IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
January 14, 2010
BRO-TECH CORPORATION T/A THE PUROLITE COMPANY, ET AL., PLAINTIFFS,
THERMAX, INC. D/B/A THERMAX USA LTD, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Rufe, J.
MEMORANDUM OPINION & ORDER
Plaintiff has filed a Motion for Contempt*fn1 alleging that Defendant Thermax, Inc. has used (and in one case is still using) Purolite information to modify or create newmanufacturing processes for ion exchange resin products, in violation of this Court's Orders dated May 20, 2005*fn2 and September 30, 2005.*fn3 The Purolite information at issue, contained in five documents located on Defendant Sachdev's thumb drive, was the subject of a prior contempt hearing. There are three manufacturing processes at issue in this Motion: 1) gel cation sulfonation using low levels of EDC; 2) macroporous polymer stabilization; and 3) high activity catalyst. The Court reviewed the briefing on this Motion and held a hearing in October 2009.
A. Findings of Fact Low EDC Sulfonation Process
1. Purolite chemists developed a low EDC process for making ion exchange resins in its research and development department in the middle 1980s.
2. Purolite began using this low EDC process to manufacture its gel cation resins, as it was more efficient than their prior method, and requires a shorter cycle time.
3. Purolite uses this process to make a large class of resins (approximately 20 - 30 products).
4. Former Purolite employee Sachdev had access to the formula for this process due to his high level position in the company.
5. Sachdev signed an employment contract prohibiting him from disclosing confidential information related to Purolite or its operations during or after his employment by Purolite.
6. After April 1, 2005, when Sachdev left Purolite and became an employee of Thermax, he was involved in changing Thermax's sulfination process.
7. In April 2005, Thermax began doing experiments with low EDC. These experiments studied the ingredients, concentrations, and sequences Purolite uses, as well as the temperatures and times.
8. Thermax issued work instructions for a new product, T42NAU, in the spring of 2005. This product has been manufactured by Thermax since June 2005.
9. The recipe for this new Thermax product is very similar to that of a Purolite product, whose formula was on the thumb drive taken from Purolite by Sachdev, and the recipe is very different from that used by Thermax prior to Sachdev's arrival.
10. Thermax continues to use the formula adopted after Sachdev's hiring in 2005 to this day. Macroporous Polymer Stabilization Process
11. In 1997, chemists in Purolite's research and development department, researched and developed a formula for ion exchange products using specific quantities of salt, gelatin, and methylene blue to prevent agglomeration of beads during production.
12. Purolite began using this formula in manufacturing. This new process represented a major change from the old process used at Purolite.
13. The new process produced a 20% increase in product yield for Purolite.
14. Purolite uses this process to make approximately 30 products.
15. Some of the ingredients used in this process are known in the ion exchange resin literature, but the quantities and process used by Purolite were unique.
16. Defendant Sachdev held a senior level position at Purolite, and became aware of this formula during his employment at Purolite. As noted above, his employment contract prohibited him from disclosing Purolite information after his employment with Purolite ended.
17. In 2005, after Sachdev began working for Thermax, Thermax changed its macroporous polymer stabilization process, based on input from Sachdev who suggested the use of DSP, gelatin, and methylene blue.
18. Although Thermax had studied or used each of these three ingredients prior to Sachdev's arrival in April 2005 from Purolite, the new method adopted by Thermax used all three ingredients in amounts and orders very similar to the Purolite process.
19. The process Thermax adopted using Sachdev's input includes each and every element used by Purolite, with the exception of one ingredient.
20. Thermax manufactured a product using a formula very similar to Purolite's formula from September 2005 through June 2006.
21. Thermax stopped manufacturing this product in July 2006 for economic and marketing reasons and not in response to an Order of this Court.
High Activity Catalyst Process
22. This technology was developed over a long period of time by chemists at Purolite. They began research on high activity catalysts in 1986.
23. Initial plant trials of this method produced unusable product and dangerous fumes.
24. The process eventually adopted by Purolite for use in manufacturing was not made known to the public through publications, patents, or other means.
25. The process adopted by Purolite differs from the process outlined in a 1964 patent, in that it requires one step rather than two, and uses a much weaker concentration of oleum.
26. Purolite makes 10-15 resins using this process.
27. Sachdev had knowledge of this method because of his position as a high ranking employee of Purolite. As noted above, there was a confidentiality clause in his employment contract.
28. At Sachdev's suggestion, Thermax developed a new product in 2005, called T-6812, using higher concentrations of acid. The acid concentration level adopted by Thermax is in the same range of acceptable concentrations as that used by Purolite.
29. The resin bead Thermax used in this new process was also based on a Purolite formula.
30. Thermax briefly manufactured this new product in 2005, but stopped manufacturing it in September 2005 in compliance with this Court's orders. The product was never sold.
Applicable to All Processes:
31. Purolite took reasonable measures to protect its formulas and other proprietary information, based on the risks known to it. For example, it segregated manufacturing information from sales information, had employees sign confidentiality agreements, limited distribution of sensitive information (in electronic and other formats) to those who needed the information to perform their jobs, and addressed the return of company information in the employee handbook.
B. Standard of Review
The legal standard governing a Motion for Contempt and Sanctions is as follows: The moving party must establish, by clear and convincing evidence, that: 1) a valid court order existed; 2) defendant had knowledge of the order; and 3) defendant disobeyed the order.*fn4 The plaintiff has a heavy burden to prove that a defendant is guilty of contempt. Where there is ground to doubt the wrongfulness of the conduct, the defendant should not be adjudged in contempt.*fn5 Furthermore, any ambiguities in the underlying order ought to favor the party charged with contempt.*fn6
The Court Order dated May 20, 2005, was a stipulated temporary restraining order. The relevant provision for this Motion is the prohibition against Thermax manufacturing or marketing any chemical products developed or produced with the assistance of Purolite's trade secrets and/or confidential information. The parties stipulated to this order, and so there is no question that the Defendants were aware of it. The second Court Order, dated September 30, 2005, issued upon finding that Sachdev had intentionally violated the May 20, 2005 Order by retaining a thumb drive containing numerous Purolite formulas, reiterated that Thermax was enjoined and restrained from using Purolite information and further ordered that the May 20, 2005 Stipulated Order remained in full force and effect. Defendants do not dispute the validity of either order, nor do Defendants' contest their awareness of this Court's Orders.
The issue currently before the Court is whether Defendant Thermax has disobeyed the Court Order prohibiting it from manufacturing and/or marketing any chemical products developed or produced with the assistance of Purolite's trade secrets or confidential information. The Pennsylvania Supreme Court has adopted the definition of "trade secret" that is set forth in comment b to section 757 of the Restatement of Torts: "A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers."*fn7 The secret must be the subject of reasonable efforts to maintain its secrecy.*fn8 Pennsylvania law establishes five basic elements of a trade secret claim: "(1) the information constitutes a trade secret, (2) communicated in confidence by the plaintiff to the employee, (3) disclosed by the employee in breach of that confidence, (4) acquired by the competitor with knowledge of the breach of confidence, and (5) used by the competitor to the detriment of the plaintiff..."*fn9
The formulas at issue in this Motion were developed by Purolite scientists in its research and development department. They were then used by Purolite to manufacture many products because these methods were more efficient and yielded more product than the methods they previously used. Thus, using these formulas gave Purolite an advantage in the ion exchange resin market. Purolite used reasonable efforts to maintain the secrecy of its formulas, including requiring employees, such as Sachdev, to sign confidentiality agreements. Sachdev had knowledge of the confidential formulas because of his high-ranking position at Purolite; these formulas were not known by all Purolite employees. Sachdev provided information about these processes to Thermax in breach of the confidence.
Thermax argues that the information it used to change its formulas in 2005 was generally known in the industry, and that Thermax did not rely upon Purolite's trade secrets or confidential information to develop the three processes at issue in this Motion. The Court rejects Thermax's argument that the ingredients and methods it adopted in 2005 were well known in the industry and in some cases subject to expired patents, and therefore use of these processes does not involve Purolite's trade secrets. The Court also rejects Thermax's argument that former Purolite employee Sachdev merely used his general professional experience and knowledge to implement the new processes at Thermax (e.g. the knowledge that processes known to work on a laboratory scale also work on a commercial production scale, personal experience with certain ingredients well known to the industry, etc.).*fn10 The Court notes just how closely the recipes or formulas matched and finds that the three processes at issue were adopted from Purolite trade secrets or confidential information.
Despite the stipulated temporary restraining order agreed to by Thermax, Thermax continued to manufacture products using Purolite formulas after May 20, 2005. The first of these formulas, the low EDC process, is still used today. Thermax ceased using the second, the macroporous polymer stabilization process, only when it determined that the use of non-kosher gelatin affected the marketability of the product. Thermax did stop using the high activity catalyst process in response to the Court's Order. Therefore, the Court finds Thermax failed to comply with the Court's May 20, 2005 and September 30, 2005 Orders as to the low EDC process and the macroporous polymer stabilization process, but did comply with the Court's Order as to the high activity catalyst process.
Finally, Thermax argues that if the Court does find that the manufacturing processes it adopted in 2005 were based on Purolite trade secrets or confidential information, Plaintiff's contempt claim should still fail if Purolite cannot show that the trade secrets were used by Thermax to Purolite's detriment.*fn11 The Court finds that the usage of Purolite formulas in manufacturing and marketing products may have violated Purolite's right to reasonable royalties, at the very least, and this is sufficient detriment for a finding of civil contempt.
The purpose of civil contempt is primarily remedial.*fn12 The Court has wide, but not unlimited, discretion in fashioning compensatory sanctions. The limiting factor is that the sanctions must not exceed the actual loss suffered by the party because of the violations of the court order. To make the wronged party whole, the Court may compensate the plaintiffs for any losses sustained due to disobedience, including lost business, legal fees incurred in bringing the contempt motions, and any expenses incurred while investigating, uncovering, and proving the contempt.*fn13 The Court has heard no evidence regarding monetary losses to Plaintiffs in this case and will defer ruling on sanctions until a later point in these proceedings.