2003 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit
7-11-2003 

# N eo Ge n S cr ee nin g v

. T eleC he m I n tl I nc P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al D ocke t N o . 02-3154

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Thi s de c i sion i s br ou gh t t o you for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a no va U nive r sit y S choo l of L a

w Di g it al Re posit or y

. It h as be e n a c c e pt e d for inclusion in 2003 D e c i sion s b y a n author i z e d a dmini s tr at or of V i l l a no va U nive r sit y S choo l of L a

w Di g it al Re posit or y

. F or mor e infor m at ion, p le as e c on t a ct Be n j a min . C a rl s on@l a

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. T e leC he m I n tl I nc " (2003). 2003 D e cisio n s . P ape r 375. h tt p://d i g it alc ommon s .l a

w . v i l l a no va . e du/thir dc ir c uit_2003/375NOT PRECEDE NTIAL UNITED STATES COURT OF APPEALS FO R T HE TH IRD CIR CU IT
Nos: 02-3154 and 02-4287 NEO GEN SCREENING, I NC.; NEO GEN SCREENING, L .P., Appellan

ts
v. TELECHEM I

NTERNATIONAL, INC., t/d/b/a ARRAYIT.COM

__________________ On A ppeal Fro m the U nited States D istrict Court for the We stern D istrict of P enns ylvania Distri ct Court J udge: The Honorable Wil liam L. St andish

(D.C. Civ. No. 01-cv-02226)

__________________ Submitte d Under Third Circ uit L. A.R. 34.1( a)

July10, 2003 Be for e: N YG AA RD , SM ITH , Circuit Judges , and IRENAS ,* Distri ct Judge
. (Opinion Fi led: J uly 11, 2003)

___________________

_________________ *Honorable Jose ph E. Irena s, Seni or United St ates Dis tri ct Judge for the Dist rict of New Jersey, sitting by

designation.1 ________________________ OPINI ON OF THE COURT

________________________ SM ITH , Circuit

Judge : I. FACTS Neo Gen Screening, I nc. and Neo Gen Screening, L.P. (c ollec tivel y “Neo Gen”) are in t he busines s of biochemi cal and molec ular research a nd development, conducti ng
new bor n bl ood spe cim ens tests for the d etec tion of g ene tic m etab olic d isord ers. Te leC he m In ter na tio na l, In c. ( “T ele C he m ”) de als in m icr oa rra y sc ien ce an d t ec hn ol og y, which is t

he process of placi ng bits of DNA onto glas s sli des and then de termini ng and pinpointing various genes and their functi ons. In November of 1999, employ ees of Neo Gen and TeleChem met at a national micro-s ciences symposi um and discusse d the possibili ty of a coll aborati on between the two companies. In February, Neo Gen sent TeleChem a proposalto conduct joint
resear ch into t

he use of micr oarray s in newborn screening and the parti es signe d a Confidenti alit

y Agreement . The Confidentiali ty Agreement expres slystated that any bre ach of th e ag reem ent w oul d en title th e no n-b reac hin g pa rty to injun ctive relie f. On M arch 2 4, 200 0, Te leCh em a ccep ted N eo G en’s F ebru ary prop osal, ag reeing to provide r esources for the unde rtaki ng (“Agreement”) . On March 30, Neo Gen applied for
a sm all bu sine ss re sea rch gra nt fr om the U .S. D epa rtme nt o f H ealth and Hu ma n S erv ices
.2

The n, the p arties be gan to conte mp late fo rming a new entity, NG S-A rrayIT, Inc ., to develop and se ll mi cro-ar ray -based di agnosti c geneti c test s. To that end, in April2000, the part ies si gned a Pre-I ncorporation Agreement which cont ained provi sions regarding capit aliz ation, stock subs criptions, formal ass ignment of i ntell ectualproperty and remedies f

or breach of t

he agreement. The Pre-Incor porati on Agreement als o stated that TeleChem would insta ll a c lean room at Neo Gen that would remain t he property of TeleChem but under t

he custodyof Neo Gen. In June, N eo G en w rote to TeleC hem ind icating that it felt many of T eleChe m’s responsi bili ties under the Pr e-Incor porati on Agreement were going unful fill ed. On the other s ide, Neo Gen never filed t he Articl es of Incor

porati on for NGS-ArrayI T, Inc, despit e its promises to do so. Fi nally , on Jul y 24, 2001 Neo Gen indicated t hat it elect ed to term inate th e A greem ent. T eleC hem respo nded on A ugu st 21, tha t it decline d to
acce pt the te rmina tion letter, a nd w rote in N ovem ber tha t it believe d N eo G en to b e in bre ach
. II . P ROCEDURAL POSTURE On Novem ber 26, 2001 Neo Gen fil ed a four-count complaint

for breach of contracts to develop microarray newborn screening technology, seeking damages, injunct ive rel ief and a decl aratory j udgment. After the fi ling of t

he complaint , TeleChem atte mpted to re tri eve the cl ean room and it s equipment f rom Neo Gen. Neo Gen refused, and allow ed N erak Ind ustri es to insp ect th e ro om , as w ell as sho win g it to a job app lican t.1 The preliminary injunction stated: Except as provided for in the Small Business Innovation Resea rch Program (SBI

R) grants obtained with TeleChem I nternational, Inc.’s promise of support, Neo Gen Screening, I nc. and Neo Gen Screening, L .P. are hereby prelimina rily enjoined and rest rained u ntil furth er orde r from: (a) directly

or indirectly

utilizing a

ny clean room technology belonging to TeleChe m Inte rnationa l Inc ., including but not limited to,microar ray diagno stic facility, materia

ls, construction design, custom styling , unique presentation, functionality, use, lighting , filtration, environmental control, contamination mini miza tion , ergon omics and wo rk flo w, clo thin g, staff trai ning, record keepi ng, 3 Ne o G en a lso p oste d so me info rma tion abo ut m icro arra y tech nol ogy o n its w ebs ite. TeleChem filed a state law counterclaim for theft of trade secret s. Tele chem filed a mo tion fo r prelim inary injun ction o n its cou ntercla im on Ap ril 15, 2002, a sking the court to enjoin Neo Gen from usi ng or disc losi ng TeleChem’s cle an
ro om t ec hno lo gy orTel eCh em’ s mu lt i- pa ti en t m ic ro arra y man ufac tu re tr ad e s ec re ts . A t the cl ose of defendant ’s evi dence at t he preli minaryinjunct

ion heari ng on May 15, Neo Gen moved to dismiss under Fed. R. Civ. P. 52, alle ging that Telechem did not

produce any evidence to show Neo Gen wou ld not be ha rmed b y an injunction. The District Cou rt denie d the m otion a s prem ature a nd d irected Ne o G en to p ut on evide nce th at it wo uld suff er harm . Neo Ge n did not p ut on any suc h evid ence , but ren ew ed its m otion to dismis s at t

he close of

the hearing. On Jul y 24, 2002 the Dist rict Court denie d the moti on to dis miss and granted a pre limi nary injunct ion in fa vor of Telechem t o prevent Neo Gen’s misappropriati on of trade secretes rel ated t o certain microarraytechnol ogy and t he “cl ean ro om” f

aci li tyowne d byTel eChe m. 1 On August 5, Neo Gen filed i ts notice ofmaterials compatibility, artistic sty ling and custom appearance; (b) directly or

indirectly eng aging in the further unauthorized disclosure or display of the clea

n room technology

referred to in subparagr

aph (a) hereof; (c) directly

or indirectly eng aging in the further unauthorized acquisition of the clean room technology referred to in subparagr

aph (a) hereof; and (d) directly

or indirectly

utilizing a

ny m icroar ray manufacture tra

de secr ets belonging to Te

leChem I nternat ional, I nc, including but not limited to protocol s, patent pending methods, procedures, robotics, automation, softwar e design, and implementation, patented pin and printhead selection, maintenance, clea ning and storing printing buffers or surf

aces, e nvironme ntal cont rol, micr oarray quality co nt ro l a nd qu al it y as su ra nc e, su rfac e e ne rg et ic s, su bs tr at e c ou pl in g c he mi st ry, storag e and processing , barcod ing, sam ple trac king and throug

hput. 4 appeal of t

his deci sion. Neo Gen moved for modificati on or vacation of the July24 injunct ion under Fed. R. Civ. P . 60(b), alleging that a pa tent containing inf ormation a bout Te leChem ’s microarr ay technologywas publishe d by the World Inte llec tual Pr opertyOrganization (“WIP O”) on January 17, 200 2, three mo nths befo re the application f or tempo rary restraini ng order ( the “Schena patent”), so the Court ’s concl usion that the patent was unpublis hed was an error and TeleChem committed afraud upon the court. TeleChem responded that it s fail ure to di sclose the pat ent appl ication was inadver tent, and there was protect able subj ect matter dis closed to Neo Gen beyond that encompassed withi n the Schena patent

applic ation. The Distri ct Court de nied Neo Gen’s motion i n a November 5, 2002 order. The Court stated that anymatter discl osed in a patent publi cati on is no l onger a trade secret , but c oncluded that, as a res ult, this information would not be c overed by pa rt (d ) o f i ts in

ju nc ti on o rd er . T he Cou rt se t t he bon d f

orTel eCh em a t $ 10, 000 . O n5

November 14, Neo Gen filed i ts Noti ce of Appeal of thi s decis ion. II I. JURI SDI CTI ON The Distri ct Court ha d divers ity juri sdiction under 28 U.S. C. § 1332 and sup pl emen ta l j ur is di ct io n un der 28 U. S. C. § 136 7. We ha ve j ur is di ct io n un der 28 U. S. C. § 1292(a)( 1) (appel late juri sdiction over i nterl ocutoryorders gr anting i njuncti ons and refusi ng to modifyor diss olve inj unctions ), bot h with res pect t o the Jul y 24 and Novem ber 5 decisions. IV. STANDARD O F REVIEW In co nside ring the gran t of a p relimin ary injunc tion an d den ial of a mo tion to modify a preli minaryinjunct

ion, we revi ew legal i ssues de novo, factualfindings for cle ar
error , and the ulti mate decis ion to gr ant the injunct ion and denymodification for abus e of disc retio n. Maldonado v. Houstoun , 157 F.3d 179, 183 (3d Cir. 1998) (re viewing grant of a p relimin ary injunc tion); Fav ia v. Ind iana Un iversity o f Pen nsylva nia , 7 F.3d 332, 340 (3d Cir. 1993) (re viewing deni al of moti on to modifypreli minaryinjunct ion). A distri ct court’s determ ination of w hether a pa rty has “unclean h ands” an d the am ount of b ond are also rev iew ed f or a bus e of disc retio n. See In re New Valley Corp. , 181 F.3d 517, 523 (3d Cir. 19 99); Frank’s G.M.C, Truck Center, I nc. v. General Motors Corp. , 847 F.2d 100, 108 (3d Cir. 1988 ). V. LE GA L A NA LY SIS A. Preli minary Inj unction6

In order for a dis tri ct court

to grant an injunc tion, the moving party must show: 1) it i s li kelyto succee d on the meri ts and 2) denial will result in ir reparabl e harm to the
mo vin g pa rty. Chem s. Ltd. v. Formo sa Chem . & Fibre Corp ., 229 F.3d 2 54, 263 (3 d Cir. 2000); Maldonado v. Houstoun , 157 F .3d 17 9, 184 (3d C ir. 1998 ); OpticiansAssoc. v. Independent

Opticians , 920 F.2d 187, 192 (3d Cir. 199 0). In addition the D istrict Court shou ld con sider w hethe r: 3) gra nting th e injun ction w ill not resu lt in irrepa rable h arm to the non-moving partyand/or harm to the moving party outweighs t he harm to the nonmo ving party and 4) gra nting th e injun ction is in the pu blic inter est. See id.; see also Aci erno v . Ne w Cas tl e Co ., 40 F .3d 6 45, 6 47 ( 3d C ir. 19 94)
. Neo Gen argues that

TeleChem faile d to int roduce anyevidence s howing the injunct ion would not result

in ir reparabl e harm to Neo Gen. In addi tion, it argues that the denial would not res ult i n irr eparabl e harm to Tele Chem, because monetary compensat ion would be suffici ent to recti fy any injury, and the Pre- Incorpor ation Agree ment contai ned a liqui dated damages cl ause provi ding for s uch monetarydamages. Fi nally , it argues t hat TeleChem is unlikely

to succeed on the merits by showing that the clean room w as a protected trade secret

because i t was suscept

ible to revers e engineering and Neo Gen was able to o btain one fro m a third par ty. As a court sitti ng in equity, the District Court’s task was to weigh the four factors, but it w as no t incum bent o n Te leCh em to prev ail on a ll four f actors , only on th e ove rall need for an injunction. A sufficiently strong showing on either the likeli hood of success7

or ir reparabl e harm may j usti fy an i njuncti on, though a petit ioner’ s showing on the ot her facto rs ma y be lack ing. N eo G en is co rrect tha t the bu rden of intro ducin g evid ence to
su ppo rt a p re li mi na ryin

ju nc ti on i s o n the mov in g party wit h r es pe ct to th e f ir st two issu es; h ow eve r, the sam e is n ot tru e of the s eco nd t wo issu es. See Acierno , 40 F.3d at 653 (noti ng that t

he burden is on the moving party on the fi rst two issues, but the di stri ct
cour t shou ld itself c onsid er the s econ d tw o). A s a m atter of logic, th e mo ving party cannot have t

he burden to i ntroduce e vidence showing t he harm that

will be s uffered by the op posin g par ty if the injun ction is iss ued. R ather, th e mo ving party has the bu rden to show the ha rm it w ill suffe r if no in junctio n issue s, and if the n on-m ovin g par ty feels it will suffer greater harm or ir reparable harm from the injunction, i t has the burden to so dem onstra te. Ba sed o n the f acts of record , there d oes n ot app ear to b e any im med iate threat of irreparable harm to Neo G en from not being allowed to disclose these secrets, especia lly

since i t is allowed t o continue using the technol ogy i n its currently ongoing small business grants. In co ntrast, the disclos ure o f trade secrets wo uld res ult in irrep arable harm to TeleChem that would not be remedied by monetary damages. Co mp are B P C hem icals , 229 F.3d at 263 (wh ere w itness tes tified tha t if def enda nts use d trade secrets they illegally obtain ed fro m B P in b uilding their pla nt they w ould dam age B P’s rep utation , its credib ility and ability to licen se its tech nolo gy, such injuries w ere dif ficult to c alcula te and m oney da mag es w ould be ina dequ ate); Campbell Soup Co. v. ConAgra, Inc ., 9778

F.2d 86, 92 ( 3d Cir. 1992) (noti ng that “ a threat of dis closur e [of tra de secret s] may establish imm ediate irrepara ble ha rm”) ; FMC Corp . v . T ai wan T ai nan Gia nt

In dus . Co ., 730 F .2d 61, 63 (2 d Cir. 198 4) (holding tha t loss of trade secrets w as an irreparab le harm that could not be measured in money because “a trade secret once lost i s, of course, lost forev er”); with Acier

no , 40 F.3d at

647 (rever sing grant of prel iminary injunct ion compelli ng countyto is sue a buil ding permit because pl ainti ff would not suffe r irrep arab le ha rm b y dela ying b uild ing and inju nctio n di d no t ma intai n th e sta tus q uo)
. This con clusion is further su pported b y Dr. Schena ’s testimony that TeleC hem’s commercial i nteres ts wil l be dest roy ed if certain t

rade secrets are publis hed. The exist ence of a li quidate d damages claus e in the Pre-Inc orporation Agreement does not show that Tel eChem will not s uffer ir reparabl e harm if i ts t

rade secrets are discl osed, especia lly

since t he Confidenti alit

y Agreement

expressl y st ated that anybreach of the agr eem ent w oul d en title T eleC hem to injun ctive relie f. Finall y, Neo Gen is incorr ect that the detai ls of Tel eChem’s clean r oom cannot be a trade secret . Under Pennsy lvania law, a t rade secret “may consist of any formula, patte rn device or compilation of i nformati on which is use d in one’s business , and which gives hi m an opportunit y t o obtain an advantage over competit ors who do not know or use it .” Felm ee v. L ocke tt , 351 A.2d 273, 277 (Pa. 1976) . While t he generalconcept of a clean r oom is not pr otect ed, cl ean rooms may di ffer in t he detai ls of their cons truction and efficiency, and it is those details that can provide a c omp etitive advantage and are9

protected. Based on the undisput ed fact t hat TeleChem took el aborate steps to construct the cle an ro om in secr ecy, that it spe nt a gre at dea l of m oney on cons truction , and th at it create d a co nfide ntiality agree men t wh ich co vered the cle an ro om , the D istrict Co urt did not err in dete rmin ing that t he c lean roo m w as a trad e se cret. See Christopher M’s Hand Poured Fudge, Inc. , 699 A.2d 1272, 1275 (Pa. Super . 1997) ( secrecy measures and t

he money expended are among the fact ors to be considered in det ermining whether something i s a tr ade secre t). While a product susceptible to revers e engineering cannot be a tra de se cret, the d etails of Tele Ch em’s clean room wo uld n ot be s usce ptible to
revers e engineering because such enginee ring i s onlyavail able where the party obtaine d the tec hno logy throu gh a “ mark eted p rodu ct” an d no t pursu ant to a conf identia lity agr eem ent. See, e. g., Ri chardson v. Suzuki Motor Co., Ltd. , 868 F.2d 1226, 1242 (Fed. Cir. 19 89); SI Handling Sys . v. Heisley , 753 F.2 d 12 44, 1 255 (3d Cir . 199 5). Accordingly , the Distri ct Court’ s decis ion to gr ant the preli minaryinjunct ion was not an abuse of

discr etion. B. Modific ation or

Vacation of

Injunct ion Fed. R. Civ. P. 60(b) permits the dis tri ct court to grant reli ef from a finaljudgment if the partyseeking modif ication can show fraud, misrepr esentat ion, or “a signi ficant change in ei ther fa ctual conditi ons or in l aw” that r enders continued operation of t he judgment i nequitable. Accordingly , we must “focus our inquiry on the circ umstances t hat led to t he entry of the i njuncti on and compare them with current circumst ances for t

he10

purpose of deci ding whether c ontinuat ion of the injunct

ion without

the reque sted
mo difica tion w ould be so inequ itable tha t the distric t court’s refus al to gra nt the m otion to modify i s rever sibl e error .” Fav ia , 7 F.3d at 340. Neo Gen claims it

was entitled to modi fication based on fr aud and changed circumstan ces. First, Neo G en argue s that TeleC hem c omm itted a fraud up on the co urt by kno win gly and in tention ally failing to disclos e the p ublish ed pa tent ap plication , and its inju nctio n is b arre d by th e do ctrin e of unc lean han ds. See Keystone Dri ller Co. v. General Excavator

Co. , 290 U .S. 240 , 245 ( 193 3) (pa rty canno t be aw arded equita ble
reme dy wh ere it ha s gain ed an adva ntage by fraud or de ceit); In re New V alley Corp ., 181 F.3d 517, 525 ( 3d Cir. 1999) (same). However, Neo Gen cites t o no evidence which shows that Tel eChem’s omissi on was knowing or int entiona l, s uch that the Dist rict Court’s i mplici t concl usion t o the contrarywould be clear error . Absent s uch evidence, we cannot conclude that t he District Court

abused it s discretion i n rejec ting t he clai m that an in jun ction wa s ba rred by Te leC hem ’s “u ncle an h and s.” Neo G en also argues that even if the i njunction stands, i t must be modified because the non-s ecret

Schena patent

materi al is sti ll enc ompassed withi n the language about “pending pat ents. ” Moreover, i t argues that Tel eChem has not shown any e vidence of any mic roarra y techno logy to be protec ted be yond w hat is in th e pub lished m aterial, which would mean that Tel eChem would be unlikel y t o prevailon the meri ts becaus e of chan ged c ircum stance s. Ne o G en’s f irst argu men t is wro ng; the injunc tion pro hibits o nly2 In addition, i f it i s true that Tel eChem does not have anymicroarr ay s ecret s that

were not reve aled i n the Schena patent appl ication, t his port ion of the injunct

ion willhave abs olu tely no eff ect o n N eo G en, s o its c ont inu ation wo uld not be in equ itabl e. 11 the uti lization of mi croarr ay t rade secrets, so any materi al cont ained i n the publi shed patent applic ation i s not a t

rade secret addre ssed bythe inj unction. Second, byrejec ting Neo Gen’s motion, t

he court i mplici tly

found that

there c ontinued to be some microar ray trade s ecret s that

were not publi shed. Neo Gen does not poi nt to any evidence demo nstrating that this finding w as clear error. 2 Thus, it was not an abuse of di scretion for the D istrict Court to refuse to m odify the injunction ord er. C. Abuse of Disc reti on in Setting the Bond Fed. R. Civ. P. 65(c) requires that before grant

ing a prel iminary

injunct ion the court mu st require the app licant to post a bon d “in such sum as th e court dee ms prop er, for the payme nt of s uch c osts an d dam ages as m ay be inc urred or suf fered by any party wh o is f oun d to hav e be en w ron gfu lly enjo ined or re strain ed.” Neo Gen argues that

the amount of t

he bond was insuffi cient to cover t

he potential harm Neo Gen may incur and c onsti tuted an abuse of dis creti on. Speci fical ly , Neo Gen clai ms that t

he bond should have be en set bas ed on the l iquidated damages claus e in the Pre-Inc orporation Agreement of $1, 000,000. However, there was not hing in the PreIncorporation agreement that permitted Neo G en to disclose TeleChem’s trade secrets, so even if the liqui dated damages cl ause was compensator y and not puniti ve, i t was
unr elate d to any h arm suf fere d by N eo G en h ere. A s no ted, supra , Neo Gen produced noevidence of any irr eparabl e harm to i t from the injunct ion. Ther efore, a nominal bond
wa s ap pro pria te he re. Finally, Neo G en points ou t that the District Cou rt set the bond f or the temp orary restraining order (“T RO ”) at $10,000 , and the E ighth Circu it has found that a trial court abuses i ts di scretion by not examini ng the need for additi onal bond aft er setting t he bond for a T RO
. See Rathman Group v. Tannenbaum , 889 F.2d 787 (8 th Cir. 1989 ). How ever, unlike t he court i n Rathman , the D istrict Co urt in this c ase d id set an additio nal bo nd; it just happened to se t the i njuncti on bond at the same amount as the TRO. Absent any
ev id en ce byNeo Gen sh owi ng t ha t i ts poten ti al ha rm w oul d be gr ea te r t ha n $1 0, 000 , w e cannot fi nd that t

he District Court

abused it s discretion i n setting the bond. VI. CONCLUS ION The July24 and November 5, 2002 order s of the Dis tri ct Court s hall be affirmed.

______________________________________ TO THE C LERK: Please fi le the foregoing Opini on.

/s/ D. Brooks Smith Circuit Judge