categories will be analyzed under the four-part trade secret test referenced above. In addition, plaintiff’s remaining customer information claims will be analyzed under this heading.
With regard to the IOL and PMMA monofilament manufacturing know-how, plaintiff originally sought an order of the Court enjoining defendants from having Myron Lippman perform any services on behalf of ETI until October, 1987, purchasing or obtaining PMMA monofilament from Myron Lippman or Lippman Engineering Co., having Myron Lippman or Lippman Engineering Co. make or supply PMMA monofilament until 1992, and having Myron Lippman or Lippman Engineering Co. teach any of the defendants how to manufacture PMMA monofilament until 1992. Following approval of the Lippman settlement, plaintiff amended the form of its requested injunction to conform to the terms of the settlement. Pursuant to the terms of the settlement, Lippman is prohibited from being employed by or performing services for ETI or giving business or technical assistance to ETI with respect to the manufacture of PMMA monofilament, or supplying PMMA monofilament to ETI, directly or indirectly, through April 7, 1987. Because the Court finds that the process for manufacture of PMMA monofilament conveyed by Lippman to Surgidev in October, 1982 is a protectible trade secret, as discussed below, relief will be entered for plaintiff in accordance with the terms of plaintiff’s amended proposed injunction.
a. Trade Secret Ownership
Plaintiff must first prove that it owned trade secrets. Under the Uniform Trade Secret Act (adopted in both California and Minnesota), a “trade secret” is defined as:
[Ijnformation, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, otherpersons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Minn.Stat. § 325C.01, subd. 5; Cal.Civil Code § 3426. The statutory definition “more or less” embodies the definition of trade secret adopted under the common law of Minnesota.
Electro-Craft,
(1) Not Generally Known or Easily Ascertainable
Matters which are generally known or which are commonly known in the trade in which the putative trade secret owner is engaged cannot be considered trade secrets. 1
Milgrim on Trade Secrets
§ 2.07[1] at 2-127;
Aetna Building Maintenance Co. v. West,
1. discovery by independent invention;
2. observation of the item in public use or on public display;
3. obtaining the trade secret from published literature.
Id.; see also Electro-Craft Corp. v. Controlled Motion, Inc.,
(a) Not Generally Known — PMMA Monofilament
The Court finds that the Lippman method for manufacture of PMMA monofilament is not generally known or easily ascertainable. As noted above, Lippman independently originated the process for extruding PMMA monofilament in 1976. While the concept is broadly understood by those in the industry, particular techniques for manufacturing PMMA monofilament
(b) Not Generally Known — IOL Manufacturing Know-How
The Court finds that Surgidev’s IOL manufacturing know-how is not a protectible trade secret in that such information is generally known or easily ascertainable. Dennis Grendahl admitted in his testimony that the IOL marketplace is a “knock off” marketplace in which competitors freely reverse engineer one another’s lenses. Various industry analysts have characterized the IOL industry as a non-technology intensive industry with low barriers to entry, in which new manufacturers are able to replicate existing lenses and thereby gain quick market acceptance. For example, ORC entered the IOL marketplace with its first core implants in July, 1981, and was quickly able to gain an eleven percent share of the market. The industry is characterized by several “generic” styles of lenses, as for example, the Simcoe C-loop, the Sins-key/Kratz J-Loop, the Lindstrom modified J-loop, and the modified Simcoe C-loop. Manufacturers of a Simcoe C-loop style lens include: Americal, AMO, Cilco, Co-bum, CooperVision, Copeland, Intermedies, IOLab, Ioptеx, ORC, Pharmacia, PrecisionCosmet, STAAR Surgical, Storz, and Surgidev. Manufacturers of a Sinskey/Kratz J-loop style lens include Americal, AMO, Cilco, Cobum, Cooper-Vision, Copeland, Intermedies, IOLab, Ioptex, ISP, ORC, Pharmacia, Precision-Cosmet, STAAR Surgical, Storz, Surgidev, and 3M. Dr. O’Donnell testified that the similarity of lens styles among the major manufacturers is such that the quality of design of a particular manufacturer’s lenses is not a major factor in the typical ophthalmologist’s buying decision. The evidence indicates that Surgidev has on many occasions in the past considered “knocking off” a competitor’s lenses. Defendants’ exhibit 38 is a letter to Grendahl from a research and development specialist at Surgidev suggesting that Surgidev replicate a lens introduced to the market by McGahn. Defendants’ exhibit 39 is a similar letter written by Grendahl suggesting that Surgidev duplicate a “sheet” style lens introduced by 3M. Defendants’ exhibit 40 is another letter from Grendahl in which he suggests that Surgidev’s design experts duplicate a McGahn “sheet” lens. James Greiling testified that when he suggested to Grendahl that Surgidev develop a posterior lens with a flexible haptic in order to offset modified Sinskey lenses offered by competitors, Grendahl responded by stating that Surgidev would let IOLab develop such a lens and that Surgidev would then copy it. T. at 617. Defendants’ exhibit 62 is a letter to Grendahl from a Surgidev design engineer in which the engineer proposes chemical analysis of competitors’ UV-additive lenses. In an industry where lens styles are so easily duplicated, it cannot be said that Surgidev’s lens manufacturing know-how is a protectible trade secret.
(c) Not Generally Known — New Products
Surgidev seeks an order of the Court prohibiting defendants from soliciting cer
Ophthalmologist Product
Richard Lindstrom surgical viscous adjunct
Richard Lindstrom balanced salt solution
L.G. Leiske posterior chamber lens
Evan Jones “in the bag” lens
Plaintiff claims that it has conducted negotiations with each of these doctors as to each of these products, that these negotiations are secret, that the very existence of these new product developments is a trade secret, and that the individual defendants learned of the new products while at Surgidev and have an intention to misappropriate these new product ideas.
The Court finds that plaintiff is not entitled to trade secret protection as to the enumerated new product ideas. The evidence overwhelmingly establishes that surgical viscous adjunct and balanced salt solution are well known medical products which have been on the market for years. Surgical viscous adjunct is a viscous or thick fluid which is injected into the anteri- or segment of the eye during surgery in order to protect the corneal endothelium and other sensitive eye cells. Surgical viscous adjunct was first developed by Pharmacia in the 1960’s under the trade name Healon. At present, at least three manufacturers produce surgical viscous adjunct, including Pharmacia, Precision-Cosmet, and Cilco. Dr. Lindstrom testified that he is working to develop a new and improved surgical viscous adjunct and that he has negotiated with Surgidev with regard to licensing of the product. Lindstrom further testified, however, that he has negotiated with six other companies regarding his surgical viscous adjunct, that negotiations have gone beyond the preliminary stage with three of these companies, that he has no binding contractual arrangement with Surgidev, and that while he intends to negotiate in good faith with Surgidev, he does not feel bound to the company in any way. Balanced salt solution is used to irrigate the eye during cataract surgery. Lindstrom is developing a new and improved balanced salt solution, but to date has not entered into a binding agreement to license the product to Surgidev when developed and stated that he does not feel bound to license the product to Surgidev. Several other companies manufacture and market balanced salt solution.
The evidence also establishes that Surgidev hopes to obtain but has not yet obtained licensing agreements with Dr. Leiske for a posterior chamber lens and with Dr. Jones for an “in the bag” lens. Each of these products is well known in the industry, and the fact that developmental projects are under way as to these products is readily known or easily ascertainable. Surgidev cannot claim trade secret protection as to these new products.
Of course, to the extent that Surgidev is able to enter into binding agreements with the enumerated ophthalmologists with respect to the enumerated new products, it is entitled to relief. The relief is not a product of trade secret law, however, but is a simple matter of contract enforcement. Accordingly, the Court will enter an order prohibiting defendants from soliciting the named ophthalmologists with respect to the named new products, but only to the extent that Surgidev has valid and binding contractual arrangements with these ophthalmologists as to these products. 11
(d) Not Generally Known — Remaining Categories of Customer Information
(i) Influential Ophthalmologists
Plaintiffs exhibit 53 is composed in part of a list of “influential ophthalmologists.” These are implanting ophthalmologists who, due to their educational and professional qualifications and status in the profession, exert influence on the rank and file of implanting ophthalmologists. Plain
(ii) Consultants and non-medical consultants
Plaintiff’s exhibit 53 includes five individuals designated as consultants and/or non-medical consultants. These individuals are and have been engaged in a longstanding business and contractual relationship with Surgidev with respect to IOL research and development. The fact of these relationships is not generally known or readily ascertainable. The other aspects of the trade secret test have been met as to this category of individuals as well. Accordingly, defendants will be prohibited from soliciting these individuals, with the exception of Dr. Perry Binder, who is an ETI shareholder, and Dr. George Waring, who became a Surgidev consultant after defendants departed Surgidev.
(iii) Medical Monitor
Dr. Richard Lindstrom acts as the Surgidev medical monitor. In this capacity, Dr. Lindstrom advises Surgidev on an ad hoc basis, and responds to questions which are raised by other implanting ophthalmologists with respect to Surgidev products. The elements of the trade secret test have been met with respect to Dr. Lindstrom in his role as Surgidev medical monitor. Accordingly, relief will be granted as to Dr. Lindstrom.
The second element of the trade secret definition requires proof that the information provides a competitive advantage. If the idea of another saves a person who has wrongful knowledge of it time and money, such person has been materially benefited and the information has economic value. 1
Milgrim on Trade Secrets,
§ 2.02[1] at 2-21.
See also Cudahy Co. v. American Labs, Inc.,
The Court finds that Surgidev’s ownership of the Lippman PMMA monofilament process provides a competitive advantage. Defendants do not dispute that ownership of the process benefits Surgidev and that independent development of the process would be a costly and time-consuming endeavor.
The Court also finds that the identity of Surgidev’s high volume implanters, core implanters, certain of its list of converting physicians, its consultants and non-medical consultants, and medical monitor are valuable assets which provide a competitive advantage. The fact that defendants have exhibited an intention to use this information, as discussed above, is circumstantial proof of its value. There would be little purpose in using the information if defendants did not believe the information was valuable.
See Cherne,
The third element of the trade secret definition requires proof that the information was developed at plaintiff’s expense. No rigid guidelines for ascertaining the requisite level of expenditure have emerged. However, the courts have recognized that information developed at great expense will be “most eligible for favorable judicial trade secret recognition and enforcement,” while “marginally protectable” information may not be the subject of judicial protection if plaintiff’s expenditures were minimal. 1
Milgrim on Trade Secrets
¶ 2.02[2] at 2-30.
See generally Components for Research, Inc. v. Isolation Products, Inc.,
(3) Confidentiality
The fourth element of the trade secret definition is a requirement that the information be the subject of plaintiff’s intent to keep it confidential.
15
This element of trade secret law does not require the main
Surgidev has taken ample precautions to protect the secrecy of the PMMA monofilament process. The PMMA mono-filament is manufactured at a facility physically removed from the IOL manufacturing facility. Access to that facility is strictly limited. Other manufacturers in the industry exercise similar precautions. Interestingly, in the initial plans for ETI drawn up by Fitzsimmons, he set forth plans to lease two manufacturing facilities, one for the IOL manufacturing equipment, and a separate facility physically removed from the first for the manufacture of PMMA monofilament. In so doing Fitzsimmons inferentially agreed that the PMMA mono-filament process is a trade secret subject to security measures.
Plaintiff has also taken reasonable precautions to keep certain customer information secret. A reasonable precaution to maintain the secrecy of a putative trаde secret is to put employees on notice of the trade secret status of matters on which they are working.
People v. Serrata,
A second reasonable precautionary measure is one restricting visitors to sensitive areas of a plant or manufacturing facility.
Rapco Foam,
A third reasonable security precaution is to separate sensitive departments or processes from the central facility.
Serrata,
A fourth and quite obvious reasonable security measure is the practice of keeping secret documents in locked files.
Serrata,
A fifth reasonable security precaution is distribution of allegedly secret materials on strictly a “need-to-know” basis.
Mixing Equipment Co. v. Philadelphia Gear, Inc.,
b. Disclosure, Legal Relationship, and Use
Having established its ownership of the putative trade secrets, plaintiff must establish disclosure, the existence of a legal relationship, and defendants’ intent to use the trade secret information. 16
Defendants do not dispute that plaintiff disclosed the identity of the categories of ophthalmologists discussed above in the course of the employer-employee relationship. As regional sales managers Greiling and Fagan were privy to Surgidev sales reports for their sales regions. As a field sales representative McCoy was privy to sales reports for her territory. Fitzsimmons had access to sales reports for Surgidev nationwide, as did Kalfon. Fitzsimmons and Kalfon also had access to Surgidev’s contracts with core implanters. Plaintiff voluntarily disclosed this information to defendants in the course of longstanding employer-employee relationships.
Generally, plaintiff may establish the requisite “legal relationship” by proof of an express contractual agreement or agreements between it and the defendants or by proof of a confidential relationship giving rise to a duty not to disclose. 1
Milgrim
§ 7.07[1]. The confidential nature of the employer-employee relationship imposes per se a duty upon the employee not to use or disclose his employer’s trade secrets. 1
Milgrim
§ 3.03 at 3-93; § 5.02[1] at 5-7 n. 6,
citing Peerless Oakland Laundry Co. v. Hickman,
The fourth element of the trade secret cause of action requires proof that there is an intention on the part of the defendants to use or disclose the putative trade secrets, or alternatively, that under the circumstances of the case, there is a high degree of probability of inevitable disclosure. A competing corporation formed by former employees of the plaintiff is naturally subject to some degree of probability that the newly-formed corporation will utilize trade secrets gained in the plaintiffs employ.
Weinschel Engineering Co. v. Midwest Microwave, Inc.,
Here, there is no need to rely on a presumption of wrongful intent, inasmuch as defendants have affirmatively demonstrated their intent to use some of plaintiff’s customer information, as discussed above. Fitzsimmons, McCoy, and Kalfon have each solicited Surgidev customers in connection with their duties at ETI. Fitzsimmons retained Surgidev documents, thus giving rise to an inference of intent to use. ETI’s business plan as disclosed in its prospectus indicates that ETI’s sales force planned to contact high volume implanters with whom the individual defendants had forged beneficial relationships while at Surgidev. Plaintiff has established that the defendants have disclosed or will disclose the putative trade secrets to plaintiff’s detriment.
Because plaintiff has established each of the four elements of the trade secret cause of action — ownership, disclosure, a legal relationship and use — as to categories one (high volume implanters), two (converting implanters), four (core implanters), five (consultants), six (non-medical consultants), and seven (medical monitor), defendants will be enjoined from soliciting these categories of ophthalmologists, with the restrictions and qualifications set forth above. Because plaintiff failed to
c. Duration
Plaintiff has requested that defendants be enjoined from solicitation through December 31, 1987. The Court finds this to be a reasonable restriction. Normally, the duration of an injunction is designed to preclude defendants’ wrongful activities for a period of time reasonably necessary to protect plaintiff’s interest; the period of time that would be required for independent development of the protected information is the prevailing standard. 2
Milgrim
§ 7.08[1] at 7-185,
citing Brunswick Corp. v. Outboard Marine Corp.,
C. Breach of Contract
Plaintiff seeks to enforce the nondisclosure agreements
19
entered into by
California Business and Professions Code § 16600 provides:
Invalidity of Contracts. Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
The California courts have recognized that a former employee has the right to engage in competitive business for himself and to enter into competition with his former employer, even for the business of those who had formerly been the customers of his former employer, provided that such competition is fairly and legally conducted.
Continental Car-Na-Var Corp. v. Mosley,
Some knowledge gained by an employee is of such a general character that equity will not restrict its later use____ A
salesman who leaves one employer has the right to enter the employment of a competitor. He necessarily is possessed of information gained in the earlier employment which will enable him to better succeed in later ones.
Thus, the California courts have held that a restrictive covenant which purports to prohibit competitive business activity is per se invalid.
See, e.g., Bosley Medical Group v. Abramson,
Even were it to be assumed that the non-competition clause of the non-disclosure agreement is not void
per se,
the evidence establishes that plaintiff has
Here, the evidence overwhelmingly establishes that Surgidev has permitted its employees, including key sales and marketing personnel, to leave Surgidev and to take employment with competitor companies. Sales and marketing personnel who left Surgidev to take employment with competitor corporations include: Bruce Bartlett (ORC), Dan Buchenberger (Storz), Bill Burge (AMO), Bob Clark (Americal), Steve Downing (ISP), Bruce Gordon (Cilco), Ron Helton (Precision-Cosmet), John Iselin (Ioptex), Mark Kania (CooperVision), Greg Kunce (Americal), Bonnie LeMay (ISP), Russell Lewis (Precision-Cosmet), Vicki Marino (Ioptex), John McMahon (Storz), Tom McSunnas (Americal), Rich Miller (AMO), Jed Palmacci (CooperVision), Jim Reinsel (Americal), Karen Rice (Cobum), Jim Schendel (IOLab), Joe Schurig (Intermedies), Don Sestrich (Intermedies), Nancy Shipley (Ioptex), Cliff Spain (Co-burn), Mark Swanni (Intermedies), Jim Tiffany (Storz), Mike Williams (Storz), Sandy Wilson (Precision-Cosmet). See Defendants’ Exh. 99. A plethora of customer service, research and development, manufacturing, engineering, and regulatory employees have also been permitted to depart Surgidev and take competitive employment. In fact, Surgidev has engaged sales personnel who have departed other IOL concerns, including former IOLab sales staff (Bartlett, Joe Connor, Downing, Joe Kirkland, Lewis) and former Cilco sales personnel (Downing, Gordon). Plaintiff admits that with the exception of the instant litigation it has never attempted to prevent a Surgidev employee from leaving the company and taking employment with a competitor and Dennis Gears declared that when he left Surgidev Dennis Grendahl informed him that he was free to work for another IOL company. Under the circumstances, it would be inequitable to permit plaintiff to now rely on a non-compete agreement which it has so blithely ignored in the past. 21
The non-disclosure agreements executed by each of the individual defendants
Plaintiff submitted extensive testimony and evidence in an attempt to establish that the defendants breached clause 5.1 of the non-disclosure agreements by undertaking formation of ETI while still employed at Surgidev. In particular, plaintiff offered evidence of a golf outing in September, 1984, at which Fitzsimmons purportedly expressed his intention to form an IOL company to compete with Surgidev, of a telephone call placed by Kalfon from Surgidev offices to the offices of Bums & Levinson in December, 1984 (Burns & Levinson was later retained as corporate counsel for ETI), of a meeting between Kalfon and Jonnie Williams at Surgidev’s Minneapolis offices sometime in 1984, and of an exchange between Greiling and Joyce Del Pico, a Surgidev field sales representative, wherein Greiling allegedly told Del Pico to suppress a rumor that Fitzsimmons was forming a new IOL company. While some facts in evidence do point to a conclusion that the defendants undertook clandestine formation of ETI while still in Surgidev’s employ, 22 on balance the Court finds that plaintiff has failed to make out a breach of clause 5.1. Each of the individual defendants articulated justifiable reasons for leaving Surgidev, including the company’s general sales decline, unpaid salary and bonuses, unfulfilled promotion commitments, and other factors. Further, the evidence establishes that Surgidev has experienced a remarkably high rate of turnover throughout the relevant time period. Under the circumstances, the Court cannot find that defendants breached the non-disclosure agreements by engaging in competitive planning while on the Surgidev payroll.
D. Tortious Interference
Paragraphs 3-6 of plaintiff’s proposed preliminary injunction are directed to ETI’s
One who intentionally and improperly interferes with another’s prospective contractual relation (except a contract to marry) is subject to liability to the other for the pecuniary harm resulting from loss of the benefits of the relation, whether the interference consists of
(a) inducing or otherwise causing a third person not to enter into or continue the prospective relation or
(b) preventing the other from acquiring or continuing the prospective relation.
Restatement § 766B. Factors to be considered in determining whether the interference is improper are catalogued in the Restatement (Second) of Torts § 767 (1977) (cited with approval in
Missouri v. NOW,
In determining whether an actor’s conduct in intentionally interfering with a contract or a prospective contractual relation of another is improper or not, consideration is given to the following factors:
(a) the nature of the actor’s conduct,
(b) the actor’s motive,
(c) the interests of the other with which the actor’s conduct interferes,
(d) the interests sought to be advanced by the actor,
(e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other,
(f) the proximity or remoteness of the actor’s conduct to the interference and
(g) the relations between the parties. Restatement § 767.
The Court finds that defendants’ attempts to engage Lippman constitute tortious interference. Plaintiff entered into a binding agreement with Lippman whereby Lippman conveyed the PMMA monofilament process to Surgidev in return for good and valuable consideration. Defendants’ attempts to engage Lippman for the purpose of manufacturing PMMA monofilament amount to an attempt to disrupt and interfere with Lippman’s contractual relationship with Surgidev. Accordingly, the Court will enjoin defendants from engaging Lippman for these purposes. The terms of the injunctive relief will correspond with the terms of the Lippman settlement to which the parties have expressed their consent.
CONCLUSION
Accordingly, based on the foregoing, and upon review of all the files, records, and proceedings herein,
IT IS ORDERED That defendants are enjoined from:
1. Soliciting or attempting to solicit through December 31, 1986, any Surgidev employees to become employees, consultants or independent contractors to or for defendants; provided, however, that defendants are not enjoined from publishing advertisements for employment in newspapers of general circulation in communities where defendants are seeking employees or representatives or in periodicals distributed within the IOL industry; and provided further that defendants are not enjoined from receiving and considering applications for employment from Surgidev employees or from hiring Surgidev employees so long as defendants do not make the first contact with the Surgidev employees regarding employment.
3. Soliciting or attempting to solicit Dr. Richard L. Lindstrom to work or cooperate with Eye Technology and its officers, directors, employees, agents and those acting in concert with them to design, develop and/or manufacture surgical viscous adjunct or super balanced salt solution or both so long as Surgidev has an exclusive agreement to manufacture and sell said products; provided, however, that defendants are not enjoined from receiving and considering any application by Dr. Lindstrom for designing, developing and/or manufacturing said products so long as defendants do not make the first contact with Dr. Lindstrom regarding same; and provided further that defendants are not enjoined from soliciting or attempting to solicit or from retaining Dr. Richard L. Lindstrom to work or cooperate with Eye Technology and its officers, directors, employees, agents and those acting in concert with them to design, develop and/or manufacture any other products.
4. Soliciting or attempting to solicit Dr. Larry Leiske to work or cooperate with Eye Technology and its officers, directors, employees, agents and those acting in concert with them to design, develop and/or manufacture a posterior chamber lens, which is the subject matter of plaintiffs exhibit 33 (“Abstract of Disclosure”), so long as Surgidev has an exclusive agreement to manufacture and sell said lens; provided however, that defendants are not enjoined from receiving and considering any application by Dr. Leiske for designing, developing and/or manufacturing said lens so long as defendants do not make the first contact with Dr. Leiske regarding same; and provided further that defendants are not enjoined from soliciting or attempting to solicit or from retaining Dr. Leiske to work or cooperate with Eye Technology and its officers, directors, employees, agents and those acting in concert with them to design, develop and/or manufacture any other products.
5. Soliciting or attempting to solicit Dr. Evan Jones to work or cooperate with Eye Technology and its officers, directors, employees, agents and those acting in concert with them to design, develop and/or manufacture a “New Improved Intraocular Lens” which is the subject matter of Disclosure Document No. 130,138 filed with the United States Patent and Trademark Office on August 20, 1984, so long as Surgidev has an exclusive agreеment to manufacture and sell said lens; provided, however, that defendants are not enjoined from receiving and considering any application by Dr. Jones for designing, developing and/or manufacturing said lens so long as defendants do not make the first contact with Dr. Jones regarding same; and provided further that defendants are not enjoined from soliciting or attempting to solicit or from retaining Dr. Jones to work or cooperate with Eye Technology and its officers, directors, employees, agents and those acting in concert with them to design, develop and/or manufacture any other products.
6. Soliciting or attempting to solicit any of the individuals listed on Attachment A hereto as customers of Eye Technology through December 31, 1987.
Plaintiffs action for preliminary and permanent injunctive relief is in all other respects denied.
ON MOTIONS TO AMEND
This matter is before the Court on defendants’ motion pursuant to Rules 52(b), 59(e), 60(b)(5), and 60(b)(6) of the Federal Rules of Civil Procedure for an order amending and modifying findings and reconsidering and vacating or altering and
A. Defendants’ Omnibus Motion
Defendants move to amend, modify, reconsider, vacate, or alter the Court’s October 10 order. Defendants seek a Court order amending, modifying, vacating, or altering the Court’s findings of fact based on the following arguments:
A. Certain Findings and Conclusions Made by the Court in Its Memorandum and Order Are Not Substantiated by Evidence in the Trial Record and Should be Amended and Reconsidered.
1. The Court’s finding that Surgidev waived its right to enforce the restrictive covenant in the Invention Agreement pertaining to competitive employment compels a finding that Surgidev has waived the right to claim confidentiality of its customer information.
2. The record evidence does not support the finding that the identity of Surgidev’s high volume implanters was not readily accessible to others in the industry.
3. The Court’s finding that defendants have used confidential information or intend to use it is not supported by the evidence.
5. 1 The evidence does not support the finding that the entrance of Americal into the market in 1982 caused a decline in Surgidev sales.
6. The Court’s definition of a “high-volume” implanter is not supported by the evidence.
7. The injunction list for “Converting Physicians” contains the names of individuals who did substantially all of their implants after defendants and Fagan left Surgidev.
8. The evidence does not support the conclusion that ETI tortiously interfered with Surgidev’s contractual relations with Lippman.
B. This Court Should Reconsider and Modify the Scope of Its Injunction Relating to the Solicitation of Certain Doctors.
1. the duration of the injunction is too long.
2. This Court Should modify Paragraph 6 of Its Order to Clarify the Prohibition on Solicitation
3. The injunction should be modified to remove certain individuals in light of ETI’s acquisition of Americal.
See Defendants’ Motion for Amended and Modified Findings And To Reconsider And Vacate Or Alter And Modify Judgment And Order Pursuant to Rules 52(b), 59(e) And 60(b)(5) And (6), F.R.C.P.
As to defendants’ argument A.2. above, defendants point out that at page 38 of the October 10 order the Court erroneously made reference to the declaration of Gene Beckstein submitted by plaintiff in connection with its motion for preliminary injunctive relief. Quite obviously, the Court’s reliance on the Beckstein declaration is misplaced, and the October 10 order is hereby modified to correct this oversight. Wholly apart from the Beckstein declaration, however, ample evidence in the record supports the Court’s finding that the identity of Surgidev’s high volume implanters is not readily accessible to others in the industry.
See Surgidev,
As for defendants’ remaining arguments in support of their motion to reconsider and amend the Court’s findings of fact, the Court declines defendants’ invitation to re-litigate issues comprehensively briefed, argued, analyzed, and discussed in connection with proceedings culminating in issuance of the Court’s October 10 order. Defendants’ motion with respect to these arguments will be denied.
Turning to defendants’ argument in support of modification of the scope of injunctive relief, upon review it appears that clarification of the scope of the relief entered is in order. Accordingly, the Court’s October 10, 1986 order will be amended to permit defendants to maintain a sales booth or booths at professional meetings, to initiate mass mailings, and to respond to unsolicited sales inquiries. The Court finds that this amendment of its prior order is conducive to judicial economy and the interests of justice in that it may lessen the likelihood of future disputes between the parties relative to the scope of the injunction. Further, the plaintiff itself submitted a proposed injunction to this effect. In all other respects, defendants’ motion for modification of the scope of injunctive relief is denied.
Defendants also move to amend paragraph 6 of the Court’s October 10 order by removing from the list of prohibited physicians the names of thirty-seven physicians who have “expressed an interest” in purchasing or implanting Amerieal lenses and/or becoming Amerieal clinical investigators. Defendants have introduced “new evidence” to support their motion pursuant to Rule 60(b).
The Court finds it doubtful that the evidence submitted by defendants is in fact “new” evidence. Defendants have not demonstrated why the evidence was not submitted at the June 30, 1986 evidentiary hearing. Even assuming the evidence is appropriate Rule 60(b) evidence, the Court sees no compelling reason why it should amend the list of prohibited physicians. Accordingly, defendants’ motion to remove the names of thirty-seven physicians from the list of prohibited physicians is denied.
Except as set forth above, defendants’ motion to amend, modify, reconsider, vacate, or alter is in all respects denied.
B. Plaintiffs Motion to Amend
Plaintiff moves to amend the Court’s factual finding that plaintiff’s processes for manufacturing its intraocular lens products is not a trade secret. Plaintiff’s motion is brought pursuant to Rule 52(b) of the Federal Rules of Civil Procedure.
As a preliminary matter, defendants argue that plaintiff’s motion is untimely and that, accordingly, the Court is without jurisdiction to entertain the motion. A Rule 52(b) motion to amend findings must be made not later than ten days after entry of judgment. Fed.R.Civ.P. 52(b). The Court’s order was filed October 10, 1986. Plaintiff’s Rule 52(b) motion was filed October 24, 1986. Accordingly, defendants argue that plaintiff’s motion is untimely.
What defendants fail to recognize is that under the Federal Rules of Civil Procedure when the period of time prescribed or allowed is less than eleven days intermediate Saturdays, Sundays, and legal holidays are excluded in the computation. Fed.R.Civ.P. 6(a). Excluding Saturdays, Sundays, and legal holidays, it is apparent that plaintiff’s motion was filed nine days following entry of judgment. Plaintiff’s motion is timely.
Plaintiff argues that the Court incorrectly held that a manufacturing process is generally known if several competitors in the industry use that process. The Court did not so hold.
See Surgidev,
648 F.Supp.
As to plaintiff’s argument that the Court’s application of that legal standard to the facts of the case was error, however, the. Court has concluded that its finding of fact on this subject made at pages 54-55 of the October 10 order was unduly sweeping. Resolution of the issue as to whether plaintiff’s manufacturing processes may be generally known or easily ascertainable is simply unnecessary to disposition of the matters before the Court. Accordingly, the Court’s finding that plaintiff’s manufacturing processes are generally known or easily ascertainable, which is in the nature of dictum in any event, is hereby vacated.
Accordingly, based on the foregoing, and upon review of all the files, records, and proceedings herein,
IT IS ORDERED that:
1. Paragraph 6 of the Court’s order of October 10, 1986 in this matter is amended by the addition of the following provisions:
Provided, however, that EYE TECHNOLOGY may have a booth at any professional meetings of ophthalmologists;
Provided, however, that EYE TECHNOLOGY may initiate mass mailings of sales literature so long as the individuals listed on Attachment A hereto are not specifically targeted as recipients of such sales literature; and
Provided that EYE TECHNOLOGY may receive and respond to unsolicited expressions of interest in EYE TECHNOLOGY intraocular lenses from any of the individuals listed on Attachment A hereto.
2. The Court’s finding that plaintiff’s manufacturing processes are generally known or easily ascertainable is vacated.
3. Defendants’ motion is in all other respects denied.
4. Plaintiff’s motion is in all other respects denied.
Notes
. The discovery of IOLs was succinctly summarized in
Public Citizen Health Research Group v. FDA,
IOLs are tiny clear disks that surgeons implant in patients’ eyes to correct vision following removal of cataracts. The concept is not new. During World War II, British surgeons discovered that bits of plastic airplane canopy embedded in the eyes of downed airplane pilots had remained inert there. Prompted by these findings, they were moved to devise the first IOLs____
. The impact of Surgidev’s failure to develop new products is evidenced by the following entry from a weekly summary report prepared by Joyce Del Pico, a Surgidev field sales representative, for the week ending June 15, 1985:
Lost another bid to Iolab in Sikeston, MO, they did not even have a lower price than us — they just have a Pre-Market Approved lens ... I think that this will have a real impact on some of my business since the Iolabe Sinsky is so strong in my territory anyway. Hope that we have a PRe-Mark. Appr. lens soon also.
Plaintiffs Exh. 37 (emphasis added).
. The Court must determine as an initial matter whether the contacts with the forum state are sufficient to make application of that state’s law consistent with due process.
Hime v. State Farm Fire & Casualty Co.,
. Proof by a preponderance of the evidence is required in a trade secrets case. 2 Milgrim, Milgrim on Trade Secrets § 7.07 at 7-126 n. 2.
. Customer contact can be a trade secret since in the sales industry the goodwill of a customer frequently attaches to the employer’s sales representative personally. 1 Milgrim § 3.02(1) at 3-25 n. 15,
citing Morrison Metalweld Process Corporation v. Valent, 97
Ill.App.3d 373,
. Defendants argue that even assuming Surgidev’s customer information is protectible trade secret information, Surgidev is not entitled to an injunctive relief because (1) none of the individual defendants was employed in a field sales capacity at the time of their departure from Surgidev and thus none of the individual defendants has actual knowledge of Surgidev's customer information, and (2) even assuming that the individual defendants have such knowledge, the information is stale and outdated. The Court notes that Greiling and McCoy had direct field sales experience prior to their promotion to the managerial ranks, and that Greiling, McCoy, and Fagan all worked closely with Surgidev’s field sales representatives in carrying out their duties as regional sales managers (Greiling and Fagan) and manager of manpower development (McCoy). Each of the individual defendants had access to sensitive Surgidev sales records in their managerial capacities.
. Relief will not be granted, however, with respect to Dr. Richard Fenzl, who is on the list of core implanters. Fenzl is an influential ophthalmologist whose identity is readily ascertainable. See discussion infra.
. Manufacturing methods and techniques — the technical “know-how” gleaned from experience and repeated practical application — is a proper subject of trade secret protection.
See generally
1
Milgrim
§ 2.0913] at 2-164. Processes relating to manufacture or treatment of metals, chemicals, or raw materials have frequently been found to be subject to trade secret protection.
See, e.g., State ex rel. Armour & Co. v. Gulf Sulphur Co.,
. Commentators have recognized that this first ''element" of the trade secret definition may also properly be characterized as an affirmative defense. 1 Milgrim § 2.07[1] n. 6.
. Disclosure in technical publications of the general elements of a protected process in such detail as to permit one skilled in the art to devise the subject matter terminates secrecy. 1 Milgrim § 2.05[2] at 2-59. Here, the uncontroverted testimony of Dr. Geil establishes that industry literature is not of such a detailed nature as to permit free duplication of the Lippman PMMA monofilament process by one skilled in the art.
. Fitzsimmons testified that neither he nor anyone at ETI has any intention of interfering with a competitor’s contractual arrangement, and that he could not expect to remain long in the industry if he did engage in such conduct.
. Plaintiff does not claim protection based on the status of these ophthalmologists as Surgidev customers per se, although most of them are Surgidev customers, but rather based on their reputation in the industry. As such, Hollingsworth analysis is not appropriate as to this category of ophthalmologists, although as a practical matter the result would be thе same since under either test plaintiff must establish that the information is not easily accessible.
. Some of these ophthalmologists are also high-volume implanters of Surgidev lenses. While plaintiff may not claim that the identity of these ophthalmologists is protectible based on their reputation in the industry, plaintiff may claim protection to the extent these influential physicians are Surgidev's high-volume customers. It is generally known in the industry who the influential ophthalmologists are and Surgidev has no right to claim that the identity of these doctors is a trade secret. However, it is not generally known to what extent these influential ophthalmologists are high-volume patrons of Surgidev. Merely reading articles and attending seminars would not reveal this information. Thus, as to those ophthalmologists who implant eighty-four or more Surgidev lenses during the designated time period, defendants will be enjoined from soliciting them, notwithstanding that some of these ophthalmologists are also on the list of influential ophthalmologists.
. The statutory definition of trade secret also encompasses information that has commercial value from a negative viewpoint. For example, the result of lengthy and expensive research which shows that a certain process will not work could be of great value to a competitor. 14 U.L.A. at 543.
. The existence of a trade secret is a question of fact, secrecy being a basic element. 1
Mil-grim
¶ 2.03 at 2-32. Courts require the putative trade secret holder to take such efforts to maintain secrecy as are reasonable under the circumstances. Consequently, to determine if secrecy has been maintained, the trier of fact must consider the entirety of circumstances surrounding its use.
Id.
at 2-38. A trade secret does not lose Its character by being confidentially disclosed to agents or employees, without whose assistance it could not be made of any value.
Id.
at 2-38;
Components for Research, Inc. v. Isolation Products, Inc.,
. Misappropriation involves the acquisition, disclosure or use of a trade secret through improper means.
Electro-Craft,
. As stated in the Milgrim Treatise:
The employer-owner’s claim to protection of proprietary trade secrets disclosed to or learned by an employee in the course of employment can be justified upon two main grounds. (1) Such protection encourages the development and use, to the consuming public’s advantage, of new and improved methods, techniques, ideas and concepts. (2) Such protection permits job opportunities and employment stability.
1 Milgrim § 5.02[2] at 5-18.
. Although William Fagan is not a party to this lawsuit, the Court’s ban on solicitation applies to him as well as to the individual defendants. Injunctive relief in a trade secret case is not limited to the party or parties who received the trade secret subject to a duty not to disclose; third parties who receive trade secret information from such parties may also be enjoined. Individuals not joined as party defendants may be subjected to an injunction in their capacity as employees of a defendant corporation. 2
Milgrim
§ 7.08[1] at 7-182;
Greenly v. Cooper,
. Certain of plaintiff’s putative trade secrets are protectible under the tort law of trade secrets as discussed above. This customer information also derives protection from the fact that defendants executed agreements not to use or disclose Surgidev trade secrets. Customer information which has some basis for a claim of secrecy can be protected by a restrictive covenant, provided the covenants are reasonable as to duration, area, and activity. 1
Milgrim
§ 2.09[7][ii] at 2-194 to 2-197;
Gordon v. Landau,
. The fact that the non-compete clauses of the non-disclosure agreements are void per se does not void the agreements
in toto.
In
Medtronic
the Eighth Circuit recognized that notwithstanding California’s statutory scheme prohibiting lawful employment after termination of employment that restrictive covenants are nonetheless enforceable in California insofar as they related to the identity of, or dealings with, classes of customers not otherwise readily known.
Medtronic,
.
The reasonableness of a restriction is often tested by resort to three questions: (1) "is [the restriction] no greater than necessary to protect the employer in some legitimate business interest; (2) is it not unduly harsh and oppressive in curtailing the employee’s legitimate efforts to earn a livelihood; and (3) is it in accord with a sound public policy.” 1
Milgrim
§ 3.02[2] at 3-78. As stated in the
Milgrim
treatise, the basic rule is that if the restraint is reasonable it is not contrary to public policy and will be enforced. 1
Milgrim
§ 3.05[1] at 3-105. A reasonable restraint will be enforced even absent a finding of trade secrets,
Milgrim
at 3-105 n. 6. In
Bennett v. Storz Broadcasting Co.,
The test applied is whether or not the restraint is necessary for the protection of the business or good will of the employer, and if so, whether the stipulation has imposed upon the employee any greater restraint than is reasonably necessary to protect the employer's business, regard being had to the nature and character of the employment, the time for which the restriction is imposed, and the territorial extent of the locality to which the prohibition extends.
Restrictions which are broader than necessary to protect the employer’s legitimate interest are generally held to be invalid, and the determination of the necessity for the restriction is dependent upon the nature and extent of the business, the nature and extent of the service of the employee, and other pertinent conditions.
(Footnote omitted.)
See also Walker Employment Service, Inc. v. Parkhurst,
. For example, Kalfon and McCoy submitted letters of resignation which contained strikingly similar language. Kalfon and McCoy went to work for CME-SAT following their resignations, a company controlled by Williams and O’Donnell, who are also ETI shareholders. Greiling resigned from Surgidev effective August 2, 1985 and by August 5, 1985 was on the ETI payroll.
The reasons given by the individual defendants for departing Surgidev are quite compelling however. Kalfon was demoted, and was apparently harangued by Grendahl in the presence of others. Grendahl allegedly told a group of Surgidev sales personnel that neither Fitzsimmons nor Kalfon knew what they were doing and that Grendahl was taking over the sales and marketing arm of the company. Greiling was promised a bonus, and after a check was delivered and deposited in Greiling's account, the money was reclaimed by Surgidev. McCoy was forced to accept a transfer to Atlanta, Georgia and was not given a promised salary boost. Each of the individual defendants and Fagan expressed frustration at the direction Surgidev was taking, and stated that Surgidev’s failure to develop new products and to correct accounting and financial errors made job performance extremely difficult.
. Apparently through inadvertence, defendants omitted the number "four" from its list of arguments.