Synthes, Inc. v. Emerge Med., Inc.

SYNTHES, INC., SYNTHES USA HQ, INC., SYNTHES USA, LLC, SYNTHES USA SALES,LLC, and SYNTHES USA PRODUCTS, LLC, Plaintiffs, v. EMERGE MEDICAL, INC., JOHN P. MAROTTA, ZACHARY W. STASSEN,ERIC BROWN, and CHARLES Q. POWELL Defendants.

EMERGE MEDICAL, INC., Counterclaim-Plaintiff, v. SYNTHES, INC., SYNTHES USA HQ, INC. SYNTHES USA, LLC, SYNTHES USA SALES,LLC, and SYNTHES USA PRODUCTS, LLC, Counterclaim-Defendants.

CIVIL ACTION NO. 11-1566

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

June 11, 2014

MEMORANDUM

BUCKWALTER, S. J.

Currently pending before the Court is the Motion for Summary Judgment on Defendant Emerge Medical, Inc.'s Amended Counterclaims by Plaintiffs Synthes, Inc., Synthes USA HQ, Inc., Synthes USA, LLC, Synthes USA Sales, LLC, and Synthes USA Products, LLC (collectively "Synthes"). For the following reasons, the Motion is granted in its entirety.

I. STATEMENT OF FACTS

The factual and procedural background of this case is a lengthy and convoluted one. The underlying facts were summarized in great detail in the Court's Memorandum Opinion dated June 5, 2014. In lieu of rehashing this complicated history, the Court incorporates by reference the recitation of facts set forth in the previous Memorandum. Synthes, Inc. v. Emerge Med., Inc., No. Civ.A.11-1566, 2014 WL 2579286 (E.D. Pa. June 5, 2014). Notwithstanding that reference, the Court will set forth in this opinion the particular facts relevant to the counterclaims at issue.

As explained previously, this case involves an action by Synthes against several of its former employees as well as the competing company they created called Emerge Medical, Inc. ("Emerge"). Synthes generally alleges that these former employees breached various noncompetition agreements and they, together with Emerge and another outside individual, committed various torts in connection with the creation and development of Emerge.

On March 4, 2011, Synthes initiated the current federal action against both John Marotta, one of the former Synthes employees, and Emerge. Thereafter, on March 6, 2012, Plaintiff filed an Amended Complaint adding three new defendants—Zachary Stassen, Eric Brown, and Chaun Powell—and setting forth thirteen causes of action as follows: (1) breach of fiduciary duty and/or duty of loyalty against Marotta and Brown (Am. Compl. ¶¶ 169-88); (2) breach of contract under the Non-Competition and Non-Disclosure Agreements against Marotta, Brown, and Powell (id. ¶¶ 189-214); (3) tortious interference with contract against all Defendants (id. ¶¶ 215-26); (4) aiding and abetting breach of fiduciary duty against Marotta, Brown, Stassen, and Emerge (id. ¶¶ 227-36); (5) misappropriation of trade secrets under Pennsylvania common law and the Pennsylvania Uniform Trade Secrets Act, 12 Pa.C.S. § 5302, et seq., against all Defendants (id.¶¶ 237-49); (6) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, against all Defendants (id. ¶¶ 250-60); (7) conversion and replevin against all Defendants (id. ¶¶ 261-68); (8) false or deceptive advertising under the Lanham Act, 15 U.S.C. § 1125(a), against Defendants Marotta, Stassen, Powell, and Emerge (id. ¶¶ 269-81); (9) trespass to chattels against Defendants Marotta, Stassen, Powell, and Emerge (id. ¶¶ 282-86); (10) unfair competition against Defendants Marotta, Stassen, Powell, and Emerge (id. ¶¶ 287-97); (11) fraud against all Defendants (id. ¶¶ 298-302); (12) civil conspiracy against all Defendants (id. ¶¶ 303-09); and (13) breach of contract or, in the alternative, unjust enrichment against Powell. (Id. ¶¶ 310-16.)

On April 3, 2012, Emerge filed its Answer with Affirmative Defenses and Counterclaims to Synthes's Amended Complaint. (Emerge's Answer & Aff. Defenses.) Following dismissal of its antitrust counterclaims, Emerge filed an Amended Answer with Affirmative Defenses setting forth the following counterclaims against Synthes: (1) trade libel; (2) tortious interference with prospective contractual relationships; and (3) unfair competition under Pennsylvania law. (Emerge Am. Answer & Aff. Defenses.) It also made a request for declaratory relief on Synthes's claims of tortious interference with contract and aiding and abetting breach of fiduciary duty. (Id.) The Court now reviews the facts that form the basis of these various counterclaims.

A. The Litigation Letters

Beginning in January 31, 2012, Synthes sent letters to customers and prospective customers of Emerge addressing the ongoing dispute between Emerge and Synthes (the "litigation letters"). These litigation letters stated, in pertinent part, as follows:

We learned recently that your facility may have purchased or may be considering purchasing products manufactured by Emerge Medical and that these may have been placed in the Synthes Inventory Management System cabinets as interchangeable.

Because there has been confusion caused, in our opinion, by Emerge's marketing claims, we wish to make you aware of the following:

• Synthes is currently in litigation with Emerge Medical and one of its founders, John Marotta, Synthes, Inc. et al. v. Emerge Medical and John Marotta, Civil Action No.2:11-cv-01566-RB (E.D. Pa.).

• Synthes has established design and manufacturing tolerances for its implants and instruments and carefully monitors the manufacturing process according to its own proprietary standards.

• Despite claims from Emerge, Emerge's products are not identical to Synthes or manufactured side-by-side.

• By way of example, Synthes' titanium products are made from a titanium alloy which is different (and more costly) than most manufacturers but which has significant surgical and patient benefits. The alloy used by Synthes is less notch sensitive, with better corrosive resistance, and, in our view, superior bio-capability so it is less likely to produce inflammation in patients.

• Emerge's products have not been approved by Synthes or the FDA for use in combination with Synthes' products. Synthes does not warrant and cannot accept liability for the use of Emerge's products in combination with Synthes' products or as a substitute for them.

• Emerge has not sought nor obtained Synthes' permission to alter the Synthes Inventory Management System or commingle product.

All of us in the healthcare industry strive to improve patient outcomes while containing and reducing costs. At the same time, however, we must be aware of hidden risks and costs attendant to what may promise to be cost-saving measures.

(Plaintiffs' Appendix¹ ("Pls.' Appx.") 723.) Since January 31, 2012, Synthes has sent a total of forty-six litigation letters. (Plaintiffs' Statement of Undisputed Facts ("PSUF") ¶ 1152; Defendants' Response to Plaintiffs' Statement of Undisputed Facts ("DRPS") ¶ 1152.) Five ofthe letters contained an additional sentence on the last page, stating that "In an effort to avoid complications of this kind and to address your facility's cost constraints, Synthes looks forward to discussing these issues with you soon." (Defs.' Resp. Opp'n Summ. J., Exs. 9-13.) The author of the letter, Synthes in-house litigation counsel Denise Houghton, explained that by "complications," she meant "the Emerge commingling of Synthes' product in the Synthes SIMS cabinets." (Pls.' Appx. 690, Dep. of Denise Hougton ("Hougton Dep."), 92:17-93:18, July 1, 2013.)

Although Synthes limited the targets of the letters to forty-six identified recipients who were customers or prospective customers of Emerge, (PSUF ¶ 1156; DRPS ¶ 1156), Emerge contends that the letters reached other individuals who had the potential to affect purchases by thousands of hospital customers or potential hospital customers. (Defs.' Resp. Opp'n Summ. J., Ex. 7, Decl. of Chaun Powell ("Powell Decl."), ¶ 3-4, Dec. 9, 2013.) For example, on June 6, 2013, Synthes sent a letter to the Materials Manager of the Meadville Medical Center. (Id. ¶ 5.) That same day, the letter reached the desk of the person in charge of Meadville's purchasing group, Mark Landau, who could potentially influence purchases by fifty-one hospitals/health systems at ninety-three sites. (Id.) Mr. Landau then forwarded this letter to Premier GPO, a group purchasing organization representing 2,400 facilities across the country. (Id.) Similarly, Synthes sent a letter, dated March 21, 2012, to Richard M. Philbrick, the CEO of Southwest Region HealthTrust Purchasing Group, who could potentially influence purchases by 1,400 hospitals nationwide. (Id. ¶ 6.) The same holds true for multiple other officials among the forty-six recipients of Synthes's letters. (Id. ¶¶ 7-13.)

B. Other Allegedly Disparaging Statements

In addition to the letters, Emerge alleges that Synthes made other statements that rise to the level of trade libel:

• Statements by Synthes' Trauma Division Vice President, Ken Carpenter and Synthes Trauma Division President, I.V. Hall, claiming that that [sic] Synthes will put Emerge out of business.

• Making disparaging phone calls and site visits to Emerge's customers and relating false and or misleading statements concerning the relative quality of Emerge's products, misrepresenting the FDA approval status of Emerge Products, and giving unsolicited and false legal advice concerning the state of Emerge's insurance coverage and the level of litigation risk associated with the use of Emerge Products. The statements made in such phone calls and site visits are false, uninhibitedly anti-competitive, and extraordinarily damaging to Emerge's market position, Emerge's ability to compete in the Market for Generic Device Fixation Hardware, and the market and consumers themselves.

• Statements by Tim Hineueber, Synthes' Fairview Regional Manager, mandating that Fairview not use Emerge products and not use Emerge products with Synthes products.

• Statements made by Synthes' Tim Neuharth while in the surgical suite following an issue with an Emerge drill bit used in a Synthes rod, in which Neuharth told the surgeon during the procedure that the issue would

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