The opinion of the court was delivered by: Alsup, U.S. District Judge.
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION BUT IMPOSING PERIODIC
DISCOVERY TO MONITOR PROTECTION OF TRADE SECRETS; DENYING CROSS-MOTION
TO STRIKE EXPERT DECLARATION; DENYING CROSS-MOTION TO DISMISS
This motion for a preliminary injunction presents a conflict between
two strong public policies of California — the policy favoring
employee mobility free of encumbering restriction and the policy favoring
protection of genuine trade secrets. On the present record, the Court
concludes that employee mobility must prevail and denies plaintiff's
motion to prohibit a former employee from pursuing his trade at a
competitor. The theory of "inevitable disclosure" is not the law in
California and, at trial, plaintiff will have to demonstrate actual use
or disclosure, or actual threat thereof. For the purposes of a
preliminary injunction, under California law, the theory of inevitable
disclosure does not supply the proof needed to establish a probability of
success on the merits nor does it suffice to raise serious questions
about actual use or threat. In light of the substantial issues raised
concerning actual use in this case and the ongoing risk of trade-secret
disclosure, however, the court imposes certain periodic discovery
obligations on the defendant and the employee. If this periodic and
ongoing discovery reveals misuse of plaintiff's confidential or
proprietary information, then plaintiff may renew its request preliminary
Bayer and Roche both produce and market tests, called viral-load
assays, that measure quantities of the Human Immunodeficiency Virus (HIV)
in blood samples. Roche manufactures and distributes approximately 70% of
the HIV viral-load assays sold throughout the world, and Bayer
manufactures and distributes approximately 20 to 25% of the HIV
viral-load assays sold throughout the world (Declaration of Dr. Gary T.
Ford in Opposition to Bayer's Motion for Preliminary Injunction ("Ford
Decl.") ¶ 14). Bayer's tests use bDNA technology. Roche's tests use
PCR technology. They are completely different approaches to competing
products. Bayer's products include its bDNA HIV 2.0 and 3.0 assays.
Bayer's bDNA 3.0 assay is "ultra sensitive," meaning that it has a
detection limit at or below 50 copies per milliliter of blood
(Declaration of Michael Urdea, Ph.D. ("Urdea Decl.") at ¶¶ 10 & 11).
Roche produces and markets a line of assay products under the name
Amplicor HIV-1 Monitor (id. at ¶ 8). As part of this line Roche
markets an "ultra sensitive" assay known as Amplicor HIV-1 Monitor
Ultrasensitive method (id. at ¶ 11).
Before he left to work at Roche, Mr. Betzelos worked in Bayer's Nucleic
Acid Diagnostics ("NAP") group, which Bayer had bought from Chiron
Corporation ("Chiron") in late 1998. Bayer's NAP group focused on
research, development, production and marketing of nucleic acid detection
and quantification products or services for human medical practice (Dr.
Urdea Decl. at ¶ 2). The NAP group manufactured and marketed human
medical diagnostic assays (ibid.). The assays measured and provided other
scientific details on a variety of viruses, including HIV (ibid.).
Mr. Betzelos' title at Bayer was both "HIV Products Manager" and then
"HIV Marketing Manager" (Urdea Decl. at ¶ 6), but his
responsibilities were the same under these two titles (ibid.). He was
responsible for the development and execution of marketing strategies,
product launches, and marketing support activities (id. at ¶ 5). He
was responsible for the overall success of Bayer's HIV products (id. at
¶ 5). He developed Bayer's worldwide marketing strategy for Bayer's
HIV 3.0 assay (ibid.).
After Bayer acquired Chiron's NAP group in late 1998, a period of
transition ensued for the NAP group employees (e.g. Eck Dep. 35:9-23).
Mr. Betzelos started considering other employment options (Declaration of
Pete Betzelos ("Betzelos Decl.") ¶ 5). In late December 1998, he
learned of possible employment with an unidentified company as its
International HIV Marketing Manager (ibid.). He responded to the
inquiry, and learned that the company was Roche (ibid.). Roche hired Mr.
In a letter to the runner-up for Mr. Betzelos' new position at Roche,
Pascal Mittermaier, Roche's Director of International Marketing, wrote:
Filiberto, we have decided to select the other
candidate for the job in Pleasanton. The only reason
for choosing this person over yourself is the
extensive U.S. HIV marketing experience he will bring
to our business. I feel we really need someone with
in-depth knowledge of this area to help us protect our
HIV sales, particularly in our biggest market. He is
currently the international HIV marketing manager for
Chiron and has a unique understanding of the issues
and people involved in HIV world-wide.
(Email from P. Mittermaier to F. de Cal dated Feb. 12, 1999).
According to Mr. Betzelos, when he began working for Roche, he signed a
contract in which he agreed not to disclose or use confidential
information (Betzelos Decl. at ¶ 20). On March 23, 1999, Mr.
Betzelos signed a further undertaking for his employers at Roche in which
he reaffirmed his agreement that he would not use or disclose any
confidential or proprietary information of Chiron Diagnostics in his
performance of his position as the International HIV Marketing Manager for
Roche. The undertaking stated as follows:
I have had an opportunity to read the order by United
States District Court Judge Armstrong dated March 15,
1999. I realize the extent to which Judge Armstrong
has relied on my representations that I will not use
or disclose the trade secrets of Chiron Diagnostics in
my employment with RMS. In addition, I have reviewed
the business documents attached to Bayer's moving
papers. Taking all of the foregoing into account, I
now wish to reiterate and re-affirm my agreement that
I will not use or disclose any confidential or
proprietary information of Chiron Diagnostics in the
performance of my position as the International
Marketing Manager for HIV products for RMS.
(Memorandum from P. Betzelos to File dated Mar. 23, 1999).
The Alleged Trade Secrets
Bayer alleges that Mr. Betzelos developed or knew of many Bayer trade
secrets, including marketing strategies and confidential information
about Bayer's products. Bayer lists the alleged trade secrets that it
fears Mr. Betzelos will use in its supplemental interrogatory responses.
According to Dr. Urdea, Bayer took steps to maintain the secrecy of its
confidential information (Urdea Decl. at ¶ 22). Bayer limited access
to its computers and email through use of passwords and limited access to
its offices (ibid.). Bayer used electronic keys to limit access to the
floor where Mr. Betzelos worked (ibid.). Bayer notified employees that
information at Bayer was confidential, and that it should be treated as
such (ibid.). Bayer distributed confidentiality agreements for employees
to review, sign and return (ibid.). In addition, Bayer generally limited
the distribution of confidential information to senior management, and to
others only on a need-to-know basis (ibid.). Bayer limited the
distribution of strategic plans to which Mr. Betzelos had access
Bayer alleges that at least once a Roche employee has solicited
confidential Bayer information from Mr. Betzelos. Bayer points to an
email from Robert Degnan, Roche's National Sales Manager for PCR, to Mr.
Betzelos regarding an account named ACT-G that Bayer and Roche were
allegedly competing for. Mr. Degnan wrote "[d]o you have the Chiron
pricing for ACT-G? We are in the process of negotiating with them" (Email
from R. Degnan to P. Betzelos dated Apr. 30, 1999). Mr. Betzelos
testified at deposition that he had not known the answer to Mr. Degnan's
question and that he had not answered him (Betzelos Dep. at 191:1-6).
Mr. Betzelos did not report the email, nor
did he tell Mr. Degnan that such a request was inappropriate (id. at
Bayer claims that Mr. Betzelos has already used Bayer's trade secrets
in three areas: reimbursement, automation, and specificity. Roche
counters with evidence that the alleged trade secrets were generally
known, that Roche already knew them, and/or that Roche did not use them.
The details of these contentions are set forth in a ...