Philips N. Am. LLC v. Hayes

PHILIPS NORTH AMERICA LLC Plaintiff v. STEVEN HAYES Defendant.

Civil Action No. ELH-20-1409

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

September 9, 2020

MEMORANDUM OPINION

Plaintiff Philips North America LLC ("Philips"), which manufactures and sells medical equipment, filed suit against its former employee, defendant Steven Hayes, alleging misappropriation of confidential information. ECF 1 (the "Complaint"). Hayes, who worked for Philips from July 24, 2017 until January 6, 2020, is allegedly using plaintiff's confidential information to solicit Philips' customers to his current employer, GE Healthcare, a direct competitor of plaintiff, in violation of his employment agreement with Philips as well as federal and State law. Id. ¶¶ 3-5. The suit is supported by one exhibit. ECF 1-2.

The Complaint contains six counts: violation of the Defend Trade Secrets Act, 18 U.S.C. § 1836 ("DTSA") (Count I); violation of the Maryland Uniform Trade Secrets Act, Md. Code (2013 Repl. Vol), § 11-1201 et seq. of the Commercial Law Article ("C.L.") ("MUTSA") (Count II); breach of contract (Count III); breach of duty of loyalty (Count IV); "Tortious Interference with Prospective Economic Advantage under Maryland Law" (Count V); and unfair competition (Count VI). ECF 1 at 10-16.¹

Hayes has moved to dismiss the Complaint for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6). ECF 7. The motion is supported by a memorandum of law. ECF 7-1 (collectively, the "Motion"). Plaintiff opposes the Motion. ECF 10 (the "Opposition"). Defendant has replied. ECF 13 (the "Reply").

No hearing is necessary to resolve the motion. See Local Rule 105.6. For the reasons that follow, I shall deny the Motion.

I. Factual Background²

Philips is a Delaware corporation with its principal place of business in Cambridge, Massachusetts. It manufactures magnetic resonance ("MR") imaging scanners and sells "medical equipment, devices and technology to health care systems and providers throughout the United States." ECF 1, ¶ 5.

Hayes began working for Philips as "Sales, Senior Director - Market Business Manager, MR" on July 24, 2017. Id. ¶ 6. He subsequently served as the Vice President and North American market leader of Philips' MR division until his departure from Philips. Id. In both of these roles, "Hayes served as a leader in Philips' MR sales organization," which "leads Philips' efforts to market its MR equipment to hospitals, medical centers and other customers." Id. ¶¶ 15, 16. He was considered a "high-level employee." Id. ¶ 21.

According to Philips, the sales process for MR equipment is "highly complex," "time-consuming," and the "market is highly competitive." Id. ¶¶ 17, 18. Each piece of MR equipment is custom manufactured to the customer's specifications and may generate over $1 million inrevenue. Id. ¶ 17. As a result of the high cost and complexity of the equipment, there are a limited number of global manufacturers, including both Philips and GE Healthcare, regularly competing for the same customers. Id. ¶ 18, 19. These customers include "hospitals, medical centers and imaging centers with large capital equipment budgets who are generally affiliated with major health systems or research institutions." Id. ¶ 19.

On July 24, 2017, Philips and Hayes executed an "Employee Ethics and Intellectual Property Agreement." Id. ¶ 13; see ECF 1-2 (the "Agreement"). The Agreement does not contain an expiration date. ECF 1-2 at 1. According to the text of the Agreement, it "supersedes, replaces, and governs any similar agreement executed by [Hayes]." Id. In addition, the "agreement may not be modified, amended or terminated, in whole or in part, except in written agreement signed by an authorized representative of the company." Id.

The Agreement addresses the use and disclosure of Philips' proprietary trade information. Id. In pertinent part, the Agreement provides that Hayes, as an at-will employee of Philips, agreed, ECF 1-2 at 1:

1. Not to use, publish or otherwise disclose (except as my job requires) either during or after my employment, any secret or confidential (proprietary) information or data of the company or its customers or any other third party received by the company in confidence.

2. Upon the termination of my employment, to deliver promptly to the company all written and other material that relate to the business of the company or its affiliates including, without limitation, computers, laptops, hand-held computers and cell phones.

Because of defendant's role in overseeing Philips' MR sales organization, Philips allegedly "entrusted Hayes with a considerable amount of secret, confidential and proprietary information." Id. ¶ 20. This information included "MR equipment manufacturing information, national product supply funnel information, business and strategic plans, marketing, account strategies, pricing,national orders and sales, and relationships with customers and clients, and other proprietary Philips material." Id. ¶ 21. Further, Hayes had information on "pending, potential or completed sales to specific customers" and got regular updates from the field on the status of sales efforts. Id. ¶ 22. And, Hayes received "regular reports" on the manufacturing status of customized MR equipment for completed sales. Id. ¶ 23. In addition to having access to this information, Hayes was also "directly involved" with "pricing of the equipment" and, in developing Philips' MR sales and marketing strategy. Id. ¶¶ 22-23.

According to plaintiff, Philips' "secret, confidential and proprietary information" is "extremely valuable" because the information is "difficult, costly, and time-consuming to develop." Id. ¶ 24. It is "only known to a select group of people"; it is "not made public"; and it "cannot be independently ascertained through proper means." Id. Plaintiff claims that, by signing the Agreement, "Hayes acknowledged that Philips has valuable, legitimate and protectable business interests in protecting its property, secret, confidential or proprietary information or data and relationship with its customer and third parties." Id. ¶ 13.

Philips contends that the trade secrets have "great independent economic value" to both Philips and its competitors. Id. ¶ 26. According to plaintiff, its trade secrets give it a "competitive advantage in the sales and marketing of MR products" because they "provide product, profit margin and supply chain insight," and "customer-specific account strategy and history." Id. ¶ 26. And, plaintiff alleges, Hayes was aware of the value of the information to which he had access. Id. ¶ 24.

Moreover, Philips exercises "reasonable efforts to preserve" the secrecy of its trade secrets. Id. ¶ 25. For example, Philips requires employees, like Hayes, to sign agreements to protect its trade secrets, "limits dissemination" of trade secret information within Philips, and "spendsconsiderable resources on internal information technology security programs, features and systems to safeguard against employees improperly accessing, exporting and retaining its trade secrets." Id.

In the Fall of 2019, while Hayes was serving as Vice President and North American market leader of Philips' MR division, he began communicating with GE Healthcare regarding an executive level role in GE Healthcare's MR division. Id. ¶ 27. GE Healthcare is a "direct competitor" of Philips. Id. ¶ 3. On November 19, 2019, GE Healthcare offered Hayes the position of "National Modality Leader for MR Equipment" and Hayes currently serves in that role. Id. ¶¶ 3, 4, 28. The role, plaintiff alleges, "is substantially similar to Hayes' Vice President role with Philips." Id. ¶ 28. Hayes accepted GE Healthcare's employment offer the following day. Id. ¶ 29. At that time, Philips did not know Hayes was communicating with GE Healthcare or that he had accepted an offer with that company. Id. ¶¶ 27, 29.

Hayes informed Philips of his decision to take the job at GE Healthcare on January 6, 2020. Id. ¶ 29. He terminated his employment with Phillips on that date. Id. ¶ 6. And, before Hayes accepted employment with Philips, he had worked for GE Healthcare, first as an MR sales specialist from 2008 to 2013, and then as a Senior Strategic Business Leader for MR sales from September 2014 through August 2017. Id. ¶¶ 3, 7.

According to plaintiff, Hayes waited six weeks to inform Philips of his decision because Hayes knew that "informing Philips that he had accepted a job with a competitor would have resulted in his immediate termination or, at the very least, in Philips making efforts to shield its sensitive and confidential business information from him." Id. ¶ 29. In addition, plaintiff alleges that Hayes used this six-week period to access, acquire, and retain trade secrets and confidential data from Philips prior to his departure. Id. ¶¶ 30, 31.

A forensic search of Hayes's Philips-issued computer revealed that Hayes printed about 40 documents from Philips' computer system containing alleged trade secrets. Id. ¶ 32. These documents were allegedly printed in series on days leading up to Hayes' departure from Philips, including on December 10, December 11, December 16, and December 30 of 2019. Id. Philips also alleges that Hayes "accessed about 25 confidential documents from Philips' document system" in succession over several days during the same time period. Id. ¶ 34. The documents that Hayes printed or accessed during this period allegedly contained Philips' business plans for 2019 and 2020; lists of pending orders and sales funnels for the United States; information regarding manufacturing status of completed sales; presentations regarding Philips' market initiatives; marketing and strategic plans; and information regarding specific Philips customers, orders, pricing, and sales initiatives. Id. ¶ 38.

Plaintiff maintains that "there was no legitimate business reason for Hayes to have printed or accessed all of these documents" during the period preceding his...