Mylan Technologies, Inc. v. Zydus Noveltech, Inc. ( 2015 )

Mylan Technologies, Inc. v. Zydus Noveltech, Inc., No. 41-1-09 Cncv (Toor, J., Apr. 7, 2015).
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]
VERMONT SUPERIOR COURT
CHITTENDEN UNIT
CIVIL DIVISION
│
MYLAN TECHNOLOGIES, INC. and │
MYLAN INC., │
Plaintiffs │
│
v. │ Docket No. 41-1-09 CnC
│
│
ZYDUS NOVELTECH, INC., et al. │
Defendants │
│
RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
This case, one of the oldest in this court, is a dispute between a pharmaceutical company
and its former president and his new company. Plaintiffs Mylan Technologies, Inc. and Mylan
Inc. (jointly “Mylan”)1 seek partial summary judgment on their claims for (1) breach of contract
by Sharad Govil, (2) breach of the covenant of good faith by Govil, (3) tortious interference by
Zydus Noveltech and Zydus Technologies, Cadila Healthcare, and Panjak Patel, (4) breach of
fiduciary duty by Govil, (5) against all defendants except Sunil Roy for unfair competition, and
(6) attorney’s fees from Govil under a trade secrets agreement.2 It also seeks judgment on
Govil’s counterclaim for breach of contract and Zydus Noveltech’s counterclaim for unfair
1
Some of the arguments raised in Defendants’ motions turn on which of the Mylan companies did what. Where
relevant, the court will make a distinction. Otherwise, it will refer to the two companies jointly.
2
Mylan’s motion does not address Counts Four or Seven of the Second Amended Complaint, which assert claims
for violation of the Vermont Uniform Trade Secrets Act and for a constructive trust.
competition. Defendants cross-move for summary judgment on all of Mylan’s claims except that
for constructive trust.3
Facts
The court will not attempt to recite all the undisputed facts, and may discuss some in its
legal discussion rather than listing them all here. The court notes that although the parties at
times state their opposition to certain material facts set forth by each other, under Rule 56 that is
insufficient to undercut those facts. V.R.C.P. 56(c)(1)(A). If the opposition does not cite contrary
evidence, and the proposed fact is supported by evidence, the court deems the fact admitted.
V.R.C.P. 56(e).
The general framework of the case is as follows. Beginning in 1992, Sharad Govil was an
employee of Bertek, Inc., a company making pressure-sensitive labels. He has a PhD in
pharmaceutics and had worked for another pharmaceutical company from 1984 until 1992. That
work involved conducting and supervising development of transdermal drug products. He joined
Bertek as it was developing its technology into transdermal drug applications: patches that are
applied to the skin.
When he joined Bertek, Govil signed an agreement entitled the Trade Secrets and
Invention Agreement (“the Trade Secrets Agreement” or “the Agreement”). One of the two
owners of Bertek, Alfred Kwiatek, signed the Agreement on behalf of the company. He has
testified that he did not see it as a non-compete agreement, only as a confidentiality agreement.
Specifically, he asserts that Bertek intended it only to “protect trade secrets and inventions.”
Kwiatek Dep. at 39. In Kwiatek’s view it was not intended to restrict Govil from working in the
same industry, “as long as he does not use the processes and the inventions and the trade secrets
3
The court considers a constructive trust to be a remedy, not a cause of action, but as no one has addressed this
claim the court will not resolve that question now. See, e.g., Weed v. Weed, 2008 VT 121, ¶ 16, 185 Vt. 83
(referring to a constructive trust as an “equitable remed[y]”).
2
of Bertek.” Id. Kwiatek told Govil all of this shortly after Govil left Mylan. This was in contrast
to Kwiatek’s own agreement with Bertek, which barred him from any work in the same field for
five years if he left Bertek. Kwiatek has also testified that he intended the Agreement to be
assignable if Bertek was sold. Both he and Govil assert that Kwiatek told Govil at the time the
Agreement was signed in 1992 that Govil was free to go to work for competitors as long as no
trade secrets or confidential information of Bertek were used. Govil also asserts that Kwiatek
gave him the example of a nicotine patch, “stating that any employee who left Bertek could work
on a nicotine patch elsewhere as long as they did not use Bertek’s confidential information and
secrets.” Govil Aff. ¶ 4 (Oct. 13, 2014). The Agreement contains no language stating that it is
assignable. It also contains no language stating that it is non-assignable.
Bertek was purchased in 1993 by Mylan Technologies, Inc. (although under a different
name initially). Mylan makes and designs transdermal drug delivery systems (commonly known
by laypersons as “patches”). When Mylan bought Bertek, the purchase agreement included the
assignment of numerous contracts including employee trade secret agreements. Employees were
not required to sign new trade secret agreements. There is no evidence that Mylan informed the
employees of the document purporting to assign their trade secret agreements.
Govil remained at Mylan Technologies and ultimately became its president. He held that
position from 2001 until either February or April of 2006, when he was demoted to Vice
President and given a significantly reduced salary. In April 2006 Govil began discussing with
Panjak Patel, chairman of Cadila Healthcare, Ltd. (Cadila), possible employment with Cadila.
Cadila was based in India, was interested in bringing new drug delivery systems to the United
States, and asked if Govil was interested in working on that. Prior to that, Cadila had approached
Mylan to work in some capacity (the scope is disputed) with Mylan on transdermal drug
3
products. The parties disagree over why those discussions ended. Govil says the new president of
Mylan who replaced him in 2006 was the one who ended discussions with Cadila; Mylan says
Govil was the responsible party.
While still working at Mylan, Govil drafted a detailed proposed business plan for a new
company to be started by Cadila, with Govil as CEO. He also negotiated with an ex-employee of
Mylan to hire him as CFO of the new venture. On September 21, 2006, Govil signed a 32-page
Joint Venture Agreement with Panjak Patel, which outlined the management of the new as-yet-
unnamed company.
On September 25, 2006, Govil offered his resignation to Mylan, effective four weeks
later. Mylan instead either requested or demanded that it be made effective immediately. Govil
agreed. He had stock option agreements that said they terminated immediately upon resignation.
He left Mylan to join Cadila. Cadila created Zydus Noveltech (“Noveltech.”). Govil, Panjak
Patel, and Sharvil Patel were the three directors of the company. Sharvil Patel had no
involvement with negotiating Govil’s employment agreement with Noveltech.
In 2007 Govil became CEO of Noveltech. When he did so, he disclosed the Trade Secrets
Agreement he had signed with Bertek. The employment agreement he signed with Noveltech
states that Govil was a party to the Trade Secrets Agreement with Mylan, and listed categories of
information that he believed Mylan might consider trade secrets or confidential. That list
included the formula for products, the specs for each product including test methods and
“quantitate ranges of acceptability,” elements of the manufacturing processes that were not
publicly known, step by step details of test methods, specific formulations of any development
products not publicly known, and test data or test results not in the public domain. The Noveltech
employment agreement also stated that Govil “interprets the [Trade Secrets Agreement] to
4
prohibit [Govil] from competing against Mylan only by using Mylan’s trade secrets or
confidential information.” Govil’s employment agreement with Noveltech has an
indemnification provision that was added to protect him from any lawsuit by Mylan.
Zydus Technologies and Noveltech are involved in the development and manufacture of
transdermal drugs. Some of the drugs the companies have worked on developing share the same
active ingredient as Mylan’s similar products. The Zydus and Mylan companies are both
developing generic versions of the same products, and those products would compete against
each other. The drug development processes each uses include many of the same steps, including
performing intellectual property searches, evaluating patch components, assessing the stability of
proposed formulations, optimizing individual ingredients and proposed formulations, performing
studies using human beings, and engaging in scale-up processes from lab scales to higher scales.
Noveltech has submitted Abbreviated New Drug Applications (ANDAs) to the FDA for four
transdermal drug products which it seeks to sell in the United States.
Mylan has identified five alleged trade secrets in this case, after winnowing down a much
longer initial list. The court will not list the claimed secrets here, or the very detailed facts set
forth with regard to the trade secret claims, but will discuss relevant portions below.
As of the filing of the motions, Noveltech had during 2011-2014 submitted ANDAs to
the FDA for Estradiol (once weekly), Clonidine, Lidocaine, Rivastigmine, and Estradiol (twice
weekly). All but the Lidocaine have been accepted for filing. Noveltech has no revenue yet from
the sale of any transdermal products developed by Cadila or Zydus Technologies. It does not yet
have FDA approval to sell any of the products.
5
Plaintiff’s Motion
Breach of Contract
Mylan’s breach of contract claim turns on the meaning of a poorly drafted agreement
entered into between Govil and Bertek in 1992, the Trade Secrets Agreement. It states that it is
designed to avoid “the disclosure [or] use of . . . confidential information” of the company. In
addition to barring disclosure of trade secrets or confidential information while Govil is
employed at Bertek, the Agreement states in relevant part as follows:
The Employee [Govil] shall not for a period of five (5) years after
the termination of his employment with the Company . . . own,
manage, control, be employed by, participate in or become
associated in any way with any business . . . engaged in the sale,
production, manufacture, use, promotion, or development of any
product or process . . . the same as or similar to any . . . products
or processes of the Company which . . . constitute trade secrets or
confidential information of the Company.
The Agreement provides that a release from this provision may be obtained if Govil and
the new employer agree in writing that during his new employment Govil will, inter alia, not
“use or disclose any trade secrets or confidential information of the Company. . . .” In other
words, employment with a company making products similar to “trade secrets or confidential
information” of Bertek would be permissible if approved pursuant to such a written agreement.
The Agreement was not a broad non-compete contract: it did not broadly bar all
employment in the pharmaceutical field. It did not say Govil could not work for any other
pharmaceutical company. His employment at another pharmaceutical company would not be
restricted at all if that company was not working on “products or processes” that were similar to
confidential or secret products or processes of Mylan. It was instead a narrow non-compete
contract: Govil was only barred for five years from employment at companies working on
products the same as or similar to “trade secrets or confidential information” of Bertek.
6
Govil argues that he was expressly told by one of Bertek’s owners when he signed the
agreement that he was free to go to work for competitors so long as no protected information was
used. In addition, Kwiatek says his intent was only to limit the direct use of trade secrets or
confidential information. However, that is not what the document says. The court must enforce
the language of the document. Testimony as to intent cannot overcome unambiguous language.
“Courts must start with [contract] language and look to circumstantial evidence about intent only
when there is ambiguity.” Brault v. Welch, 2014 VT 44, ¶ 8, __ Vt. __; see also, 11 Williston on
Contracts § 31:5 (4th ed.)(Westlaw, updated May 2014)( “[A] court cannot change the words of
a written contract so as to make it express the claimed real intention of one or the other of the
parties, or remake a contract to implement an alleged but unexpressed intention, if doing so
would contradict the clearly expressed language of the contract.”).
The questions therefore are (1) did the Agreement pass from Bertek to Mylan, and if so,
(2) prior to September 25, 2011 (five years after Govil left Mylan), were the Zydus companies
“engaged in the sale, production, manufacture, use, promotion, or development of any product or
process . . . the same as or similar to any . . . products or processes” that “constitute trade
secrets or confidential information of” Mylan?
1. Assignment
The Agreement does not say that it is assignable to a purchaser of the Company. It also
does not say that it is non-assignable.
When Mylan bought Bertek, the Purchase Agreement stated that all assets were
transferred except those “expressly excluded from the sale” and listed on Exhibit 1.2(4) thereto.
That exhibit did not list the Agreement as one of the excluded items. Moreover, the Purchase
Agreement expressly listed as assets being transferred all contracts and commitments to which
7
Seller was a party, and attached a list of those. That list included all employees’ Trade Secrets
Agreements, and listed Govil as one of the employees. A separate document entitled Assignment
and Assumption of Contracts expressly transferred all contracts referred to in that list. Thus, the
court concludes that Bertek and Mylan intended assignment when the company was sold.
However, whatever the intent of Bertek and Mylan in 1993, if the contract was non-assignable,
their intent to assign it would fail. The question is what Bertek and Govil intended in 1992,
and/or whether Govil consented to or ratified the assignment.
In determining whether an employment contract is assignable, “[t]he controlling factor is
the intention of the parties to the original undertaking.” Abilene Pest Control Serv., Inc. v. Hall,
126 Vt. 1, 7 (1966). When a non-compete contract does not contain a clause stating that it may
be assigned, that is “some evidence that the intention of the parties was against assignment.”
Smith, Bell & Hauck v. Cullins, 123 Vt. 96, 101 (1962); see also, H. P. Hood & Sons v. Heins,
124 Vt. 331, 339 (1964)(“While absence of words of assignability is not necessarily controlling,
it is of some significance.”). Under Vermont law, a covenant not to compete is considered
personal, one based upon the relationship of “mutual confidence.” Smith, Bell, 123 Vt. at 101.
The fact that an employee is willing to agree to such a clause with one employer whom he trusts
does not mean he is willing to do so with another. Id. Thus, a covenant not to compete is
“confined to the employer with whom the undertaking was made,” is “personal to” the initial
employer, and is “incapable of effective assignment without the employee’s consent or
ratification.” Id. at 101-02.
One of Bertek’s owners, Mr. Kwiatek, has testified that he intended the Agreement to be
transferable to any purchaser of the company. There is no evidence to contradict that testimony
as to his intent. It is consistent with how Bertek handled the Agreement when it sold the
8
company. However, it does not prove that there was a meeting of the minds about that between
Bertek and Govil.
Govil does not affirmatively state that he never intended assignment. There is no
evidence that he and anyone at Bertek ever discussed the issue when the Agreement was signed.
Thus, the court must look to Govil’s conduct to determine his intent, and whether he consented
to or ratified assignment.
There are many cases finding that employees ratified restrictive covenants by continuing
to work for the new ownership, but a review of those cases suggests that they turn on the
restrictive covenant being contained within the employee’s actual employment contract.
Plaintiffs here do not point to any such contract incorporating the Agreement. Instead, it appears
to have been a document entered into separate and apart from any employment agreement. Thus,
Govil’s acceptance of continued employment at Mylan cannot itself be interpreted as consent to
assignment or ratification thereof.
However, the key evidence as to Govil’s intent is his 2006 employment contract with
Noveltech. In that contract, he affirmatively stated that he was currently “a party to an agreement
[the Agreement] with Mylan Laboratories, Inc. (“Mylan”). . .” This is an admission by Govil
that he had consented to or ratified assignment of the Agreement to Mylan. The employment
agreement with Cadila did not say that Mylan might claim that he was a party to the Agreement,
it stated that he was a party to the Agreement. Moreover, Govil produced only that Agreement to
Cadila when asked about any such contracts, because all other contacts “had expired.” This
demonstrates his acknowledgement that the Agreement was in effect. Further, he contacted
Kwiatek after leaving Mylan to discuss the scope of the restrictive covenant.
9
Govil argues in an affidavit submitted with his motion papers that the assignment did not
occur because all Bertek employees were terminated and then rehired by Mylan. Kwiatek
testified to this as well. Govil argues that because of this, the Trade Secrets Agreement
terminated in 1993. He further argues that because it was an asset sale as opposed to a stock sale,
the Agreement was not acquired by Mylan. However, the overwhelming evidence (as recited in
Mylan’s Opposition to Govil’s Motion at 8-13) shows that Govil remained an employee of the
company when the ownership changed (as he admitted himself in earlier deposition testimony),
his hire date remained at July 1992 in all the company’s records, he understood himself to
remain as an employee, and that the intent of the sale was to assign the Agreement. In any case,
Govil cites no legal authority for the proposition that the nature of the sale undercuts the transfer
of the Agreement. To the contrary, where there is a “transfer of corporate assets by sale,” the
new company “shall possess all the rights, privileges and benefits of the original corporation
properly exercisable under the laws of this state.” Abilene Pest Control, 126 Vt. at 6; see also,
Chemetall GMBH v. Zr Energy, Inc., No. 99 C 4334, 2000 WL 1808568, *2 (N.D. Ill. Dec. 6,
2000)(“A successor corporation in an asset purchase can enforce confidentiality agreements and
covenants not to compete that an employee signed with its predecessor corporation.”); Booth
Waltz Enterprises, Inc. v. Pierson, No. CV094008249S, 2009 WL 566263, * 2 (Conn. Super. Ct.
Feb. 4, 2009) (sale of assets included transfer of non-compete).
Govil argues that neither he nor Kwiatek interpreted the Agreement as a non-compete,
only as a confidentiality agreement, so even if it was either intended that it be assignable, or
Govil ratified the assignment, all that could be assigned was the confidentiality agreement they
believed it to be. The court disagrees. If they both intended the Agreement to be assignable, or
10
ratified that assignment, and on its face it says that it is a non-compete (albeit a limited one),
their unreasonable contrary interpretation does not make it non-assignable.
Based upon the above, the court concludes that no reasonable jury could find that the
Agreement was not assigned to Mylan.
2. Trade Secrets/Confidential Information
The next question is whether during the five years after Govil left Mylan (2006-2011) the
companies he worked for were “engaged in the sale, production, manufacture, use, promotion, or
development of any product or process . . . the same as or similar to any . . . products or
processes of the Company which . . . constitute trade secrets or confidential information of the
Company.”
There is no question but that Noveltech is in the same business as Mylan. They are
competitors in the field of transdermal generic drugs. That is not the only issue, however. The
question is whether the undisputed facts prove that the “products or processes” Noveltech is
using are “the same or similar to” ones that are Mylan’s “trade secrets or confidential
information.” The mere fact that the two companies are developing similar drugs is not enough:
Mylan must prove that there are trade secrets or confidential information involved. Given that
both companies are developing generics, which are copies of other companies’ drugs, this is not
a foregone conclusion.
Mylan’s statement of undisputed facts summarizes these claims in a few paragraphs.
Plaintiffs’ Statement of Material Facts (Ptfs.’ SMF) ¶¶ 9-10, 41. Defendants dispute those
claims, citing contrary evidence. Govil agrees there are categories of information (e.g., formulas,
specifications, marketing and sales plans, test data, market research results) that would be
Mylan’s trade secrets or would be confidential. He does not identify exactly what constituted
11
such trade secrets or confidential information, and Govil does not concede that Noveltech was
developing products similar to Mylan’s trade secrets or confidential information. Saying that
formulas as a category are confidential is not the same as saying “this particular formula was
confidential, and Noveltech used a similar formula.”
Govil concedes in his deposition that the fact that Mylan was developing Lidocaine and
Estradiol (twice weekly) would have been confidential if not yet public information, and that he
does not know whether that was public when he left Mylan. The Hango Affidavit states that the
fact that Mylan was developing an Estradiol (twice weekly) generic in 2005 was “kept strictly
confidential” and was not publicly known until 2011. However, Defendants’ expert, Dr. David
Enscore, is of the opinion that “ the knowledge that these . . generic products were desirable to
pursue in 2006 was not confidential,” Enscore Aff. ¶ 10, and one of Mylan’s employees testified
that Mylan decided to pursue Estradiol and Lidocaine because there was a successful product for
each already on the market. Beste Dep. at 40-41.
Moreover, the Agreement talks about “processes and products” that were confidential,
not all information that was confidential. It might have been confidential that Mylan was going
to paint its building purple, but that would not make purple paint a confidential product or
process. If Mylan made donuts, under the Agreement the recipe would be a confidential process
but it would not mean that all donuts, made with entirely different ingredients and in an entirely
different way, were “the same as or similar to” Mylan’s donuts. Nor would the fact that Mylan
was secretly planning on moving into the donut market mean that all donuts were off limits. The
product or process must be confidential or a trade secret; the fact that it is a secret that the
company plans to make a product of that type does not make all such products of that type
verboten. Mylan argues that the Agreement means that if Mylan was planning to make donuts,
12
and no one else knew that, Govil could not work at any company making donuts – even though
the donut recipes or equipment used to make the donuts were not “the same as or similar to” any
recipes or equipment of Mylan’s. The court does not read the Agreement that way.
The record on these issues is insufficient for summary judgment. The court concludes
that there remain disputed issues of fact that must be decided by a jury.4
Breach of the Covenant of Good Faith
The claim for breach of the covenant of good faith is asserted against Govil, and is based
in part upon claims that Govil diverted Cadila’s interest in Mylan for himself, intentionally hid
his negotiations with Cadila, lied about whether he had new employment, and continued to
obtain confidential information at Mylan while he knew he was leaving to join Cadila. An
employee is entitled to have negotiations with a new employer without disclosing them to his
current employer, and has no legal duty to tell the first employer where he is headed when he
leaves. Restatement (Third) of Agency § 8.04 cmt. c (“[A]n employee or other agent who plans
to compete with the principal does not have a duty to disclose this fact to the principal.”). Thus,
the issue boils down to whether he diverted Cadila’s interest in Mylan for himself, and whether
he purposely obtained (and used) confidential information once he knew he was leaving. Mylan
has not established these facts, and thus summary judgment for Mylan is denied.
Tortious Interference
The tortious interference claim is asserted against all defendants except Govil. It alleges
that those defendants knew of the Trade Secrets Agreement and Govil’s contractual obligation
4
Govil also argues that summary judgment for Mylan must be denied because Mylan has not shown that the
Agreement imposes no greater restraint than necessary. The argument is based upon a broader reading of the
Agreement than the court’s reading. Based upon the latter, the court cannot say that the Agreement is unreasonable
as a matter of law. If there are actually trade secrets or confidential information, some restriction is obviously
reasonable. Five years is not on its face unjustifiable. The reasonableness of the restriction may depend to some
extent on what secrets are established at trial.
13
not to disclose confidential information or trade secrets; that they intentionally interfered with
the contractual relations between Mylan and Govil by recruiting and hiring Govil into a
competing business which would cause him to breach the Agreement, and by creating a joint
venture with him. These claims turn in part on whether Govil has actually breached the
Agreement, and thus cannot be resolved until that claim is resolved. Moreover, the Defendants’
intent must be proven. Williams v. Chittenden Trust Co., 145 Vt. 76, 80-81 (1984). Until it is
clear that there were trade secrets and/or confidential information that were at issue, there can be
no finding that there was an intent to cause a breach of the Agreement. The record does not
adequately resolve this question. Mylan’s request for summary judgment on this claim is denied.
Breach of Fiduciary Duty
Govil is alleged to have breached his fiduciary duty to Mylan. With one exception, the
facts supporting this claim are the same as those supporting the claims of breach of the duty of
good faith – that Govil diverted a venture intended for Mylan, and used Mylan trade secrets or
confidential information in doing so. Like the other claims, these cannot be resolved now
because there are disputed facts at issue.5
The exception is the claim that Govil provided services to Cadila while he was still
employed by Mylan. “Throughout the duration of an agency relationship, an agent has a duty to
5
Mylan argues that even if it had abandoned all negotiations with Cadila before Govil began discussions with
Cadila, there was still a breach of fiduciary duty. The two cases Mylan cites which the court can locate – it does not
have access to the Lexis citation – do not speak so broadly. Instead, they involved situations where the fiduciary was
aware that the company was still interested in the proposal, even though the first offers had been rejected. Regal-
Beloit Corp. v. Drecoll, 955 F. Supp. 849, 861 (N.D. Ill. 1996)(Corporation “remained extremely interested in
purchasing Brad Foote, even after its first acquisition attempt was unsuccessful.”); Lindenhurst Drugs, Inc. v.
Becker, 506 N.E.2d 645, 651 (Ill. App. Ct. 1987)(“[I]t is undisputed that plaintiff remained interested in purchasing
the Ben Franklin store franchise.”). Other cases support Govil’s position. See, e.g., Engenium Solutions, Inc. v.
Symphonic Technologies, Inc., 924 F. Supp. 2d 757, 793 (S.D. Tex. 2013)(Corporation’s “abandonment of the
business opportunity [is a] defense[] to a charge of usurpation of corporate opportunity.”). Moreover, Govil argues
that the nature of the proposal to Mylan was different from the proposal to him, and this remains a disputed factual
issue. If the two things did not involve the same “corporate opportunity,” there would presumably be no breach of
duty.
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refrain from competing with the principal and from taking action on behalf of or otherwise
assisting the principal’s competitors. During that time, an agent may take action, not otherwise
wrongful, to prepare for competition following termination of the agency relationship.”
Restatement (Third) of Agency § 8.04.
The undisputed facts show that while still working at Mylan, Govil met several times
with Cadila, negotiated to hire the future CFO of Noveltech, selected Estradiol (twice weekly),
Clonidine, Fentanyl and Lidocaine as products for the Cadila/Zydus companies to develop
transdermally, and signed a joint venture agreement with Cadila three days before leaving
Mylan. Ptfs.’ SMF ¶¶ 37, 40.6 As early as May 2006 – four months before he left Mylan – there
was a business plan that identified Govil as the CEO of the planned company. Govil Dep. Ex. 12.
It did not list exact drugs to be developed, but categories of such drugs (e.g., “female hormone
replacement therapy” and “pain”). However, Govil explained at his deposition that such
references were to the specific drugs referenced above. Govil Dep. 173-74.
If Govil worked Saturdays for an in-law running a corner store, that would not be a
breach of fiduciary duty even though he was doing this second job while employed by Mylan.
Here, however, it is undisputed that Mylan and Noveltech are competitors in the same field.
Thus, the question is whether Govil was (1) competing with Mylan, or assisting Cadila to do so,
while still employed at Mylan, or (2) merely preparing to compete.7
6
Defendants claim that Govil did not sign a joint venture agreement, but a “memorandum of understanding which
was labeled as a joint venture agreement.” Defs.’ Joint Opp’n to Ptfs.’ SMF ¶ 37. The court rejects this overly
technical distinction and concludes that any jury would do the same. The document is entitled “Joint Venture
Agreement.” Enough said.
7
Doing other work might also become a breach of duty if it is on company time or interferes with the employee’s
work. There is no evidence presented that Govil did work for Cadila on company time. While there is evidence that,
for example, he travelled to India for meetings, there is no evidence as to whether he took vacation time or other
leave time to do so. Nor is there evidence that work he did for Cadila actually interfered with his ability to do his
work for Mylan.
15
There can be a fine line between negotiating a new job – preparing to compete – and
actually competing. SJS Refractory Co., LLC v. Empire Refractory Sales, Inc., 952 N.E.2d 758,
768 (Ind. App. 2011) (“[A]n employee who plans to leave his current job and go into
competition with his current employer must walk a fine line.”). However, “at-will employees
may plan to compete with their employer even while still employed there and may freely
compete with the employer once they are no longer employed there.” Omega Optical, Inc. v.
Chroma Technology Corp., 174 Vt. 10, 18 (2002). As the court explained in SJS Refractory,
“although an employee may not actively and directly compete with his current employer, he may
prepare to do so without breaching his fiduciary duty of loyalty.” 952 N.E.2d at 768. Thus:
Prior to his termination, an employee must refrain from actively
and directly competing with his employer for customers and
employees and must continue to exert his best efforts on behalf of
his employer. An employee may make arrangements to compete
with his employer, such as investments or the purchase of a rival
corporation or equipment. However, the employee cannot properly
use confidential information specific to his employer's business
before the employee leaves his employ. These rules balance the
concern for the integrity of the employment relationship against
the privilege of employees to prepare to compete against their
employers without fear of breaching their fiduciary duty of loyalty.
Id. “Many employees and other agents who compete with their former principals do not
terminate the agency relationship before commencing activity requisite to their eventual
competition.” Restatement (Third) of Agency § 8.04 cmt. c. However, it can be “difficult to draw
a clean distinction between actions prior to termination of an agency relationship that constitute
mere preparation for competition, which do not contravene an employee’s or other agent’s duty
to the principal, and actions that constitute competition.” Id. This is in part because “actions may
be proper or improper, depending on the intention with which the agent acted and the
surrounding circumstances.” Id. As another court has noted, “these types of cases are extremely
16
fact-sensitive.” Potts v. Review Bd. of the Ind. Emp. Sec. Div., 475 N.E.2d 708, 712 (Ind. Ct.
App.1985).
If Govil was, while working at Mylan, sharing confidential information in violation of the
Trade Secrets Agreement, that would be a breach of fiduciary duty, but that issue remains for
trial. Setting that issue aside, Govil was not actually “competing with” Mylan merely by
discussing new product plans with Cadila. Nor does it necessarily cross the line to have repeated
meetings with the future employer. Although Govil created the detailed business plan for Cadila
while he still worked for Mylan, and signed the joint venture agreement, an employee may even
purchase a rival company without violating his duty. The new company did not even exist until
2007: the Joint Venture Agreement that Govil signed four days before leaving Mylan was merely
a plan to set up the new venture: it did not yet exist. Thus, the court concludes that Govil was
preparing to compete, not actually competing. By doing so, he did not breach his fiduciary duty.
The other aspects of this claim remain for trial.8
Unfair Competition
Mylan alleges that all Defendants engaged in unfair competition by conspiring to violate
the Trade Secrets Agreement and “conceal the creation of Zydus so as to prevent [Mylan] from
enforcing its contract rights.” Second Amended Complaint, ¶ 90. The complaint also alleges that
the Defendants conspired to conceal their discussions while Govil was still employed at Mylan.
Id. For this argument they rely upon the idea that “deception” can be unfair competition. Mem.
in Supp. of Ptfs.’ Mot. at 45. However, merely failing to tell an employer that its employee is
negotiating to leave and start, or join, a new company is not deception: it is common business
practice. Accord, Restatement (Third) of Agency § 8.04 cmt. c (“[A]n employee or other agent
8
Govil argues that Plaintiffs cannot show damages. That, too, is an issue for trial.
17
who plans to compete with the principal does not have a duty to disclose this fact to the
principal.”).
The documents Mylan cites may suggest that employees at Noveltech were trying to keep
Govil’s name out of public references, but that alone does not prove that there was unlawful
deception going on. In any case, Defendants proffer an explanation for at least one of the
documents. While not greatly persuasive, the explanation is at least arguable. It is thus a question
for the jury, not the court. “The ultimate assessment of the inferences is for the jury rather than
the court, unless reasonable minds could not differ . . . .” Clarke v. Abate, 2013 VT 52, ¶ 21, 194
Vt. 294. The court denies summary judgment for Mylan on this claim.
Govil’s Counterclaim for Breach of Contract
Mylan argues that it is entitled to summary judgment on Govil’s counterclaim for breach
of contract. Govil’s claim is that Mylan has improperly refused to let him exercise his stock
options. The Stock Option Agreements say that they terminate immediately upon resignation for
any reason other than retirement or disability. Govil Dep. Exs. 64-65. Although Govil argues
over whether he had the agreements in hand when he tendered his resignation, he does not
dispute what they say. Instead, he argues that a Mylan employee told him he would have thirty
days to exercise the options, and that Mylan improperly pressured him into resigning earlier than
he intended – after threatening to “make his life miserable” if he was going to a competitor.
Govil argues that this was a breach of the covenant of good faith and fair dealing. However, his
counterclaim asserts only a claim for breach of contract, not for breach of the covenant of good
faith. They are two different claims. Govil has offered no evidence of the claim he did make: that
the stock option contract was breached. Thus, the court grants summary judgment for Plaintiffs
on this counterclaim.
18
Noveltech’s Counterclaim for Unfair Competition
Mylan seeks summary judgment on Noveltech’s counterclaim for unfair competition. The
claim is that Mylan “has initiated and maintained this action without probable cause, with no
good-faith basis, with knowledge that the allegations and claims are without foundation, and
with the knowledge and intent to burden and disrupt” Noveltech’s business. Counterclaim ¶ 140.
A groundless lawsuit intended to interfere with a competitor’s business can be the basis for a
claim of unfair competition. Restatement (Third) of Unfair Competition § 1 cmt. g.
Mylan argues, however, that the Noerr-Pennington doctrine mandates dismissal. As the
court noted in an earlier ruling on this issue:
The doctrine, in its simplest form, provides that the First
Amendment right to petition the government protects litigants from
liability for filing lawsuits, unless the lawsuits are found by a court
to be “shams.” B E & K Constr. Co. v. N.L.R.B., 536 U.S. 516,
524-25 (2002). This is referred to as “Noerr-Pennington
immunity,” meaning that a litigant is immune from liability for
seeking non-sham redress in the courts.
Ruling on Motion to Dismiss Counterclaims at 8 (May 17, 2011). Although it originated in the
antitrust world, “it has been extended to provide protection from unfair competition claims.”
ICOS Vision Systems Corp., N.V. v. Scanner Technologies Corp., No. 05 Civ. 6322(DC), 2006
WL 838990, *4 (S.D.N.Y. Mar. 29, 2006). This court concluded earlier, and does not change its
view now, that the doctrine should be applied to such claims in Vermont.
To overcome Noerr-Pennington, Zydus must show two things: (1) that the lawsuit is
objectively baseless, in that “no reasonable litigant could realistically expect success on the
merits,” and (2) that this suit was “an attempt to interfere directly with the business relationships
of a competitor through the use [of]” the court process. Prof. Real Estate Investors, Inc. v.
Columbia Pictures Industries, Inc., 508 U.S. 49, 60-61 (1993) (emphasis omitted)(citations and
internal quotation marks omitted). “[T]he filing of a frivolous lawsuit to delay a competitor from
19
bringing a product to market would constitute a sham.” BCD, LLC v. BMW Mfg. Co., LLC, No.
6:05-CV-2152-GRA, 2008 WL 304878, * 14 (D.S.C. Jan. 31, 2008), aff’d, 360 Fed. Appx. 428
(4th Cir. 2010).
As the court noted before, the first issue requires either a trial or a finding on summary
judgment that the case is frivolous. However, the fact that Mylan survives summary judgment
against it does not necessarily put the claim to rest. As the court previously ruled, it believes that
this issue should await resolution because the facts as presented on summary judgment may turn
out to be unsupported at trial. If necessary at that time, the court will determine whether there
were any misrepresentations to the court by Mylan as alleged by Noveltech.
Mylan’s Request for Attorney’s Fees
The court considers the issue of attorney’s fees under the Trade Secrets Agreement to be
premature, as it will depend upon the outcome of the case at trial.
Govil/Noveltech Motion
Govil and Noveltech move for summary judgment in their favor on all claims against
them. Some of the court’s discussion above in the context of Mylan’s motion addresses issues
raised in the Govil/Noveltech motion, and the court will not repeat those discussions here.
Breach of Contract
Damages
Govil argues that the breach of contract claim cannot succeed because Mylan cannot
prove any damages. First, he argues that the Trade Secrets Agreement on which this claim rests
is only with Mylan Technologies, and that company has no income from the drugs in question –
and thus cannot suffer any damages from lost profits. It is undisputed that Mylan Technologies is
the party to the Agreement, and that its products are sold through Mylan Pharmaceuticals. The
20
details of the accounting between the two, and whether Mylan Technologies makes any profit on
the sale of its transdermal products, are disputed. This is not an issue the court can resolve on
summary judgment. The companies are obviously intertwined and the factual record is
insufficient to sort out the details.
The next argument is that any damages from breach of contract here are too speculative,
because there are too many unknown factors. Mylan has not obtained FDA approval yet for
Estradiol (twice weekly) or Lidocaine, and thus may never be able to market them or have any
income from them. For the products already approved, the sales projections have many
assumptions, such as that there will be no supply issues, costs will remain essentially the same,
and there will be no competing entrants into the market. Govil thus argues that any damages are
unrecoverable under the “new business” rule.
That rule is that “evidence of expected profits from a new business is too speculative,
uncertain, and remote to be considered and does not meet the legal standard of reasonable
certainty.” Berlin Dev. Corp. v. Vt. Structural Steel Corp., 127 Vt. 367, 372 (1968). “The rule is
clearly established in Vermont that breach-of-contract damages must be proved with reasonable
certainty.” Madowitz v. Woods at Killington Owners’ Ass’n, Inc., 2014 VT 21, ¶ 14 (internal
quotation marks and citation omitted). “Consequently, ‘recovery for lost profits is not generally
allowed for injury to a new business with no history of profits.’” Id. ¶ 15, quoting Berlin at 372.
Govil/Noveltech argues that this also applies to as-yet-unlaunched products of an existing
business. The court agrees. “[T]he new business rule applies with equal force to new products
which create potential new business for the entity.” TAS Distrib. Co., Inc. v. Cummins Engine
Co., Inc., 491 F.3d 625, 634 (7th Cir. 2007).
21
Here, although Mylan is in the business of selling pharmaceutical transdermal products,
the Estradiol (twice weekly) and Lidocaine products are not even approved by the FDA for sale
yet. Just as in Madowitz, “it is entirely speculative that [Mylan] would have completed, or even
started, [selling its planned products]” by any particular date. 2014 VT 21, ¶ 19. Mylan may
never receive approval and thus may never have any possible income from these products. Thus,
the court agrees that the contract claim for damages based upon Estradiol (twice weekly) and
Lidocaine cannot succeed.
With regard to Mylan’s existing products, Govil argues that there are too many
assumptions to support damages: such as the assumption that there will be no other entrants into
the market to compete with these products. However, this would essentially be true about any
claim for future profits, even of a longstanding and successful business. A new competitor may
appear at any time; costs may suddenly go up; other unexpected events may change the profit
picture. But a going business has a track record on which to project reasonably likely future
sales. We do not deny them all claims for lost profits because of the possibility of change. This is
not to say that the Defendants could not present evidence at trial to show that the likelihood of
changes outweighs the likelihood of business-as-usual, but to date they have not done so. Thus,
damages for projected losses to Mylan’s existing product line are not too speculative to seek.
However, Govil argues that the damages also fail because the claim assumes that
Noveltech will actually get approval for and succeed in marketing the competing products.
Without such sales, there will be no losses to Mylan. As with the Estradiol (twice weekly) and
Lidocaine, it is entirely speculative whether the FDA will approve Noveltech’s products and
whether Noveltech will ever be an actual competitor to Mylan on any of the drugs in question.
Thus, there is no way for a jury to calculate any lost profits that Mylan will suffer as a result of
22
sales by Noveltech. Any such calculations would be pure speculation. Although Mylan
complains that Noveltech has not provided its own calculations of likely profits, that would be no
more useful to the jury. If the products never launch, there are no losses to Mylan. No set of
calculations can overcome that gap in the evidence.
However, the parties appear to agree that even without any actual damages, Mylan would
be entitled to nominal damages if it proved its breach of contract claim. Herrera v. Union No. 39
Sch. Dist.,2006 VT 83, ¶ 21, 181 Vt. 198. Thus, the court cannot grant summary judgment on
this entire claim. The court will, however, limit the damages on this claim to nominal damages.9
Overbreadth
Govil/Noveltech argue that the Agreement is overbroad and thus unenforceable, because
it is unnecessarily restrictive. The court agrees that, as Mylan interprets the Agreement, it would
be overbroad and unenforceable. However, as the court has explained above, it does not read the
Agreement so broadly. A five year restriction on working on a competing product or process is
not unreasonable as a matter of law to protect trade secrets and confidential information.
Breach of Fiduciary Duty
Govil argues that he is entitled to summary judgment on the breach of duty claim because
Mylan abandoned the opportunity to work with Cadila. The evidence of this is testimony by a
Mylan executive that after meeting with Cadila, Mylan thought that Cadila was “very immature
in their development [and] we . . . didn’t see anything that we felt would make sense to Mylan
Technologies at that point.” Caron Dep. at 87. Caron further testified that the President of Mylan
agreed with that assessment.
9
Of course, this could potentially change if Noveltech receives FDA approval between now and trial.
23
Mylan argues that even if it abandoned the opportunity, the case law supports its claim.
The court disagrees, as noted above. See supra n 5. However, the court finds the evidence on this
is disputed because Caron did not state that the company actually made a decision to abandon
any discussions with Cadila, he appears to have been a party to only one conversation when the
evidence suggests there were more, and Mylan points to other evidence suggesting that Govil
was never told that Mylan had abandoned the idea.
Govil also argues that the discussions with Mylan related to an entirely different business
model than the one that he and Cadila ultimately created. Again, the court finds the facts on this
issue disputed.
Finally, Govil argues that Mylan cannot show any damages from the alleged breach.
Mylan seeks disgorgement of Govil’s pay from Mylan during the period he was negotiating with
Cadila while still employed there, under what has been called the “faithless servant” doctrine.
Vermont has not addressed this doctrine one way or the other, but it has been used in other
jurisdictions.
Generally, to establish a claim for breach of a fiduciary duty, a plaintiff must show: (1)
the existence of a fiduciary duty, (2) knowing breach of that duty, and (3) damages from that
breach. See, e.g., Johnson v. Nextel Communications, Inc., 660 F.3d 131, 138 (2d Cir. 2011);
People ex rel. Harris v. Rizzo, 154 Cal. Rptr. 3d 443, 469 (Cal. Ct. App.2013); accord Cooper
v. Cooper, 173 Vt. 1, 17 (2001)(listing elements of claim for assisting another in violating a
fiduciary duty). “Once the breach of a fiduciary duty has been established, the plaintiff must
prove the damage resulting from the breach.” 3 Fletcher Cyclopedia of the Law of Corporations,
§ 860.50 (WL updated April 2014); accord Cooper, 173 Vt. at 17 (Where claim is for assisting
24
another in violating a fiduciary duty, elements of proof include “that the plaintiff suffered
damage as a result of the breach.”).
Here, Mylan does not argue that it has been directly damaged by the alleged breach of
duty. There is no claim that it would have entered into a joint venture with Cadila and profited
therefrom, for example. Instead, Mylan asks this court to permit it to draw back Govil’s
compensation for the period of the alleged breach of duty. Under the “faithless servant”
doctrine, an employee who breaches a duty to his employer may be required to forfeit some or all
of his salary from the employer. See, e.g., Bailey v. Fast Model Technologies, LLC, No. 10–
15118, 2012 WL 2601882, * 2 (E.D. Mich. 2012)(“Michigan courts have long recognized that an
agent may forfeit his or her right to compensation under a contract for services when the agent
engages in misconduct or grossly mismanages his principal’s affairs”); Bessman v. Bessman,
520 P.2d 1210, 1215-20 (Kan. 1974) (“[A]n agent who realizes a secret profit through his
dealings on behalf of his principal not only must disgorge the profit but forfeits the compensation
he would otherwise have earned.”). Even without the terminology of “faithless servant,” there is
other authority to support this as a measure of damages for breach of fiduciary duty by a
corporate officer. See, e.g., 5A Fletcher Cyc. Corp. § 2145 (WL updated Sept. 2014) (“It is one
of the fundamental principles of agency that an agent guilty of misconduct and fraud in relation
to the transaction of the principal’s business is not entitled to compensation for his or her
services.”).
This doctrine has not been expressly adopted by the Vermont Supreme Court – a not
uncommon state of affairs in this jurisdiction. However, it has also not been expressly rejected. It
appears to be a rational way to penalize an employee for his or her wrongdoing when alternative
measures of damages are not available. The court will not grant summary judgment on this claim
25
merely because no Vermont case has yet adopted the theory. Numerous courts have addressed
the issue, and the fact that it has not come up before is not alone a reason to disavow it. Although
Govil describes it as “controversial and inequitable,” he actually cites nothing analyzing why it
should be seen so. As one court notes, where it is applied “[e]ach case must be determined in the
discretion of the court with reference to the peculiar factors found to be present.” Gemini
Networks, Inc. v. Nofs, No. CV030824652, 2004 WL 113622, * 1 (Conn. Super. 2004) (citation
omitted). The court will await the facts as they play out at trial to determine whether the doctrine
is properly applied here.
Tortious Interference
Noveltech seeks summary judgment on the claim of tortious interference for several
reasons, some of which depend upon the breach of contract issues addressed above, which await
trial. It also alleges there is no proof of Noveltech’s bad intent. “To establish liability for this tort,
[Mylan] must show that [Noveltech] intentionally and improperly induced [Govil] not to perform
[his] contract.” Gifford v. Sun Data, Inc., 165 Vt. 611, 612 (1996). “Intent to interfere with a
contractual relationship exists if the actor acts for the primary purpose of interfering with the
performance of the contract,” or if the actor “knows that interference will be substantially certain
to occur as a result of his or her action.” Williams v. Chittenden Trust Co., 145 Vt. 76, 80-81
(1984)(internal quotation marks and citation omitted). In determining whether the acts were
“improper,” the court must look at “the motives and actions of [Noveltech], the relations of the
parties, and their respective interests.” Gifford, 165 Vt. at 612.
Mylan’s claim is that Defendants interfered with Govil’s obligations under the Trade
Secrets Agreement. However, Noveltech specifically negotiated an employment agreement that
bars Govil from violating the Agreement, had lawyers review the documents, and had Govil list
26
what he believed Mylan might consider to be trade secrets. Patel told Govil he did not want
Govil to “do anything with what you’ve done previously.” Patel Dep. at 160. That comment was
rather vague, and there certainly could have been much more done to assure no crossover of
information, the evidence is nonetheless that Defendants were attempting to avoid having Govil
breach the Agreement. As this case has demonstrated, the poorly drafted Agreement certainly
left room for confusion over exactly what items it might cover. Its wording is not ambiguous, but
exactly what products or processes it covers are, as a factual matter, extremely unclear.
Ultimately, Mylan offers no evidence beyond its claim that Noveltech had to know from
the language of the Agreement that hiring Govil would make him breach it. This rests on
Mylan’s view that developing any transdermal drug that might compete with one of its products
is automatically a violation of the Agreement. As discussed above, the court cannot agree. Any
donut is not necessarily a forbidden donut. It requires proof that there is a trade secret or
confidential information at issue. There is just no evidence here that Noveltech intended to, or
knew it was substantially certain to, cause Govil to breach the Agreement. Nor does the fact that
Defendants did not fire Govil or change their product lines after accusations were leveled against
them by Mylan add any actual proof to this claim. The court grants Noveltech summary
judgment on this claim.
Trade Secret Misappropriation
Mylan asserts a claim of trade secret misappropriation against all Defendants under 9
V.S.A. §§ 4601-09. That statute provides for injunctions against misappropriation of trade
secrets, payment of royalties in exceptional circumstances, and damages. Id. §§ 4602-03. It
provides a lengthy definition for the term “misappropriation” and defines “trade secret” as
follows:
27
[I]nformation, including a formula, pattern, compilation, program,
device, method, technique, or process, that (A) derives independent
economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure
or use; and (B) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.
Id. § 4601(3). “In general, liability for trade secret misappropriation in the employment context
requires proof of both the existence of a trade secret as well as unauthorized disclosure or use of
the secret in breach of a duty of confidence.” Omega Optical, Inc., 174 Vt. at 13.10 To be liable
for misappropriation, an employee must have reason to know the information is a trade secret
that he has a duty to protect. Id. at 14. “Information that is public knowledge or that is generally
known in an industry cannot be a trade secret.” Ruckelshaus v. Monsanto Co., 467 U.S. 986,
1002 (1984). However, “a trade secret can exist in a combination of characteristics and
components, each of which, by itself, is in the public domain, but the unified process, design and
operation of which, in unique combination, affords a competitive advantage and is a protectable
secret.” Integrated Cash Mgmt. Serv., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 174 (2d
Cir. 1990) (citation omitted).
“The existence of a trade secret is a conclusion of law based on the applicable facts.
However, if the facts the Court uses to determine whether information constitutes a trade secret
are disputed, the finder of fact must first resolve those disputes.” Sarkissian Mason, Inc. v. Enter.
Holdings, Inc., 955 F. Supp. 2d 247, 255 (S.D.N.Y. 2013)(internal quotation and citation omitted).
10
See also, U.S. Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 218 (Tex. App.1993)
(The elements of misappropriation are: “(i) the creation of plaintiff’s product through extensive time, labor, skill and
money, (ii) the defendant’s use of that product in competition with the plaintiff, thereby gaining a special advantage
in that competition ( i.e., a “free ride”) because defendant is burdened with little or none of the expense incurred by
the plaintiff, and (iii) commercial damage to the plaintiff.”); Mercury Record Prod., Inc. v. Econ. Consultants, Inc.,
218 N.W.2d 705, 710 (Wis. 1974) (“[T]he essence of the cause of action in misappropriation is the defendant’s use
of the plaintiff’s product, into which the plaintiff has put time, skill, and money; and the defendant’s use of the
plaintiff’s product or a copy of it in competition with the plaintiff and gaining an advantage in that competition
because the plaintiff, and not the defendant, has expended the energy to produce it.”).
28
Public Domain
Mylan has alleged five trade secrets as being at issue here. Three are described as “the
research and stability testing during formulation development” to arrive at certain percentages or
formulations of ingredients. Ptfs’ SMF 57. Specifically, they relate to concentrations of CSD
(colloidal silicon dioxide) and PVP (povidone) in Mylan’s weekly Estradiol. Defendants argue
that these have been disclosed in patent applications, Mylan’s product labeling, and textbooks,
and therefore cannot be considered secret. Mylan responds that the patents and textbooks address
general principles but not the detailed formulations at issue, and that the label is for an earlier
product. For example, Mylan says that the patent is for a patch different from the once weekly
Estradiol product, and that when they developed Estradiol (twice weekly), they added two
ingredients that were not in their prior patent for the same drug. Thus, they say, the fact that part
of the recipe was public does not mean the additional ingredient formulation was not a secret.
However, whether Mylan’s own drugs were the same is not the issue. The issue is
whether Noveltech stole their trade secrets. The first two trade secrets Mylan alleges relate to the
formulations of the once weekly Estradiol, and are listed as approximately 1% CSD and
approximately 4% PVP. (Trade Secrets 1 and 2). The 2004 patent application lists even more
detail: 1.13% CSD and 3.4% PVP. To argue that how Mylan came up with “approximately 1%”
and “approximately 4%” is a secret when the exact percentages are public in their patent
application is unconvincing. Likewise, the package insert for Mylan’s weekly Estradiol lists CSD
and PVP as ingredients, although not the percentages. It is also undisputed that other
publications had discussed the usefulness of PVP and CSD for the purposes for which Noveltech
has used them. The mere fact that these ingredients have been used by both Mylan and
29
Noveltech is not a basis for sending these issues to the jury. The court grants summary judgment
to Defendants on Trade Secrets 1 and 2.
With respect to Trade Secret 3, Defendants argue that the patent application also
discloses the combination of “CSD and an acrylate adhesive.” However, the court cannot tell
from the facts provided whether that is the case. The court finds the facts disputed on this issue.
Mylan describes Trade Secret 4 as “the identification of CSD as the cause of streaking
and spots in dried laminates and the use of an inline filter to filter or screen the coating solution
prior to the coating application as a specific process improvement to address such problems in
the manufacture of Mylan’s Estradiol (one weekly) transdermal product.” Defendants argue that
inline filtration is a common technique explained in textbooks to prevent streaking during
coating operations. Mylan responds that the general concept may be out there, but not the idea of
applying it to address streaking of CSD or using it in producing an Estradiol product. Again, the
court finds there are disputed facts. See Ptfs.’ Resp. to Defs.’ SMF ¶¶ 97-100 and Ptfs.’
Additional SMF ¶ 189.
Trade Secret 5 is described as “the use of Drakeol 7 grade mineral oil in the formulation
of Mylan’s clonidine transdermal drug product as an excipient and the knowledge that it’s [sic]
use would be compatible and stable with the overall drug formulation.” Defendants argue that
Mylan’s 1999 patent for a clonidine patch addresses the viscosity range applicable to Drakeol 7.
Plaintiff’s expert testified that someone could figure out the idea of using Drakeol 7 based upon
the need for that viscosity. Shivanand Dep. at 158-9. Mylan responds that “someone could have”
is not the same as “someone did.” That may be true, but it is Mylan’s burden to prove that the
information is actually a secret that is not “readily ascertainable” by others. If the information
was “readily ascertainable” by others, it was not a trade secret. 9 V.S.A. § 4601(3). Mylan does
30
not deny that its 1999 patent listed exactly the viscosity applicable to Drakeol 7, and thus that
fact was in the public domain. Mylan proffers no evidence that its choice of Drakeol 7 was itself
a trade secret. The court grants summary judgment on this issue.
Independent Development
Defendants argue that there is no evidence that Defendants took their ideas from Mylan
as opposed to developing them independently, and they point to evidence of independent
development. What remain at issue for this discussion are Trade Secrets 3 and 4. Trade Secret 3
relates to Mylan’s Estradiol (once weekly). It is described as the “research and stability testing
during formulation and development” that led to the choice of “specific concentrations of both
CSD and PVP . . and in connection with the use of an acrylate adhesive.” Trade Secret 4 is the
“identification of CSD as the cause of streaking and spots in dried laminates and the use of an
inline filter to filter or screen the coating solution. . . .”
Defendants argue that even if their products are similar, there is no proof they came from
Mylan’s testing. The two companies’ Estradiol (once weekly) are not identical. Where they share
the same ingredients, the percentages are different.11 Each also has ingredients the other does
not. The ingredients Noveltech uses, but Mylan does not, come from another company’s patent
that expired in 2010. The patches also have different physical design: Mylan’s has a “double
disk” to improve adhesion, whereas Noveltech’s has a “single disk.” Likewise, the Clonidine of
each company is different, both in ingredients and in disk design. Mylan’s expert, Dr. Shivanand,
did not tally up the similarities and differences in the two companies’ products. Nor has she
stated that Noveltech used Mylan’s “research and stability testing.”
11
The court again notes that merely saying a fact is “disputed,” as Mylan has done for a number of the facts set forth
here, does not satisfy Rule 56. See, e.g., Ptfs.’ Resp. to Defs.’ SMF ¶¶ 105-113. The court has thus deemed such
facts admitted.
31
Defendants have proffered testimony from Govil and other employees about how they
came up with various elements of their products, and denying that they used any confidential
Mylan information. For example, one employee testified that Defendants based their Estradiol
(once weekly) on Climara, a branded product with a patent set to expire in 2010. Another
testified that they developed Clonidine based upon expired patents for another drug, Catapres
TTS. The history of how these drugs were developed by Defendants is set forth in detail in an
affidavit from Dr. Abhay Sapre. The same witness explained how Defendants determined that
CSD was causing streaking problems. Defendants had used an inline filter in a prior product.
The history of how the Drakeol oil was selected is explained in detail in the affidavit of G.
Kevasan, backed up by contemporaneous emails. Govil states that he never instructed anyone to
try CSD, told them what to do about streaking of laminates, or advised them what mineral oil to
use in the Clonidine patch.
Mylan’s response to all of this testimony about independent development is that it is
inconsistent, leaves out information about testing that would have been necessary, includes no
documents articulating the origin of the ideas, and fails to “provide an eyewitness account of the
origin of each idea.” Ptfs.’ Opp. to Govil/Noveltech Motion at 49-50. In essence, Mylan’s point
is that the testimony from Defendants’ witnesses is not credible, that the similarities between the
products are suspicious, and it should be permitted to present that claim to a jury.
Mylan is of course correct that circumstantial evidence can be sufficient to prove a case,
and that incredible allegations are not enough to support summary judgment. It is also true that
credibility is a question for the jury, not for the court on summary judgment. “Credibility
determinations, the weighing of the evidence, and the drawing of legitimate inferences from the
facts are jury functions, not those of a judge, whether [the judge] is ruling on a motion for
32
summary judgment or for a directed verdict.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986). In addition, the court must give Mylan, the non-moving party, the benefit of all
reasonable doubts and inferences. Glassford v. BrickKicker, 2011 VT 118, ¶ 12, 191 Vt. 1.
However, to withstand summary judgment there must be evidence presented “which
creates an issue of material fact, no matter what view the court may take of the relative weight of
that evidence.” Booska v. Hubbard Ins. Agency, Inc., 160 Vt. 305, 309 (1993). Saying “they’re
lying” is not alone sufficient. “[T]he general rule is that specific facts must be produced in order
to put credibility in issue so as to preclude summary judgment. Unsupported allegations that
credibility is in issue will not suffice.” Wright, Miller, & Kane, 10A Federal Practice &
Procedure: Civ. 3d § 2726.
The question is whether credibility is the issue here. The court does not find it significant
that no one has an “eyewitness account” of the “aha” moment when the idea about using a
particular ingredient came up. This is not the discovery of the Higgs boson we are talking about.
It is the daily work of scientists in a laboratory and the multiple small steps along the path to a
final product. Nor is it striking that employees cannot recall exactly which one of them suggested
a particular idea. As for Mylan’s claim that it is just too suspicious that Defendants chose to use
both CSD and PVP (what Mylan describes as “the striking use by Defendants of the same two
non-standard ingredients that Mylan selected for its Estradiol (one weekly) product,” Ptfs.’ Opp.
at 52), the fact that Mylan’s own 2004 patent application and its own package insert listed both
neutralizes this argument regarding Trade Secret 3.
However, with regard to Trade Secret 4, Mylan does point to inconsistencies between
interrogatory responses and witness testimony with regard to who knew what when. Moreover,
the description of the alleged preexisting use of inline mesh is rather weak. The factual support
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for this is limited to two things. The first is an excerpt from a manufacturing record saying
“attach silicon tubing fitted with nylon cloth . . . to the out let [sic] of the manufacturing tank”
and then “complete the filtration of bulk.” Defs’ SMF 151. The second is testimony that they had
“an online filter” to “filter out the API particles.” Id. ¶ 152. This is neither clear enough nor
persuasive enough to establish that the filter idea was actually based upon past use of similar
technology. The court cannot even tell whether it is the same sort of filter. Thus, the court denies
summary judgment with respect to this alleged trade secret. “Given the . . . extremely factual
nature of the inquiry, we cannot say that, as a matter of law, the [claimed trade secret] is not a
trade secret.” Dicks v. Jensen, 172 Vt. 43, 49 (2001).
Damages
Finally, Defendants argue that the trade secrets claim cannot succeed because no
damages can be proved. The court, as above, finds that the issue of which Mylan entity has a
claim is an issue for trial. With regard to the issue of whether any damages can be proved in the
absence of any sales yet by either Plaintiffs or Defendants, this is a red herring because Plaintiffs
can obtain injunctive relief even if they cannot prove damages. 9 V.S.A. § 4602. Thus, this is not
a basis for summary judgment.
Unfair Competition
Govil and Noveltech ask for summary judgment on Mylan’s claim for unfair competition
on the ground that it is duplicative of other claims. Parties are allowed to assert alternative
theories. This is not a basis for summary judgment.
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Indian Defendants’ Motion
Defendants Cadila, Zydus Technologies, Panjak Patel and Sunil Roy, who refer to
themselves collectively as the “Indian Defendants,” file a joint motion for summary judgment.
Trade Secrets
The Indian Defendants argue that there is no proof that they knew or had reason to know
of any improperly obtained trade secrets. The court has already narrowed this issue to Trade
Secret 4. The court is not persuaded that the record is clear enough to rule as a matter of law that
the Indian Defendants should not have known of any use of Trade Secret 4 obtained through
Govil.
Preemption of the Unfair Competition and Tortious Interference Claims
The motion points out that the Vermont Trade Secrets Act preempts all common law
claims based upon alleged misappropriation. 9 V.S.A. § 4607. It then argues that the unfair
competition and tortious interference claims are just that, because they are based upon the same
facts, and must therefore fail.
Judge Crawford ruled on this same argument earlier in this case. See Decision on Motion
for Judgment on the Pleadings (Aug. 9, 2012). He ruled that the other claims are distinct from the
trade secret claim. Defendants offer nothing to suggest that the facts on which that ruling was
based have changed. The court will not revisit the issue here.
Tortious Interference
The Indian Defendants also argue that the tortious interference claim fails because there
is no proof that they intended Govil to breach his contract. For the same reasons that it ruled for
Noveltech above, the court agrees. Given the poor drafting of the Agreement, Kwiatek’s
interpretation of the Agreement, and the Defendants’ contractual agreement with Govil that he
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would not violate any obligations to Mylan, the court cannot see how any jury could decide that
these defendants knew it was substantially likely that Govil’s employment with them would
cause a breach of that agreement. The court will grant summary judgment for the Indian
Defendants on this claim.
Unfair Competition
The Indian Defendants argue that (1) the unfair competition claim is duplicative of the
tortious interference claim, and (2) there was nothing unfair going on.
Mylan describes its unfair competition claim as being based upon Defendants’ (1)
concealing the creation of Noveltech to prevent Mylan from enforcing its rights against Govil,
and (2) concealing their discussions with Govil “so they could benefit from the breach of Govil’s
fiduciary duties to” Mylan. Ptfs.’ Opp’n at 20. This is not duplicative of the tortious interference
claim.
The facts supporting this claim are slim, but there are two documents that can be read as
suggesting an intent to hide the fact that Govil was working at Noveltech. If Mylan succeeds in
proving its claim that trade secrets were being used by Noveltech, this evidence could support a
claim that Defendants were intentionally hiding Govil’s connection to the company to get a leg
up on Mylan with its own data. This could potentially be found to be unfair competition. See,
Maguire v. Gorruso, 174 Vt. 1, 7 (2002)(“[C]ommon law unfair competition is a flexible and
evolving concept, not confined to any particular form of unethical behavior.”).
Zydus Technologies
Zydus Technologies argues that it was not formed until 2009 and therefore cannot be
liable for the tortious interference or unfair competition claims. As the court has already granted
judgment on the tortious interference claim, that argument is moot. With regard to the unfair
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competition claim, as noted above part of what Mylan points to is evidence that can be read as an
attempt to keep Govil’s connection with Noveltech secret. However, the emails it cites are from
2008, prior to the creation of Zydus Technologies. Although Mylan argues in its memorandum
that Zydus Technologies was created for the purpose of making it harder for Mylan to prove its
case, and that it is the alter ego of Govil and Cadila, those allegations appear nowhere in the
unfair competition claim. See Second Amended Complaint, ¶ 90. Thus, the court agrees that
Zydus Technologies is entitled to summary judgment on this claim.
Patel and Roy
Defendants Patel and Roy argue that there is no evidence that they played any role in any
alleged wrongdoing. The claims in which they are named as defendants are those for tortious
interference, misappropriation of trade secrets, and unfair competition. The court’s ruling on the
first is the same as for the other defendants, leaving the trade secret and unfair competition
claims.
Patel and Roy are each the author of one of the documents arguably supporting the claim
of unfair competition. Taking the facts in the light most favorable to Mylan, it is possible that a
jury could find from this that they participated in corporate acts of unfair competition. Prive v.
Vt. Asbestos Grp., 2010 VT 2, ¶ 17, 187 Vt. 280. Thus, that claim remains for trial. However,
the court finds no evidence that would support a claim personally against Patel or Roy for trade
secret misappropriation. Mylan cites nothing but generalities about what they must have known,
but these are far from sufficient to prove this claim against these individuals.
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Order
Plaintiffs’ motion for summary judgment: (1) the court agrees that Mylan has
established that the Trade Secrets and Invention Agreement was assigned to Mylan, but the issue
of whether it was breached by Govil is a question for the jury; (2) the court denies Mylan
summary judgment on the breach of covenant claim; (3) the court denies Mylan summary
judgment on the tortious interference claim; (4) the court denies Mylan summary judgment on
the breach of fiduciary duty claim; (5) the court denies summary judgment on Mylan’s claim of
unfair competition; (6) the court grants Mylan summary judgment on Govil’s counterclaim for
breach of the stock option contract; (7) the court denies Mylan summary judgment on
Noveltech’s claim for unfair competition; (8) the court denies Mylan’s claim for attorney’s fees
as premature.
Govil and Noveltech’s motion for summary judgment: (1) the court grants summary
judgment for Govil on the claim of breach of contract with regard to Estradiol (twice weekly)
and Lidocaine on the ground that no damages can be proved, but denies it as to the other
products at issue; however, the damages for this claim will be limited to nominal damages unless
Noveltech receives FDA approvals prior to trial; (2) the court grants summary judgment for
Govil on the claim that he breached his fiduciary duty by negotiating employment with Cadila
prior to leaving Mylan, but denies it on the claims that he breached his fiduciary duty by
diverting the Cadila opportunity from Mylan, and used confidential information or trade secrets
in the negotiations; (3) the court grants summary judgment for Noveltech on the claim of tortious
interference; (4) the court grants summary judgment for Govil and Noveltech on the claim of
trade secret misappropriation with respect to alleged Trade Secrets 1, 2, 3, and 5; Trade Secret 4
remains for trial; (5) the court denies summary judgment on the unfair competition claim.
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The Indian Defendants’ motion for summary judgment: (1) the court grants summary
judgment for the Indian Defendants with respect to alleged Trade Secrets 1, 2, 3, and 5, but
denies it as to alleged Trade Secret 4; (2) the court grants summary judgment for the Indian
Defendants on the claim of tortious interference; (3) the court grants summary judgment on the
claim of unfair competition as to Defendant Zydus Technologies Ltd. but denies it as to the other
defendants; (4) the court grants summary judgment for Panjak Patel and Sunil Roy on the claims
of trade secret misappropriation but denies summary judgment on the claims of unfair
competition.
Dated at Burlington this day of April, 2015.
_____________________________
Helen M. Toor
Superior Court Judge
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