Compulsory License as a Remedy for Trade Secret Misappropriation

by Dennis Crouch

Sabatino Bianco, M.D. v. Globus Medical, 2:12-cv-00147 (E.D. Tex 2014) (Decision)

Spinal FusionFederal Circuit Judge William Bryson is sitting by designation in this trade-secret misappropriation case brought by the Dr. Bianco, a Texas Neurosurgeon. According to the allegations, Bianco shared his intervertebral fusion device with Globus (under a confidentiality agreement) and then Globus began selling its version of the device. The jury sided with the doctor, finding Globus liable for trade-secret misappropriation and awarded $4.2 million in past damages. Following the jury verdict, Judge Bryson denied Bianco’s request for permanent injunctive relief. In that decision, the court concluded that three of the eBay factors pushed against such a ‘dramatic’ award: irreparable harm; balance of the hardships; and the public interest.

In his most recent opinion in the case, Judge Bryson has awarded ongoing damages of 5% of Globus’s future sales of the device (for the next 15-years). The one problem with the Judge’s decision is that he did not cite a single case where ongoing royalties have been awarded for trade secret misappropriation under Texas law. Rather, Judge Bryson analogized to the Federal Circuit’s decision in Paice LLC v. Toyota Motor Corp., 504 F.3d 1293 (Fed.Cir.2007) that permitted the award of ongoing (future) damages for patent infringement at a set reasonable royalty rate. Judge Bryson writes here:

Although this case involves trade secret misappropriation rather than patent infringement, the two torts are sufficiently analogous that the Federal Circuit’s decision in Paice, as supplemented by cases from the Federal Circuit and from this district that have applied Paice [in the patent context] provide an appropriate starting point for this Court in deciding whether to grant an ongoing royalty and what the amount of that royalty should be.

Of course, this trade secret case is based upon Texas state law and not on Federal Patent law and the remedy must be guided by Texas law even if limited by the Federal Court’s equitable power. In the interesting case of Guarantee Trust Co. of New York v. York, 326 U.S. 99 (1945), the Supreme Court explained:

This does not mean that whatever equitable remedy is available in a State court must be available in a diversity suit in a federal court, or conversely, that a federal court may not afford an equitable remedy not available in a State court. . . . State law cannot define the remedies which a federal court must give simply because a federal court in diversity jurisdiction is available as an alternative tribunal to the State’s courts. Contrariwise, a federal court may afford an equitable remedy for a substantive right recognized by a State even though a State court cannot give it. Whatever contradiction or confusion may be produced by a medley of judicial phrases severed from their environment, the body of adjudications concerning equitable relief in diversity cases leaves no doubt that the federal courts enforced State-created substantive rights if the mode of proceeding and remedy were consonant with the traditional body of equitable remedies, practice and procedure, and in so doing they were enforcing rights created by the States and not arising under any inherent or statutory federal law.

To be clear, the ongoing damages award in Paice has been classified as equitable because it goes beyond what would have been available to a court of law.

In eBay, the Supreme Court spelled out the factors that must be considered as a pre-requisite before a Federal Court can award permanent injunctive relief. Although that case focused on injunctive relief, the Supreme Court requires federal courts to walk through several steps before any equitable relief is awarded. In the York case cited above, the court wrote that any award of equitable relief by a Federal Court “is of course subject to restrictions: the suit must be within the traditional scope of equity as historically evolved in the English Court of Chancery. . . ; explicit Congressional curtailment of equity powers must be respected. . .; the constitutional right to trial by jury cannot be evaded. . . ”  In general, any ongoing royalty award should also also include a determination that the remedies available at law are inadequate to protect the interest of the right holder.

Where to Appeal?: It will be interesting to see how the Federal Circuit handles this case on appeal. (The complaint also requests change of inventorship under 35 U.S.C. 256).

The case should also serve as a warning against parties seeking injunctive relief in Federal Courts. Namely, Federal Courts are required to follow eBay even when enforcing State law.  State courts are not so limited.

30 thoughts on “Compulsory License as a Remedy for Trade Secret Misappropriation

  1. Curious the outcome if this medical company had simply waited for the good surgeon to begin offering his fusion kit for sale (for example, with some other party), and then copied it.

    At least, there appears to be no mention made of this device’s patentability.

    It’s not as if you can keep the device trade secret once you begin offering it for sale.

    1. The trade secret would of necessity be something other than the device itself.

      Engineering plans may fall into that category, and it was the engineering plans that were at issue here.

      (although you raise an interesting point, your arrow my have yet missed the target)

      1. “…and it was the engineering plans that were at issue here.”

        I have not read the underlying (DC) opinion but I have read the appellate opinion (and its characterization of the underlying case), and I struggle with how you come to the conclusion quoted above.

        From the appellate opinion, all that I gather is that the surgeon presented what were apparently agreed to be “crude drawings” and that the corp took it from there (including all engineering plans).

        Eagerly awaiting your elucidation,

        Jumping.

        1. Okay, incredibly blind of me not to have the words “sitting by designation” trigger at least one synapse this morning. No excuse, and sorry.

          Please permit me to correct and revise the question:

          I should rather have said,

          I have read the opinion provided but struggle with how you come to the conclusion that “it was the engineering plans that were at issue here.”

          From the opinion, all that I gather is that the surgeon presented what were apparently agreed to be “crude drawings” and that the corp took it from there (including all engineering plans).

          Thanks, and sorry for the confusion in my earlier comment.

        2. Um, you do realize that “crude drawings” are not items that would accompany a sale of the product, right?

          Why again are you struggling?

          1. “The trade secret would of necessity be something other than the device itself…. it was the engineering plans that were at issue here.”

            Um, what engineering plans did the defendant obtain from the plaintiff?

            1. The words directly from the linked decision:

              The trade secrets in question consisted of ideas for the design of a medical device known as an adjustable intervertebral spacer or implant.

              Instead, Globus’s principal argument at trial was that there was no misappropriation at all. The jury, however, rejected the “no misappropriation” argument.

              [Globus] testified, as they had at trial, that they developed those products independently, without any direct or indirect influence from Dr. Bianco’s trade secrets (as embodied in the drawings he gave to Globus in June 2007)

              The problem with that evidence is that it is at odds with the jury’s verdict… Indeed many of Globus’s arguments are, in effect, challenges to the jury’s finding of trade secret misappropriation and its choice of a royalty rate.

              Please tell me you have enough real world experience to connect the remaining dots.

              1. Give me a break. Walk it back, Punkin, walk it back.

                You specifically alleged that engineering plans were the trade secrets at issue here.

                Do you even understand the phrases your write?

                Now, you can either find us some engineering plans that were the trade secrets at issue here, or admit you were just pulling poorly understood phrases from your nether region.

                Because nothing – and absolutely nothing – in the opinion suggests he ever provided the defendant with anything approaching any engineering plans. Nor would he have been capable of doing so.

                He had some neat ideas sketched out, and the defendant stole them (I also do not distrust the jury’s findings of fact).

                But they darn sure didn’t steal any “engineering plans”, Skippie.

              2. Nice dissembling there Malcolm, – trying to spin a comment about how little real world experience you have into an attempt to have me say that I have more than anyone…

                About on par for your ability to post with intellectual honesty.

              3. The ironic thing is that you just don’t care how deep you digger that hole you are in, all the while pretending that others have the shovel that you so desperately cling to.

  2. Even before eBay there were some refusals to grant injunctions in some patent cases on sufficient public interest grounds. If this is a procedure or device of significant medical importance to the public, and an injunction would restrict its availability for the public, that could be a factor.

  3. “… for a maximum period of 15 years …”

    So how/who determines a time period of less than the maximum of 15 yrs?

    And whether or not Dr. Bianco is able to be named as (one of) the inventor(s) on the patent, is he entitled to any damages/royalties/etc Globus obtains from infringers? Will he also earn the same 5% on infringers sales?

    Though he’s been denied a permanent injunction, what about any future infringers?

    1. Steve, read the statute. I allows one to go to court to get out from under an injunction and specifies grounds.

      “Sec. 134A.003. INJUNCTIVE RELIEF. (a) Actual or threatened misappropriation may be enjoined. On application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

      (b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited….”

      1. Thanks Ned. So it sounds like Globus would have to go back to court to argue they were entitled to end the royalty prior to the end of the 15 year term.

    1. I love how we can’t post more than one link at a time.

      Anyway that section is apparently new as of 2013 which is why they’re probably looking to other places for precedent (like the fed. circ.)

      link to kslaw.com

  4. Dennis: “The case should also serve as a warning against parties seeking injunctive relief in Federal Courts. Namely, Federal Courts are required to follow eBay even when enforcing State law. State courts are not so limited.”

    Assume just for the moment that Texas provided by statute that it was in the public interest to award injunctions in cases of trade secret theft, that a legal remedy was by law deemed insufficient, and that irreparable harm to the trade secret owner should be presumed.

    I daresay the Guarantee Trust case would say, follow Texas law unless it violated some constitutionally protected right, in which case, the Texas law would be found unconstitutional.

    In other words, Bryson should have determined the law in Texas.

    I note that this Guarantee Trust was all about a statute of limitations. It wasn’t that long ago that the Federal Circuit ignored a Texas SOL and a laches defense when it held that a patent owner may not have standing because of an employment agreement he had signed with a former employer that arguably assigned the invention to the former employer, but where the former employer was barred by the applicable SOL and laches to assert any ownership rights.

    In other words, the infringer was asserting the rights that were barred by Texas law, and the Federal Circuit let them get away with it.

    What the Federal Circuit, and its judges, is doing is quite apparent for all to see.

    Prediction: the case will go to the Federal Circuit. They will affirm. Cert. to the Supreme Court. They will reverse under Guarantee Trust.

    1. There is also a question here of whether the parties will appeal this since the decision here is very much within what is likely a settlement range. Bianco won a significant amount of money, but much less than the $80 million he requested along with patent ownership. Globus does have to pay money, but the amount is likely something it can live with and still be quite succesful.

      1. Dennis, it does look like Dr. Bianco got a good deal on the royalty as it extends 15 years. Globus may appeal this aspect given that the new Texas statute seems to require the injunctive relief end when commercial advantage ceases.

        The reason for the denial of injunctive relief is not discuss in this opinion. That could have been based on Texas law for all we know.

    2. Ned,

      Your patent example is not so clear cut, as both state (ownership chain) and federal (patent defense) issues were in play, if I recall correctly.

  5. However, Dennis, the Guaranty Trust case also HELD,

    “Whenever that law is authoritatively declared by a State, whether its voice be the legislature or its highest court, such law ought to govern in litigation founded on that law, whether the forum of application is a State or a federal court and whether the remedies be sought at law or may be had in equity.”

    326 US 99 at 112.

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