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BAYER CORP. v. ROCHE MOLECULAR SYSTEMS

October 15, 1999

BAYER CORPORATION, PLAINTIFF,
v.
ROCHE MOLECULAR SYSTEMS, INC., DEFENDANT



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

INTRODUCTION

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 injunctive relief.

STATEMENT

Last February, Pete Betzelos quit his job as HIV Marketing Manager for the World-Wide Marketing Group at Bayer Corporation ("Bayer") to go to work for a competitor, Roche Molecular Systems, Inc. ("Roche"), as its International Marketing Manager, HIV. There is a clear overlap in job responsibilities.

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. Betzelos.

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).

Mr. Betzelos started working at Roche on March 8, 1999. Roche had advertised that its HIV International Marketing Manager would "develop and promote clear global marketing strategies for [Roche's] HIV product line" (Roche's Advertisement for International HIV Marketing Manager; Mittermaier Dep. at 110:25-112:22). In his new job, Mr. Betzelos ensures "correct positioning" of Roche's product lines (Mittermaier Dep. at 119:7 to 120:16). Among the products that Mr. Betzelos markets for Roche are the Amplicor HIV-1 Monitor tests (Betzelos Dep. at 99:19 to 100:21). According to Roche, Mr. Betzelos is responsible only for marketing existing Amplicor HIV-1 viral-load assays, and not for launching new products (Ford Decl. at ¶ 17).*fn1

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 (ibid.).

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 194:5-11).

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 ...


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