Synthes, Inc. v. Emerge Med., Inc., CIVIL ACTION NO. 11-1566

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.

CIVIL ACTION NO. 11-1566

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Dated: September 19, 2012

MEMORANDUM

BUCKWALTER, S.J.

Currently pending before the Court is the Motion to Dismiss of Defendant Charles Q. Powell. For the following reasons, the Motion is granted in part and denied in part.

I. PERTINENT FACTUAL AND PROCEDURAL HISTORY¹

A. General Information About Synthes and Its Efforts to Protect Confidential Information

Plaintiff Synthes, Inc. ("Synthes")² is a worldwide leader in the medical device industrywhich markets and sells medical implant devices, including plates, screws, rods, biomaterials, instrumentation, and other devices for orthopedic surgery. (Am. Compl. ¶ 24.) Its customers include hospitals, hospital employees and directors, and physicians together with their employees and staff nurses. (Id. ¶ 25.)

Synthes markets and sells its products through a sales force comprised of Regional Sales Consultants and Associate Sales Consultants. (Id. ¶ 27.) These individuals report to Regional Managers, are assigned to specific territories within regions, and are generally paid on a commission basis. (Id.) The Regional Managers, in turn, are responsible for the maintenance and growth of sales in the territories within their regions, as well as the hiring, training, and management of Sales Consultants. (Id. ¶ 28.) They are often compensated based on sales within their regions and may also receive base compensation in addition to commissions. (Id.) Synthes Area Vice Presidents bear responsibility for the maintenance and growth of sales in their regions and areas and are charged with hiring and managing Regional Managers. (Id. ¶ 29.) Their compensation structure is similar to that of the Regional Managers. (Id.) Finally, the Vice President of Sales for Synthes's Trauma Division oversees all of the divisions' sales employees and sales activities. (Id. ¶ 30.)

Because Synthes invests millions of dollars annually both to develop its technology, systems, products, and strategies and to educate and train its employees, it requires all employees to sign an Employee Innovation and Non-Disclosure Agreement ("Non-Disclosure Agreement"). (Id.. ¶ 31.) In addition, employees hired in sales, marketing, and product development capacities must sign a Confidentiality, Non-Solicitation, and Non-Competition Agreement ("Non-Competition Agreement"). (Id. ¶ 32.) These Agreements, in part, protect against the disclosure of confidentialinformation, prohibit solicitation of Synthes's employees and Synthes's existing or prospective customers, and prohibit activities during and after employment with or on behalf of any individual or entity that competes or intends to compete with Synthes, subject to geographic and temporal limitations. (Id. ¶¶ 31, 32.) In exchange for the employees' execution of these Agreements, Synthes provides the employees with proprietary information, customer relationships, and valuable training programs. (Id. ¶ 33.) Synthes takes other measures to protect these interests by requiring the return of various information upon the employees' separation from Synthes's employment. (Id. ¶¶ 34-36.)

B. Defendant Charles Q. Powell's Employment With Synthes

Defendant Charles Q. Powell applied to Synthes on March 11, 2004, without any background in the orthopedic medical industry. (Id. ¶ 91.) On March 18, 2004, Powell accepted Synthes's offer of a position as a Territory Assistant in its Trauma division based in the Great Lakes West Territory in the area of Chicago, Illinois. (Id. ¶ 92.) Prior to commencing employment, Powell executed a Non-Competition Agreement on March 18, 2004, and a Non-Disclosure Agreement on March 14, 2004. (Id. ¶¶ 93-94.) Powell also reviewed Synthes's Employee Policy Manual, Sales Policy Manual, Global Code of Business Ethics, IT Security Policy, and, subsequently, the amended Policy Manual. (Id. ¶ 95.) Synthes provided Powell with extensive training in the trauma aspects of the orthopedic industry and continued to provide such training on an ongoing basis. (Id. ¶ 96.) Over time, his responsibilities increased and he was promoted to Associate Sales Consultant in September 2004, and ultimately to Sales Consultant in June 2006. (Id. ¶ 97.) With each promotion, Powell executed additional Confidentiality, Non-Solicitation, and Non-Competition Agreements, the latest versions of which were signed on June 1, 2006. (Id. ¶ 97.) As a Sales Consultant in Colorado in the Denver East Territory and the Eastern SlopeTerritory, Powell reported directly to Defendant John P. Marotta, and he was highly successful and well-compensated. (Id. ¶¶ 99-100.) Throughout his tenure with Synthes, Powell was privy to valuable customers contacts, goodwill, and business information. (Id. ¶ 101.) Synthes also provided Powell with substantial, specialized training on the technical aspects of Synthes's products and the medical procedures in which these products are used. (Id. ¶ 103.)

Powell's Non-Competition Agreement required that he not "disclose or communicate" Synthes's confidential and proprietary information "to any competitor or other third party" at any time during or after leaving Synthes's employ or to "use or refer to" such information "for any purpose . . . except as necessary for [him] to properly perform services for Synthes during [his] employment." (Id. ¶ 105.) In addition, Powell's Non-Competition Agreement specifically (1) prohibited Powell from competing with Synthes for a period of one year following the termination of his employment with Synthes; (2) prohibited him from soliciting Synthes's customers within his territory in Colorado and with whom he had worked for a period of one year following the termination of his employment with Synthes; and (3) mandated that Pennsylvania law govern the Agreement. (Id. ¶¶ 106-109.)

In addition to the obligations in his Non-Disclosure and Non-Competition Agreements, Powell was obligated to reimburse Synthes for various tuition expenses it paid in connection with his executive MBA program. (Id. ¶ 114.) In the year preceding his resignation, Synthes paid Powell $34,598.75 for tuition expenses he incurred. (Id. ¶ 114.) Synthes's policies provided that if Powell ceased employment with Synthes within one year of completion of the courses, he would have to reimburse Synthes for those tuition expenses paid within the last year. (Id.) To date, however, Powell has not paid Synthes for $16,485.05 of the costs. (Id.)

Defendant Powell resigned from Synthes on March 15, 2010, effective March 30, 2010, and informed Synthes's Human Resources representatives that he had accepted employment in a sales capacity with Sonoma Orthopedics, which Plaintiff believes to be a portfolio company of a venture capital firm founded and managed by Defendant Zachary Stassen's father. (Id. ¶ 116.) According to Plaintiff, Powell's intent was ultimately to join a new company—Emerge—founded by his co-Defendants John Marotta, Eric Brown, and Zachary Stassen. (Id. ¶ 117-18.)

C. The Alleged Conspiracy to Develop Emerge

In the spring of 2009, Defendant John Marotta—at the time a Synthes employee—first conceived the idea for a new business. (Id. ¶ 125.) By the summer, Marotta, along with Defendants Eric Brown (also a then-Synthes employee) and Zachary Stassen were actively involved in the development of a new business model. (Id.) This model was not disclosed to Synthes. (Id.) The business targeted a specific sub-segment of Synthes's business that included surgical screws, drill, bits, and guide wires. (Id. ¶ 126.) They believed they could eliminate the need to provide direct sales support in the operating room, thereby changing the general methods of delivery of products and services in an innovative manner. (Id.) According to Plaintiff, however, this business model was developed using knowledge, information, and resources obtained by Marotta and Brown in connection with their employment with Synthes. (Id.). At some point in the planning process, Brown proposed naming the new company "Emerge." (Id.)

In the summer of 2009, Marotta reached out to an accounting and consulting firm regarding possible names for an "orthopedic and medical device and healthcare consultant" company and researched companies that design corporate logos. (Id. ¶ 128). Around the same time, Marotta and Brown facilitated a series of discussions and meetings between Stassen and a Synthes SalesConsultant in Texas in order to garner information about Synthes's business methods. (Id. ¶ 129.) The Defendants then sought to raise money for this new company from potential investors. (Id. ¶ 130.) The business plan and a private placement memorandum were developed through January of 2010, and then used in January and February 2010 to solicit investors, including Synthes's customers and employees. (Id. ¶ 131.)

By December of 2009, Marotta began making filings with the United States Patent and Trademark Office ("PTO") relating to the name and logo for Emerge. (Id. ¶ 134.) On January 13, 2010—three months before his resignation from Synthes—Marotta met with Venture Law Advisors, who then filed Emerge's articles of incorporation with the Colorado Secretary of State. (Id. ¶ 136.) Around that time, Marotta e-mailed himself a copy of a Regional Manager Non-Competition Agreement saved under his name. (Id. ¶ 137.) Leading up to his resignation, Marotta also e-mailed confidential Synthes documents and information to his personal e-mail account. (Id. ¶ 138.)

On February 22, 2010, Mr. Stassen, then purporting to be Emerge's Chief Operating Officer and a member of the board of directors, filed a Form Notice of Exempt Offering of Securities with the United States Securities Exchange Commission ("SEC"), indicating that...