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Covidien LP v. Esch

United States District Court, D. Massachusetts

May 6, 2019

Covidien LP and Covidien Holding Inc., Plaintiffs,
Brady Esch, Defendant.



         This dispute arises out of alleged breaches of two agreements between Covidien LP and Covidien Holding Inc. (“plaintiffs” or “Covidien”), on the one hand, and Brady Esch (“defendant” or “Esch”), Covidien's former employee, on the other. Plaintiffs allege defendant breached an employment agreement and a separation agreement by 1) assigning rights to three patents to his new company rather than to Covidien and 2) disclosing plaintiffs' confidential information in the patent applications. Pending before the Court are the parties' cross-motions for summary judgment and defendant's motion for leave to file newly discovered information relevant to the pending motions for summary judgment.

         I. Background

         Brady Esch began working for Covidien in 2009, when Covidien acquired his employer at the time, VNUS Technologies. In December, 2009, Esch entered into a “Non-Competition, Non-Solicitation, and Confidentiality Agreement” (“NNC Agreement”) with Covidien, in which he agreed to assign his “Inventions” (defined broadly) to Covidien. The NNC Agreement, which is governed by a Massachusetts choice-of-law provision states that

[I]n order to avoid any dispute as to the date on which Inventions were made or conceived by you, they shall be deemed to have been made or conceived during your employment with the Company if you take affirmative steps to have them reduced to practice either during the term of your employment or within one year after separation from employment.

         During his time at Covidien, Esch worked on Project Merge/Cattleya (“Project Cattleya”), which focused on a new radio frequency (“RF”) ablation device. As director of the project, he led the engineers during development and maintained “veto power” over key aspects. While at Covidien, he expressed disfavor of a “premium” feature that provided a selectable or switchable heating element for the RF ablation device.

         In 2013, Esch signed a “Separation of Employment Agreement and General Release” (“the Separation Agreement”) following his termination. Esch, with counsel, provided edits to the Separation Agreement which Covidien rejected. Nevertheless, Esch signed the Separation Agreement, which reaffirmed the Invention assignment provision of the NNC. Although parts of the Separation Agreement superseded provisions of the NNC, the Separation Agreement provides that

any provisions of such Employee Agreement concerning disclosure or ownership of inventions, methods, processes or improvements shall continue in full force and effect and shall not be superseded by any provision of this Agreement.

         Esch disputes the validity of this provision as he asserts that he assumed that California law would render terms relating to competition, solicitation and confidentiality unenforceable.

         In February, 2014, Esch organized the incorporation of Venclose Inc. (“Venclose”), a direct competitor to Covidien. One month later, he filed provisional patent application No. 61/970, 498 (“the ‘498 provisional patent”) which describes designs, technology and improvements to venous RF ablation devices. That application was assigned to Venclose. Covidien alleges that the stated subject matter directly relates to Esch's work at Covidien. For example, the ‘498 provisional patent describes a selectable heating element similar to the dimensions disclosed in Project Cattleya.

         In 2015, Venclose filed 1) utility patent application No. 14/670, 338 (“the ‘338 patent”) and 2) a foreign Patent Cooperation Treaty application (“the PCT application”). Darius Pryzgoda, Rory Chrstian and Cody Schlindler are also listed as inventors on the ‘338 patent. While Covidien alleges that those follow-on patent applications claim priority to Esch's early provisional patent application (‘498) and include additional advancements, the four named inventors assigned the rights to the applications to Venclose.

         In January, 2017, this Court issued a preliminary injunction in favor of Covidien enjoining Esch and his agents, successors, representatives or assignees from making, developing, manufacturing or selling products that disclose or use any confidential information from Covidien. Esch, who was then CEO of Venclose, has since been discharged by that company.

         II. Cross-Motions for Summary Judgment

         A. Standard of Review

         The role of summary judgment is to assess the proof in order to see whether there is a genuine need for trial. Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991). The burden is on the moving party to show, through the pleadings, discovery and affidavits, that there is “no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law”. Fed.R.Civ.P. 56(a). A fact is material if it “might affect the outcome of the suit under the governing law”. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists where the evidence with respect to the material fact in dispute “is such that a reasonable jury could return a verdict for the nonmoving party”. Id.

         If the moving party has satisfied its burden, the burden shifts to the nonmoving party to set forth specific facts showing that there is a genuine, triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The Court must view the entire record in the light most favorable to the nonmoving party and indulge all reasonable inferences in that party's favor. O'Connor v. Steeves, 994 F.2d 905, 907 (1st Cir. 1993). Summary judgment is appropriate if, after viewing the record in the nonmoving party's favor, the Court determines that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Celotex Corp., 477 U.S. at 322-23.

         When parties file cross-motions for summary judgment on a particular count, the Court must assess each motion separately and determine whether there is any genuine issue of material fact and whether either movant is entitled to judgment. Phillip Morris Inc. v. Harshbarger, 122 F.3d 58, 62 n. 4 (1st Cir.1997).

         B. Defendant's Motion for Summary Judgment

         1. Applicable Law

         Defendant argues that Counts I, II and III should be dismissed because the Massachusetts choice-of-law provision within the subject contracts is unenforceable pursuant to fundamental California public policy. Plaintiffs rejoin that the California public policy of open competition and employee mobility has not been extended to assignments of Inventions following termination (“holdover provisions”).

         The Court will not honor a choice-of-law provision if 1) Massachusetts has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, 2) where application of Massachusetts law would be “contrary to a fundamental policy” of California, which has a “materially greater interest” than Massachusetts and 3) California law would apply in the absence of the Massachusetts choice-of-law provision. Oxford Glob. Res., LLC v. Hernandez, 106 N.E.3d 556, 564 (2018).

         When the parties entered into the subject contracts, Covidien's principal place of business was Massachusetts. Thus, the “substantial relationship” prong is satisfied. Id. at 564.

         With respect to the second prong of the analysis, California has a strong and well-settled public policy against non-competition and non-solicitation clauses. Cal. Bus. & Prof. Code § 16600. Neither the Oxford decision nor California courts have, however, set forth a clear public policy with respect to holdover provisions. In anticipation of that claim, defendant argues that the decision in Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. (Shanghai) Co. demonstrates that California has a fundamental policy of striking down holdover provisions. 630 F.Supp.2d 1084, 1090-91 (N.D. Cal. 2009). There, however, the Northern District of California held that holdover provisions function as unlawful non-compete provisions but that they are enforceable to the extent they

relate . . . to ideas and concepts which were based upon secrets or confidential information of the employer.

Id. Because the Court is not convinced that the California decisions with respect to non-compete and non-solicitation clauses extend to holdover provisions and because this case turns, in part, on the disclosure of confidential information, Esch has failed to ...

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