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CardiAQ Valve Technologies, Inc. v. Neovasc Inc.

United States District Court, D. Massachusetts

October 31, 2016

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

          MEMORANDUM AND ORDER

          ALLISON D. BURROUGHS U.S. DISTRICT JUDGE

         From June 2009 through April 2010, Plaintiff CardiAQ Valve Technologies, Inc. (“CardiAQ”) hired Defendant Neovasc Inc. (“Neovasc”) to help construct prototypes of CardiAQ's transcatheter mitral valve implant (“TMVI”) device. CardiAQ alleges that Neovasc breached the parties' non-disclosure agreement (“NDA”) and misappropriated CardiAQ's trade secrets by using CardiAQ's confidential information to develop its own competing TMVI device. On May 19, 2016, following a two-week trial, a jury found for CardiAQ as to some, though not all, of its claims. The jury returned a verdict finding that Neovasc: (1) breached the NDA; (2) breached the duty of honest performance in the NDA; and (3) misappropriated three of CardiAQ's six claimed trade secrets. [ECF No. 483]. The jury awarded CardiAQ $70, 000, 000 in damages for Neovasc's theft of trade secrets, with no additional damages for the contract breaches.

         The Court has already resolved several post-trial motions. On May 27, 2016, the Court granted Neovasc's motion for judgment as a matter of law with respect to CardiAQ's Chapter 93A claim, finding that Neovasc's alleged wrongful acts had not occurred “primarily and substantially within the commonwealth” of Massachusetts, as is required under the statute. Mass. Gen. L. Ch. 93A, § 11. [ECF No. 495]. On July 28, 2016, the Court denied both parties' renewed motions for judgment as a matter of law with respect to CardiAQ's duty of honest performance claims, declining to overturn the jury's finding that Neovasc had breached the duty of honest performance with regard to the NDA, but not with the parties' purchase orders. [ECF No. 529].

         On August 15, 2016, the Court held oral argument on the remaining post-trial motions: CardiAQ's motions for enhanced damages and injunctive relief [ECF Nos. 513, 516] as well as Neovasc's motions for a new trial on damages and trade secrets 4-6 [ECF Nos. 511, 520]. The Court also heard argument on CardiAQ's inventorship claim, which was left for the Court rather than the jury to decide.

         Finally, on October 19, 2016, in anticipation of an appeal, Neovasc filed motions and a supporting memorandum [ECF Nos. 571-574] seeking the Pro Hac Vice admission of three additional attorneys. CardiAQ opposed the motions on October 24, 2016 [ECF No. 578].

         This Order resolves all of the outstanding motions, as well as CardiAQ's inventorship claim. For the reasons stated herein: (1) CardiAQ's motion for enhanced damages [ECF No. 513] is GRANTED IN PART; (2) CardiAQ's motion for injunctive relief [ECF No. 516] is GRANTED IN PART; (3) Neovasc's motion for a new trial on damages [ECF No. 522] is DENIED; (4) Neovasc's motion for a new trial on trade secrets 4-6 [ECF No. 521] is DENIED; (5); Dr. Quadri and Mr. Ratz are to be added as co-inventors of U.S. Patent No. 8, 579, 964; and (6) Neovasc's motions for the Pro Hac Vice admission of new attorneys [ECF Nos. 571-573] are DENIED as MOOT.

         I. Background

         a. Procedural Background

         In its original complaint, filed on June 6, 2014 [ECF No. 1], as well as its amended complaint, filed on January 15, 2015 [ECF No. 64], CardiAQ brought the following seven claims against Neovasc: (1) correction of inventorship under 35 U.S.C. § 256; (2) breach of the NDA; (3) breach of the implied covenant of good faith and fair dealing in the NDA and purchase orders;[1] (4) fraud; (5) misappropriation of trade secrets under Mass. Gen. L. ch. 93 §§ 42, 42A and the common law; (6) violation of Mass. Gen. L. ch. 93A § 11; and (7) injunctive relief.

         In April 2016, the Court granted Neovasc's motion for summary judgment as to the fraud count, finding that Neovasc did not have an affirmative duty to disclose its competitive activities to CardiAQ, and therefore did not commit fraud by failing to disclose such activity once it began. [ECF No. 417]. The Court, however, denied Neovasc's motion for summary judgment as to the inventorship and Chapter 93A counts. Id.

         The next month, this action proceeded to trial. Over the course of the two-week trial, the two founders of CardiAQ-Brent Ratz and Dr. Arshad Quadri-testified, as did Rob Michiels, the former CEO of CardiAQ; Randy Lane, Vice President of Research and Development at Neovasc; and Alexei Marko, CEO of Neovasc. The jury also heard the deposition of testimony of several fact witnesses that were not present at trial, including: Colin Nyuli, an intellectual property manager and former project engineer at Neovasc; Krista Neale, the manager of new technology development and former project engineer at Neovasc; Kathleen Hung, a project manager at Neovasc; Dr. Michael Mack, a former member of CardiAQ's scientific advisory board; and Glen Rabito, a senior manager of research and development at Edwards Lifesciences and a former engineering manager and research and development project leader at CardiAQ.

         In addition, three experts testified for CardiAQ. Dr. Joseph Bavaria, Vice Chairman of the Department of Cardiovascular Surgery at the University of Pennsylvania and Director of the Transcatheter Valve Program at the University of Pennsylvania, testified as to the anatomy of the heart and specifically, the mitral valve. Dr. Rick Hillstead, a Fellow on the Council of Clinical Cardiology within the American Heart Association, testified generally about the development of medical devices and the customs and practices of vendors, suppliers, and development houses in the medical device field. Finally, Michael J. Wagner, the managing director at Litinomics, Inc., a financial and economic consulting firm, testified as to damages, opining that the reasonable royalty Neovasc owed to CardiAQ was $90 million, based on a hypothetical negotiation taking place in 2010. Three experts also testified for Neovasc. Steven Little, a cardiologist at Houston Methodist Hospital and the medical director of its valve clinic, testified regarding cardiac imaging and the anatomy of the mitral valve, as well as the interaction of CardiAQ's and Neovasc's respective devices within the native mitral valve anatomy. Karl R. Leinsing, a mechanical engineer who develops medical devices, testified regarding CardiAQ's trade secret claims and Neovasc's Tiara development. Lastly, Carla Mulhern, managing principal in the Washington D.C. office of Analysis Group, testified as to damages, and opined that correcting for various errors in Mr. Wagner's analysis, the appropriate royalty figure was no more than $2 million.

         The jury returned a split verdict. [ECF No. 483]. The verdict form contained eight questions. The first four concerned CardiAQ's breach of contract claims. The jury was asked to determine whether CardiAQ had proven, by a preponderance of the evidence that Neovasc had: (1) breached the NDA; (2) breached the duty of honest performance in the NDA; and (3) breached the duty of honest performance in the purchase orders. If the jury answered yes to any of these three questions, they were instructed to then determine the amount of money CardiAQ should receive for Neovasc's breach(es). The jury answered yes to the first two questions, but no to the third: Neovasc had breached the NDA as well as the duty of honest performance in the NDA, but not the purchase orders. As to the fourth question, the jury found that CardiAQ should not receive any money for Neovasc's breaches.

         Next, the jury was asked to determine if Neovasc had misappropriated CardiAQ's trade secrets. At trial, CardiAQ maintained that Neovasc had misappropriated six of its trade secrets, and the verdict form asked the jury to make a separate finding as to each one. The six alleged trade secrets were originally identified by CardiAQ during discovery, and were described in trial exhibit 1157. The alleged trade secrets were:

1. CardiAQ's Rev. C Prototype Design [Tr. Ex. 1157 at 1-5];
2. CardiAQ's Rev. D Prototype Design [Tr. Ex. 1157 at 5-10];
3. CardiAQ's Rev. E Prototype Design [Tr. Ex. 1157 at 10-14];
4. A transcatheter replacement mitral valve prosthesis design that includes an expandable metal frame for supporting a tricuspid, one-way valve, the expandable metal frame sized for placement in a human native mitral valve space, where the prosthesis is configured for mitral valve implantation without relying exclusively on radial force but rather by engaging the native mitral valve annulus on the atrial side of the native mitral valve and by anchoring the prosthesis on the ventricular side of the native mitral valve annulus [Tr. Ex. 1157 at 14-17];
5. The CardiAQ Mandrel [Tr. Ex. 1157 at 18]; and
6. CardiAQ's Transcatheter Mitral Valve Implantation Development History [Tr. Ex. 1157 at 18].

         The jury found that that Neovasc had misappropriated trade secrets 4-6, but not trade secrets 1-3, and that CardiAQ should receive $70 million as damages for Neovasc's misappropriation.

         The jury was also asked to make factual determinations with respect to the two counts- inventorship and Chapter 93A-reserved for the Court. The jury found that CardiAQ had proven (1) by a preponderance of the evidence that Neovasc engaged in unfair and deceptive acts or practices; and (2) by clear and convincing evidence that the two founders of CardiAQ contributed to the conception of Neovasc's U.S. Patent No. 8, 579, 964 (the “‘964 Patent”).

         b. Factual Background

         Below is a summary of facts adduced at trial that are relevant to the outstanding issues in this case:

         Neovasc and CardiAQ's business relationship began on June 4, 2009, after Brian McPherson, the Vice President of Operations and President of the Surgical Products division at Neovasc, sent an unsolicited email to CardiAQ co-founder Brent Ratz advertising Neovasc's products and services. [Tr. Day 3, 183:7-20; Tr. Ex. 349]. The email 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. [Tr. Ex. 349] Mr. McPherson attached a 15-page presentation to the email, describing Neovasc's services. Id. at 3-17.

         Mr. Ratz responded that same day to indicate his interest in learning more about Neovasc. [ECF No. 304-7 at 32]. Before speaking with Mr. McPherson about a potential business relationship, 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 NonDisclosure Agreement (the “NDA”), agreeing that the recipient of “Confidential Information” could not use or disclose such information for “any purpose other than evaluating the proposed business relationship.” [Tr. Ex. 371].[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 NDA was executed via email and signed by Mr. Ratz and Neovasc CEO Alexei Marko. [Tr. Day 3, 188:1-14; Tr. Ex. 371].

         At the time Mr. McPherson reached out to CardiAQ, CardiAQ was a start-up developing a TMVI device-a prosthetic heart valve delivered through a catheter to replace a malfunctioning native mitral valve. Mitral regurgitation, one of the most common forms of heart disease, can be treated by replacing the mitral valve, but, currently, the only way to replace the mitral valve is through open heart surgery. By June 2009, CardiAQ, had developed a prototype of its TMVI device, intended to replace the mitral valve through a catheter procedure, rather than open heart surgery.

         CardiAQ's device consists of three elements: the frame, the delivery catheter, and the tissue valve. [Tr. Day 3, 15:20-23]. Between June 2009 and April 2010, Neovasc worked with CardiAQ to manufacture the tissue valve element. [Tr. Day 3, 16:1-3]. During this time, CardiAQ and Neovasc entered into several purchase orders (the “Purchase Orders”), in which they agreed to the work Neovasc would perform. [See e.g., ECF No. 64, Ex. D]. CardiAQ would send metal frames to Neovasc's Vancouver facility [Tr. Day 4, 36:15-37:2; Tr. Ex. 1205], and Neovasc would attach tissue to the frame and assemble the final TMVI prototype. [Tr. Day 3, 24:23-25:2; Tr. Day 3, 35:1-2; Tr. Day 4, 26:1-3]. CardiAQ used the prototypes assembled by Neovasc for several animal studies. [Tr. Day 3, 25:3-9; Tr. Day 4, 48:10-12].

         Over the course of the 10-month relationship, Mr. Ratz regularly exchanged emails and phone calls with Neovasc employees. Through these emails and phone calls, Neovasc employees, including engineer Randy Lane, learned about the specifications, ongoing animal testing, and development history of CardiAQ's TMVI device. [See e.g., Exs. 1171; 1179; 1193; 1197; 1214]. During this time, CardiAQ sent frames of its Rev. C, D, and E prototypes to Neovasc, which then attached the tissue valve element. [Tr. Day 3, 209:24-211:24; Tr. Day 4, 27:10-25; Tr. Day 4, 36:15-37:25].

         On October 20, 2009, in the middle of CardiAQ and Neovasc's business relationship, Mr. Lane drew the first sketch of what would become Neovasc's own TMVI device, now known as the “Tiara.” [Tr. Day 8, 99:10-12; Day 9, 67:9-17; Tr. Ex. 1121]. After sketching the concept in his lab notebook, Mr. Lane told Neovasc's CEO Alexi Marko about the idea [Tr. Day 8, 100:11-21], and Mr. Marko instructed Mr. Lane to proceed with an in-house mitral valve program, which he did. [Tr. Ex. 343; Tr. Day 8, 122:9-123:11]. Mr. Marko advised Mr. Lane not to tell CardiAQ about Neovasc's internal project, explaining in an October 21, 2009 email that, “when appropriate we may need to disclose to [CardiAQ] that we are working on something, but let's cross that bridge when we come to it.” [Tr. Ex. 343].

         Neovasc and CardiAQ's business relationship ended in April 2010, after CardiAQ leased its own manufacturing facility in California and no longer needed Neovasc's services. [Tr. Day 4, 46:9-16; Tr. Day 7, 119:14-25; Tr. Day 9, 107:19-22]. Until Neovasc's relationship with CardiAQ ended in April 2010, Mr. Lane worked on both Neovasc's internal TMVI project and CardiAQ's valve assembly. [Tr. Day 9, 113:10-19]. Mr. Lane used the same lab notebook to document his development of Neovasc's valve and his assembly of CardiAQ's valve, at times including notes on adjacent pages. [Tr. Ex. 1121]. Neovasc did not restrict any of its engineers from working on both the Tiara project and the CardiAQ project, and several did. [Tr. Day 9, 113:14- 24].

         In December 2009, Neovasc began to prepare its first patent application relating to the Tiara design. [Tr. Day 9, 107:23-108:5]. Neovasc filed the application on May 5, 2010 [Tr. Day 9, 107:23-25], naming Mr. Lane as the sole inventor. [Tr. Ex. 2756]. The U.S. Patent Office issued the ‘964 Patent on November 12, 2013, naming Mr. Lane and Colin Nyuli, a Neovasc employee who joined Neovasc in September 2010, as joint inventors. [Tr. Ex. 115]. The ‘964 Patent is a method patent for a transcatheter mitral valve prosthesis. Id.

         Neovasc formally announced its internal TMVI project in a June 20, 2011 press release. [Tr. Ex. 347; Tr. Day 9, 206:11-17]. Since then, Neovasc's device has been implanted in over 100 animals. [Tr. Ex. 2533 at 57]. On February 3, 2014, Neovasc announced the first in-human implantation of its device by physicians at St. Paul's Hospital in Vancouver. [Tr. Ex. 2315]

         Neovasc never told CardiAQ about its internal TMVI program. [Tr. Day 4, 51:14-18; Tr. Day 9, 112:23-113:1]. Mr. Ratz and Dr. Quadri first learned of Neovasc's development of a TMVI device in December 2011, after Neovasc's patent application became public. [Tr. Day 3, 68:2-23; Day 4, 51:19-25]. Soon thereafter, in February 2012, counsel for CardiAQ contacted Mr. Marko to express concern that Neovasc may have incorporated CardiAQ's confidential information into its Tiara device, in violation of the NDA. [Tr. Ex. 1389]. In June 2014, after counsel for the parties exchanged multiple letters [see, e.g., Tr. Exs. 188, 1272, 2482], CardiAQ filed the instant action. Neither CardiAQ's nor Neovasc's TMVI devices have received regulatory approval, and both are currently in the clinical trial process.

         II. CardiAQ's Motions

         CardiAQ's two pending motions request enhanced damages [ECF No. 513] and injunctive relief [ECF No. 516] in addition to the $70 million already awarded by the jury. The motion for enhanced damages asks the Court to double the jury's $70 million damages award. The motion for injunctive relief requests that the Court order Neovasc to: (1) destroy all information that CardiAQ sent to Neovasc between June 2009 and April 2010; (2) return to CardiAQ any CardiAQ prototypes, or portions thereof, that CardiAQ provided to Neovasc and that Neovasc still has in its possession, custody, or control; (3) without the written consent of CardiAQ, not prosecute claims covering subject matter that is either described in CardiAQ's Trade Secret Number 4, or described in claims of U.S. Patent No. 8, 579, 964, for which the Court determines Dr. Quadri and Mr. Ratz significantly contributed; and (4) with certain limitations, suspend all of its TMVI programs, including, but not limited to, its Tiara program, for eighteen months.

         Following oral argument, CardiAQ submitted a supplemental memorandum regarding both motions [ECF No. 562], in which it suggested that the Court issue an injunction with contingencies, for example, that the injunction be contingent on whether or not Neovasc satisfies the $70 million verdict and further argued that the Court should enhance damages by at least 33%, or $23.3 million. Neovasc responded to the supplemental memorandum on September 8, 2016. [ECF No. 567].

         a. Motion for Enhanced Damages

         CardiAQ's request for enhanced damages arises under Mass. Gen. L. ch. 93, § 42, which states that:

Whoever embezzles, steals or unlawfully takes, carries away, conceals, or copies, or by fraud or by deception obtains, from any person or corporation, with intent to convert to his own use, any trade secret, regardless of value, shall be liable in tort to such person or corporation for all damages resulting therefrom. Whether or not the case is tried by a jury, the court, in its discretion, may increase the damages up to double the amount found. The term ‘‘trade secret'' as used in this section shall have the same meaning as is set forth in section thirty of chapter two hundred and sixty-six.

         Mass. Gen. L. ch. 93, § 42 (emphasis added). This provision, which gives the Court discretion to double the jury's damages award in a trade secret case, has been applied sparingly in both state and federal court. In Data Gen. Corp. v. Grumman Sys. Support Corp., 825 F.Supp. 340, 343 (D. Mass. 1993), the court added $9, 000, 000 to the jury's $27, 417, 000 award after finding that defendant's misappropriation of trade secrets had been willful. In USM Corp. v. Marson Fastener Corp., 467 N.E.2d 1271, 1276-77 (Mass. 1984), the Massachusetts Supreme Judicial Court (“SJC”) held that enhanced damages were inappropriate, where the jury had awarded damages based on defendant's profit (i.e. unjust enrichment) rather than plaintiff's lost profit. The SJC found that “[t]he reference to damages ‘resulting from' a defendant's tortious act concerns the trade secret holders' loss of profit, and not, as here, a defendant's profit at a plaintiff's expense.” Id. at 1285.

         Neovasc argues that enhanced damages are precluded by the SJC's decision in USMCorp. “Absent damages for lost profits, ” according to Neovasc, “[CardiAQ] has no basis to seek a new, novel construction of Ch. 93 § 42 inconsistent with the holding in USM.” [ECF No. 534 at 4]. CardiAQ counters that USM is inapposite, since it did not involve an award for reasonable royalties. The USM holding, according to CardiAQ, should be limited to cases in which the jury's award disgorged the defendant's ...


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