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Heraeus Medical GMBH v. Esschem, Inc.

United States District Court, E.D. Pennsylvania

November 3, 2014

HERAEUS MEDICAL GMBH, Plaintiff,
v.
ESSCHEM, INC., Defendant.

MEMORANDUM OPINION

CYNTHIA M. RUFE, District Judge.

Hereaus Medical GMBH, a German company specializing in the development and production of bone cement, filed this action alleging that Esschem, Inc. is producing and selling two copolymers, R262 and R263, which were developed using Heraeus's misappropriated trade secrets, to Heraeus's competitor, Biomet, for use in Biomet's bone cements. Presently before the Court is Heraeus's motion for a temporary restraining order ("TRO"). Heraeus asks the Court to enjoin Esschem from producing and selling R262 and R263 until expedited discovery and a preliminary injunction hearing are completed. The Court held a hearing on this motion, at which counsel for both parties presented arguments, and allowed the parties to fully brief the issues and present declarations in support of their positions.

Factual Background[1]

Heraeus is a developer and producer of bone cement used in hip and knee replacements. In 1959, Heraeus introduced a bone cement called Palacos, which was developed after decades of research and development. It continues to sell this product, as well as other bone cement products. In 1972, Heraeus entered into a bone cement distribution agreement with Merck. Hereaus was required by law and the agreement to provide Merck with its confidential information and trade secrets, so that Merck could obtain regulatory approval for the bone cement products and distribute them in the United States and elsewhere. Under the terms of the agreement, Merck was required to protect Heraeus's confidential information and trade secrets, and not misappropriate them or provide them to third parties. Heraeus and Merck also entered into an agreement to research and develop a new bone cement product to be used in a new vacuum application system (VacPac) being developed by Biomet.

In 1997, Merck entered into a joint venture with Biomet. Heraeus agreed to supply bone cement products to the Merck/Biomet joint venture. However, in Spring 2004, Merck sold its interest in the joint venture to Biomet without informing Heraeus. This sale of its joint venture interest transferred Merck's interest in the distribution of Heraeus's bone cement products to Biomet. Biomet thus obtained Heraeus's confidential information and trade secrets without Heraeus's consent. In February 2005, Heraeus advised Biomet that it would stop supplying Biomet with its bone cement products as of August 31, 2005.

Shortly after this notice was provided, Biomet sued Heraeus, seeking to compel it to continue supplying Biomet with bone cement products. According to a declaration prepared for that suit by Biomet witness Dr. Sprecht (a former Merck employee who began working for Biomet), the lawsuit was necessary because there were no viable alternative bone cement products available in the market, and Biomet would not be able to develop its own equivalent bone cement for at least two years. A few months later, Biomet announced that it had produced its own comparable bone cement and dropped the lawsuit.

In 2004, around the time Merck sold its interest in the Merck-Biomet joint venture to Biomet, Biomet contracted with Esschem, a Pennsylvania company which manufactures and distributes acrylic polymers and other compounds which are ingredients used to make bone cement products, and asked Esschem to develop and produce certain copolymers it needed to manufacture its own bone cement. Biomet, through Dr. Sprecht (who had access to Heraeus's trade secrets, but was subject to the confidentiality obligations and restrictions of the companies' agreement) participated in the development of these copolymers. It is alleged that Biomet provided Heraeus's trade secrets and confidential information to Esschem, which used this information to develop copolymers R262 and R263 for Biomet's new bone cement.

In August 2005, Biomet launched a line of bone cements which directly compete with Heraeus's products, and which are virtually identical to Hereaus's products in chemical identity, molecular weight, particle size distribution, and other characteristics. After dominating the bone cement market for 50 years, Heraeus began losing market share, ultimately losing half of its previous market share.

When Heraeus learned that its regulatory files had been transferred to Biomet by Merck, it suspected that Biomet had used Heraeus's confidential information to develop its competing products. Heraeus obtained and tested samples of Biomet products, and found they were virtually identical to Heraeus's products, except for minor discrepancies. In 2008, Heraeus sued Biomet and its affiliates in the German court system, alleging that Biomet had misappropriated its trade secrets and confidential information. Esschem was not named as a defendant in the German litigation, but was the target of discovery litigation related to the German suit, filed before this Court in 2009.[2]

On June 5, 2014, the Frankfurt Court of Appeals in Germany reversed a ruling of the lower court and entered judgment in favor of Heraeus, finding that Biomet used three technical specifications which were Heraeus's trade secrets, and which Biomet knew were trade secrets, to guide Esschem in developing copolymers for use in Biomet's bone cement. The court enjoined Biomet from manufacturing, offering, or distributing bone cement products which use Heraeus's trade secrets, including those containing Esschem's copolymers R262 and R263. Heraeus alleges that, despite the German court order, Biomet continues to buy R262 and R263 from Esschem and to sell bone cement developed using Heraeus's trade secrets outside of Germany. Both parties have appealed the ruling of the Frankfurt Court of Appeals.[3]

Hereaus filed the present lawsuit on September 8, 2014, alleging that Esschem knew or should have known that the information and guidance supplied by Biomet relied upon Heraeus's trade secrets, and asserting claims for misappropriation of trade secrets under Pennsylvania's Uniform Trade Secrets Act, conspiracy to misappropriate trade secrets, unjust enrichment, unfair competition, tortious interference with economic advantage, and conversion. Heraeus filed a Motion for Preliminary Injunction on September 10, 2014, but, when counsel for Esschem did not immediately enter their appearance after Esschem was served, Heraeus filed the Motion for a TRO on September 22, 2014.

Discussion

Hereaus seeks a TRO enjoining Esschem from directly or indirectly using, disclosing, or retaining trade secret information belonging to Heraeus, including the specifications and formulas used to make Esschem's R262 and R263 copolymers. Hereaus also seeks an accounting and return of all proprietary information in Esschem's possession, and an accounting of all proprietary information disclosed to third parties.

A TRO is an extraordinary form of relief, designed to temporarily maintain the status quo (generally for 14 days, and on rare occasions for longer) while the parties prepare to litigate the issues on a motion for a preliminary injunction. A TRO order may be appropriate where the movant has made reasonable efforts to provide notice, [4] and demonstrated (1) a likelihood of success on the merits; (2) the likelihood of irreparable harm to the movant if the motion is not granted; (3) ...


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