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CardiAQ Valve Technologies, Inc. v. Neovasc Inc.

United States District Court, D. Massachusetts

April 25, 2016

CARDIAQ VALVE TECHNOLOGIES, INC., Plaintiff,
v.
NEOVASC INC. and NEOVASC TIARA INC., Defendants.

MEMORANDUM AND ORDER

ALLISON D. BURROUGHS U.S. DISTRICT COURT JUDGE

CardiAQ Valve Technologies, Inc. (“CardiAQ”) brought this lawsuit against Defendants Neovasc Inc. and Neovasc Tiara Inc. for fraud, misappropriation of trade secrets, breach of contract, breach of the implied covenant of good faith and fair dealing, violation of Mass. Gen. L. ch. 93A (“Chapter 93A”), and correction of inventorship under 35 U.S.C. § 256. The Defendants, both Canadian companies, now seek summary judgment on CardiAQ’s fraud, Chapter 93A, and correction of inventorship claims. For the reasons set forth below, the Motion is GRANTED IN PART. Specifically, the Court grants summary judgment on the fraud count (Count IV) and denies summary judgment as to the inventorship and Chapter 93A counts (Counts I and VI).

I. Factual Background

The following facts are undisputed, unless otherwise noted. Additional relevant facts will be discussed as needed in this Memorandum.

Heart surgeon Dr. Arshad Quadri (“Dr. Quadri”) and medical device engineer Brent Ratz (“Mr. Ratz”) founded CardiAQ Valve Technologies, Inc. (“CardiAQ”) in Massachusetts in 2006. [ECF No. 328 ¶ 7]. CardiAQ’s goal was to develop replacement valve technology for the treatment of mitral regurgitation, one of the most common forms of heart disease. Id. ¶ 8. Mitral regurgitation can be treated by replacing the mitral valve, and currently, the only way to replace the mitral valve is through open heart surgery. Id. ¶ 9. CardiAQ’s focus is on developing a transcatheter mitral valve implant (“TMVI”) that can replace a malfunctioning native mitral valve without open heart surgery. Id. ¶¶ 8-12. The TMVI device is intended to be delivered into a patient’s heart through a “transcatheter” procedure, by which a catheter is inserted through a small incision in a patient’s leg. Id. ¶ 11. By June 2009, CardiAQ had developed a prototype of its TMVI device. Id. ¶ 13. The device consists of two components: (1) an expandable metal frame and (2) valve leaflets made from animal tissue that are sewn to the metal frame. Id. ¶ 10.

On June 4, 2009, Brian McPherson, the Vice President of Operations and President of the Surgical Products division at Neovasc Inc. (“Neovasc”) sent an unsolicited email to Mr. Ratz advertising Neovasc’s products and services. [ECF No. 64-1 at 2]. Mr. McPherson stated that Neovasc was the only supplier of “custom pericardial tissue actively supporting companies developing minimally invasive heart valves, ” and that he was confident CardiAQ could benefit from Neovasc’s services. Id. Mr. McPherson attached a 15-page presentation to the email. Id. at 3-17. The presentation stated that Neovasc “develops, manufactures and sells products used by interventional cardiologists, vascular surgeons and other MD’s” and that its “core products” were “implantable pericardial tissue technologies” and the “ReducerTM Stent for refractory angina.” Id. at 4. Most of the presentation focused on Neovasc’s Surgical Products division. It stated that the Surgical Products division’s “primary focus is providing biological tissue materials and associated development and manufacturing services to [its] customers” who are “typically industry partners who incorporate Neovasc pericardial tissue materials into their own products.” Id. at 5. The presentation described Neovasc’s two tissue processing technologies, its production facility, and its management team. Id. at 6-17.

Mr. Ratz responded that same day to indicate his interest in learning more about Neovasc’s capabilities. [ECF No. 304-7 at 32]. Before speaking with Mr. McPherson, Mr. Ratz suggested that the parties execute a Non-Disclosure Agreement. Id. Mr. Ratz emailed Mr. McPherson CardiAQ’s standard agreement, and Mr. McPherson responded that he would rather use Neovasc’s. Id. On June 4, 2009, the parties executed Neovasc’s Non-Disclosure Agreement (the “NDA”), agreeing that the recipient of “Confidential Information”[1] could not use or disclose such information for “any purpose other than evaluating the proposed business relationship.” [ECF No. 64-2]. The parties agreed that the recipient of Confidential Information could not “directly or indirectly, disclose any Confidential Information to any third party or use the Confidential Information for its own benefit or for the benefit of any third party.” Id. The NDA had a five-year term, and was governed by the laws of the Province of British Columbia. Id.

The parties subsequently entered into a brief business relationship. Between June 2009 and March 2010, Neovasc provided CardiAQ with animal tissue and related services for CardiAQ’s TMVI device. [ECF No. 316 ¶ 14]. In the roughly 10-month period that CardiAQ worked with Neovasc, engineers from CardiAQ and Neovasc exchanged hundreds of technical emails and had regular phone calls, averaging about one call a month. [ECF No. 328 ¶ 25]. In addition, CardiAQ sent Neovasc at least a dozen metal frames reflecting the evolving design of its TMVI device. Id. at 24. Neovasc engineer Randy Lane was a primary point of contact for CardiAQ, and Mr. Ratz disclosed extensive technical details about CardiAQ’s TMVI device directly to Mr. Lane. Id. at 26.

In this action, CardiAQ alleges that Neovasc surreptitiously used the information disclosed to it by CardiAQ to develop a competing TMVI device (the “Tiara”) and to patent a related method. [ECF No. 64]. According to CardiAQ, starting in October 2009, when Mr. Lane drew a sketch of what would become Neovasc’s own TMVI device, “Mr. Lane began using CardiAQ’s confidential information to develop Neovasc’s own competing mitral valve.” [ECF No. 315 at 7]. CardiAQ asserts that “[h]ad [it] known that Neovasc was developing its own TMVI device, using the very same engineer that had worked on its project, [it] never would have continued to disclose confidential information to Neovasc.” Id. at 8. Neovasc never directly informed CardiAQ about its internal TMVI program, and CardiAQ claims it first learned of Neovasc’s TMVI project in 2011, when it discovered one of Neovasc’s published patent applications. [ECF No. 328 ¶ 56]. CardiAQ contends that Neovasc’s development of a competing TMVI device: (1) breached the NDA and the covenant of good faith and fair dealing (Counts II and III); (2) constituted fraud (Count IV); (3) involved the misappropriation of CardiAQ’s trade secrets (Count V); and (4) violated Mass. Gen. L. ch. 93A (Count VI).

CardiAQ has also brought a claim for correction of inventorship, under 35 U.S.C. § 256 (Count I), in connection with Neovasc’s TMVI development. On November 12, 2013, the United States Patent and Trademark Office issued U.S. Patent No. 8, 579, 964 (the “’964 Patent”) to Neovasc. The ’964 Patent, directed to a method of anchoring a valve into the heart, lists Randy Lane and Colin Nyuli, both Neovasc employees, as the inventors. The ’964 Patent contains one independent claim (Claim 1) and 27 dependent claims (Claims 2-28). CardiAQ contends that Dr. Quadri and Mr. Ratz invented the subject matter of independent Claim 1 and dependent Claims 2 through 28 of the ’964 Patent, either by themselves or in collaboration with Lane and Nyuli, and seeks an order requiring Neovasc and the Director of the United States Patent and Trademark Office to take all steps necessary to correct the named inventor on the ’964 Patent.

CardiAQ initiated this action on June 6, 2014, alleging the six counts described above, as well as a seventh count for injunctive relief. [ECF No. 1]. Neovasc moved for partial summary judgment on February 1, 2016, after the parties had completed fact and expert discovery. [ECF No. 290]. The motion requests an order dismissing CardiAQ’s claims for correction of inventorship, fraud, and, to the extent predicated on any form of fraud, Chapter 93A. The Court held oral argument on the motion on March 25, 2016.

II. Fraud

To succeed on its fraud claim, CardiAQ must show that Neovasc made a false representation of material fact, knowing it was false, for the purpose of inducing CardiAQ to act, and that CardiAQ actually relied on the representation. Platten v. HG Bermuda Exempted Ltd., 437 F.3d 118, 132 (1st Cir. 2006). In its complaint, CardiAQ alleged that when Neovasc first contacted CardiAQ, it knew and failed to disclose that it would be developing a competing product. [ECF No. 64 ¶¶ 51-59]. CardiAQ claimed that by knowingly concealing its plans, Neovasc misled and induced CardiAQ to enter into a business relationship and share its confidential information, thereby committing fraud. CardiAQ alleged that “Neovasc Inc. at all times knew that concealing the fact that Neovasc Inc. intended to compete with CardiAQ would encourage and mislead CardiAQ into sharing with Neovasc Inc. CardiAQ’s confidential TMVI technology, trade secrets, and years of know-how.” Id. ¶ 53.

In its summary judgment briefing, CardiAQ advances a modified fraud theory. CardiAQ does not now contend that Neovasc knew from the outset of its relationship with CardiAQ that it intended to develop a competing product. Rather, CardiAQ now argues that at some time during the relationship, Neovasc decided to start developing a competing product, at which point Neovasc had a duty to inform CardiAQ of its intentions. CardiAQ argues that “Neovasc’s prior statements became untrue and misleading when it started developing the Tiara.” [ECF No. 315 at 4 (emphasis added)].

“There can be no actionable claim of fraud for failure to disclose in the absence of a duty to disclose.” In re Neurontin Mktg., Sales Practices & Products Liab. Litig., 618 F.Supp.2d 96, 109 (D. Mass. 2009) (quoting Royal Bus. Group, Inc. v. Realist, Inc., 933 F.2d 1056, 1064 (1st Cir. 1991)); see also Taylor v. Am. Chemistry Council, 576 F.3d 16, 31 (1st Cir. 2009) (“Liability for nondisclosure exists under Massachusetts law only where there is a duty to disclose.”); Boyle v. Douglas Dynamics, LLC, 292 F.Supp.2d 198, 200 (D. Mass. 2003), aff’d, 99 F. App’x 243 (1st Cir. 2004) (“In the absence of a specific duty to disclose, there is no liability for an omission of information.”) (quotation marks omitted). The question therefore is if and when Neovasc had a duty to disclose that it was developing a competing mitral valve product.

In determining whether a duty to disclose exists, Massachusetts follows the general principles of Section 551 of the Restatement (Second) of Torts. Sparks v. Fid. Nat. Title Ins. Co., 294 F.3d 259, 274 (1st Cir. 2002); see also Smith v. Zipcar, Inc., 125 F.Supp. 3d 340, 344 (D. Mass. 2015) (noting that Massachusetts courts generally rely on Section 551 of the Restatement (Second) of Torts to determine what circumstances give rise to a duty to disclose); Knapp v. Neptune Towers Assocs., 72 Mass.App.Ct. 502, 507 (2008) (using Restatement (Second) of Torts to describe the limited circumstances under which there is a duty to disclose). Under Subsection 2(c) of Section 551, a duty to disclose arises where “subsequently acquired information . . . will make untrue or misleading a previous representation that when made was true or believed to be so.” Restatement (Second) of Torts § 551 (1977). CardiAQ claims that this duty attached as soon as Neovasc started to develop a competing product.

As an initial matter, there is no evidence that Neovasc ever represented that it would not compete with CardiAQ. CardiAQ’s co-founder, Mr. Ratz, testified that he did not communicate with Mr. McPherson or anyone at Neovasc about whether Neovasc could build a competing device. [ECF No. 316 ¶¶ 12-13]. Further, though the NDA generally restricted the parties from disclosing or using the other’s Confidential Information, it had an exception for when the Confidential Information disclosed by one party was “independently developed” by the other party. [ECF No. 64-2]. The NDA did not have a ...


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