United States District Court, Northern District of California
October 15, 1999
BAYER CORPORATION, PLAINTIFF,
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
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
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.
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
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 separate order filed
under seal to protect the details of the alleged trade secrets.
In mid-February 1999, Dr. Urdea, the Senior Vice President of Bayer's
NAP group, learned that Roche had hired Mr. Betzelos (Urdea Decl. at
¶ 23). Dr. Urdea directed Bayer's lawyers to contact Roche regarding
possible accommodations Roche could make to avoid using Bayer's alleged
trade secrets through Mr. Betzelos (ibid.). In response, Melinda
Griffith, Roche's General Counsel, wrote in a letter dated March 4,
1999, that "RMS intends to proceed in good faith and we have every reason
to believe that Mr. Betzelos will do so also." She also wrote:
[a]s you know, RMS is the market leader in developing
nucleic acid diagnostic tests for infectious
diseases; in fact RMS' PCR HIV and HCV tests have
become the gold standard in the industry.
Consequently, RMS has thorough knowledge of the
marketplace, the customers and their needs, product
positioning and the like, and we strongly believe that
absolutely no information of Chiron Diagnostics would
be advantageous to Mr. Betzelos' performance of his
position with RMS.
Ms. Griffith pointed to California's "strong public policy in ensuring
the freedom of employees to accept employment opportunities among
competing companies." She concluded, "I hope this ends the matter."
Mr. Betzelos began work at Roche on March 8, 1999. He signed a contract
in which he agreed not to disclose or use any trade secret of
Chiron/Bayer during his employment with Roche (Betzelos Decl. at ¶
On that same day, C. Robert Boldt, counsel to Bayer, received a call
from Ms. Griffith and Roche's outside counsel, Charles Cohler and Kevin
McCann (Boldt Decl. at ¶ 5). Mr. Cohler told Mr. Boldt that he would
investigate the facts, but that he saw no merit in Bayer's position
regarding Mr. Betzelos (ibid.). Mr. Boldt asked whether Roche would be
willing to sign an agreement protecting Bayer's trade secrets by limiting
Mr. Betzelos' responsibilities; Mr. Cohler said that Roche would not sign
such an agreement (ibid.). Mr. Boldt asked whether Roche would agree to a
one-week period during which Roche would not use Mr. Betzelos in
marketing competitive products; Mr. Cohler said Roche would not agree to
such a proposal (id. at ¶ 6). Mr. Boldt asked Mr. Cohler and Ms.
Griffith to describe Mr. Betzelos' job responsibilities at Roche (id. at
¶ 7). They did not, according to Bayer, answer his question (ibid.).
Four days later, on March 12, 1999, Bayer filed this suit and applied
ex parte for a temporary restraining order ("TRO"). Bayer also requested
expedited discovery. Judge Armstrong denied Bayer's application for a
TRO, stating that "Bayer has provided the Court with virtually no
information regarding the nature of Mr. Betzelos' new position with
Roche" (Order, Armstrong, J., Mar. 15, 1999). Judge Armstrong also denied
Bayer's request for expedited discovery (ibid.).
On March 18, 1999, Bayer noticed a motion for a preliminary injunction
to be heard May 11, 1999, Judge Armstrong's next available calendar day.
The next day Bayer applied ex parte to move the hearing date up to March
30, 1999. Bayer made this request because May 11 was "simply too late"
(Bayer's Notice of Ex Parte Application). Bayer argued that by May 11,
"the trade secrets that Bayer is trying to protect will have already been
used to our detriment, and there will likely be little or nothing left to
Bayer subsequently moved to withdraw this ex parte application.
On March 29, 1999, Bayer requested that Roche agree to meet and confer
as soon as possible (Letter from R. Boldt to C. Cohler dated Mar. 29,
1999). On April 13, 1999, Bayer moved to withdraw its motion for a
preliminary injunction. When the parties met on April 21, 1999, Bayer
provided Roche with a comprehensive discovery plan (Letter from R. Boldt
to C. Cohler dated Apr. 22, 1999). Bayer points to evidence that the
parties pushed back the discovery plan because of the schedules of Roche's
attorneys (Letter from R. Boldt to C. Cohler dated Apr. 23, 1999).
Roche initially refused to produce documents because it claimed that
Bayer had not sufficiently identified its trade secrets (Letter from K.
McCann to B. McKeever dated June 1, 1999). Bayer responded by
supplementing its interrogatory responses on June 18, 1999. The
supplemental responses included over twenty pages detailing confidential
information that Bayer feared Mr. Betzelos would use in his job at
Bayer took Mr. Betzelos' deposition on July 8 and 9, 1999. In his
deposition, Mr. Betzelos did not always readily provide answers to
Bayer's questions. His deposition transcript is replete with objections
and reveals the difficulty the examining attorney had in obtaining
answers to questions. The deponent, for example, asked the examining
attorney what the attorney meant by "customers," by "confidential," and
by "compete" (Betzelos Dep. at 88:2-16, 89:1-24, 217:18-218:18).
Judge Armstrong held a case-management conference on July 16, 1999. She
set October 5, 1999, as the date to hear Bayer's motion for a preliminary
injunction. Bayer filed its motion on August 3, 1999.*fn2 The case was
reassigned to the undersigned judge on September 10, 1999 and the matter
was heard on October 7, 1999.
In order to prevail on its motion for a preliminary injunction, the
moving party must demonstrate either (1) a likelihood of success on the
merits and the possibility of irreparable injury or (2) the existence of
serious questions going to the merits and that the balance of hardships
tips sharply in its favor. Metro Publishing, Ltd. v. San Jose Mercury
News, 987 F.2d 637 (9th Cir. 1993). "These two formulations represent two
points on a sliding scale in which the required degree of irreparable harm
increases as the probability of success decreases." MAI Systems Corp. v.
Peak Computer, Inc., 991 F.2d 511, 516 (9th Cir. 1993) (quoting
Diamontiney v. Borg, 918 F.2d 793, 795 (9th Cir. 1990)). In other words,
"[w]here a party can show a strong chance of success on the merits, he
need only show a possibility of irreparable harm. Where, on the other
hand, a party can show only that serious questions are raised, he must
show that the balance of hardships tips sharply in his favor." Id. at
Success on the Merits
In a diversity case, a federal district court looks to the substantive
law of the state to determine if a party seeking a preliminary injunction
will likely succeed on the merits or if the party raises serious
questions going to the merits. The Uniform Trade Secrets Act ("UTSA"),
adopted by California in 1984, defines a trade secret as:
information, including a formula, pattern, compilation, program, device,
method, technique, or process, that:
(1) Derives independent economic value, actual or
potential, from not being generally known to the
public or to other persons who can obtain economic
value from its disclosure or use; and
(2) Is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
Cal. Civ.Code § 3426.1(d). The Court may enjoin "[a]ctual or
threatened misappropriation" of a trade secret. Cal. Civ.Code §
3426.2(a). A corporation misappropriates a trade secret when (1) it
discloses or uses the trade secret of another without express or implied
consent, and (2) at the time of the disclosure or use, it knew or had
reason to know that its knowledge of the trade secret was derived from a
person who owed a duty to the entity seeking relief to maintain the trade
secret's secrecy or limit its use. Cal. Civ.Code § 3426.1
(b)(2)(B)(iii). The Court may order affirmative acts to protect a trade
secret in appropriate circumstances. Cal. Civ.Code § 3426.2(c).
The Court finds it likely that Bayer will prove all the elements of its
trade-secrets case but one: actual or threatened use or disclosure. On
that issue, Bayer raises factual circumstances of legitimate concern,
but, in light of the overall record, which the Court has carefully read,
Bayer has not carried its burden for obtaining preliminary relief. In
brief, the Court finds that Bayer's specific evidence of actual use
fails, either because the information was not really private or because
it was already known by Roche. One item of contention (concerning
automation) is a close question, but the evidence still tips in Roche's
favor. Among other things, the counter-strategy allegedly advocated by
Mr. Betzelos at Roche was already being promoted by Roche before his
arrival. The Court also notes its reliance on Mr. Betzelos' undertaking,
in which he affirmed that he would not use or disclose Bayer's trade
secrets. The fact specifics are discussed in the sealed order.
This brings us to Bayer's theory of inevitable disclosure. Invoking
this concept, Bayer argues that the disclosure of its trade secrets is
unavoidable because Mr. Betzelos inevitably will use them in his new
position with Roche. Citing PepsiCo v. Redmond 54 F.3d 1262 (7th Cir.
1995), Bayer claims that a plaintiff may prove a claim of threatened
misappropriation of a trade secret by demonstrating that a former
employee's new employment will inevitably lead him to rely on plaintiff's
In that case, PepsiCo sought a preliminary injunction against its
former employee William Redmond and its competitor Quaker Oats Company to
prevent him from working for Quaker. Because of his relatively high-level
position at PepsiCo, Redmond had access to trade secrets and confidential
information. PepsiCo alleged that Redmond's new position at Quaker posed
a threat of misappropriation of PepsiCo's trade secrets. Applying
Illinois trade-secrets law, the district court agreed and granted a
six-month injunction against Redmond's employment with Quaker. The
Seventh Circuit affirmed, finding (1) that Redmond possessed knowledge of
specific PepsiCo trade secrets and not just "general skills and
knowledge," (2) that armed with this knowledge and because his
responsibilities at Quaker would parallel those at PepsiCo, Redmond would
be able to anticipate PepsiCo's business moves, and (3) Redmond's "lack
of forthrightness . . . and out and out lies" demonstrated a "lack of
candor . . . and a willingness to misuse [PepsiCo's] trade secrets." Id.
The Seventh Circuit noted, however, that
[t]he facts of the case do not ineluctably dictate the
district court's conclusion. Redmond's ambiguous
behavior toward his PepsiCo superiors might have been
nothing more than an attempt to gain leverage in
. . . Nonetheless, the district court, after listening
to the witness, determined otherwise. That conclusion
was not an abuse of discretion.
Id. at 1271. Although Redmond and Quaker argued that they did not intend
to use any of PepsiCo's trade secrets and offered as proof an agreement
signed by Redmond and Quaker to that effect, the district court rejected
the argument. Id. at 1270.
The PepsiCo decision has given new life to the theory of inevitable
disclosure. Previously, courts had recognized the theory, but were
reluctant to apply it because of strong public policies in favor of
employee mobility.*fn3 One commentator contends that 21 states (not
including California) now allow plaintiffs to show liability for
trade-secrets misappropriation under the theory.*fn4 The theory allows
plaintiff employers to demonstrate threatened misappropriation without
evidence of an employee's intent to disclose trade secrets.
"In finding a likelihood of disclosure, other courts that have applied
the inevitable disclosure theory have considered the degree of
competition between the former and new employer, and the new employer's
efforts to safeguard the former's employer's trade secrets, and the
former employee's `lack of forthrightness both in his activities before
accepting his job . . . and in his testimony,' as well as the degree of
similarity between the employee's former and current position." Merck &
Co., Inc. v. Lyon, 941 F. Supp. 1443, 1460 (M.D.N.C. 1996) (holding that
the inevitable disclosure theory can be applied under North Carolina
law, where (1) injunction is limited to protecting specifically defined
trade secrets and (2) the trade secret is clearly identified and of
significant value) (internal citations omitted).
A decision from the Southern District of Texas has identified the
following factors for determining whether a trade secret will be
(1) Is the new employer a competitor? (2) What is the
scope of the defendant's new job? (3) Has the employee
been less than candid about his new position? (4) Has
plaintiff clearly identified the trade secrets which
are at risk? (5) Has actual trade secret
misappropriation already occurred? (6) Did the
employee sign a nondisclosure and/or non-competition
agreement? (7) Does the new employer have a policy
against use of others' trade secrets? (8) Is it
possible to `sanitize' the employee's new position?
Maxxim Medical v. Michelson, 51 F. Supp.2d 773, 786 (S.D.Tex. 1999)
(citing D. Peter Harvey, "Inevitable" Trade Secret Misappropriation after
PepsiCo, Inc. v. Redmond, 537 PLI/PAT 199, 226 (1998)) rev'd on other
grounds 182 F.3d 915 (5th Cir. 1999). Maxxim stated "[a]lthough only a
California Superior Court has had the opportunity to determine whether to
follow Redmond; this Court believes that the California Supreme Court
would follow the overwhelming majority of other jurisdictions to do so."
Maxxim Medical, Inc., 51 F. Supp. 2d at 786. The Maxxim court relies on
the finding of a California Superior Court to support its claim that the
theory of inevitable disclosure is the law of California. California
Superior Court decisions, however, are not citable authority.
Bayer also cites Surgidev Corp. v. Eye Technology, Inc.,
648 F. Supp. 661, 679-80 (D.Minn. 1986) ("the trade-secrets laws of
California and Minnesota are substantially similar. . . . Because
California and Minnesota laws are not in conflict, plaintiff's trade
secret counts will be analyzed under both California and Minnesota
law."). In that case, the plaintiff alleged that former employees
misappropriated trade secrets when they went to work for the defendant
competitor. Decided before PepsiCo, this Surgidev did not refer
explicitly to a "theory" or "doctrine" of inevitable disclosure, but
mentions the term as part of a theory of liability. According to the
court, the fourth element of a trade-secrets cause of action "require[d]
proof that there [was] an intention on the part of the defendants to use
or disclose the putative trade secrets, or alternatively, . . . there
[was] a high degree of probability of inevitable disclosure." Id. at
695. But the outcome in Surgidev rested upon an affirmative showing of
intent to use the trade secrets. "Here," the court held, "there is no
need to rely on a presumption of wrongful intent, inasmuch as defendants
have affirmatively demonstrated their intent to use some of plaintiff's
customer information." Ibid. A striking dissimilarity between the law of
the two states, moreover, is California's strong policy in favor of
More on point are two decisions from courts in California —
decisions rejecting the theory of inevitable disclosure. Danjaq LLC v.
Sony Corp., 50 U.S.P.Q.2d 1638, 1999 WL 317629 (C.D.Cal. Mar.12, 1999),
overlooked by both parties, involved an allegation of actual
misappropriation of trade secrets relating to a "James Bond" motion
picture.*fn5 There, the court stated in footnote one:
[l]acking proof of actual disclosure and actual use,
the Plaintiffs fill-in the gaps in the record with the
`inevitable disclosure doctrine' articulated in
PepsiCo v. Redmond. But the Plaintiffs' reliance on
the inevitable disclosure doctrine is misplaced.
PepsiCo is not the law of the State of California or
the Ninth Circuit.
Id. at 1640, 1999 WL 317629 (citation omitted) (emphasis added). Danjaq
was followed in Computer Sciences Corp. v. Computer Associates Int'l,
Inc., 1999 WL 675446, *16 (C.D.Cal. Aug. 12, 1999) (reiterating that
inevitable disclosure doctrine "is not the law of the State of California
or the Ninth Circuit").
In determining the law of California, the Court agrees with Danjaq and
Computer Sciences. California public policy favors employee mobility and
freedom. California Business and Professions Code Section 16600 provides
that "every contract by which anyone is restrained from engaging in a
lawful profession, trade, or business of any kind is to that extent
void." Reading this language broadly, California courts generally do not
enforce covenants not to compete. E.g., Application Group v. Hunter
Group, 61 Cal.App.4th 881, 72 Cal.Rptr.2d 73 (1998). Nor do they
generally enforce covenants that seek to avoid the policy by penalizing
former employees who compete with their former employers. See, e.g., Ware
v. Merrill Lynch, 24 Cal.App.3d 35, 100 Cal.Rptr. 791, 796-97 (1972)
(invalidating under Section 16600 profit-sharing plan term that caused
former employee to forgo benefits if employee competed with former
employer). In the words of the California Supreme Court:
Equity will to the fullest extent protect the property
rights of employers in their trade secrets and
otherwise, but public policy and natural justice
require that equity should also be solicitous for the
right inherent in all people, not fettered by negative
covenants upon their part to the contrary, to follow
any of the common occupations of life. Every
individual possesses as a form of property, the right
to pursue any calling, business or profession he may
choose. A former employee has the right to engage in a
competitive business for himself and to
enter into competition with his former employer, even
for the business of those who had formerly been the
customers of his former employer, provided such
competition is fairly and legally conducted.
Continental Car-Na-Var Corp. v. Moseley, 24 Cal.2d 104, 110, 148 P.2d 9
(1944). To the extent that the theory of inevitable disclosure creates a
de facto covenant not to compete. without a nontrivial showing of actual
or threatened use or disclosure, it is inconsistent with California
policy and case law. See Ronald J. Gilson, The Legal Infrastructure of
High Technology Industrial Districts: Silicon Valley, Route 128, and
Covenants Not to Compete, 74 N.Y.U. L.Rev. 575, 623-24 (June 1999).
In sum, the Court holds that California trade-secrets law does not
recognize the theory of inevitable disclosure; indeed, such a rule would
run counter to the strong public policy in California favoring employee
mobility. A trade-secrets plaintiff must show an actual use or an actual
threat. Once a nontrivial violation is shown, however, a court may
consider all of the factors considered by the jurisdictions allowing the
theory in determining the possible extent of the irreparable injury. In
other words, once the employee violates the trade-secrets law in a
nontrivial way, the employee forfeits the benefit of the protective
policy in California. For example, that a high-level employee takes a
virtually identical job at the number one competitor in a fiercely
competitive industry would be a factor militating in favor of a broader
injunction once sufficient evidence of a nontrivial violation is shown.
In the present case, however, sufficient evidence of such a nontrivial
violation has not been shown.
Balance of the Hardships
Where, as here, a moving party has shown only serious questions going
to the merits, that party must also show that the balance of hardships
tip sharply in its favor in order to prevail on its motion for a
preliminary injunction. To determine which way the balance of the
hardships tips, a court must identify the possible harm caused by the
preliminary injunction against the possibility of the harm caused by not
issuing it. See Los Angeles Memorial Coliseum Comm'n v. NFL, 634 F.2d 1197,
1203 (9th Cir. 1980). Here, Bayer and Roche both face hardship. Should
the Court decline to enjoin Mr. Betzelos from working on Roche products
that compete with Bayer products, and Roche subsequently uses Bayer's
trade secrets, the value of those secrets will be lost to Bayer, and
damages will not repair the loss. That hardship has, however, diminished
with time, for the trade secrets have lost currency. If, on the other
hand, the Court enjoins Mr. Betzelos from working on Roche's HIV Amplicor
products, Roche would have to start over looking for a person to fill Mr.
Betzelos' position. Not only would Roche face an immediate void, but his
successor, when found, would need to spend time getting up to speed.
Regarding whether Roche should be enjoined from continuing to employ Mr.
Betzelos, the balance of hardships does not tip sharply in favor of
Bayer. Nonetheless, the balance of the hardships certainly supports the
minimum relief outlined below, namely an order (1) to Mr. Betzelos
directing him to honor his undertaking to the Court (quoted earlier) not
to use or disclose Bayer's confidential and/or proprietary information
and (2) to Mr. Betzelos and Roche to stand for the periodic examinations
in discovery imposed below.
Discovery, Monitoring, and Possible
Renewal of the Motion
Although Roche's counter evidence is strong enough to prevent a
probability of success on the merits, Bayer has raised substantial
questions about Mr. Betzelos' conduct. Although not compelling, a case
has been made that he actually used his knowledge of Bayer's defensive
strategy regarding automation to promote Roche's counter strategy on the
same subject. Bayer demonstrates, too, a clear instance of a Roche
employee trying to dig Chiron/Bayer proprietary information from Mr.
Betzelos. And, Mr. Betzelos' evasive
manner at his deposition likewise causes serious concern.
The Court finds the record more than ample to support periodic and
targeted discovery permitting counsel for Bayer to learn of Mr. Betzelos'
communications and activities most likely to put Bayer's trade secrets at
risk. Accordingly, the Court will impose ongoing discovery obligations on
Roche and Mr. Betzelos. Should the discovery reveal evidence of use or
disclosure of Bayer's confidential or proprietary information, Bayer may
renew its motion for a preliminary injunction. The Court recognizes that
Mr. Betzelos is not a formal party to this case. Roche, however, is.
Roche must require Mr. Betzelos to comply with this order and to file a
statement to this Court within ten days stating that Mr. Betzelos has
agreed to comply with this order. Otherwise, the court will entertain an
emergency application to add Mr. Betzelos as a party defendant.
For the foregoing reasons, Bayer's motion for a preliminary injunction
is DENIED. Roche's counter-motions to dismiss this case as moot and to
strike Dr. Voorn's expert declaration are also DENIED. The Court,
however, makes the following order:
1. Mr. Betzelos is ordered not to use or disclose any
confidential or proprietary information of Chiron or
2. In order to monitor compliance with this order, to
permit plaintiff a fair and adequate opportunity for
unobstructed discovery, and in light of the close
factual issues raised by plaintiff, the Court orders
(a) Within ten days after this order, Mr. Betzelos
shall appear for a deposition concerning his
activities at Roche since his employment began,
said deposition to last no more than one day.
(b) Before the deposition, subject to the
protective order, Roche will produce to Bayer's
counsel all emails, calendars, phone messages,
drafts, and other documents that constitute,
summerize, describe, or refer to
communications, meetings, or memoranda or
reports to or from Mr. Betzelos referencing or
relating directly to Bayer, Chiron, any of their
HIV products, or to Roche's Amplicor HIV-1. The
time period covered shall be from the date of
his last deposition to September 30, 1999.
(c) Within ten days after the end of the fourth
quarter, Mr. Betzelos shall appear again for a
deposition (not to exceed one day) at which he
may be examined concerning possible misuse or
disclosure of plaintiff's proprietary and/or
confidential information during the fourth
quarter. Counsel shall establish the date and
place for such deposition no later than December
17, 1999. Roche shall update its document
production required above as of the end of the
fourth quarter in time for Bayer to use the
updated production at Mr. Betzelos' January
deposition. Roche shall put in place procedures
to ensure timely production of all such
evidence. With respect to the fourth quarter,
Mr. Betzelos shall transcribe or otherwise
preserve all voicemails that he receives on
these subjects and they too must be produced.
(d) At the depositions ordered herein, all
objections as to form will be deemed preserved
without counsel voicing those objections during
the depositions. Counsel shall not make form
objections and shall not interject "if you know"
or the equivalent. Counsel may not confer with
the witness during any line of questions, except
for the limited purpose of determining any
privilege issue. The full transcripts of the
depositions shall be filed under seal for the
3. If Mr. Betzelos receives any communications
from any person seeking
confidential or propriety information of Bayer
or Chiron, then Mr. Betzelos shall, within 72
hours, communicate to the Court and to Bayer's
counsel the substance of the communication and
4. The parties are free to pursue discovery above
and beyond the minimum monitoring discovery
required by this order.
IT IS SO ORDERED.