Case Law Update: California, District of Columbia

Case Law Update

Skye Orthobiologics, LLC v. CTM Biomedical, LLC, No. 2:20-cv-03444-MEMF-PVCx (C.D. Cal. Apr. 17, 2024)

Read the full opinion here.

Categories: Post-Trial Motions; Damages; Punitive Damages; Reasonableness of Covenants; Conduct Constituting Breach

Tags: California law applied; Expert testimony

Types of restrictions in case: Non-disclosure

Summary

• The plaintiffs (related companies “HRT” and “Skye”) manufactured medical products derived from human tissue. They sued a former SVP of Business Development (“Banman”) for allegedly misappropriating the plaintiffs’ confidential manufacturing process to create a competing company. The jury found Banman liable for breaching contracts with both HRT and Skye, in addition to several other claims.

• The court granted in part and denied in part Banman’s post-trial motions under Rules 50 and 59.

  • Manufacturing Process Was Confidential Despite Potential for Reverse-Engineering

    • Banman first argued that the plaintiffs’ manufacturing process was not confidential because it could be reverse-engineered.

    • The court disagreed. In the contract context, “the emphasis is on the understanding of the parties of the confidential nature of the information, rather than whether or not it would be possible for someone to independently figure it out.”

    • The court held there was evidence from which the jury could find that the plaintiffs’ manufacturing process was confidential, based on the steps it took to protect that information, including through use of confidentiality agreements.

    • The court rejected Banman’s argument that it would be “unfair” to restrain him from using information beyond what any competitor would be permitted if they were able to figure it out on their own.

    • “Plaintiffs here were likely not concerned with an expert from a niche field reverse engineering its product and then starting a competing business. What Plaintiffs were concerned with, and what they sought to restrain, were people that were intimately aware of their manufacturing and business processes and using their work to compete with them—exactly what the jury found Banman did here.”

  • Confidentiality Provision Not Void as a Restraint on Trade

    • Citing Brown v. TGS Management Co., Banman argued the confidentiality provision in his contract with HRT was facially void and unenforceable because it precluded him from competing in an industry or using general skill and knowledge.

    • The court held Brown was distinguishable. In Brown, “confidential information was essentially defined to mean all information usable in the securities industry, . . . regardless of whether it was ever used by the company and regardless of whether it was ever owned by the company.” (Emphasis in original.)

    • Here, the court held HRT’s confidentiality agreement only prohibited Banman from using “the Company’s proprietary or confidential information,” not “all usable information in the placental products industry.”

    • “Banman is free to start his own competing placental products in the industry, and the provision only precludes him from using HRT's confidential information to do so—which is not contrary to California law.”

  • Damages Supported by the Evidence

    • The jury awarded exactly $7,298,949 in lost profits damages as to each individual claim for which it found Banman liable. Banman argued the damages were unsupported because it could not be determined where the jury got this figure from.

    • But the court noted that “while the fact of damages must be clearly shown, the amount need not be proved with the same degree of certainty,” so long as a “reasonable approximation” is made.

    • Plaintiffs primarily relied on projections prepared by an expert that were not admitted into evidence, but were shown to the jury as a demonstrative, to support the amount of the award. The court held the jury could rely on these figures because Banman did not object to the underlying financial information.

    • The court held Banman failed to explain why “lost profits should be limited, as a matter of law, to past lost profits.”

    • Ultimately, the court held “the simple fact that neither the parties nor the Court can reverse-engineer the number also does not demonstrate that the jury failed to separately determine damages or that there was no support for its verdict,” and “the fact that the jury assigned identical numbers to different claims does not demonstrate that the jury failed to separately determine damages.”

    • The court noted it would seem reasonable for the jury to come to a total award and divide it evenly among the claims. There was no evidence that the jury found a total of $7,298,949 in damages and then duplicated that amount across each claim.

  • Punitive Damages Insufficiently Supported by Evidence of Banman’s Financial Condition

    • Finally, the court held there was insufficient evidence supporting the punitive damages awards because the plaintiffs did not develop evidence regarding Banman’s financial condition—either his net worth or his ability to pay.

    • The court ordered the parties to further brief what remedy is proper given the court’s finding of the insufficiency of this evidence.

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Zweifel v. Microsoft Corp., No. 1:23-cv-03002-RDM (D.D.C. Apr. 17, 2024)

Read the full opinion here.

Categories: Technology Industry; Transfer; Forum-Selection Provision

Tags: Forum-selection provision not enforced

Types of restrictions in case: N/A

Summary

• The plaintiff (“Zweifel”) sued her former employer (“Microsoft”), alleging she was subject to a hostile work environment, sex discrimination, and retaliation.

• The court denied the defendants’ motion to transfer the case to the U.S. District Court for the Western District of Washington based on a forum-selection clause in Zweifel’s employment agreement (“Agreement”).

  • The Agreement contained a forum-selection clause providing that the exclusive venue for any action “arising out of [that] Agreement” shall lie in the state or federal court in King County, Washington.

  • Microsoft argued that all of Zweifel’s claims stemmed from her employment at Microsoft, and therefore, her claims “arose out of” the Agreement.

  • However, the Agreement mostly addressed trade secrets, copyright, non-disclosure, non-competition, conflicts of interest, and ownership of employee-generated intellectual property.

  • As none of the provisions in the Agreement related to Zweifel’s compensation or working conditions, the court found it hard to see how Zweifel’s claims, sounding in employment discrimination and wage-and-hour laws, could possibly “arise out of” the Agreement.

  • Even if the Agreement constituted evidence of her employment, it did not mean the claims “arose out of” the Agreement.

  • Accordingly, the court held the forum-selection provision did not apply, and it otherwise denied the motion to transfer.

Legislative Update

No legislative update.

Regulatory Update

No regulatory update.