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INTERMEDICS, INC. v. VENTRITEX

September 2, 1992

INTERMEDICS, INC., a Texas corporation, Plaintiff,
v.
VENTRITEX, INC., a California corporation; MICHAEL SWEENEY, an individual; and BENJAMIN PLESS, an individual, Defendants.



The opinion of the court was delivered by: WAYNE D. BRAZIL

 I. PROCEDURAL BACKGROUND

 After a hearing on defendants' motion on July 14, 1992, and before the parties had completed making their follow-up submissions, defendants asked the court to divide the trade secrets aspects of this case (the patent portions are stayed) into two parts, permitting full discovery and trial to go forward in the first part only as to a very limited number of the alleged trade secrets. After considering all parties' views on this matter, the court decided, on July 29, 1992, to divide the case along the lines suggested by defendants, but to order that the trial in November of this year be limited not to four trade secrets, but to six (with respect to those six, all bases for relief and all possible defenses will be litigated). By Order issued orally on July 29, 1992, the court directed plaintiff to select four of its trade secrets (as identified in its October 16, 1991 list) for the November trial; the court simultaneously directed defendants to designate two of the alleged secrets for that trial. In the resulting designations, plaintiff selected alleged secrets 4, 13, 22, and 25 for the November trial; defendants selected numbers 36 and 43. Of these six, numbers 4 and 22 remain the subject of defendants' motion for partial summary judgment.

 Because only two of the 15 alleged trade secrets that are the subject of the pending motion also have been selected for the November trial, we focus in the sections that follow on those two (numbers 4 and 22). Formally, we elect not to rule at this time on the defendants' motion as it relates to the other 13 alleged trade secrets. As noted below, we will permit defendants to reactivate their motion with respect to alleged trade secret number 22 after deposing Dr. Kovacs, assuming they do so promptly (on a schedule that would not result in any interference with the November trial date). After the November trial and after the parties, using the learning that trial is expected to provide, conclude the intensive settlement negotiations that are contemplated for early next year, defendants may reactivate their motion with respect to any alleged trade secret that remains to be litigated.

 We expect the utility of this opinion, however, not to be confined to the temporary disposition of the motion as it relates to the two alleged trade secrets on which we focus. Much of the reasoning that we articulate with respect to trade secrets four and twenty-two appears to apply to the remaining alleged secrets that are the subject of defendants' pending motion. Thus our discussion should offer the parties insight into at least some aspects of the analysis the court could be expected to conduct, at least if the record were no fuller than it is now, with respect to the 13 alleged trade secrets that remain formally unaddressed in this opinion and order.

 For the reasons set forth below, we DENY defendants' motion for partial summary judgment as to alleged trade secrets numbers 4 and 22.

 As we have analyzed the evidence and arguments that the parties have presented in connection with this motion, we have formed several potentially important conclusions about which we need to put the parties on notice.

 First, to repeat something we have articulated earlier in this litigation, we find that plaintiff has chosen, in identifying/defining its trade secrets, to equate the phrase "an arrhythmia control device" with "an implantable defibrillator." For definitional purposes, we have accepted this equation by plaintiff, who will be bound by it, now and at trial. Because every one of plaintiff's alleged trade secrets includes this prefatory phrase ("an arrhythmia control device"), each secret shall be confined to the environment of implantable defibrillators. The secrets exist as secrets only when contemplated for use in an implantable setting. In other words, that implantable setting is an indispensable element of each secret. As we discuss in connection with alleged trade secret number 22, below, one upshot of this definitional equation is that defendants' documents will not be held to disclose a trade secret of plaintiff's if it appears from the documents that the matters disclosed were contemplated for use only in an external device.

 Our second finding also has to do with the nature of the alleged trade secrets as presented by plaintiff in its final list (October 16, 1991). The trade secrets as presented by plaintiff represent concepts at a relatively abstract level; they consist of 'design ideas.' They do not represent specific functioning embodiments. Thus they do not reach the mechanical details of how the design ideas are reduced to a working, functional part of an implantable defibrillator. For example, alleged trade secret number four, as identified by plaintiff, consists of an implantable defibrillator that includes a circuit that regulates the voltage of at least one output capacitor, which circuit includes a switched capacitor comparator. This trade secret extends only to the concept of achieving regulation of an output capacitor with a circuit that has a switched capacitor comparator, as part of an implantable defibrillator. We infer that there could be more than one (perhaps several) different specific mechanical means by which that goal of regulation could be achieved in this setting (i.e., in an implantable device and through a circuit with a switched capacitor comparator). Given the character of the trade secret itself (as a 'design idea'), the fact that the documents on which defendants rely (in support of their motion) do not reveal the details of how regulation is to be achieved is irrelevant. In other words, the documents could disclose the alleged trade secret without disclosing the details of the mechanics by which the objective of regulation is to be achieved. Thus the failure to show mechanical details, by itself, would not be sufficient to defeat defendants' motion. In essence, the question in this setting would be: is the idea of regulation of the voltage of an output capacitor in an implantable defibrillator that includes a circuit that includes a switched capacitor comparator perceivable in the documents relied upon by defendants? The question is not: do the documents disclose details sufficient to determine whether the design idea of regulation would in fact work. By way of contrast, given our previous finding, it would be relevant if there were competent evidence (presumably expert testimony) from which a trier of fact rationally could find that matters actually disclosed in the documents relied on by defendants showed a design idea that could be made part of a functioning defibrillator only if that defibrillator were an external device, i.e., not implantable.

 Counsel and the parties are hereby put on notice that during the trial of this case, the court's instructions to the jury will include the characterizations of the nature of the alleged trade secrets that are reflected in the preceding paragraphs.

 We also find the evidence overwhelming that Intermedics knew, at the time of the Winstrom audit, that Ventritex' overriding business purpose and dominant economic goal was to develop an implantable defibrillator. See Supplemental Declaration of Michael B. Sweeney, executed July 21, 1992, and attachments thereto. Any suggestion that Intermedics believed, at any time, that more than a small percentage of Ventritex' economic life would revolve around external devices is wholly unpersuasive.

 III. LEGAL PRINCIPLES APPLICABLE TO ALL THE SECRETS SUBJECT TO THIS MOTION

 Defendants move for summary judgment on the alternate grounds of res judicata and statute of limitations. We deal with each in turn.

 A. Res Judicata

 Defendants argue that plaintiff's action with respect to the fifteen subject trade secrets is barred by the doctrine of res judicata because plaintiff voluntarily dismissed, with prejudice, an earlier action against defendants that allegedly covered these same 15 trade secrets.

 On December 5, 1985, plaintiff filed a complaint for trade secret misappropriation against the defendants in this action in Texas state court. Ex. A to Salmon decl. (filed 3/18/92). The case was later removed to federal court and transferred to this district. Salmon decl. P 2. Defendants counterclaimed, seeking a declaratory judgment that nothing protectable as a trade secret by Intermedics was reflected in their documents and product development plans. In an effort to resolve that earlier case short of trial the parties agreed to a procedure whereby William Winstrom, a former Intermedics employee, would conduct an informal audit of Ventritex to determine whether defendants had misappropriated plaintiff's trade secrets. Exs. B, C to Salmon decl. Winstrom conducted the audit on Ventritex' premises on March 17 and 18, 1986, examining a range of documents related to defendants' product development efforts. Winstrom decl. (filed 6/22/92), PP 3, 9. After Winstrom made his confidential report, ...


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