Court Opinion

ID: 1069894
Source: CourtListenerOpinion
Date Created: 2013-10-09 19:36:19.469594+00
Date Added: 2024-06-11T12:52:36.692106
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                                    AT JACKSON
                                            February 20, 2002 Session

              EAGLE VISION, INC. v. ODYSSEY MEDICAL, INC., ET AL.

                      A Direct Appeal from the Chancery Court for Shelby County
                     No. 110118-3   The Honorable D. J. Alissandratos, Chancellor

                          No. W2001-01772-COA-R3-CV - Filed August 14, 2002

        This is an action for misappropriation of trade secrets in which the manufacturer of a surgical
product allegedly misappropriated the product design and marketed a competing product after the
developer discontinued its relationship with manufacturer. Trial court granted summary judgment
in favor of manufacturer on all claims. We reverse and remand.

  Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Reversed and
                                        Remanded

W. FRANK CRAWFORD , P.J., W.S., delivered the opinion of the court, in which ALAN E. HIGHERS,
J. and WILLIAM B. ACREE, JR., SP.J., joined.

Robert E. Craddock, Jr.; John S. Wilson, III, Memphis, For Appellant, Eagle Vision, Inc.

Randall D. Noel; Daniel W. Van Horn, Memphis, for Appellees, Odyssey Medical, Inc., and Gary
Tatge

                                                        OPINION

        This action for misappropriation of trade secrets, breach of contract, breach of fiduciary duty,
and conversion arises out of the manufacture of a surgical product. Plaintiff/Appellant Eagle Vision,
Inc. (“Eagle Vision”) develops and markets products for opthamalogic surgery.1 In 1995, Curtis
Freeman, president of Eagle Vision, approached Gary Tatge, president of Odyssey Medical, Inc.
(“Odyssey”), about the possibility of Odyssey manufacturing a device called a “punctum plug”2 for
Eagle Vision (“Plug”).

         1
             Eagle Vision u ses third parties to m anufacture its products.

         2
          A “punctum” is the tiny opening in the corner of th e eye wh ich drains tears from th e eye s to the sinuse s. A
“pu nctum p lug” is used in the tre atm ent of “dry -eye synd rom e.”
        The record indicates that, at the initial meeting between Freeman and Tatge, the parties
discussed confidentiality agreements, but that Mr. Freeman was the only one who signed such an
agreement, apparently leaving open the possibility of Mr. Tatge signing a similar agreement at a later
date. There were no other discussions regarding confidentiality agreements between the parties until
after the parties had been working together for several years.

        In order to facilitate the manufacture of the Plug, Eagle Vision provided Odyssey with
detailed drawings and information regarding the Plug’s design, as well as a sample plug. From the
sample plug, Odyssey made measurements which it then compared to the drawings, and
manufactured the device. Based upon their inspection of the device Odyssey had manufactured,
Eagle Vision and Odyssey entered into a “fee-for-services” vendor arrangement, and signed a Letter
of Understanding on August 23, 1995. Neither these documents, nor any other documents setting
out the relationship between the parties, contains a confidentiality clause or non-compete provision
in favor of Eagle Vision, or words such as “confidential” or “trade secret.” However, Eagle Vision’s
design specifications drawings, which Odyssey used to enter data into its Computer Assisted Design
(“CAD”) software, were clearly marked, “Confidential.”

        As part of its relationship with Eagle Vision, Odyssey provided regulatory consulting
services to Eagle Vision, which gave Odyssey access to Eagle Vision’s FDA files, including patient
complaint information. The record indicates that Odyssey was aware of Eagle Vision’s desire that
the relationship between the parties and the information communicated between them be kept
confidential. In this regard, the record establishes that Odyssey required its employees to execute
a confidentiality agreement which provided that the Odyssey employee must protect confidential
information, “regardless if the information is the direct property of Odyssey or is protected under
a separate agreement with a third party.”3 The record also contains evidence to the effect that Mr.
Tatge made notations to, “Keep all Eagle Confidential,” and “lock everything up.” When asked in
deposition whether Mr. Tatge communicated the need to “keep all Eagle confidential,” Odyssey
employee Ray Wallace testified that, “Our desire at this point in time was to maintain good
separation between Eagle Vision and anything else we were doing.”

        After Odyssey had manufactured the Plug for Eagle Vision for several years, the parties had
a parting of the ways over a price increase Odyssey requested. In addition to rejecting Odyssey’s
request for the increase in price to Eagle Vision, Eagle Vision asked Odyssey to execute a non-
compete agreement, which Odyssey refused to sign. After the parties failed to reach an agreement,
Odyssey claims it began to develop its own punctum plug, which it began marketing in 1997.

        On October 24, 1997, Eagle Vision filed a Complaint against Odyssey and Tatge for breach
of contract, misappropriation of trade secrets, breach of implied duty of confidentiality, breach of

         3
          That confiden tiality agreement provides that “confidential inform ation” includes: business record s and p lans;
financial statements; customer lists and records, trade secrets; technical information; products; inventions; product
design information; pricing structure, discounts; costs; computer programs and listings; copyrights and other intellectual
property; mold fixture construction techniques; Odyssey molding techniques, and other proprietary information.

                                                           -2-
fiduciary duty, and conversion. Odyssey and Tatge filed separate answers, and Odyssey filed a
counterclaim for an unpaid balance on Eagle Vision’s account. On January 11, 2000, Odyssey filed
a motion for partial summary judgment on Eagle Vision’s misappropriation of trade secrets claims
(specifically, the plug’s dimensions and material specifications). On May 5, 2000, the trial court
granted partial summary judgment on those issues in favor of Odyssey. The trial court’s order reads,
in relevant part:

                       It appearing to the Court that upon Defendants’ Motion for
               Partial Summary Judgment and supporting Memorandum; upon the
               Response of the plaintiff thereto; upon defendants’ Reply
               Memorandum; upon all of the respective exhibits and statements of
               undisputed fact filed by the parties; upon the depositions filed herein;
               upon the oral argument of counsel occurring in open Court on April
               12, 2000; upon the Court’s own research of the relevant case law; and
               upon the entire record herein, the motion of Odyssey Medical, Inc.
               and Gary Tatge for Partial Summary Judgment is well taken and
               should be granted. . .

                       IT IS THEREFORE, ORDERED, ADJUDGED AND
               DECREED that the dimensions of the marketed Eagle Vision
               punctum plugs, as well as the use, selection and grade of silicone
               comprising the plug material, and the use, selection and percentage
               of titanium dioxide as the plug tint agent are not trade secrets. . . .

(emphasis added).

         On June 6, 2000, Odyssey filed a second motion for summary judgment on the counterclaim
for the unpaid balance, which the trial court granted in favor of Odyssey on August 1, 2000, placing
the funds in escrow pending the resolution of the case. And, finally, on November 6, 2000, Odyssey
filed its third motion for summary judgment on Eagle Vision’s remaining claims. In response to this
motion, Eagle Vision waived or abandoned all the claims with the exception of the misappropriation
of trade secrets claims as to tolerance data, breach of contract, and breach of fiduciary duty. On
April 2, 2001, Eagle Vision filed a motion to reconsider Odyssey’s first motion for summary
judgment, which the trial court ultimately denied on July 9, 2001.

       On May 21, 2001, the trial court granted summary judgment on all remaining claims. Eagle
Vision appeals this final order, and presents the following issues for review: (1) Whether disputed
evidence of Defendants’ ability to reverse-engineer Plaintiff’s product raises genuine issues of
material fact that preclude summary judgment; (2) Whether the hypothetical ability to reverse-
engineer a products excuses the misappropriation of confidential information; and (3) Whether a
vendor’s wrongful retention of a vendee’s property creates a right of set-off against unpaid invoices
submitted by the vendor.

                                                 -3-
        A motion for summary judgment should be granted when the movant demonstrates that there
are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter
of law. See Tenn. R. Civ. P. 56.04. The party moving for summary judgment bears the burden of
demonstrating that no genuine issue of material fact exists. See Bain v. Wells, 936 S.W.2d 618, 622
(Tenn. 1997). On a motion for summary judgment, the court must take the strongest legitimate view
of the evidence in favor of the nonmoving party, allow all reasonable inferences in favor of that
party, and discard all countervailing evidence. See id. In Byrd v. Hall, 847 S.W.2d 208 (Tenn.
1993), our Supreme Court stated:

               Once it is shown by the moving party that there is no genuine issue
               of material fact, the nonmoving party must then demonstrate, by
               affidavits or discovery materials, that there is a genuine, material fact
               dispute to warrant a trial. In this regard, Rule 56.05 provides that the
               nonmoving party cannot simply rely upon his pleadings but must set
               forth specific facts showing that there is a genuine issue of material
               fact for trial.

Id. at 210-11 (citations omitted) (emphasis in original).

         Summary judgment is only appropriate when the facts and the legal conclusions drawn from
the facts reasonably permit only one conclusion. See Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn.
1995). Since only questions of law are involved, there is no presumption of correctness regarding
a trial court's grant of summary judgment. See Bain, 936 S.W.2d at 622. Therefore, our review of
the trial court’s grant of summary judgment is de novo on the record before this Court. See Warren
v. Estate of Kirk, 954 S.W.2d 722, 723 (Tenn. 1997).

      We will consider the first and second issues together. The elements in an action for
misappropriation of trade secrets are set out in Hickory Specialties, Inc. v. B&L Laboratories, Inc.,
592 S.W.2d 583 (Tenn. Ct. App. 1979), where the Court said:

                        The elements required in an injunctive trade secrets suit are
               set for th in Smith v. Dravo Crop., [203 F.2d 369 (7th Cir. 1953)], as
               the existence of a trade secret which is communicated to the
               defendant while the defendant is in a position of trust and confidence
               and use of that information by the defendant to plaintiff’s detriment.
               The fact that the secret could have been discovered by the defendant,
               through his own skills and initiative, is not determinative. The issue
               is whether the information was actually procured through a
               confidential relationship.

Id. at 586.

                                                 -4-
        In considering these issues, the seminal question is whether the specifications of Eagle
Vision’s punctum plug constitute trade secrets.4 On this question, the Court in Hickory Specialties,
Inc. v. B&L Laboratories, Inc., supra, said:

                         Trade secrets are defined in Allis-Chalmers Mfg. Co. v.
                  Continental Aviation & Eng. Corp., 255 F. Supp. 645 (E. D. Mich.
                  1966):

                           [T]he weight of modern authority . . . holds that a
                           trade secret may consist of any formula, process,
                           pattern, device or compilation of information that is
                           used in one’s business and which gives him an
                           opportunity to obtain an advantage over competitors
                           who do not use it. [Citations omitted.] P. 653.

                  On the issue of secrecy, the Court continued:

                           The subject matter of a trade secret must be secret.
                           Matters of public knowledge or general knowledge
                           in the industry or ideas which are well known or
                           easily ascertainable, cannot be trade secrets.
                           Similarly, matters disclosed by a marketed product
                           cannot be secret. However, the proprietor of the
                           business may communicate the secret to employees
                           involved in its use, or to others pledged to secrecy.
                           Ibid.

592 S.W.2d at 586-87 (emphasis added).

       Determination of whether information constitutes a “trade secret” is a question of fact. See
Venture Express v. Zilly, 973 S.W.2d 602, 606 (Tenn. Ct. App. 1998); Arkansas Dailies, Inc. v.
Dan, 260 S.W.2d 200, 204 (Tenn. Ct. App. 1953). In determining this factual question, Tennessee
Courts have invoked the Restatement of Torts § 757, comment b (1939)5, which provides:

         4
            We note that the Tennessee Uniform Trade Secrets Act, codified at T.C.A. § 47-25-1701-1709, became
effective July 1 , 200 0. The Compiler’s Notes indicate that the Act does not apply to misappropriations occurring before
the effective date of the Act or to misa ppropriations wh ich have continued after the A ct’s effective d ate. See T.C.A.
§ 47-25 -1701 (20 01). For these reasons, the Act is inapplicable to the case at bar.

         5
          This list can still be found in the Restatement of Law, Third, Unfair Competition § 39, Definition of Trade
Secret, comm ent d (1995).

                                                          -5-
                        Some factors to be considered in determining whether given
               information is one's trade secret are: (1) the extent to which the
               information is known outside of his business; (2) the extent to which
               it is known by employees and others involved in his business; (3) the
               extent of measures taken by him to guard the secrecy of the
               information; (4) the value of the information to him and to his
               competitors; (5) the amount of effort or money expended by him in
               developing the information; (6) the ease or difficulty with which the
               information could be properly acquired or duplicated by others.

See, e.g., Venture Express, 973 S.W.2d at 602.

        Odyssey has offered evidence that it had the ability to take Eagle Vision’s plug and, utilizing
a device called an “optical comparator” in conjunction with Eagle Visions drawings, manufacture
a sample plug, with which Eagle Vision’s representatives were “extremely impressed.” It was the
quality of this sample plug which convinced Eagle Vision to enter into a vendor-vendee relationship
with Odyssey. Based upon this evidence, Odyssey argues that the specifications of Eagle Vision’s
punctum plug are “easily ascertainable,” and, therefore, not trade secrets.

        On the other hand, Eagle Vision presented evidence that the Plug’s design specifications are
not “easily ascertainable” from a visual inspection of its product. Eagle Vision claims that the device
capable of measuring the Plug’s dimensions is “highly sophisticated,” and utilizes a very “tricky”
process. Eagle Vision explains that, even with such difficult measurements, the device’s
dimensional tolerances are not disclosed by a visual inspection of the product, and would have been
“impossible” for Odyssey to discover.

        As we have noted above, one of the factual considerations in the determination of what
constitutes a trade secret is “the ease or difficultly with which the information could be properly
acquired or duplicated by others.” Restatement of Torts § 757, comment b. This Court, in Hickory
Specialties, noted that, if a matter is “disclosed by a marketed product [it] cannot be a secret.” 592
S.W.2d at 587. However, whether something that can only be disclosed by using sophisticated
equipment and a complex process is, nonetheless, “easily ascertainable,” is not a determination
properly made on a motion for summary judgment.

         In the case at bar, we hold that the question of whether Eagle Vision’s punctum plug design
constitutes a “trade secret” is an issue of material fact which precludes summary judgment. The
parties themselves dispute at least one fact we hold is material to the resolution of this case: whether
Odyssey misappropriated tolerance data it gathered for use with CAD software.

       Eagle Vision’s last issue for review concerning Eagle Vision’s “set-off” claim has previously
been dismissed by Order of this Court filed January 15, 2002.

                                                  -6-
        The order of the trial court granting summary judgment to Defendants is reversed. The case
is remanded to the trial court for such further proceedings as may be necessary. Costs of the appeal
are assessed against Appellees, Odyssey Medical, Inc. and Gary Tatge.

                                              __________________________________________
                                              W. FRANK CRAWFORD, PRESIDING JUDGE, W.S.

                                                -7-