C. A. No. 15443-NC.
Date Submitted: June 29, 1999.
Date Decided: August 5, 1999.
Richard D. Allen, Mary B. Graham, Julia Heaney and Bradley J. Enna, of MORRIS NICHOLS ARSHT TUNNELL, OF COUNSEL: Paul D. Matukaitis and Kevin J. McGough, of MERCK CO., INC., Attorneys for Plaintiff.
Richard K. Herrman and Mary B. Matterer of BLANK ROME COMISKY MCCAULEY LLP, Donald R. Dunner, Susan H. Griffen, Howard W. Levine, John R. Alison and York M. Faulkner of FINNEGAN HENDERSON FARABOW GARRETT DUNNER LLP, OF COUNSEL: James K. Grasty, Yuriy P. Stercho, of SMITHKLINE BEECHAM, Attorneys for Defendants.
TABLE OF CONTENTS
The following table of contents is included solely for the purpose of aiding the reader and is not part of the Court's official opinion. Therefore, all publishers should feel comfortable repaginating this table for any subsequent publication.
A. THE PARTIES AND THE NATURE OF THE ACTION
B. VACCINE PRODUCTION PROCESSES
C. COMPLICATIONS IN MAKING VARICELLA VACCINE
D. BIKEN'S DEVELOPMENT AND LICENSING OF THE OKA STRAIN OF VARICELLA VIRUS
E. SMITHLINE'S 1985 LABORATORY PROCESS
F. SB's EFFORTS TO REDEVELOP THE 1985 PROCESS
1. SB's Initial Work and the VA30 Series (VA30-34)
2. Didelez's Fall 1989 Attempt a: a "Most Plausible scheme"
3. Didelez's New "Most Plausible Scheme" and the Need for a "Fresh Start" in March 1990
4. The Admitted "Failure" as of June 1990
G. THE VISITS TO BIKEN
1. The December 6, 1990 Visit
2. The January 1991 Visit
II. ANALYSIS OF MERCK'S MISAPPROPRIATION CLAIM
A. CHOICE OF LAW
B. BIKEN'S PROCESS KNOW-HOW IS A TRADE SECRET
1. The Biken process is a Valuable Commercial Process
2. The Biken Process Is Not Generally Known or Readily Ascertainable by Proper Means
3. Biken Has Taken Reasonable Efforts to Maintain the Secrecy of Its process
C. SB's EFFORTS TO MARKET ITS VARICELLA VACCINE IN THE UNITED STATES AND CANADA CONSTITUTE MISAPPROPRIATION OF BIKEN KNOW-HOW
D. SB USED BIKEN'S TRADE SECRETS TO GUIDE THE DEVELOPMENT OF ITS VACCINE
E. UNDER ITS AGREEMENT WITH BIKEN, SB IS PROHIBITED FROM USING BIKEN KNOW-HOW TO PRODUCE A VACCINE FOR SALE IN THE UNITED STATES AND CANADA
F. MERCK IS ENTITLED TO AN INJUNCTION
III. FACTS SURROUNDING SB'S COUNTERCLAIMS AND AFFIRMATIVE DEFENSES
A. THE OPTION AGREEMENT
B. JUNE 1975 TO MAY 1977: SB ENCOUNTERS INITIAL PROBLEMS LEADING TO AN EXTENSION OF THE
1. SB's Problems
2. Initial Merck Contacts with Biken
C. APPRIL 1977 To JUNE 1978: ADDITIONAL DELAYS LEADING TO A SECOND EXTENSION OF THE OPTION AGREEMENT
1. The Second Extension
2. Contacts Between Merck and Biken
D. JUNE 1978 TO DECEMBER 1978: THE OPTION AGREEMENT EXPIRES
1. Expiration of the Agreement
2. Contacts by Merck with Biken
E. JANUARY TO MAY 1979: MERCK OBTAINS INFORMATION FROM PLOTKIN AND LEARNS THAT biken
EXPECTS TO CONCLUDE A LICENSE AGREEMENT
1. Contacts with Plotkin
2. SB Similarly Obtained Information from Clinical Investigators About Merck's Vaccine
3. Merck Learned that Biken Expected to Enter a License Agreement with SB
F. JUNE TO NOVEMBER 1979: DETERIORATION OF THE SB/BIKEN RELATIONSHIP
1. SB Fails to Sign a License Agreement
2. SB's Development Problems
3. Merck Initiates Additional Contacts with Biken
4. The Alleged False Statement by Woodruff
5. The Termination Letter
G. JANUARY 1980 TO FEBRUARY 1982: BIKEN NEGOTIATES LICENSE AGREEMENTS WITH SB
IV. CONCLUSIONS OF LAW
A. CERTAIN OF SB'S CLAIMS ARE BARRED BY THE STATUTE OF LIMITATIONS AND LACHES
B. DOCTRINE OF UNCLEAN HANDS
1. Standard for Unclean Hands
2. Merck's Claims Are Not Barred by Unclean Hands
a) SB Has Failed to Establish Unclean Hands due to Tortious Interference
(1) Contractual Relationship and Knowledge
(2) Intentional Act, Proximate Cause, and Damages
(i) SB Has Failed to Establish that Merck Induced Biken to Breach the Option Agreement
(ii) SB Has Established a Breach of the Option Agreement's Confidentiality Provision
(iii) No Proximate Causation or Damages
b) Justification for Any Interference
3. SB Has Failed To Show That Merck Was Unjustly Enriched
4. Woodruff's November 1979 Statement Violated No Rights of SB
a) There Was No Knowing Misstatement
b) Biken Did Not Rely on Woodruff's Statement
V. SUMMARY OF CONCLUSIONS
This lawsuit involves claims of misappropriation of a trade secret — the process for producing a vaccine to prevent varicella (commonly known as chicken pox). After a two week trial and post-trial submissions by the parties, this is the Court's findings of fact and Conclusions of law. In short, I find in favor of plaintiff Merck on its claim of misappropriation of a trade secret and I dismiss defendant SmithKline's affirmative defenses and counterclaims for various reasons, including laches and the statute of limitations.
The Court's decision is organized as follows. Part I describes the parties, the nature of Merck's claims, and the background facts, including my findings of fact where the parties disagree. Part II represents my analysis of these claims and my conclusions of law. Part III describes the facts relating to SmithKline's affirmative defenses and counterclaims, including my findings of fact, where necessary. Part IV sets forth my analysis of these defenses and counterclaims and my conclusions of law. Finally, Part V summarizes all of these conclusions.
A. The Parties and The Nature of the Action
The varicella vaccine which is the subject of this lawsuit was developed by the Research Foundation for Microbial Diseases of Osaka University ("Biken" or the "Foundation") using a strain of virus known as the Oka strain. Plaintiff Merck Co., Inc. ("Merck") seeks to enjoin Defendants SmithKline Beecham which [Bikenj will provide to" SB the trade secrets. The agreement grants rights only in the contract territory (PTX552). Biken offered SB nonexciusive rights in the United States and several other countries, but SB chose instead to accept nonexclusive rights in Europe (PTX472; PTX 552). SB later was able to acquire additional nonexclusive rights in other countries of the world, but not the United States or Canada (PTX569). By the time SB acquired those nonexclusive rights, Biken had already granted Merck exclusive rights in the United States and Canada.
Biken intended to produce a commercial varicella vaccine and retained for itself exclusive rights in Japan and Korea and nonexclusive rights elsewhere (until it granted Merck exclusive rights in the United States and Canada). Thus, in 1979, Takahashi's laboratory process was transferred to the production facility at Kanonji, Japan, which thereafter developed a process for producing varicella vaccine on a commercial scale (Tr. 780, 842).
In 1986, Biken received approval from the Japanese Ministry of Health to sell its varicella vaccine for healthy individuals and subsequently received similar approval in Korea (Tr. 781, 783). Biken was the first entity to be approved to sell a varicella vaccine for healthy individuals, although SB received approval to market the vaccine to immunocompromised individuals in 1984. As of 1990, the commercial process developed at Kanonji had a capacity of (REDACTED) doses per year and Biken was actually producing between (REDACTED)fn_ doses annually (Tr. 783).
This material has been REDACTED.
E. SmithKline's 1985 Laboratory Process
Prior to obtaining the Oka strain from Takahasbi in 1975, SB had worked with other strains of varicella virus (PTX632, A554-604). SB was not successful, however, and sought the Oka strain as the "strain of choice for large scale production for wider application in normal children and possibly in elderly" (TX2220; Tr. 1664). After receiving the strain, SB first attempted to make vaccine in its laboratory. The contemporaneous documents that still exist from the late 1970's show that SB in fact looked to Biken and benefited from Biken's help. When Erik D'Hondt in 1975 began his laboratory work at SB with the Oka strain, he received Takahashi's laboratory method, which included such information as Biken's use of for incubation of the varicella virus (PTX 1). Although SB's experience with other varicella strains was to incubate at (REDACTED)fn_ SB adopted Biken (REDACTED)fn_ incubation for the Oka strain (Tr. 1886-88, 1893-94; TX1396, TX2163).
SB asserts that it was interested only in the Oka strain and not in Takahashi's method for producing a vaccine (SB Br. n. 5) and points to a 1974 SB document stating that Biken has "very little experience in sonication" (TX 2164). Nevertheless, in 1977 and again in 1978, Dr. N. Zygraich and Dr. Stan Huygelen, D'Hondt's supervisors, wrote to Takahashi that SB was "unable to get cell-free, virus using our regular sonication method" and requested information on Biken' sonication method (PTX3, PTX8). Biken provided the requested information both times, including details on the specifications of its sonication equipment (PTX4 PTX9). In addition, SB's and Biken's records reflect that Huygelen and Takahashi exchanged visits relating to varicella at least in 1979 and 1982 (PTX12, PTX13, PTX14, PTX187, PTX188). D'Hondt later acknowledged his dependence on Biken in a memo to management that stated that the procedure used to prepare experimental batches "was a mixture of the Takahashi data and our own data and experience" (PTX21).
SB made its first batch of Oka strain varicella vaccine for use in clinical trials in D'Hondt's laboratory in 1977 (Tr. 1692-93). Several more batches were made in the laboratory in late 1979 and clinically tested (Tr. 1697-99). These were all small-scale.
SB sought registration in Europe of its varicella vaccine for immunocompromised children in 1983 and around that time decided to transfer its varicella vaccine process from RD to production. Michel Duchene, the SB employee in charge of the transfer, testified that SB's attempt to make that transfer "faced a great deal of difficulties . . . particularly linked to the great sensitivity of the virus," and that SB experienced "numerous failures" (Duchene dep. 32, 44). As a result, Duchene had to "reproduce to the letter everything that was done RD," rather than use SB's standard manufacturing practices, in order to achieve adequate viral yield ( id. at 44, 50-55).
Although SB already had extensive experience in the development of large scale manufacturing processes for producing vaccines (SB Post-tr. Br. at 5), SE was not able to use commercial production parameters for its 1985 process for varicella vaccine (Duchene dep. at 69). For example, SB was not able to adapt the varicella process to normal working hours, but rather had to make "a strict application of the approach employed by RD" which involved production outside of normal working hours ( id. at 61; PTX17) (inoculation of (REDACTED)fn_ viral passage or (REDACTED)fn_ Biken itself had this same need, however. SB also had to adopt the same small scale of production in its production department as it had used in D'Hondt's research and development laboratory, whereas for other vaccines, SB was able to scale up (REDACTED)fn_ (Duchene dep. at 36). D'Hondt stated that SB's 1985 process was "more lab-scale than industrial" (PTX632). Biken, on the other hand., was producing (REDACTED)fn_ doses of vaccine per year in 1990 (Tr. 2010).
SB's "Laboratory Method" for varicella vaccine (written in 1985 and approved by Duchene) was the standard operating procedure ("SOP") that confirmed the parameters SB had been applying for production of varicella vaccine for the immunocompromised market (PTX17). The 1985 process did not specify the BSA content of the vaccine produced and the vaccine in fact did not meet the WHO standard later adopted by SB (based on concerns) to have less than 25 ng/dose-of BSA (Tr. 534, 1929).
Because the market for immunocompromised individuals was very small, SB was able to make varicella vaccine for that market, even though its process had not been designed to produce large quantities of vaccine at reasonable cost (Tr. 1915-17). SB did not expect that the vaccine would be a commercial success, and knew that its sales would be limited (Tr. 1915-16). From 1985 through 1992 SB actually sold a total of only (REDACTED)fn_ doses to satisfy the "market need" (TX2616).
F. SB's Efforts to Redevelop the 1985 Process
I note here, by way of introduction, that SB provided at trial a list of fourteen steps in its production of the varicella vaccine. For each of the steps it claimed that either: (a) SB independently developed it; (b) SB used it in its 1985 process or disclosed it to the FDA by 1983; (c) Biken had published it; or (d) the step was either not disclosed or SB's process differs from what was disclosed by Biken. Because Merck need only prove that SB misappropriated one of the steps to obtain an injunction and because addressing all of the steps would lengthen this opinion to the over 900 pages submitted by the litigants (almost half of which are SB's proposed findings of fact and conclusions of law), [will limit my discussion as much as possible to just two of these steps. Therefore, I need not reach an opinion as to whether SB misappropriated any of the remaining twelve steps.
Although I lament the length of the submissions, it is understandable given the complexity of the issues and the tremendous volume of documents and exhibits introduced at trial. Moreover, I thank counsel for providing the post-trial briefs on hyper-linked CD-ROM discs. It would not have been possible to review the record and the legal arguments and issue this decision as promptly without this high-tech advantage.
1. SB's Initial Work and the VA30 Series (VA30-34)
In anticipation of seeking approval of its varicella vaccine for use in healthy individuals, SB continued after 1985 to try to develop a commercial production process. The 1985 varicella process was the "starting point" for that effort, and the task facing the developers was "essentially to move from the  process to a large-scale commercial production process" (Didelez dep. 18,304).
Duchene and Luc Ostyn began the work, with Jean Didelez taking over for Duchene in 1987 or 1988 (Didelez dep. 17). In the view of Didelez, the 1985 process was "more close to a lab process than an industrial process" and "was adapted to discount production but not to large scale production" (Didelez dep. 10-11). It was "quite clear" to him that "you could not increase the size, the batch size with this type of process" and that "you had to redevelop a new process" (Didelez dep. 61-62).
In 1986, SB received an additional supply of Oka varicella seed from Biken., Oka M2001, along with documentation about Biken's process for making the seed (D'Hondt dep. 435-36; TX2312, TX2485). SB used this new seed as the starting material in its production of experimental lots beginning in 1986. During the period — from 1986 through spring 1989, several experimental bulk lots were made (Ostyn dep. 30) and numerous other experiments were performed (TX2731).
Instead of leading SB to its goal, the result of this work was that the production process was "once again brought into question" (Ostyn dep. 30, 223) The Product Development Committee ("PDC"), SB's top management committee responsible for "defining the strategy [and] setting the priorities" for varicella and other vaccines, reported as of the end of April 1989 that in the technical development "there is no consistency of production yields" and "[f]urther work has to be undertaken" (PTX37).
One reason the production process was again brought into question was "the size, which was not sufficiently industrial" and did not allow production of (REDACTED)fn_ (Ostyn dep. 31, 223-24). A separate concern was that the lots had "high BSA content" (id.). The concern over BSA stemmed from SB's decision in early 1988 to meet the draft standard promulgated by the WHO for the maximum amount of residual BSA (TX2717; Ostyn dep. 31). This decision created a further obstacle in the development — "it was not simple to produce a vaccine with a low BSA content" (Ostyn dep. 31).
2. Didelez's Fall 1989 Attempt at a "Most Plausible Scheme"
On September 21, 1989, Didelez prepared "a fast varicella Position and a proposal for a program" for his superiors, Christian Vandecasserie and Jean Stephenne, Vice President of Production and RD (PTX40; Tr. 2298). The proposal called for production of two lots of bulk vaccine "following the most plausible scheme today," and completion of development by the end of 1989. Then, in January-March 1990, Didelez expected there would be production of "3 lots following a refined method" (id. at PTX40).
Didelez's "most plausible scheme" called for: (1) new kinetics — "MOI (REDACTED)fn_ last passage" and "harvest towards (REDACTED)fn_ hours"; (2) reduction of BSA, by substituting (REDACTED)fn_ for (REDACTED)fn_ as the maintenance medium; and (3) clarification by (REDACTED)fn_ instead of centrifugation which SB had been using (id.). Didelez did not propose any particular culture vessel.
The points addressed by Didelez's most plausible scheme were fundamental. MOI is critical, because it directly affects the quantity of vaccine that can be produced (Tr. 117). An MOI of (REDACTED)fn_ uses half as much viral seed (the starting material) relative to the amount of uninfected cells and infects at a slower rate, as compared to an MOI (REDACTED)fn_ (Tr. 110-14). Thus, (REDACTED)fn_ provides twice as many doses as (REDACTED)fn_ assuming the pfu titer per ml of bulk is maintained. Maintaining the pfu's was the challenge, and it could not be known without experimentation whether that was possible (Tr. 115-17) The harvest time was relevant to SB' concern to harvest during the day (Tr. 545-46). BSA had to be reduced because of the WHO standard, while clarification was critical to removal of whole cells. SB proceeded in October 1989 to make the two planned experimental bulk lots (VA35 and VA36) with "the most plausible scheme," and two additional experimental lots (VA37 and VA38) in early 1990 with different kinetics (Ostyn dep. 294-95, 313, 318-21, 325-32, 338-40, 342-44). Three different culture supports were tested: (REDACTED)fn_ These experiments failed to meet expectations. In some instances, no conclusions were noted; in others, it was noted, it was "impossible to draw conclusion(s]" (PTX47) or there were "no titers" (PTX47). BSA was "still quite high" (Ostyn dep. 335).
The October 1989 trial gave titer for an MOI of (REDACTED)fn_ of only half that using an MOI of — (REDACTED)fn_ pfu versus (REDACTED)fn_ pfu prior to clarification (PTX45). This was the only trial of an MOI of (REDACTED)fn_ prior to the visit by Biken to SB in December 1990.
SB asserts that, because the values in that one trial "after clarification were identical, SB concluded that there was not a significant difference between the (REDACTED)fn_ ratios" (SB Br. 15). Because of the possibility of variability, (Tr. 2283-84), however, SB witnesses testified that it was necessary to perform multiple experiments (Thysman dep. 222-23, 431; Didelez dep. 669, 720-21). It is important to note that the comparison in that trial was with (REDACTED)fn_ hours, not (REDACTED)fn_ hours that SB had established as optimal (PTX45). So SB could not have concluded that (REDACTED)fn_ hours was just as good as (REDACTED)fn_ hours at this stage of development. SB did not make that comparison until after the Biken visit (PTX 120).
3. Didelez's New "Most Plausible Scheme" and the Need for a "Fresh Start" in March 1990
After this experimentation, on March 2, 1990, Didelez wrote a memo to his superiors (PTX56), the purpose of which was to provide a "summary of the — status of the development and information of the next experiments to be conducted" (Didelez dep. 703). The memo recites that he was attaching "the production scheme retained as being the most plausible."
That scheme contemplated using (REDACTED)fn_ and, unlike the September 1989 scheme, either (REDACTED)fn_ as the MOI for the last viral passage, with "[h]arvest depending on timing to be determined" (PTXS6). (Didelez dep. 703-.04). While SB claims (REDACTED)fn_ was compared to (REDACTED)fn_ because it had more experience working with a (REDACTED)fn_ MOI, I do not find that credible. If SB had determined a (REDACTED)fn_ MOI was optimal and preferable to (REDACTED)fn_ because it yielded twice as much virus, it would only be natural for SBI to use (REDACTED)fn_ as its new base line.
Didelez, having concluded that SB's development needed a "fresh start, " March 1990 hired Pierre Thysman, a recent graduate in chemical engineering (Thysman dep. 10-13, 214-16). Thysman's first work was application of the "production scheme" proposed in Didelez's March 2 memo (Ostyn dep. 357-58) glad the scheme turned out well, Didelez planned that "batches will be produced in May to June  adopting the optimal parameters that have been decided upon (Ostyn dep. 348; A265). However, the scheme did not work at all. In Ostyn's words — "[a]ll the results were bad," "catastrophic," "very weak," or "all-weak' (Ostyn dep. 359-60, 381, 388).
SB asserts, based on trial testimony of Didelez, that from these trials it knew all along the kinetics that it would use (SB Br. 16-17). According to SB, it had decided from the single trial in October 1989 to use kinetics of (REDACTED)fn_ MOI and harvest at (REDACTED)fn_ hours, unless it could do even beter with an MOI of (REDACTED)fn_ which it decided in May 1990 it could not (SB Br. 15-16). But this factual scenario is contradicted by overwhelming evidence. Before trial, Didelez testified that "none of the experiments after September '89 (and before June 1990) allowed [him] to draw any conclusions with respect to kinetics" (Didelez dep. 764). That testimony of applies to the October 1989 trial (REDACTED)fn_. In his March 2, 1990 status memorandum, Didelez articulated that either (REDACTED)fn_ or (REDACTED)fn_ was "most plausible" (PTX56; OB 20-21). The document did not say that (REDACTED)fn_ looked good, but (REDACTED)fn_ might be better. In a June 19, 1990 memorandum (PTX61), Didelez characterized the results from the (REDACTED)fn_ MOI trial in October 1989 as "very disappointing" (PTX61).
SB admits that after June 1990 it did no further work on MOI until January 1991 — after Biken's visit to SB (SB Br. 16-17). All the trials in the interim were with (REDACTED)fn_ MOI, leading me to conclude that SB had not decided upon (REDACTED)fn_ (PTX61). Didelez preferred (REDACTED)fn_ for practical reasons and because it posed less risk of contamination (Didelez dep. 617-18).
4. The Admitted "Failure" as of June 1990
Didelez on June 19, 1990 gave management a "succinct summary of the development work conducted since "88" (PTX61). That memo did not report that SB had actually resolved any of the issues that had been the subject of its experiments. He gave no "most plausible scheme." On kinetics, Didelez reported, based on the work conducted prior to fall 1989, that "the maximum amount of infectious titer is reached around (REDACTED)fn_ "and an MOI of (REDACTED)fn_. He did not suggest that any different conclusion had been reached from the October 1989 test of(REDACTED)fn_ As noted above, he characterized the pfu titer from that condition as "very disappointing" (PTX61). On clarification, Didelez expressed that "it is possible to clarify . . . by (REDACTED)fn_ . . . with results comparable to clarification by REDACTED (PTX61). Didelez preferred (REDACTED)fn_ for practical reasons and because it posed less risk of contamination (Didelez dep. 617-18).
Didelez directed the remainder of his summary to the BSA problem apprising management that the effort to reduce BSA "is now a failure" (PTX61) At that-point, SB had spent about a year and a half attempting to solve the BSA problem by the use of (REDACTED)fn_ in lieu of FBS. Didelez theorized about the role of BSA, but had no answer, and said that, "[b]efore pursuing the development it is still necessary to determine whether (REDACTED)fn_ works" during cell culture or virus harvest (PTX61). While Didelez was unsure about how to address the BSA problem, he had reason to believe that Biken had done so successfully (PTX61). In July 1989, SB obtained samples of Biken's vaccine which it tested for BSA and pfu's (PTX38, PTX73). Those tests indicated that Biken had achieved both low BSA and high pfu's. Thus, Didelez in his June 1990 memorandum tellingly wrote, "It would be very useful in comparison to know what Takahashi has done." (PTX61).
The evidence does not support SB's assertions that it had resolved the problem of low pfu's, separately or otherwise. The three steps that SB cites as having increased pfu's did not succeed, and SB was not able to achieve its objectives. As Thysman admitted, the results of the fall trials were all unacceptable (Thysman dep. 507, 511-12, 521, 558-60, 589-90, 652-53, 656). No data shows that pfu's "steadily" increased as the fall 1990 trials progressed (SB Br. 22), despite SB's statement to the contrary (SB Br. 22).
SB made at least one change which may have succeeded in giving high pfu's — the change to (REDACTED)fn_ using Biken's conditions (Tr. 1007-09) But this change did not occur until after the Biken visit, and I find that SB must have learned this key step from Biken in that visit. SB had not settled upon the (REDACTED)fn_ parameters by December 6, 1990, had not tested different (REDACTED)fn_ at all, had never tested (REDACTED)fn_ (Biken's conditions) (Tr. 2190-92), and had not even decided to (REDACTED)fn_ rather than (REDACTED)fn_ (PTX61; C7.8; Didelez dep. 1010-29). SB admits that it had not completed its development work prior to Biken's visit. It admits that "work that needed to be completed prior to beginning the consistency lots concerned the (REDACTED)fn_ step and a test combining all of the final parameters that SB independently developed" (SB Br. 24)
Without addressing the law at this point, I note that SB's "publication" defense for this step must fail on the facts: (REDACTED)[*] was published in November 1993 while SB first used those parameters in December 1990 — after observing Biken's process.
G. The Visits to Biken
I. The December 6, 1990 VisitIn the fall of 1990, SB decided to seek Biken's assistance. On October 31, 1990, Stephenne initiated a request to Takahashi through Dr. Dirk Teuwen to "share with us an update on the method of bulk production for the OKA strain as well as the lyophilisation process currently applied at Handai-Biken" (PTX89). At a meeting shortly thereafter, SB arranged that Biken personnel would come to SB's Belgian facility on December 6 for a meeting that "would allow us to bring together our people from clinical and production to review with Takahashi and Takeo Konobe various aspects on varicella" (PTX92). A draft agenda, provided to Didelez and. D'Hondt on November 19, called for a presentation by Biken of its "OKA vaccine production characteristics" (PTX94).
As of 1990 when SB sought Biken's help, Biken had vast experience in the commercial production of vaccines, and actually was producing on a regular basis large amounts of varicella vaccine. SB's claim that it was not seeking help from Biken when it asked for extensive information on Biken's process is implausible and not supported by any evidence. According to Stephenne, his principal interest was "to check whether they [Biken] have something better than us or not" and "the only thing we were doing is to compare to what they were doing" (Stephenne dep. 139, 152). Teuwen confirmed that Stephenne, who initiated the requests to OFF Biken, wanted to "be able to observe all steps of the manufacturing" and "look the steps on the varicella production" (Teuwen dep. 180, 201).
On December 6, 1990, Takahashi, Konobe, and Iwao Yoshida from Biker made a presentation to Didelez and others from SB of the Biken production method used to make its successful vaccine. Biken presented a detailed flow diagram of its process by way of slides that were then given to SB, and "reviewed the different steps of the production" (PTX105; Didelez dep. 279, 939). Didelez and others took detailed notes, recording the kinetics, washing, and clarification schemes (PTX106; Didelez dep. 1031-35). SB was able to and did ask questions (Yoshida dep. 136).
SB was also "interested by the consistency of the [pfu] results from batch to batch," which SB thought "was very, very consistent" (Didelez dep. 279-80). Didelez testified that the SB personnel "were quite impressed by these consistent results and so we realized that we had some progress to make in that field" (Didelez dep. 281). It was confirmed during the meeting that Didelez and Duchene would travel to Japan.
Following the meeting, Didelez "transferred [the Biken] slides to my team and we have certainly reviewed the slides in detail" (Didelez dep. 295). The team paid attention to both similarities and differences (Didelez dep. 935; Thysman dep. 694, 698), so that SB could focus its efforts on differences that might account for Biken's success (Didelez dep. 941). Biken's process had enough commonalities with SB's efforts that SB was able to identify and make changes quickly. As Dr. Daniel Wang explained, SB "did not see anything on the flow sheet . . . — any piece of equipment, or any process in there — which is outside of the realm of what SmithKline is able to practice" (Tr. 993).
Before the Biken visit, Didelez had investigated and found that Biken's vaccine had both high pfu's and low BSA (PTX38; PTX73; Didelez dep. 1041-42), which SB had been unable to obtain in combination. The Biken visit showed Didelez that, to achieve high pfu's and low BSA, Biken had not had to resort to a (REDACTED)fn_ proposed by D'Hondt (PTX95)) and, instead, had achieved success use of (REDACTED)fn_ to remove BSA and (REDACTED)fn_ to maintain potency (Tr. 997-1000, 1007-09). Because SB had experimented with (REDACTED)fn_ (REDACTED)fn_ it was able quickly to settle on that approach from among the options it had considered (Tr. 997-98). It was also able quickly to test and incorporate Biken's REDACTED technique.
On December 6, 1990, immediately after the Biken presentations and following the team's discussion of the Biken procedure, Thysman directed a technician, Etienne De Wade, to run the Biken bulk vaccine procedure in trial 061290EVA (Didelez dep. 998). The December 6 trial involved certain "comparative points studied" (PTX110), most notably comparison of (REDACTED)fn_ schemes: SB's standard varicella (REDACTED)fn_ — (denominated "reference"); Biken's (REDACTED)fn_ which the technician specifically attributed to "BIKEN"; and which had been Didelez's preference because "we use [it] in all the other vaccines so we had more experience and it is more practical" (Didelez dep. 999).
The December 6, 1990 trial was the SB's team's first with (REDACTED)fn_ — which was significantly different than SB's standard (REDACTED)fn_ condition. In particular, (REDACTED)fn_ (REDACTED)fn_ (Tr. 988). SB got further data
about the significance of the different (REDACTED)fn_ schemes during the January visit to Biken which soon followed.
As to kinetics, Biken's presentation on December 6, 1990 of its detailed process diagram contained all the information necessary for SB, an experienced vaccine manufacturer, to determine that Biken successfully used an MOI of (REDACTED)fn_ and incubation of (REDACTED)fn_ in its final viral passage (PTX105). As Wang explained at trial, the information in Biken's diagram was all SB needed to make a reasonable assumption that the bottles Biken used were only about (REDACTED)fn_ infected, so that Biken's MOI in its final viral passage was (REDACTED)fn_ (Tr. 954-56). Even if SB did not figure this out, however, I believe it must have learned that Biken was using an MOI substantially (REDACTED)fn_ because, if SB had assumed that Biken's infectivity was (REDACTED)fn_, the MOI would then have been (REDACTED)fn_., and an infectivity of less (REDACTED)fn_ than (REDACTED)fn_ would result in an ever lower MOI (Tr. 954-55).
Notably, on January 3, 1991, SB ran a light kinetics trial in which it tried the preferable, more diluted MOI successfully used by Biken (REDACTED)fn_ harvest (Tr. 2277-80). This was the first SB trial using (REDACTED)fn_ since the fall of 1989. SB began its first potential consistency lot, , on January 17, 1991. Didelez acknowledged that January 1991 was the first time SB used in combination all the steps selected for VA101 (Tr. 2306). For VA101, SB selected kinetics like Biken's with an MOI of (REDACTED)fn_ and (REDACTED)fn_ with the Biken conditions, although SB's preference had been for (REDACTED)fn_, and its trials before the Biken visit gave just as good results with (REDACTED)fn_ (TR. 664, 669, 672-73). SB does not deny that the (REDACTED)fn_ parameters it adopted after Biken's visit were precisely the same as Biken's.
SB argues that Biken did not state the (REDACTED)fn_ it used for (REDACTED)fn_ and, therefore, Biken's (REDACTED)fn_ conditions were meaningless (SB Post-Tr. Br. 37-38). But Biken's flow diagram did contain the only information SB needed (REDACTED)fn_ ) to see that Biken's (REDACTED)fn_ conditions differed from SB's and to adopt Biken's. SB had to believe that its (REDACTED)fn_ equipment was comparable to Biken's, given the volumes involved, so all SB had to do was "go straight ahead and do the (REDACTED)fn_ "in its own equipment, (REDACTED)fn_ (REDACTED)fn_ (Tr. 162-63). Indeed (and perhaps most telling), SB specifically attributed (REDACTED)fn_ condition to "BIKEN" in its December trial right after the Biken visit (Tr. 2147). This fact alone refutes SB's claim that it "was lacking critical information necessary . . . in order to compare the Biken process to the SB process" (SB Br. 38)— immediately following the Biken visit, SB made that exact comparison. The Biken (REDACTED)fn_ conditions were significantly different from any conditions tested previously by SB, involving only (REDACTED)fn_ applied under-SB's conditions (REDACTED)fn_. Use of such conditions by Biken was counterintuitive, as Wang testified (Tr. 1007-09).
There are only a few designs of (REDACTED)[*] equipment capable of handling the volumes being used by Biken and SB; a person familiar with (REDACTED)[*] could estimate the(REDACTED)[*] (REDACTED)[*] (Tr. 160-62).
SB also does not assert an independent development story with respect to (REDACTED)fn_. Didelez testified only that he does not remember how SB ended up selecting the identical Biken conditions (REDACTED)fn_ (Tr. 2148-49). SB's speculation that it simply set its (REDACTED)fn_ (SB Br. 38) and by coincidence ended up with the Biken technique is not credible. No SB witness previously made this alleged "logical" speculation (SB Br. n. 41), which is based on one clear misstatement of fact — that its December 6 test compared Biken's (REDACTED)fn_ against conditions (REDACTED)fn_ "(id.). The comparison was to SB's standard condition of (REDACTED)fn_ (PTX110). Thus, while SB attempts to explain the change in (REDACTED)fn_ it fails to explain the important change from (REDACTED)fn_
2. The January 1991 VisitIn late January 1991, Didelez and Duchene went to Biken's production facility in Kanonji (PTX254). During the five days, they were able to observe most steps of Biken's production process, and received descriptions and other information about the process steps that they were unable actually to observe (Tr. 799-800, 803-04). When not observing the production process, they met with Biken personnel to discuss the process and have questions answered (Tr. 804; Akiyama dep. 314-15). The Biken employees had been instructed by Dr. Fukai, the chairman of Biken, to provide whatever information SB requested (Tr. 790).
One subject discussed was Biken's (REDACTED)fn_ of the bulk vaccine by (REDACTED)fn_. As reflected in Biken employee Terumasa Otsuka's notes (PTX254), SB asked about the relationship between (REDACTED)fn_. In response, Biken provided the results of a study (PTX254) showing that (REDACTED)fn_ resulted in significantly less potent bulk vaccine (Tr. 812-13). SB saw the (REDACTED)fn_ process (Tr. 812 and specifically asked about the (REDACTED)fn_ which caused the Biken personnel t. take them to a room in which equipment catalogs are kept and show them the (REDACTED)fn_ catalog (Tr. 813-14). That catalog showed, among other things, the (REDACTED)fn_ (Tr. 814-15). SB asked specifically whether (REDACTED)fn_ was preferable (Tr. 811). While Otsuka did not recall the details of that discussion, his personal view was that (REDACTED)fn_ was the better method (Tr. 888). Biken also discussed its kinetics with-SB, and how Biken's experiments had shown that its parameters were optimal (PTXl24).
Following the visit to Biken, Didelez and Duchene prepared a report of their trip for their superiors, including Stephenne. The cover page stated:
The purpose of the visit was to observe a bulk Varicella production and the pertinent QC in detail.
It is unfortunate that this visit took place so late and that nobody from SKB had ever visited the Kanonji factory previously.
It is in fact quite clear a posteriori that precious time been saved both in production as well as in QC if this visit had been made several years ago.
Didelez claimed at trial that the time savings referred to was related to the time SB spent speculating as to whether Biken's process was superior (Tr. 2008-09). I find this reading to be highly tortured, in conflict with the plain language written, and not credible.
The report notes that the Biken process "complies exactly" with the process description SB had previously received and states, "We were able to observe detail the successive operations and eliminate the last remaining doubts, and come away with a certain number of important operational details." (PTX124). With respect to (REDACTED)fn_ the trip report notes: (REDACTED)fn_ important to limit losses: see attached (REDACTED)fn_ table. (PTX124). The report thus confirmed that the (REDACTED)fn_ was important to limit the loss of potency, and elsewhere the report noted that the loss "is (REDACTED)fn_," and referenced specifically to attachment 3 the charts which Biken provided showing the correlation between (REDACTED)fn_. The fact that Didelez recorded Biken's (REDACTED)fn_ conditions as being (REDACTED)fn_, is further acknowledgement that he felt it was unnecessary to do so because their equipment was comparable.
With respect to kinetics, the report confirmed that Biken's split ratio of (REDACTED)fn_ was "optimal" and that the "maximum infectious titer in released virus [i.e. for the last viral passage] was not reached until (REDACTED)fn_."
Biken's (REDACTED)[*] equated to an MOI of (REDACTED)fn_ (TR. 954-55).
The trip report prepared by Didelez and Duchene expressly states that SB was able to "eliminate the last remaining doubts, and come away with a certain number of important operational details," and indicates that the elimination of "remaining doubts" refers to the use of (REDACTED)fn_ and the split ratio (REDACTED)fn_, both of which SB had learned about from Biken in early December and thereafter incorporated into its first production lot (PTX124). The reference to "important operational details" indicates that SB learned some additional information of value, and the memo on its face confirms the savings of time as a result of the information received from Biken (PTX124).
II. ANALYSIS OF MERCK'S MISAPPROPRIATION CLAIM
A. Choice of Law
Choice of law is an issue that need not be resolved. No party has pointed to any substantive difference in the laws of the various states having some contact with the matters at issue. No single state has "the most significant relationship" to the matters at issue. See Travelers Indem. Co. v. Lake, Del. Supr., 594 A.2d 38, 47 (1991) (citing Restatement (Second) of Conflicts § 145). Two of the parties are incorporated in Delaware, one in New Jersey, one in Pennsylvania and one in Belgium. The FDA, to which SB has made filings which include trade secret disclosures, is in Maryland. California and New York are where SB conducted clinical trials. And SB's Phase III clinical trial apparently is being conducted in a number of locations (Pietrusko dep. 16-17). The conduct that Merck seeks to prevent (marketing of SB's varicella vaccine) will occur throughout the United States and Canada. Another relevant factor on choice of law, the place where the parties' relationship is centered, does not suggest any particular state — Merck is a New Jersey corporation and the "relationship" giving rise to its claims is the agreement under which it has exclusive United States and Canadian rights to the Biken know-how.
Insofar as it is necessary to resolve the choice of law, these factors lead to application of the Uniform Trade Secrets Act ("UTSA"), which codifies the basic principles of common law trade secret protection and has been adopted by over forty states, including Delaware ( 6 Del. C. § 2001-09), Maryland (Md. Code Ann., Commercial Law §§ 11-1201 to 11-1209), and California (Cal. Civ. Code §§ 3426 to 3426.11). Pennsylvania law does not apply, because only a single factor (one defendant is a Pennsylvania corporation) favors its application. Therefore, to the extent I must rely on a particular jurisdiction's substantive law, I will rely on the UTSA.
B. Biken's Process Know-How is a Trade Secret
A process is a trade secret if it derives independent economic value from not being generally known to, and not being readily ascertainable through proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts to maintain its secrecy that are reasonable under the circumstances. 6 Del. C. § 2001 (4); Miles, Inc. v. Cookson America, Inc., Del. Ch., C.A. No. 12310, 1994 WL 676761, Hartnett, J. (Nov. 15, 1994). The Biken process meets all the elements of a trade secret.
1. The Biken Process is a Valuable Commercial Process
A commercial production process consisting of a "combination of the principles and details used to make a product" can be a trade secret, as can elements of the process. Miles, 1994 WL 676761. The combination of steps into a process is a trade secret, even if all the component steps are known, so long as it is a "unique process which is not known in the industry." Salsbury Labs., Inc. v. Merieux Labs., Inc., 735 F. Supp. 1555, 1569 (M.D. Ga. 1989), aff'd, 908 F.2d 706 (11th Cir. 1990); see also Miles, 1994 WL 676761, at *11; accord, Imperial Chem Indus. Ltd. v. National Distillers Chem. Corp.. 342 F.2d 737, 742 (2d Cir. 1965) ("A trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.") This principle simply recognizes that the choice of individually known components and techniques to create a working manufacturing process is often, as here, a difficult undertaking. Where at individual steps of a process there are a variety of alternatives, the choice made through much effort of specific ingredients, materials, conditions, and steps in an actual, working process constitutes a trade secret. See, e.g., Salsbury Labs., 735 F. Supp. at 1569.
The changes needed to convert a known laboratory process into a manufacturing process can constitute protectable trade secrets. For example, in Salsbury Laboratories, the court found that plaintiff's commercial process for manufacturing an avian vaccine was a trade secret even though laboratory production methods were generally known. Id. On appeal, the Eleventh Circuit noted that "producing MG-BAC on a commercial scale was a novel accomplishment which took several years to achieve," that the existence of small-scale method did not change:
Nor was the development of MG-BAC merely an extension of the existing methods of producing an MG vaccine on a small scale. . . . While the autogenous MG vaccine provided the basis for commercial development, there is ample evidence that much time, labor and money were expended by plaintiff in developing a new process and product.Salsbury Labs., 908 F.2d at 711.
In Monovis, Inc. v. Aquino, 905 F. Supp. 1205 (W.D.N.Y. 1994), the court held that trade secret protection extends to the practical problem-solving that enables commercial application of theoretical concepts:
Zimmern's Know-How serves as a guide, charting the way through the many problems and decisions faced in designing a single-screw compressor and developing a practical manufacturing technique. . . . To date, Zimmern and his licensees are alone in having successfully maneuvered the entire course and achieved commercially-viable single-screw compressors.Id. at 1231. As the court pointed out, "Zimmern does not claim to be the `inventor' of the single-screw compressor. He credits past scientists such as DaVinci and Archimedes with the initial concepts underlying the screw. What he does claim responsibility for is solving the hundreds of practical problems encountered in actually building a working single-screw compressor, as opposed to merely appreciating the possibility in general or theoretical terms." Id. at 1216.
Biken developed a successful commercial production process for varicella vaccine and used that process to manufacture large amounts of high potency vaccine beginning in late 1986. That process is indisputably valuable.
2. The Biken Process is Not Generally Known or Readily Ascertainable by Proper Means
Under the Uniform Trade Secrets Act, information is not a trade secret if it generally known to, or readily ascertainable by proper means by, others. 6 Del. C. § 2001. This also is the standard under the Restatement of Torts. 1 Milgrim On Trade Secrets § 1.07 at 1-349. The mere fact that aspects of a trade secret process can be found in publications does not mean that the process is not a trade secret. For this reason, courts have rejected the argument that one who has learned particular information from a trade secret process is not liable if it can show that the information learned is somewhere "published":
[Defendants] thus argue, for example, that because the Chilton Patent is "in the public domain," Zimmern cannot claim as a trade secret any aspect which his manufacturing method has in common with that discussed in such patent. This argument is premised on an overly restrictive view of trade secret protection which this Court rejects. It is, as earlier noted, only because of Aquino's confidential relationship with Zimmern (and the litigation its breach has generated) that the defendants are now able to select particular items from a vast sea of public information and contend that they "could" have divined therefrom the needed critical information; such is the very approach rejected in Franke v. Wiltschek, supra. Items such as the Chilton Patent were publicly available, but were by no means obvious; they were not accompanied by instructions explaining where they were useful and where they were not, or what particular elements they described were relevant and helpful and which were not, or indeed why they should be selected over some other publicly available information. It is this type of knowledge which is the heart of Zimmern's Know-How.Monovis, Inc. v. Aquino, 905 F. Supp. 1205, 1228 (W.D.N.Y. 1994) (emphasis added); accord, Rohm and Haas Co. v. Adco Chem. Co., 689 F.2d 424, 433 (3d Cir. 1982). Because a process consisting entirely of generally known elements is protectable as a trade secret, id. at 433-34, the value of trade secrets would be lost if a defendant could obtain the process, learn thereby the important choices made by the trade secret owner at various process steps, use the information, gained for its benefit, and avoid liability by then saying that the particular information used is "published."
In Monovis, Inc., defendants argued that two patents disclosed "much" of the claimed trade secret for manufacturing single-screw compressors. Although the court agreed that the references disclosed some of the elements of the process, it held that more was needed:
[T]he defendants have not explained how an engineer uneducated in Zimmern's processes would be led to the (Redactedj process or the [Redacted] method by studying the patents; indeed, Zimmern's Patent would likely discourage the engineer from using the scraping method described by Chilton. In short, it is only because the defendants have been exposed to Zimmern's method that they have been able to locate public documents that make references, often oblique or disparaging, to elements of Zimmern's secret manufacturing method.Id. at 1227 (emphasis added); see also id. at 1228 (armed with the trade secret information, defendants "are now able to select particular items from a vast sea of public information and contend that they `could' have divined therefrom the needed critical information"). The court also rejected defendants' claim that the "Chilton patent" negated plaintiffs' trade secret claim, in part because the patent did not lead to a viable commercial process: "Chilton's patent was merely a `paper patent' describing a process that has not — be used to successfully produce a commercially-viable screw because it embodied a mistake that Zimmern had remedied." Id. at 1226.
In Rohm Haas, 689 F.2d at 424, the court required defendants to do more than point to individual elements of the trade secret process in the literature. In fact, defendants' own expert admitted that neither he nor defendants knew of the publications before the lawsuit. Id. at 431 n. 5 ( citing Heyden Chem. Corp. v Burrell Neidig. Inc., 64 A.2d 465, 467 (N.J. 1949) ("The truth is, of course, that only a person who knew the . . . process could make the selection of literature references which were offered in evidence.")). The court found that plaintiff had established the existence of a trade secret, noting that there was "no reason to suspect that defendants could have duplicated the Process through skill and effort using the available literature." Id. at 431.
The three cases cited by SB to support its "publication" defense turned on their particular facts and are not relevant here. In American Airlines Inc. v. KLM Royal Dutch Airlines, Inc., 114 F.3d 108 (8th Cir. 1997), the plaintiff attempted to change its definition of its trade secret from a combination of five elements comprising a yield management system to a combination of four of those elements. The District Court granted summary judgment because there was no evidence the defendant had received "any detailed algorithms or formulae describing how the five demand forecasting elements were to be incorporated, but had only received four of the general elements at the conceptual level without information as to how the concepts were to be combined." 114 F.3d at 110. In American Can Co. v. Mansukhani, 742 F.2d 314 (7th Cir. 1984), the alleged trade secrets were formulas for certain inks. However, the Court found that a patent "disclosed each of the ingredients (except dyes) in the trade secret formulas, and proportions for these ingredients," 742 F.2d at 327, and that, under those circumstances, the trade secret could only consist of "precise proportions of the ingredients," id., and because the defendants' precise proportions were different, there was no trade secret misappropriation. In Flotec, Inc. v. Southern Research, Inc., 16 F. Supp.2d 992 (S.D. Ind. 1998), the Court found that the defendant had not used any information received from the plaintiff but instead had developed its process independently through reverse engineering. Id. at 1008.
SB has not cited any case in which a court has allowed what SB has done — gained valuable information from access to a trade secret process and attempted to avoid liability by pointing to some publication of the particular information used. What the cases such as Monovis, Salsbury, and Rohm Haas hold is that a trade secret process can consist of a combination of steps each of which has been publicly disclosed, and a defendant that has had access to such process may not evade misappropriation on the basis that particular information learned from its access could be found in a publication.
The references that SB claims render the Biken Know-How "generally known" or "readily ascertainable" are similar to the rejected references in Salsbury Laboratories and Monovis, and, at best, relate to laboratory approaches for making a varicella vaccine. They do not indicate that they are in fact used for commercial vaccine production, that they could be used for commercial production, or that they solve the practical problems that would be encountered in a manufacturing environment.
Nothing in several publications by Takahashi during the 1970's cited by SB discloses specific information in Biken's commercial process used by SB. Those 1970's publications (TX1393; TXl400, TX1527) concern the laboratory process developed by Takahashi, and not Biken's commercial process that was developed in the 1980's by people other than Takahashi (Tr. 842-43).
Biken's '726 patent application from 1993 describes the formulation of improved stabilizer for varicella vaccine; it does not purport to disclose commercial production process (Tr. 194-95). Example 2 describes the use of Roux bottles (TX 1465), to make 150 to 400 ml. of vaccine, which is too small for commercial process (Tr. 195-96). Example 2 also differs in numerous respects from Biken's actual commercial process — [REDACTED] (Tr. 196-97). For these reasons nothing in the patent suggests that the brief description in Example 2 is part of Biken's or anyone's commercial production process.
Merck's '736 patent (TX1476) does not publish Biken's method for several reasons. First, as Dr. Provost testified, that statement was not in the context of any commercial process, but described the manner in which [REDACTED] (Tr. 367). A statement in the patent plainly confirms Provost's testimony: [REDACTED] Second, the patent describes other methods:
This statement appears in the "Detailed Description of the invention" which makes it clear that [REDACTED] was not being disclosed as the preferred method. In addition, the patent discusses other parameters in other examples (TX 1476; Tr. 372). Finally, the Merck patent makes no reference at all to Biken, and therefore would not be read as a disclosure of information about Biken's commercial process.
Nothing in the publications indicates that either the [REDACTED} steps described are actually used in Biken's commercial process or any commercial process. SB offered no testimony that one skilled in vaccine production could reach any conclusion from these publications. SB chose not to call its expert witness on publications (Dr. Griffiths) at trial.
Because the ability to produce a varicella vaccine commercially and the practical knowledge needed to implement the production is at the heart of the Biken know-how, the references cited by SB do not render the know-how generally known or readily ascertainable. Courts have uniformly rejected efforts by trade secret defendants to argue that a process is generally known or readily ascertainable by pointing to elements in the published literature only after the defendant has been exposed to the trade secret information.
Section 8.03 of the SB/Biken agreement removes a confidentiality obligation to the extent Biken information ceases to be secret. Because no publication discloses either Biken's process or any particular step actually used in Biken process, Section 8.03 gives SB no greater right to use or disclose information.
3. Biken Has Taken Reasonable Efforts to Maintain the Secrecy of its Process
Biken has made reasonable efforts to maintain the secrecy of its commercial production process. It imposes secrecy obligations on its employees, and greatly restricts access to its production operation (Tr. 785-86). Except for its "publication" arguments, SB has not claimed that Biken's efforts to maintain the secrecy of its process are deficient in any way.
C. SB's Efforts to Market its Varicella Vaccine in the United States and Canada Constitute Misappropriation of Biken Know-How
Unauthorized use of trade secret information and unauthorized disclosure of trade secret information constitutes misappropriation. 6 Del. C. § 2001 (2); Miles, 1994 WL 676761, at *9; A.L. Labs., Inc. v. Philips Roxane, Inc., 803 F.2d 378 (8th Cir. 1986), cert. denied, 481 U.S. 1007 (1987); General Elec. Co. v. Sung, 843 F. Supp. 776, 778 (D. Mass. 1994). Unauthorized use includes use by one who acquired the trade secret "under circumstances giving rise to a duty to . . . limit its use." 6 Del. C. § 2001(2)(b)(2)(B). Thus, even though SB was entitled in 1990 to obtain Biken's process information, use of that information outside the contract territory (Japan, Korea, the United States, and Canada) constitutes misappropriation.
D. SB Used Biken's Trade Secrets to Guide the Development of its Vaccine
Trade secret protection "extends not only to the misappropriated trade secret itself but also to materials `substantially derived' from that trade secret." General Electric, 843 F. Supp. at 778. A process developed with "explicit reference" to the trade secrets is substantially derived from the trade secrets. Id. at 779. See Mangren Research Dev. Corp. v. National Chem. Co., 87 F.3d 937, 944 (7th Cir. 1996) ("defendants misappropriated Mangren's trade secrets even if defendants created a new product if defendants could not have done so without use of Mangren's trade secret"); In re Innovative Constr. Sys., Inc., 793 F.2d 875, 887 (7th Cir. 1986) ("Were the law of trade secrets not flexible enough to reach the modifications in the instant case, when it is evident that the formulas were substantially derived from Innovative's, it would indeed be hollow.").
Misappropriation occurs even where the trade secret is used only as a starting point or guide in developing a process. See, e.g., Black, Sivalls Bryson, Inc. v. Keystone Steel Fabrication, Inc., 584 F.2d 946 (10th Cir. 1978) ("Based on the evidence, a jury could reasonably infer that [the trade secret] was helpful to Smalling as a starting point for his calculations. . . . If nothing else, a jury could find that Smalling did not have to experiment with the broad range of disclosed coefficients to determine the proper starting point."); Reinforced Molding Corp. v. General Elec. Co., 592 F. Supp. 1083 (W.D. Pa. 1984) (noting that "during the days [defendant's engineer] spent observing the manufacturing of the brace parts, he acquired knowledge which later greatly assisted Defendant in subsequently manufacturing the parts themselves," and holding "If nothing else, Plaintiff's research and design were used as a starting point for Defendant's product development."); accord, 4 Milgrim on Trade Secrets § 15.01(d][vii] at 15-89 ("a plaintiff may prevail on a trade secret claim by establishing that defendant used plaintiff's trade secret as the helpful starting point for defendant's own development efforts").
Misappropriation also occurs where a defendant uses a plaintiffs trade secrets to understand "what pitfalls to avoid." See Affiliated Hospital Products, Inc. v. Baldwin, 373 N.E.2d 1000, 1006 (Ill.App. 1978), ("Even accepting their denial of any literal copying of MPL drawings, these drawings aided defendants in the design of Hypomed machinery, if only to demonstrate what pitfalls to avoid"); see also Glaxo Inc. v. Novopharm Ltd., 931 F. Supp. 1280, 1299 (E.D.N.C. 1996) ("A trade secret need not necessarily be comprised of positive information, such as a specific formula, but can include negative, inconclusive, or sufficiently suggestive research data that would give a person skilled in the art a competitive advantage he might not otherwise enjoy but for the knowledge gleaned from the owner's research investment."), aff'd, 110 F.3d 1562 (Fed. Cir. 1997).
"Misappropriation of trade secrets may be proven by circumstantial evidence," see Miles, 1994 WL 676761, at *13, and more often than not, "plaintiffs must construct a web of perhaps ambiguous circumstantial evidence from which the trier of fact may draw inferences which convince him that it is more probable than not that what plaintiffs allege happened did in fact take place." Greenberg v. Croydon Plastics Co., 378 F. Supp. 806, 814 (E.D. Pa. 1974). Here, both direct and circumstantial evidence establish SB's use of the Biken know-how to guide its own development of its process.
The fact that SB sought and obtained Biken's assistance, and the fact that SB's personnel responsible for developing its process were the ones who became familiar with Biken's trade secret technology, "give[s] rise to a compelling inference that [SB's process] was substantially derived from (Biken's] trade secrets." General Electric, 843 F. Supp. at 779; see also USM Corp. v. Marson Fastener Corp., 467 N.E.2d 1271, 1284 (Mass. 1984).
Courts are skeptical of an independent derivation defense where — after being exposed to the trade secrets — the defendant has a "purportedly epiphanic episode." American Can Co. v. Mansukhani, 814 F.2d 421, 426 (7th Cir. 1987). For example, in Monovis, the court rejected defendants' independent derivation defense, pointing out that if defendants had already developed their own compressor — as they claimed — they would not have needed plaintiffs information. See 905 F. Supp. at 1215-16. The court also pointed out that, even after receiving plaintiffs' trade secret information, defendants asked to visit one of plaintiffs' manufacturing facilities, bringing with them a "list of topics we would like to discuss." Id. at 1219. The court observed that: "The fact that [defendant] still had questions . . . is more probative than whether he received immediate answers." Id.; see also FMC Corp. v. V rco Int'l, Inc., 677 F.2d 500, 503-04 (5th Cir. 1982) (after experiencing difficulty in duplicating plaintiff's product, defendant hired plaintiffs former employee who had the requisite "competitive background").
Monovis is similar to this case. The defendants had obtained the trade secret information under a licensing agreement. Taking what the court described as a "deny everything' approach," Monovis, 905 F. Supp at 1231, the defendants argued that their method of production was different, id. at 1232, that they had essentially completed their work before getting access to the know-how, id. at 1214-15, and that all of the specific information the plaintiff claimed as know-how could be found in assorted publications or patents, id at 1225-26. As noted, the court rejected the "publication" defense. It also found that the defendants' denial of use was refuted both by the circumstantial evidence (in particular the fact that the defendants sought the plaintiff's assistance), id. at 1219, and by the contemporaneous documents reflecting the assistance received, id. at 1220. And while the defendants' process was different, the court found the use of the trade secret know-how to have provided both "a guide, charting the way through the many problems and decisions," id. at 1231, and "a springboard" to the solution of the problems, id. at 1232.
Also analogous is Salsbury Laboratories, Inc. v. Merieux Laboratories, Inc., 735 F. Supp. 1555 (M.D. Ga. 1989), aff'd 908 F.2d 706 (11th Cir. 1990}. The court found misappropriation of both the entire process and specific aspects of the process: "In addition to the overall production process, the court finds that the fact Salsbury uses certain ingredients and methods during each step of its process constitutes trade secret information." Salsbury, 735 F. Supp. at 1569. The court then found that the defendant's use of specific steps learned from Salsbury constituted trade secret misappropriation including: the use of "a particular potency scoring test," id. even though there were published articles concerning that test, id. at 1565; the use of Salsbury's unique medium, id. at 1569, even though "various media in the public domain contain ingredients that are contained in Salsbury's medium," id. at 1563; the use of a particular inhibitor even though it was one of a number of generally available inhibitors, id. at 1564; and the use of a particular strain, id. at 1569, which was one of several strains available, id. at 1570.
SB's independent development defense is unsupported. SB's assertion that it did not use any Biken know-how in its process or even seek help from Biken claiming instead that it had resolved all of its problems prior to December 6, 1990, is contradicted by SB's conduct, by its statements in communications to Biken, and by its own records. I find that SB used Biken know-how in resolving its problem and finalizing its production process. Such conduct constitutes misappropriation of Biken's trade secrets.
E. Under its Agreement with Biken, SB is Prohibited from Using Biken Know-How to Produce a Vaccine for Sale in the United States and Canada
The licensing agreement between Biken and SB granted SB a license as follows:
2.01 The Foundation hereby grants to SKF a nonexclusive right and license to use the Strain and Know-How to make, have made, use and sell the Vaccine in the Contract Territory.
(PTX551) § 2.01). The "Contract Territory" originally was "the countries of Europe" (PTX552, § 1.03) and, by subsequent amendments, was extended to "all the countries of the world except Japan, Republic of Korea, United States of America and Canada" (PTX568-569).
Under the agreement the licensed "Know-How" was defined as:
without limitation, all technical information and know-how regarding preparation and propagation of the Strain and commercial production of the Vaccine which are presently in the Possession of the Foundation or are acquired hereafter by the Foundation during the term of this Agreement.
(PTX552, § 1.05). The information that Biken provided to SB in 1990 and 1991 concerning commercial production, including its own production process, fell within the definition of Know-How. Accordingly, SB was only entitled to use the Know-How to make, use or sell its vaccine in the Contract Territory, and not in the United States or Canada.
The circumstances clearly indicated that the parties' intent was to limit SB to its Contract Territory — that was the extent of the license, SB was precluded from filing information with regulatory agencies except in the Contract Territory, and Biken was giving territorial rights to Merck and also keeping rights in Japan and Korea. SB points to nothing indicating that the parties intended that SB was not limited to its Contract Territory.
SB's claim that the licensing agreement allowed it to perform clinical trials "outside the contract territory, so long as SB did not commercially market a vaccine in such a territory before the Biken patents expired" (SB Br. 64-65) is unsupported. The agreement grants only a right "to use the Strain and Know-How to make, have made, use and sell the Vaccine in the Contract Territory" (PTX552, § 2.01). Using its vaccine in clinical trials unquestionably is a "use" limited to the Contract Territory, a conclusion reinforced by other sections of the agreement, which authorized SB "to pursue clinical evaluation and to seek appropriate government approvals to market the vaccine " (PTX552, § 5.01), but which limited the disclosure of information in connection therewith to "governmental authorities within the Contract Territory" (PTX552, § 8.04).
The territorial limitation continued even after the licensing agreement expired in 1995. The term of the Biken/SB licensing agreement was as follows:
This Agreement shall continue to be effective in each country of the Contract Territory for a period of ten (10) years from the date of this Agreement or until the expiration or invalidation of the Patent in such country, whichever period is longer, unless otherwise terminated pursuant to the provisions hereof.
(PTX552, § 12.01). The agreement expired completely on March 12, 1995, upon the expiration of Biken's Belgian patent.
A trade secret is protectable for so long as it continues to be a trade secret — i.e., not generally known and not readily ascertainable. 2 Roger M. Milgrim, Milgrim on Trade Secrets § 8.02 (6] at 8.21; 3 Roger M. Milgrim, Milgrim on Licensing § 27.01 at 27-2. It is because of this ability to protect valuable information indefinitely that commercial production processes (which cannot be discovered by reverse engineering or other scientific methods) are frequently protected as trade secrets rather than patented.
Because of the ability to protect trade secrets indefinitely, it is essential that a trade secret licensing agreement specify the rights of the parties with respect to the trade secret after expiration of the agreement:
[I]f the parties to a trade secret license fail to indicate whether the licensee will be entitled to use the licensed matter beyond the contractual term of the license, they may later face the question of whether the licensee may continue use or has an implied duty to cease using.Id. at 27-4.
The SB/Biken agreement specifically addressed SB's rights after expiration:
Upon expiration of this Agreement pursuant to the provisions of Section 12.01 hereof neither party shall be relieved of any rights and obligations which have accrued prior to expiration including those listed in Section 12.06, paragraphs (a)-(c) hereof, and SKF shall continue to be entitled to exercise the rights and licenses granted herein without further payments to the Foundation.
(PTX552, § 12.07) (emphasis added). As noted, in relevant part the license "granted herein" was "a nonexclusive right and license to use the . . . Know-How to make, have made, use and sell the vaccine in the Contract Territory." Accordingly, after expiration of the agreement SB could continue royalty-free to use the Know-How "in the Contract Territory," but not otherwise.
The licensing agreement imposed on SB an affirmative obligation to keep the Know-How confidential (PTX552, § 8.01) but allowed disclosures to regulatory agencies (which keep such information confidential) in connection with seeking government approval:
8.04 These obligations of non-disclosure shall not apply to any information which SKF may be required to disclose in order to obtain essential or desirable authorizations or rights relating to the Vaccines from governmental authorities within the Contract Territory or as otherwise required by law.
(PTX552, § 8.04). Thus, SB was only entitled to disclose Biken Know-How to "governmental authorities within the Contract Territory," and was not entitled to do so in the United States or Canada.
SB's assertion that Section 8.01 entitles SB to disclose Biken's Know-How after 1997 is incorrect for two reasons. First, SB's claim as to a 1997 "disclosure" date rests on the assertion that, because the agreement ceased to be effective in some countries in 1992 under Section 12.01, the obligations of Section 8.01 similarly ceased to be effective and SB then became free to disclose the Know-How in those countries beginning five years later. However, unlike Section 12.01, Section 8.01 does not refer to being "effective" on a country-by-country basis, but speaks only of "the term of this Agreement and for five (5) years thereafter." The term of the agreement necessarily means when the agreement expired under Article 12, which SB concedes was March 1995 (TX2640). It would make no sense to allow disclosure of confidential information on a country-by-country basis. Thus, even assuming Section 8.01 at some time allows disclosure by SB of Biken's confidential information the earliest such disclosure could occur is March of 2000, five years after the agreement expired in 1995. The fact that SB has not done what it claims it is entitled to do — disclose all of Biken's Know-How beginning in 1997 — is further evidence that SB does not actually believe it has the right it claims.
Second, even in the year 2000, Section 8.01 does not give SB the right to disclose Biken Know-How. The affirmative obligation in Section 8.01 "to take every reasonable precaution" to keep information confidential ends at that time. However, that does not mean that SB is thereafter free to disclose Biken's Know-How — nothing in Section 8.01 or elsewhere in the agreement gives SB such a right.
Given that SB had a continuing right, under Section 4.01, to obtain technical information "during the effective period of this Agreement," SB's construction — under which it could acquire Biken's process information as late as 1995 and disclose it shortly thereafter — is unreasonable. A five-year limit on SB's affirmative obligation to take precautions is reasonable. After five years, any Biken Know-How incorporated in SB's process would continue to be protected in the way SB protects its process information. And any Biken Know-How which SB acquired but chose not to use in all likelihood would have been destroyed or stored in old records from which disclosure was unlikely.
Every agreement contains an implied duty to act in good faith, Greco v. Columbia/HCA Healthcare Corp., Del. Ch., C.A. No. 16801, 1999 Del. Ch. LEXIS-24 at *30 Strine, V.C. (Feb. 11, 1999), which also precludes any publication by SB of Biken's Know-How. Even under SB's interpretation of its "disclosure" right, which would allow SB to disclose and use the Biker Know-How without limit beginning in either 1997 or 2000, it still obtained at improper and significant head start by the commencement of United States approval activities in 1993.
F. Merck is Entitled to an Injunction
This Court is authorized under 6 Del. C. § 2002 (a) to grant an injunction to remedy misappropriation of a trade secret. An injunction is meant `"to protect the secrecy of the misappropriated information, eliminate the unfair advantage obtained by the wrongdoer and reinforce the public policy of commercial morality.'" Miles Inc. v. Cookson America, Inc., 1994 WL 676761 at *20 (Del.Ch. Nov. 15, 1994) (quoting General Elec. Co. v. Sung, 843 F. Supp. 776, 778 (D. Mass. 1994)). Thus, the length of the injunction is based on the time advantage obtained by the defendant as a result of its misappropriation: "An injunction should last for as long as is necessary, but no longer than is necessary, to eliminate the commercial advantage or `lead time' with respect to good faith competitors that a person has obtained through misappropriation." Uniform Trade Secrets Act (U.L.A.) § 2 Comments at 450 (1979); see also Miles, 1994 WL 676761, at *20; K-2 Ski Co. v. Head Ski Co., 506 F.2d 471, 474 (9th Cir. 1974).
Courts have consistently recognized that the development of a commercial process takes many years and have not hesitated to impose lengthy injunctions where the defendant has obtained a significant gain in the time required to develop a process. See, e.g., Miles (three year production injunction as to certain pigments and two year injunction as to others); General Elec. Co. v. Sung, (seven year production injunction); Televation Telecomms. Sys. Inc. v. Saidon, 522 N.E.2d 1359, 1366 (Ill.App. 1988) (three year production injunction). As the Saidon Court noted, "The appropriate injunction period should be the time required to legally produce a competing product, not merely the disputed portions of the product." Id. at 1367 (citations omitted).
The record establishes that SB obtained a time advantage of three to five years as a result of its misappropriation (Tr. 1346-51). Development of a commercial process for the production of varicella vaccine is an especially long undertaking, as shown by the experience of the three companies that have done it.
The substantial time required to develop such a commercial process is a function of the many variables that must be considered in any vaccine production process (Tr. 52-64), compounded by the particular difficulties associated with varicella. Those difficulties include the small amount of virus that can be produced relative to other viruses and the intracellular and fragile nature varicella (Tr. 41-44, 108-18, 132-35). Moreover, there is substantial time involved in conducting, obtaining the results of, and successfully repeating experiments (Tr. 924-25; Didelez dep. 720-21; Thysman dep. 221).
In addition, the production process for varicella vaccine is nonlinear, so that a change in one step may have unexpected consequences elsewhere (Tr. 127-28, 1021-22; Didelez dep. 230, 232). Thus, a company may think that it is almost to the point of having a successful process but in fact what appears to be just a little way left to go is a major problem. For example, SB thought it was almost done with its development in September 1989 when Didelez proposed his most plausible scheme, but in fact, the scheme did not work at all. The substantial savings of time acknowledged in SB's trip report following the Biken visit also confirms the time advantage it obtained (PTX124). SB has not provided significant counter-arguments to the three to five year estimate, merely arguing that "SB did not save three-five minutes based on the visit to Japan — much less the three-five years advocated by Dr. Wang." I think the evidence, overwhelmingly, is to the contrary. As a result, I will enter an injunction against SB for three years.
Because SB has not yet obtained approval to market its vaccine in either the United States or Canada and the actual approval date is uncertain, the injunction must run from the date approval is obtained in order to deprive SB of the time advantage it has improperly gained. Considering that SB saved at least three yea in the development of its commercial process, Merck is entitled to an injunction against SB from marketing its varicella vaccine in the United States or Canada for a period of three years from the date it receives approval to market its vaccine in those countries.
Some of these facts may be repetitive of those in the fact section concerning Merck's claim, but because the reader last encountered those facts 60 or so pages ago, I feel compelled to repeat them.
On June 1, 1975, Biken and SB entered into an Option Agreement, under which SB would evaluate the Oka strain (PTX306). The Option Period was two years (PTX306, Art. 3), or until June 1, 1977. SB initially had asked for a three-year Option Period (PTX310) and then a thirty-month period (PTX305), but Biken had been unwilling to agree to a period longer than two years. Biken's insistence on only a two-year Option Period indicates the importance to Biken of SB's successful development of a vaccine and the subsequent agreement to a license on terms acceptable to Biken.
Under the agreement, SB had to notify Biken whether it desired a license at least three months prior to the expiration of the Option Period (PTX306, Art. 4). If SB did not want a license or if a licensing agreement was not reached within six months after SB notified Biken that it desired a license, the agreement terminated ( id. at PTX306). Thus, the agreement gave SB twenty-one months, until March 1, 1977, in which to evaluate the Strain and to notify Biken if it wanted a license. If SB did want a license, an agreement had to be finalized by September 1, 1977. SB was not required to take a license under the Option Agreement. Likewise, Biker was not required to grant a license, except on terms acceptable to it.
Article 3 of the Agreement defined the Option Period as "twenty-four (24) months from the date of this Agreement," and several obligations of the Agreement were tied expressly to the Option Period (as opposed to the term of the agreement). Article 1, paragraph 2 of the Option Agreement imposed the following limit on Biken:
The Foundation agrees not to give such option or any license for manufacture, sale or use of a varicella vaccine made from their Strain to any third party during the Option Period as specified in Article 3 and for three months thereafter.
While the Option Agreement limited Biken's ability to actually grant a license to a third party during the defined period, the Option Agreement imposed no limit on Biken's ability to meet or to negotiate at any time with third parties who were interested in a license.
Article 5, paragraphs 1 through 4 of the Option Agreement imposed confidentiality obligations on the parties, as follows:
1. [SB] agrees that the Strains as well as information and data as furnished by the Foundation hereunder shall be kept strictly secret and confidential with the best possible care and safeguards during the term of this Agreement, as well as a period of five years thereafter, with respect to any third party unless it has obtained the prior consent of the Foundation.
2. [SB] further agrees that its officers or employees or any third party including its affiliate companies who will be given access to the Strain and information and data furnished hereunder' for the purposes agreed to between the parties shall be under the same obligations as those of SB hereunder.
3. In case [SB], its officers or employees or any other party furnished by [SB] with the Strain and information and data with a prior written or implied consent of the Foundation shall have committed a substantial default, non-fulfillment or breach of the covenants or provisions herein contained, [SB] shall be responsible for any and all damages caused to the Foundation due to such default, non-fulfillment or breach.
4. The Foundation also agrees during the Option period and during the term of any license agreement executed pursuant thereto not to disclose the Strain and information and data relating thereto, including any data, strains, or information provided by [SB], to any third party except to enable the Foundation to conduct research testing in the field, to publish or release the same to scientific and/or academic institutions, and to deposit a limited quantity of its own Strain to ATCC, U.S.A., or other accredited depositories for the purpose of facilitating the Foundation's patent applications.
Biken's obligations under Article 5, paragraph 4 were limited expressly to the duration of "the Option Period" and "the term of any license agreement executed pursuant thereto." Thus, if a license agreement was not reached by the end of the Option Period, those obligations lapsed. In addition, under the express terms of Article 5, paragraphs 2 and 3, SB was responsible for any disclosures of confidential information made by third parties to whom SB had given the Oka strain or information related thereto.
B. June 1975 to May 1977: SB Encounters Initial Problems Leading to an Extension of the Option Period
1. SB's ProblemsShortly after signing the Option Agreement, SB received a sample of the Oka strain from Biken. Both that sample and a subsequent sample were found to have mycoplasma contaminants (TX2188). SB encountered additional problems as well; there was a delay of several months because SB could not use the lab where it prepared batches of diploid cells (PTX315). In addition, there were technical difficulties with the Oka strain (PTX317), including "yield problems" (PTX334), and failure of SB's sonication method (PTX316).
These factors collectively caused SB to seek an extension of the Option Period (TX2324). In January 1977, Huygelen told Takahashi that, notwithstanding these problems, SB needed only a three or four month extension (PTX315). A month later, however, Huygelen wrote to Brown of SB that "new difficulties were encountered a few days ago with Osaka strain" and, as a result, the "best estimate now for beginning of clinical evaluation is now mid-summer and completion end of year" (PTX317), which required more than a three or four month extension.
Thus, in April 1977 SB requested and received a ten-month extension of the Option Agreement (PTX3 24). The Option Period was extended from June 1, 1977 to March 31, 1978. SB had to inform Biken if it desired a license by December 31, 1977, and any licensing agreement had to be finalized by June 30, 1978. Ten months was the length of the extension SB sought (PTX324), and Huygelen believed SB could make a decision by the end of 1977, the new deadline (PTX320). There is no persuasive evidence to support SB's argument that ten months was thought at the time to be insufficient.
2. Initial Merck Contacts with Biken
During the initial two-year period of the Agreement, SB was aware that Merck had approached Biken about receiving the Oka strain. In early May 1976, Dr. Maurice Hilleman of Merck had spoken with Takahashi at a conference in Atlantic City, NJ, and thereafter had written to Dr. Yoshiami Okuno, Takahashi's superior, expressing interest in the Oka strain (TX1OO2). In a telex of May 24, 1976, Ray Kutsunai, SB's Japanese representative, reported that Takahashi "had turned down Dr. Hillman's [sic] request for strain" (TX2192). In July 1976, Dr. Boyd Woodruff of Merck visited Takahashi and Okuno and learned that Biken had entered into an exclusive agreement with SB and that Merck would be unable to obtain a sample of the Oka strain (TX 1005). They discussed aspects of Takahashi's vaccine published in the literature and Woodruff was given three unpublished papers.
Merck argues that this statement is hearsay; because I ultimately find for Merck, I do not reach a decision on this objection.
SB also learned of this meeting — in August 1976, Kutsunai of SB reported that "Dr. Woodruff of Merck personally called on Dr. Takahashi and made a strong pitch for their strain" (TX2199). There is no persuasive evidence that SB viewed the contacts between Takahashi and Merck as not permitted under the Option Agreement. Likewise, there is also no persuasive evidence that any of the information conveyed by Takahashi to Woodruff was confidential and no evidence that the unpublished papers contained any information that had not been published elsewhere in some level of detail.
Following that meeting, Woodruff wrote to Okuno, noting "I am disappointed that it will not be possible to study your vaccine in the Merck, Sharp Dohme Research Laboratories, however, we understand the reasons that the attenuated virus cannot be released at this time" (PTX312). There is no evidence that Merck knew of Biken's specific obligations under the Option Agreement. Neither Woodruff nor any other Merck representative ever saw a copy of the Agreement (Tr. 145).
C. April 1977 to June 1978: Additional Delays Leading To A Second Extension of The Option Agreement
1. The Second ExtensionAfter receiving the ten-month extension, SB encountered additional problems. Huygelen wrote that the Oka strain was "more difficult than other strains with regard to virus release from cells" (PTX328), that "we encountered problems in releasing the virus from the cells" (PTX364) and "this resulted in new delays of a few months" ( id.). Another SB memo refers to "last minute problems in the testing of the diploid cells" (PTX331). On December 20, 1977, eleven days before the extended deadline for advising Biken whether it wanted a license, Brown wrote to Biken requesting an additional three-month extension (PTX336).
On January 12, 1978, in response to SB's request, Biken sent a proposed amendment to the Option Agreement granting the extension but on the condition that, if SB did not take a license, it could not manufacture any varicella vaccine for three years (PTX340). Clinton H. Brown of SB reported that "Osaka will approve extension but on conditions I consider unsatisfactory" (PTX342). In another memo he noted that the conditions imposed by Biken "suggest that Osaka has lost patience with our test program" (PTX343).
As of March 1978, another extension of the Option Agreement had not been agreed to and Brown traveled to Osaka (PTX347). He learned that Biken was very unhappy with SB ( id.). In a memorandum summarizing the meeting, Brown wrote that Biken "had been shocked to learn that SB was working on a strain [of varicella virus] of its own" and that Takahashi "felt SB had deceived him" ( id.). Although SB had received the Oka strain from Biken, it continued to develop another strain (Tr. 1638). An SB document indicates that Kutsunai of SB had advised Huygele not to mention to Takahashi that SB was working on other varicella strains (Brown dep. 6/3/98 at 41).
Ultimately, Biken learned of SB's potentially competing endeavors. Biken's ensuing belief that it had been deceived by SB was, as Brown noted, "a serious problem" (PTX347) involving "a serious situation and something not at all desirable for SB, especially in this country where reputations play such an important role and are quickly spread" (PTX347). Following further negotiations, Biken agreed to delete the provision to which SB objected (PTX350). Then, however, SB proposed an extension of nine months (rather than the three months it had earlier requested) in consideration for "a modest amount" (PTX349), but Brown subsequently reported that the Biken board "was quite displeased with recent events" and he recommended signing the amended three-month extension that Biken was willing to accept (PTX355).
On April 24, 1978, SB signed the amendment, which extended the Option Period to June 30, 1978 (PTX357). In the forwarding letter, SB provided notice of its desire to receive a license, retroactive to March 31, 1978 ( id.). The signed amendment reflected Biken's intention to put a limit on the on-going negotiations expressly providing that the Foundation "shall not agree to further extension of the term of the AGREEMENT for any reason whatsoever," (PTX357 Item 3), and requiring that SB provide Biken with a written explanation of why it had become necessary to extend the Option Period twice (PTX357 Item 2). Under this extension, the Option Period was extended to June 30, 1978, and the period for concluding a license agreement was extended to September 30, 1978 (PTX357). If a licensing agreement was not concluded by that time, the Option Agreement terminated by its terms (PTX306, Art. 4). SB was aware that it was required to finalize a license agreement by September 30, 1978 (PTX361). Brown's memo of his March 1978 meeting with Biken also noted:
Dr. Kawamata seemed to keep focusing the discussion on the USA, and while I did not mention anything about it I am concerned lest SB's general indifference towards vaccines in the USA prove to be another source of misunderstanding in the future.
In May 1978, John Chappell, a Vice President of SB, visited Biken. In an apparent attempt to address Biken's interest in development of a vaccine for the United States, he asserted in a follow-up letter that while "we are not very active the US market at the moment, we do have the capability to mount clinical trials and secure product registrations" and in support of that statement said, "SB Rubella vaccine is registered and marketed in the US" (PTX361).
The record, however, reflects that Chappell's statement was untrue. SB had withdrawn its rubella vaccine from the United States market in 1976 — two years earlier (Huygelen 11/4/98 dep. at 12). Thus, in contrast to Chappell's statement to Biken that "SB's Rubella vaccine is . . . marketed in the US," SB was reporting to the FDA that SB "has not marketed Cendevax [rubella] in the United States since late 1976" (PTX445). Rubella was the only vaccine SB had ever sold in the United States (Huygelen 11/4/98 dep. at 12), and SB did not again market a vaccine in the United States until the late 1980's ( id. at 13-14).
2. Contacts Between Merck and Biken
After Woodruff's visit in July 1976, there were no further contacts between Biken and Merck until April 15, 1977, when Hilleman wrote to Okuno stating:
I am writing to inquire how things are coming along. Do you still have your relationship with another company or is there any possibility that the matter can be reopened? We continue to be most desirable of some sort of arrangement with you, if that is possible. Could you please let me know.
Our Foundation is still within the period of Option Agreement with another company. His program seems working not so well as expected, and we have not received a definite answer from him but must have it within this year. If a satisfactory agreement is not established with him, I wish to have some sort of arrangement with you.
In reply, Hilleman requested that Okuno let Merck know "if your current correspondent ceases to display interest so that we can initiate talks with you" (TX1009).
Merck next contacted Takahashi and Okuno in September 1977 when Woodruff and Edgar H. Philbrick, Jr. visited to determine "if the option had expired" (TX1012). At that meeting, they learned that SB's option was scheduled to expire in March 1978 ( id.). During the course of that meeting, Woodruff was asked whether the existence of the Option Agreement required Biken to enter into a license agreement. Woodruff accurately responded that it "usually did not" ( id.). Following the meeting, Philbrick wrote to Okuno stating:
(Merck was] pleased to learn that the option, under which your varicella strain is being studied, will expire in March. At that time if there are no further contractual obligations, we would be very interested in discussing this matter with you again. (PTX329).
Around this time Biken also received an inquiry from Sclavo Institute concerning the Oka strain (PTX330). Therefore, Biken was aware of growing commercial interest in its Oka strain and wanted SB to move promptly toward a decision and to finalize a license agreement.
The next contact occurred in December 1977 when Hilleman wrote to Okuno saying:
It is nearing year's end and I would wish to express our continued interest in your and Dr. Takahashi's chicken pox vaccine. Are things at the point which we could discuss them at this time? (PTX335).
On January 5, 1978, Okuno informed Hilleman of the three-month extension SB had requested (PTX339) and Hilleman again deferred discussion (PTX341). In early February 1978, Dr. Martin F. Malkin and Tatsuo Asada of Merck visited Okuno and Takahashi "to reconfirm Merck's interest in evaluating the vaccine" (TX1016). Malkin was told that there is no evidence such information was confidential or that its disclosure caused any harm to SB.
On March 30, 1978, a Mr. Tsuji of Biken advised Malkin of SB's three-month extension and Malkin, in turn, reported that to Hilleman (TX1017). On June 13, 1978, Woodruff met with Takahashi "to reinforce prior statements of interest in his varicella vaccine" (TX1021). During the meeting, Woodruff was shown a letter apparently describing the clinical trial of Dr. Max Just on SB's vaccine — study that Dr. Francis E. Andre of SB characterized as a "simple trial" involving only twenty people (Andre dep. at 24). The only specific information that Woodruff reported receiving was that [REDACTED] (TX1020).
In addition, Just presented the complete results of his clinical investigation publicly in Berne, Switzerland sometime prior to August 7, 1978 (PTX37C Huygelen 11/4/98 dep. at 120), and again at an SB symposium in Belgium in November 1978 (Huygelen 11/4/98 dep. at 119, Huygelen 12/15/98 dep. at 91) Takahashi told Woodruff that the results of Just's trial were about to be presented at a vaccine meeting (TX 1021), which indicates that the information was not particularly secret. Takahashi also told Woodruff that [REACTED] SB's contention that the information was extremely sensitive (SB Br. at 67) is supported only by testimony relating to different information-[REDACTED] (Andre dep. at 145). There is no persuasive evidence that this general statement on [REDACTED] made by Takahashi in 1978 involved extremely sensitive information.
Woodruff was also told that "to meet minimal titer needs" [REDACTED] (TX1021). There also is no persuasive evidence such information was confidential. Huygelen of SB admitted that "the titer of the vaccine used is information you would expect to be exchanged among the investigators" (Huygelen 12/15/98 dep. at 89-90). The conclusion that such information was not, in fact, confidential is further supported by testimony related to a document found in SB's files concerning information on the titer of Merck's vaccine (PTX300). SB's own witness testified that such information "we would also feel could be released without any problem or hesitation for our vaccine" (Andre dep. at 163). In any event, assuming that this information would have fallen under Biken's confidentiality obligation under the Agreement, that obligation ended on June 30, 1978, when the Option Period ended.
During the meeting with Takahaski, Woodruff was told that SB's agreement with Biken ran until the end of September. Woodruff told Takahashi that he would visit him again in October, following expiration of the Option Agreement (TX1021). As reflected above, Merck timed its approaches to Takahashi to coincide with what it understood to be the expiration of the Option Agreement, and was careful to inquire if Biken was in a position to discuss licensing with Merck. SB also complains that in June 1978 Hilleman received "Biken's actual method for producing an Oka strain varicella vaccine" (SB Br. at 32). Takahashi had sent the information to Dr. Anne A. Gershon, a clinical investigator, who in turn sent it to Dr. C. Henry Kempe, another investigator, who, unsolicited, sent it to Hilleman (PTX 363). There is no persuasive evidence, however, that Merck sought such information.
As of 1979, SB had, in fact, largely abandoned the United States vaccine market — it was selling no vaccine in the United States and in 1976 had withdraw from the market the only vaccine (rubella) it had ever sold in the United States (PTX405); (Huygelen 11/4/98 dep. at 12). SB's own documents from that period confirmed its limited interest in vaccines, especially in the United States, saying: [REDACTED] (PTX313); and "I am concerned lest SB's general indifference toward vaccines in the U.S.A. prove to be another source of misunderstanding [with Biken] in the future" (PTX347).
The statement by Woodruff, which in context concerned the United States market and was qualified by the word "essentially," was based on an internal Merck report and was consistent with SB's own documents. During the period of the Option Agreement, SB had a limited interest in vaccines, especially in the United States (PTX311, PTX313, PTX319, PTX347), and SB knew that its absence from the United States market was a point Merck legitimately could argue to Biken (Huygelen dep. at 57).
5. The Termination Letter
On December 18, 1979, the Biken Board reviewed and approved a letter prepared since the November Board meeting canceling the Option Agreement (PTX566). On December 20, 1979, Biken sent the letter to SB stating:
[W]e hereby terminate, as of the date of this letter, the said Option Agreement (including the said Memorandum) for the following reason:
Since we sent you our draft of the formal license agreement on July 26, 1978, the negotiations have been carried on between both parties relating to the terms and conditions of such license agreement, but any final agreement relating thereto has not yet been reached. Accordingly, a `more formal agreement' as specified in Article 4 of the Option Agreement is not concluded within 6 months after the end of the Option period extended under the Memorandum, namely June 30, 1978.
(PTX457). Although Biken terminated its exclusive dealings with SB on December 20, 1979, the December Biken Board minutes contain no reference to Merck or to Woodruff's statement concerning SB.
The Option Agreement had expired as of September 30, 1978. Biken's letter of December 20 expressly referred to that in the last sentence quoted above. That letter, therefore, should be construed fairly as an effort to eliminate any uncertainty in light of the subsequent dealings of the parties and to clarify the termination of the relationship.
G. January 1980 to February 1982: Biken Negotiates License Agreement with SB
In a memo of January 7, 1980, Brown of SB acknowledged that "Handai-Biken's termination is within their rights — indeed we have been at their mercy ever since the second extension of the original (June 1, 1975) Option Agreement expired in '78." (PTX461). His memo indicated that Kutsunai would be contacting Biken to see "whether the door is firmly shut." ( id.).
On January 30, 1980 SB received preliminary results of Plotkin's second clinical trial of SB's vaccine, which were positive (TX2343). On January 30, 1980 SB sent two letters: the first letter advised Takahashi on SB's progress with its vaccine (TX1720). The second letter from Brown to Kawamata stated SB's continued interest in a licensing agreement (TX2346). On March 1, 1980, SB met with Biken and learned that "the way is open to proceed with negotiations on both varicella and mumps." (PTX465).
Biken immediately began negotiations with Merck. SB knew the details of those negotiations (PTX479, PTX480). Biken also continued to negotiate a licensing agreement with SB and in May 1980 SB was offered non-exclusive rights in the United States, Belgium, and Switzerland (PTX472), with an understanding that Biken would "consider adding further territories when [SB] has successfully produced vaccine" (PTX473). SB rejected Biken's offer of such rights (PTX472) and requested that "such a limited agreement not be submitted to the Osaka board for approval" (PTX470) (emphasis in original).
At that time, SB and Biken were negotiating license agreements for both varicella and mumps vaccines. Biken was willing to offer SB non-exclusive, worldwide rights to its mumps strain (PTX475). In June 1980, SB decided to proceed with the mumps negotiations, but to do so "independently from varicella because we would like to think it over again especially in view of large initial payment in relation to small market potential for varicella" (PTX476). By July 1, 1980, Kutsunai advised Huygelen that SB "will proceed with mumps letter of intent [with Biken] but will not discuss varicella" (PTX477).
In November 1980, Merck and Biken entered into a licensing agreement giving Merck non-exclusive rights to the Oka strain and Biken know-how in the United States and Canada (PTX551). On April 1, 1981, D. B. Boultbee of SB wrote to Brown that "I want mumps signed and sealed before approaching [Biken] about varicella again" (PTX486). On June 23, 1981, Biken offered Institu Merieux a non-exclusive license for "the countries of European Community except Belgium, on equal terms with that of Merck Co." (PTX490).
On November 10, 1981, Biken offered SB non-exclusive varicella rights (TX2400). SB understood that it was receiving "exactly the same conditions" as were offered to Institut Merieux ( id.). On February 18, 1982, SB and Biken entered into a licensing agreement giving SB non-exclusive rights to the Oka strain and Biken know-how in the countries of Europe (PTX552).
IV. CONCLUSIONS OF LAW
A. Certain of SB's Claims are Barred by the Statute of Limitations a Ladies
Claims for intentional interference with contract or prospective business relations are subject to the three-year statute of limitations of 10 Del. C. § 8106 Williams v. Caruso, D. Del. 966 F. Supp. 287, 293 (1997). Although statutes of limitations do not directly apply, equity follows the law and, in appropriate circumstances, applies the statute of limitations by analogy, denying relief when claims are brought after the analogous statutory period. See In re Dean Wine Partnership Litig., Del. Ch. , C.A. No. 14816, 1998 Del. Ch. LEXIS 133 at *11-12 (July 17, 1998).
In addition, "where the statute bars the legal remedy, it shall bar the equitable remedy in analogous cases or in reference to the same subject matter." Kahn v. Seaboard Corp., Del. Ch. , 625 A.2d 269, 272 (1993); see also United States Cellular Inv. Co. v. Bell Atlantic Mobile Sys., Inc., Del. Supr., 677 A.2d 497 502 (1996). Thus, SB's claim for unjust enrichment likewise is subject to a three-year bar.
The statute begins to run at the time of the alleged wrongful act "even if the plaintiff is ignorant of the cause of action." In re Dean Witter, 1998 Del. Ch. LEXIS 133 at *15. SB's counterclaims, first asserted in June 1998, involve matters that occurred between 1976 and 1979. Accordingly, SB's counterclaims are barred absent some basis for tolling. SB has the burden of showing a basis for tolling of the statute. See, e.g., Playtex, Inc. v. Columbia Cas., Del. Super., C.A. No. 88C-MR-233, 1993 Del. Super. LEXIS 286 at *10, Del Pesco, J. (Sept. 20, 1993). Under Delaware law, tolling applies only in very limited circumstances — where the injuries were inherently unknowable, see, e.g., Pack Process, Inc. v. Celotex Corp., Del. Super. 503 A.2d 646, 651 (1985), or where there has been fraudulent concealment, see, e.g., Playtex, 1993 Del. Super. LEXIS 286 at *9. Even when tolled, the statute of limitations is suspended only until a plaintiff discovers his rights or, by exercising reasonable diligence, should have discovered such rights. See In re Dean Witter, 1998 Del. Ch. LEXIS 133 at *21.
SB argues that its claims are not barred "because Merck's tortious and inequitable actions have been concealed until unearthed during discovery in this litigation" (SB Br. at 73), and because SB did not know of Merck's conduct (SB Br. at 74). However, concealment is not enough to toll the statute — there must be fraudulent concealment, which requires "that something affirmative be done by a defendant, same `actual artifice' which prevents a plaintiff from gaining knowledge of the facts, or some misrepresentation which is intended to put the plaintiff off the trail of inquiry." Halpern v. Barran, Del. Ch. , 313 A.2d 139, 143 (1973) (citations Omitted). The three instances of supposed concealment alleged by SB fall far short of fraudulent concealment and do not otherwise establish basis for tolling the statute.
SB first complains that Takahashi told SB in 1976 that he had turned down Merck's request for the Oka strain and that there was not the "slightest possibility that he would give the Oka strain to Merck (SB Br. at 73). Takahashi's statement cannot reasonably be termed a concealment since there is no evidence that, at the time, he harbored a secret intent to give the strain to Merck. Accepting, arguendo that Takahashi actually made that statement (which is hearsay), it is indisputable that in 1976 (and all the way through 1979) Merck was unable to obtain the Oka strain from Biken. Moreover, SB knew, at least by 1980, that Merck in fact had obtained a license and had received the strain. Thus, any "concealment" ended 18 years before SB filed its counterclaims.
In its reply brief SB says that the fact Merck obtained the strain in 1980 "does not mean SB had any reason to know about the continual meeting between Merck and Biken during the time the Option Agreement remained effective" (SB Reply Br. 48-49) (emphasis in original), SB's contention is wrong for two reasons. First, if the basis for tolling is the supposed statement that Biken would not give the strain to Merck, once that fact is no longer "concealed," any basis for tolling ends. Second, SB's own documents show that it in fact knew Takahashi was meeting with Merck during the Option Agreement and attempting to obtain rights to the Oka strain.
SB next complains that Takahashi asked Woodruff to conceal then conversations from Takahashi's supervisors (SB Br. at 73). On one occasion Takahashi requested that Woodruff not attribute Takahashi's November 12, 1979 comments to him in discussions with Kawamata because Biken had not yet reached consensus on issues related to licensing of the Oka Strain (Trial Tr. 154-56). There is no evidence supporting SB's assertion that Takahashi wanted to conceal his discussions with pharmaceutical companies (including Merck) from Kawamata for some nefarious reason. Indeed, SB's contention is refuted by the fact that on other occasions Takahashi, in the presence of Kawamata, met with Woodruff (TX1005, TX1012). Most importantly, SB does not allege that Takahashi was attempting to conceal information from SB. Moreover, the most that was "concealed" was a conversation related to Merck receiving a license, a fact which SB ultimately knew by 1980.
The third "concealment" of which SB complains is that "Biken continued to deny that any information was transmitted to Merck during the duration of the Option Agreement as late as the April 1998 deposition of Mr. Kamada." (SB Br. at 73). SB has not established that there were any "denials" ( i.e., instances in which there was a concealment) by Biken to SB at any time from 1975 to 1998, let alone any misrepresentation. Thus, SB has pointed to nothing that constitutes fraudulent concealment such as to justify tolling of the statute of limitations.
The policies underlying laches and the statute of limitations also support dismissal of SB's claims. SB essentially has presented a paper record of events occurring more than 20 years ago, from which it asks the Court to draw inferences about motive and conduct not reflected in the documents themselves. All of the critical witnesses — the Biken board members who ultimately made the decision to cease dealing exclusively with SB — are deceased, inhibiting the ability of merit and Biken to defend against these claims.
B. Doctrine of Unclean Hands
1. Standard for Unclean Hands
Well established law dictates that "when a party who seeks relief in this Court 'has violated conscience or good faith or other equitable principles in his conduct, then the doors of the Court of Equity should be shut against him.'" EJ. Stephen, Inc. v. Ceccola, No. 7578, Del. Ch. , 1984 LEXIS 596, at *5 (July 9, 1984) ( citing Brodley v. Jones, Del. Supr., 59 A.2d 463 (1947)); see also Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933) (denying relief to an intellectual property holder due to its unclean hands); ONTI, Inc. v. Integra Bank, No. 14514, Del. Ch. , 1998 WL 671263, at *3 (Aug. 25, 1998); Sherwood, Inc. v. Cottman Transmission Sys., Inc., Del. Ch. , C. A. No. 6768, 1982 WL 17882, at *2 (April 15, 1982) (denying injunctive relief to plaintiff because of his unclean hands due to breach of contract).
As stated in Precision Instrument Manufacturing Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814 (1945):
The guiding doctrine in this case is the equitable maxim that "he who comes into equity must come with clean hands." This maxim is far more than a mere banality. It is a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant.
In fashioning a remedy for unclean hands, the Court has a wide range of discretion in refusing to aid the "unclean litigant." Monsanto Co. v. Rohm Haas Co., 3d Circ., 456 F.2d 592, 598 (1971). The application of the doctrine of unclean hands is not "bound by formula or restrained by any limitation that tends to trammel the free and just exercise of discretion." Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245-46 (1933). Moreover, this Court specifically has rejected a "no harm, no foul" exception to the application of this doctrine Nakahara v. The NS 1991 Am. Trust, Del. Ch. , C. A. No. 15905, 1998 LEXIS 50 at *81 (March 20, 1998).
SB has levied a claim of unclean hands against Merck for alleged inequitable acts that it committed on its own behalf. SB also has levied a claim of unclean hands against Biken for certain acts which SB argues should bar any claim which Biken could bring against SB. As Biken's exclusive licensee in the United States and pursuant to a separate contract with Biken, Merck has asserted that it has standing to sue SB for trade secret misappropriation. In order for Merck to have standing to sue in its own name, well established law dictates that Merck's exclusive license with Biken must constitute an assignment. See Waterman v. McKenzie, 138 U.S. 252, 255 (1891); Minco, Inc. v. Combustion Eng'g, Inc., Fed. Circ., 95 F.3d 1109, 1116-17 (1996).
In this regard, Merck explicitly has argued "in terms of the right to sue for misappropriation . . . [w]e, to use [SB's counsel's] words, stand in Biken's shoes as to a claim of misappropriation." (TX 1295 at 80:11-22.). Therefore, as Mercy contends that as Biken's exclusive licensee in the United States, it "stands in Biken's shoes," any defenses SB has against Biken are fully applicable to Merck. See, e.g., Mid-Atlantic Equip. Corp. v. Elder, E.D. Pa., No. 95-CV 886, 1995 WL 447602, at *5 n. 2 (July 25, 1995) ("As Yamaha's assignee, Mid-Atlantic "stands in the shoes' of the assignor and assumes the assignment subject to all defects and defenses."); K.B. v. State Farm Fire and Cas. Co., Ariz. Supr., 941 P.2d 1288, 1292 (1997) (holding that "[a]n assignee steps into the shoes of her assignor" and "cannot alter the defenses or equities of the third party"). Smith v. Cumberland Group, Ltd., Pa. Super., 687 A.2d 1167, 1172 (1996) ("Where an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of his rights . . . [c]onversely an assignee's right against the obligor is subject to all of the limitations of the assignor's right, to all defenses thereto . . ., and counterclaims which would have been available against the assignor had there been no assignment. . . ."); Florida v. Family Bank of Hallandale, Fla. Dist.Ct.App., 667 So.2d 257, 259 (1995) ("The assignee steps into the shoes of the assignor and is subject to all equities and defenses that could have been asserted against to assignor had the assignment not been made.").
In fact, in earlier proceedings in this case the Court allowed the litigation to proceed without the addition of Biken as an involuntary plaintiff under Del. Ch. Ct. R. 19 only "so long as [Biken's] commitment is adequate to make sure that SmithKline is prejudiced neither in the discovery nor potentially the trial." (TX 1295 at 96:21-24 emphasis added).
Thus, at least in theory, if SB is able to establish inequitable conduct on either Merck's or Biken's part it should succeed on its claim of unclean hand against Merck. For the reasons specified below, I find the evidence simply does not establish conduct that requires the Court to reject Merck's claims against SB by operation of the doctrine of unclean hands.
2. Merck's Claims Are Not Barred by Unclean Hands
SB bears the burden of establishing that Merck has "unclean hands," see, e.g., Greco v. Columbia/HCA Healthcare Corp., Del. Ch., 1999 Del. Ch. LEXIS 24 at *24 Strine, V.C. (Feb. 11, 1999), and must show that Merck "violated conscience or good faith or other equitable principles" in its conduct, E.J. Stephen, Inc. v. Ceccola, Del. Ch. , 1984 Del. Ch. LEXIS 596 at *5, Berger, V.C. (July 9, 1984). Ultimately, the "unclean hands doctrine is aimed at providing a court of equity with a shield from the potentially entangling misdeeds of the litigants in any given case." Nakahara v. The NS 1991 Am. Trust, Del. Ch. , 718 A.2d 518, 522 (1998). Ultimately, the doctrine is about public policy, and the Court has the broad discretion to refuse relief if SB can establish that Merck does not meet a very basic though inexact standard: "where the litigant's own acts offend the very sense of equity to which he appeals." Id.
a) SB Has Failed to Establish Unclean Hands due to Tortious Interference
SB attempts to support its contention that Merck's claims are tainted by alleging three forms of inequitable conduct: 1) that Merck induced Biken to breach the Option Agreement by, among other things, frustrating negotiations with SB; 2) that Merck improperly obtained confidential material and information from clinical researchers and through Takahashi; and 3) that Woodruff fraudulently misrepresented SB's vaccine business. These are the same allegations that formed the basis for SB's claim for tortious interference. SB has been unable to establish that Merck tortiously interfered with SB's existing or prospective contractual relationship with Biken. Thus, SB's unclean hands claim must also fail on this point.
To establish tortious interference with either an existing contract or prospective contractual relation, a party must demonstrate (I) the existence of a contract or a prospective contractual relationship (2) about which the accused party knew and (3) an intentional act that is a significant factor in causing a breach of that contract or termination of that prospective contractual relationship (4) absent a justification for the interference and (5) causing damages to the party whose contract was breached or whose relationship was disrupted. See CPM Indus., v. Fayda Chems. Minerals, Inc., Del. Ch. , C.A. No. 15996, Jacobs, V.C. (Nov 26, 1997), Mem. Op. at 18-19.
(1) Contractual Relationship and Knowledge
As far as the first two requirements are concerned, the Option Agreement was a contract between Biken and SB, and Merck knew at least generally of existence. However, insofar as SB claims that Merck induced a breach of Biker confidentiality obligation, there is no evidence that Merck knew of that provision, let alone its scope. Neither Woodruff nor any other Merck employee saw a copy of the Option Agreement, and there is no evidence that Merck was aware of specific terms.
Insofar as SB complains that it did not receive a "worldwide exclusive license" ( see, e.g., SB Br. at 1), SB never had a contract right to such a license either before or after expiration of the Option Agreement. The Agreement itself conferred no right to a license per se, but only the right to evaluate the Oka strain and thereafter attempt to negotiate a license. And even assuming Biken agreed to extend the negotiating period as SB claims, SB continued to have only some expectation of a license. Even then, its expectancy interest was less than worldwide exclusive license because Biken only offered SB limited exclusive rights in some areas. Thus, SB at most had an expectancy interest in a limited license and not a contract right to one. In addition, any such expectancy interest was terminable at will by either party. Assuming that these details do not totally preclude SB from making its claim, my analysis continues.
(2) Intentional Act, Proximate Cause, and Damages
The third requirement has two parts: an intentional act and evidence that the act was a significant factor, i.e., the proximate cause of the claimed damage. As mentioned above, SB has identified three actions that purportedly caused it to be damaged: 1) that Merck induced Biken to breach the Option Agreement; 2) that Merck improperly obtained confidential material and information from clinical researchers and through Takahashi; and 3) that Woodruff fraudulently misrepresented SB's vaccine business. As outlined below, SB has failed to prove any induced breach of any implied or explicit term of the Option Agreement by Merck.
I am sensitive to the fact that while there may be numerous "significant" causes in a tortious interference action in the colloquial sense of the word "significant." To make sense of the tort, the Court chooses to examine whether or not the acts of which SB currently complains can be fairly viewed together or individually as the proximate cause(s) of the alleged damage.
(i) SB Has Failed to Establish that Merck Induced Biken to Breach the Option Agreement
Generally, the language of a contract must be given its ordinary meaning and, "[a]bsent ambiguity, the parties' intent must be determined by reference to the express terms of the Agreement." Cincinnati SMSA Ltd. Partnership v. Cincinnati Bell Cellular Sys. Co., Del. Ch. , C.A. No. 15388, 1997, Del. Ch. LEXIS 109 *17, (Aug. 13, 1997), aff'd, Del. Supr., 708 A.2d 989 (1997). Where the language of the agreement "is plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent." City Investing Co. Liquidating Trust v. Continental Cas. Co., Del. Supr., 624 A.2d 1191, 1198 (1993) (citing Citadel Holding Corp. v. Roven, Del. Super., 603 A.2d 818, 822 (1992)). The "language of an agreement . . . is not rendered ambiguous simply because the parties in litigation differ concerning its meaning." Id. In addition, when the words of a contract are not subject to different interpretations and when the words do not otherwise create ambiguity when viewed in the light of other contractual provisions, this Court "will not consider extrinsic evidence to interpret the meaning of the agreement." Cincinnati SMSA, 1997 Del. Ch. LEXIS at *15.
The Option Agreement did not prohibit communications between Merck and Biken. The only limit imposed by the Option Agreement on Biken's dealings with other prospective licensees was that Biken agreed "not to give such option or and license for manufacture, sale or use of a varicella vaccine made from their Strain to any third party during the option period as specified in Article 3 and for three months thereafter" (PTX306, Art. 1, ¶ 2). Article 1, paragraph 2 imposed no limit on Biken's ability to communicate or negotiate with third parties at any time during the term of the Option Agreement. SB's claim that "Biken could not negotiate with anyone else" (SB Br. at 1) is directly contradicted by the unambiguous language of the agreement.
Although the unambiguous language of the agreement preclude consideration of extrinsic evidence, SB's claim also is unsupported by any such evidence. No testimony from any Biken or SB employee involved in the negotiation of the Option Agreement suggests that the parties understood Biken to be limited in the way SB claims. Similarly, no document relating to the negotiations of the Option Agreement suggests any such limit on Biken's ability to talk or to negotiate with others.
The contemporaneous conduct also refutes SB's claim that Biken was precluded from speaking to other potentially interested parties. As noted, SB was fully aware that Takahashi met with representatives of Merck during the period of the Option Agreement on the subject of Merck's interest in the Oka strain. There is no evidence that SB viewed such meetings as prohibited by the Option Agreement.
SB's reliance on the testimony of Yoshio Kamada regarding his interpretation of the contract restrictions on Biken's ability to meet with Merck is misplaced. Kamada had no involvement in negotiation of the Option Agreement (Kamada dep. at 33-34), no involvement in discussions concerning its meaning ( id.), and, as SB concedes, no personal knowledge concerning any aspect of the Option Agreement ( id. at 33-35, SB Br. at 5 n. 4). In addition, SB's attempt, in a Rule 30(b)(6) deposition, to inquire into the contentions of Merck as to the meaning and legal effect of the parties' rights under the Option Agreement was improper. See, e.g., Teigel Mfg. Co. v. Globe-Union, Inc., D. Del., C.A. No. 84-483, Stapleton, J. (Oct. 5, 1984), Oral Ruling at 14 ("[A] lay person shouldn't be required to formulate a party's contention in response to deposition questioning.") Moreover, such testimony cannot contradict the plain language of the agreement.
SB's reliance on Kawarnata's letter stating "I cannot negotiate with you at present" cannot be used to modify the language of the agreement. Moreover, in that letter Kawamata expressly declined negotiating with Merck prior to 1980, and there was never any exchange of licensing proposals between Merck and Biken before that time. In any event, even if Biken and SB had "understood" that Biken could not negotiate with others, the various meetings between Woodruff and Takahashi and other communications in which Merck expressed its interest in the Oka strain did not constitute "negotiations." In fact, Merck did not authorize negotiations with Biken until April 1980 (PTX467). Thus, Merck did not induce Biken to breach any provision of the Agreement by engaging Biken agents in these discussions during the effective period of the Agreement.
(ii) SB Has Established a Breach of the Option Agreement's Confidentiality Provision.
Biken's confidentiality obligations under the Agreement are contained Article 5, paragraph 4. The specific language is as follows:
The Foundation also agrees during the option period and during the term of any License Agreement executed pursuant thereto not to disclose the Strain and information and data relating thereto, including any data, strains, or information provided by [SB], to any third party except to enable the Foundation to conduct research testing in the field, to publish or release the same to scientific and/or academic institutions, and to deposit a limited quantity of its own Strain to ATCC, U.S.A., or other accredited depositories for the purpose of facilitating the Foundation's patent applications. (B13).
(PTX306). By its terms, the Limit on disclosure by Biken applied only "during the option period and during the term of any license agreement executed pursuant thereto . . ." (PTX306, Art. 5, ¶ 4). Because no license agreement was ever executed, the confidentiality obligation ultimately applied only "during the Option Period" which ended June 30, 1978. There is no persuasive evidence that the "Option Period" ever was extended beyond that date.
Biken and SB clearly separated the Option Period and the negotiating period and clearly limited Biken's confidentiality obligations to the Option Period. A court may not disregard unambiguous language of a contract, even if it views such language as unreasonable. See Daniel D. Rappa. Inc. v. Englehardt, Del. Supr., 256 A.2d 744 (1969); Ramsey v. Department of Natural Resources and Envtl. Control, Del. Super., C.A. No. 96A-03-001, 1997 Del. Super. LEXIS 143 at *9 Terry, J (Mar. 20, 1997).
There is nothing unreasonable, however, about the express language of the Agreement. Because SB was required under the terms of the Agreement to begin negotiations for a license three months prior to the expiration of the Option Period and finalize such license within three months following the expiration of the Option Period, Biken sensibly could have concluded that it wanted to be able, once the Option Period had expired and if no licensing agreement had been reached, to actively begin eliciting the interests of other parties — which could require disclosure (under appropriate confidentiality provisions) of the strain and related information to such parties.
SB's argument (SB Reply Br. at 43 n. 31) that the Court may imply an additional obligation is incorrect where, as here, the parties expressly and unambiguously specified when Biken's confidentiality obligation ended. Cincinnati SMSA, 1997 Del. Ch. LEXIS 109 at *22 ("When the express terms of the contract do not suggest the omission of such an obligation and the implied obligation sought to be enforced conflicts with the express terms, the Court will not supply a term allegedly omitted."). For these reasons, insofar as SB complains about disclosures after June 30, 1978, any such disclosures did not violate the Option Agreement.
The June 30, 1978 cut-off date for Biken's non-disclosure obligations also applies to any argument that SB might have that related to non-Biken clinical researchers ( e.g., Dr. Plotkin) who SB argues potentially could be viewed as constrained by Biken's non-disclosure commitment.
In any event, there is no evidence that Plotkin or any of SB's clinical investigators violated a confidentiality obligation to SB by providing information to Merck. SB admits that its clinical investigators did not sign confidentiality agreements (Andre dep. at 118). Although SB claims there was a "general practice in the industry' (SB Br. at 72) concerning confidentiality by investigators, the testimony provides no real basis for that statement nor is there any other persuasive evidence that could act as a legal hook for the claim that there was a contractual or quasi-contractual obligation in this particular case. Andre admitted that his only experience was in Europe (Andre dep. at 5, 9-10), that he had no personal knowledge of what the general practice was in the United States ( id. at 41, 45), that until he dealt with Dr. Plotkin he had never been involved in clinical trials in the United States ( id. at 41). that he knew of no agreement that Plotkin had signed ( id. at 43), and that he had never had any discussion with Plotkin or any other clinical investigator about confidentiality obligations ( id. at 44, 46).
Moreover, SB received from Plotkin information about Merck's KMcC vaccine, received from Gershon information on her tests of Merck's vaccines, and forwarded such information to Takahashi with a request that it be kept "strictly confidential" (PTX430). SB later received the detailed clinical results of Plotkin's studies of the Merck vaccine (TX2347). SB cannot reasonably complain that Merck's receipt of such information was improper, but that SB's was not.
SB, however, has pointed to disclosures which occurred before June 30, 1978. SB claims that these allegedly impermissible disclosures — which were made by Takahashi — amount to a breach of Biken's confidentiality obligations under the Agreement. SB goes on to argue that if Biken is tainted by a breach of contract, that breach must be imputed to Merck and must operate to foreclose the misappropriation claims that Merck asserts in this litigation as Biken's assignee.
In response to SB's argument Merck argues that 1) the non-disclosure provision did not apply to Takahashi and 2) the provision only applies to the Foundation and not to its officers and employees. Both of these arguments, while immaterial, are ridiculous. First while Takahashi may have been technically employed by the Institute ( i.e., his paycheck came from the Institute) he clearly operated as an agent of the Foundation (Kamada dep. at 194; Ichikawa dep. at 23). Moreover, Merck's own witness recognized that the distinction between the Institute and the Foundation was a fiction (TX1021). Second, if the non-disclosure provision in the Agreement did not apply to the officers and employees of the Foundation, then to whom did it apply? Merck's reading of the non-disclosure agreement is simply inappropriate as it would force the Court to accept an implausible interpretation of the provision.
Pursuant to the Option Agreement, Biken explicitly agreed to a clear prohibition on the disclosure of information. Despite that fact, it seems that Takahashi shared certain protected information with Merck. For instance, Biken provided Merck with information on its own clinical trials related to the Strain. Biken informed Merck that (TX1016, TX1016-2, TX1016-3).
On June 13, 1978, Merck and Biken met yet again. At this meeting, Takahashi showed Woodruff a letter describing the clinical trial results of Just, an SB consultant who was evaluating SB's Oka strain varicella vaccine in Europe (TX1021, TX1021-6, Tr. 47, TX1598, TX1599, Woodruff dep. at 101-04). As testified by Merck's Hilleman, this information was valuable as it represented the first clinical trial with the Oka strain performed in a Western country with a Caucasian population with different antigens:
Q. And you wanted to see how the Biken strain would do against your own strain?
A. Yeah. I need to know is that Biken strain going to be horrendously virulent, for instance, in Caucasians? It is going to be immunogenic in Caucasians? You have two completely different distributions for HLA antigens.
(Hilleman dep. at 42.)
The prior Japanese clinical trial data was not detailed sufficiently to permit commercial manufacturer to determine if the vaccine was safe and effective. For this reason, such information was relevant to understanding the viability of developing the Oka strain into a vaccine for world-wide use (Huygelen dep. at 28-29).
At the June 13th meeting, Takahashi also provided Woodruff with information regarding the titer of SB's vaccine, the yields of varicella vaccine obtained through SB's production process, and additional information regarding the results of Biken's clinical trials (Woodruff Tr. at 47-49, TX1021, TX1021-7).
As mentioned above, Takahashi's sharing with Merck the detailed results of Biken's continuing clinical trials in Japan, unpublished papers. SB's clinical trial data, the yields obtained through SB's process, and other information regarding the Oka strain violated Biken's explicit obligation not to disclose such information under Article 5.4 of the Option Agreement (TX1533). While [have found that, as a matter of fact, some of this information cannot be viewed fairly as confidential, that determination does not change the legal conclusion that Biken breached the Agreement's non-disclosure provisions. Biken's non-disclosure obligation provisions to June 30, 1978, clearly precluded the exchange of this sort of information.
Merck unsuccessfully tries to fit itself under the scientific/academic exclusion provided in Article 5.4. Woodruff testified in his capacity as a 30(b)(6) witness and at trial that Takahashi treated him the same way he treated clinical investigators (Woodruff dep. at 133; tr. 59-60). Likewise, at trial, Woodruff testified that:
Well it certainly was clear that I was receiving information that was developed at RIT as well as information that was developed in Takahashi's area. What we were having were the typical open kind of discussions that you have when you go visit a researcher, who talks about what he has done, what other people have done who are working with his material.
Woodruff's trial testimony is truly extraordinary as it concedes that Biken violated both the text and the underlying rationale of Article 5.4 of the Option Agreement. Although Article 5.4 did allow Biken to disclose information in certain narrow circumstances to enable Biken to conduct research in the field or to deposit the Oka strain in a depository, Merck's Woodruff did not fall within these exceptions. (TX1533).
Woodruff claimed that he was justified in receiving such information because he worked for Merck Research Laboratories and was not a commercial individual (tr. 93). This justification is simply not credible. Woodruff did not visit Biken for scientific curiosity but for the very specific commercial purpose of obtaining a sample of the Oka strain so that Merck could commercially develop the strain into a varicella vaccine. As provided by the agreement, Biken simply should not have provided to Merck any non-public data and information it generated related to the strain or any information and data that Biken received from SB. Thus, the fact that Takahashi disclosed such information was a violation of the Option Agreement.
Even if Biken did breach its non-disclosure obligation there is no indication that this breach was "induced" by Merck. While Merck may have been a happy recipient of information from Takahashi, I am unpersuaded that during the effective time of Biken's non-disclosure obligations Merck in any way coerced or improperly encouraged Takahashi to divulge information. As described in detail above, the evidence gathered at trial shows that, despite contractual limitations and alleged "general practices" of confidentiality in the industry, prior to the development of commercial manufacturing processes a significant amount of information about different companies' research initiatives and developments flowed somewhat freely between and among the companies. This flow came through academic clinical researchers as well as through company-sponsored scientists.
As mentioned, however, even if Merck's conduct would not merit the application of the unclean hands doctrine to Merck, Biken's conduct could transitively affect Merck as Merck is prosecuting Biken's claims. Thus, the question is whether Biken's breach of its non-disclosure obligation is so offensive that, as a matter of public policy, the Court should turn a deaf ear to the misappropriation of trade secrets claim. I find that Biken's breach of contract does not merit the application of the unclean hands doctrine.
First, unlike Merck's trade secrets claims where there were discrete confidential pieces of information that SB misappropriated, there is little or no persuasive evidence that the vast majority of information Merck received from Biken while Biken was limited by its non-disclosure obligations was confidential. As detailed in my findings of fact above, most of the information was either not confidential, was not detailed, or, even if confidential, was shortly released to the public domain. Of course, those facts do not relieve Biken of its confidentiality obligation, but at the same time they certainly limit the repugnancy of the breach.
Second, and most importantly, Takahashi's disclosure amounts to a simple breach of contract. Breach of contract, alone, does not necessarily require the application of the unclean hands doctrine. Our courts have recognized, even if only by implication, that in appropriate circumstances breach of contract is justified and efficient. See E.I. DuPont de Nemours Co. v. Pressman, Del. Supr., 679 A.2d 436, 445 (1995); see generally, Richard Craswell, Contract Remedies, Renegotiation, and the Theory of Efficient Breach, 61 S. Cal. L. Rev. 629 (1988). Of course there may be situations where, in the process of breaching a contract, a party acts so inequitably that the doctrine of unclean hands must apply. This is simply not that case. After closely examining the particular circumstances involved, the Court is unconvinced that as a matter of public policy Biken's actions were so offensive that the Court should not endeavor to address Merck's claims.
At least in theory, though the doctrine of unclean hands is of no help to SB, it is not as if my legal conclusion would leave similarly situated litigants without a remedy. SB could have brought a breach of contract claim against Biken for damages. Of course, because of the statute of limitations and laches, SB could not now assert that claim. Biken's breach, of which SB was on notice more than 20 years ago, is well past ripeness for adjudication.
Thus, even to the extent that SB has demonstrated that there was a breach of contract on Biken's part on the issue of disclosure, there is insufficient evidence that Merck or Biken acted inequitably to establish that either entity's actions "transgressed equitable standards of conduct" in any way that might justify the application of the unclean hands doctrine. Precision Instrument Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S. 806, 815 (1945). To hold otherwise would yield an absurd result. If every breach of contract automatically evoked the unclean hands doctrine, then any non-breaching party to a breached contract would have the effective ability to act inequitably against the breaching party with impunity (even as late as 20 years after the breach). Any future complaint by the breaching party would be barred by the doctrine of unclean hands. This is not a sound rule of law, and I refuse to recognize such a policy.
(iii) No Proximate Causation or Damages
As mentioned, tortious interference also requires a showing that the alleged interference proximately caused a breach of the contract or termination of the prospective contractual relationship and resulting damage. CPM Indus. at 18-19. Merck's conduct prior to June 1979 was not the cause of any damage that SB currently claims, i.e., SB's loss of its claimed expectancy interest in an exclusive worldwide license. Simply put, on June 8, 1979, Biken proposed to SB a licensing agreement that included exclusive rights in most European and North and South American countries (including the United States) and non-exclusive rights elsewhere (PTX418). This proposal was accompanied by a letter stating that it was Biken's final proposal ( id.). SB failed to accept Biken's offer. Thus, the only significant and proximate cause of SB's failure to secure a license for itself was SB's independent decision to reject Biken's offer.
The only conduct of Merck after June 1979 — Woodruff's statement about SB withdrawing from vaccine marketing and research in the United States — did not cause Biken to end its relationship with SB, as discussed below. Moreover, in April 1980, SB also refused to accept a non-exclusive license that included rights in the United States.
b) Justification for Any Interference
Another necessary element for a claim of tortious interference is the absence of justification for the alleged interference. CPM Indus. at 18-19. As a competitor, Merck was justified in seeking from Biken a license for the Oka stain, even if that resulted in SB receiving a more limited license or even no license at all. Bowl-Mor Co. v. Brunswick Corp., Del. Ch. , 297 A.2d 61, 64 (1972). "[O]ne is privileged purposely to cause a third person not to enter into or continue a business relationship with a competitor of the actor" if the relation concerns a matter involved in the competition and improper means are not used. DeBonaventura v. Nationwide Mut. Ins. Co., Del. Ch., 419 A.2d 942, 947 (1980).
In determining whether a competitor used wrongful means to interfere with another's prospective contractual relations, the factors set forth in Section 767 of the Restatement (Second) of Torts are considered. See, e.g., Shearin v. E.F. Hutton Group, Inc., Del. Ch. , 652 A.2d 578, 589-90 (1994). These factors are: the nature of the actor's conduct; the actor's motive; the interests of the other with which the actor's conduct interferes; the interests sought to be advanced by the actor, the social interests in protecting the freedom of action of the actor and the contractual interests of the other; the proximity or remoteness of the actor's conduct to the interference; and the relations between the parties.
There is no evidence that Merck engaged in improper means in seeking a license with Biken. If anything, both Merck and Biken were overly respectful of SB's rights. Merck's various contacts with Biken in which it expressed its interest were timed carefully to coincide with what it understood to be the expiration of the Agreement. And Biken declined to negotiate or to discuss licensing terms with Merck, even though there was no limit on its ability to do so. Furthermore, as detailed below; the only arguably improper act that can be attributed to Merck — Woodruff's statements about SB's exit of the U.S. market — was not, in fact, improper.
3. SB Has Failed To Show That Merck Was Unjustly Enriched
SB's claim that Merck unjustly was enriched is based on the same three allegations of inequitable conduct, i.e., that Merck induced Biken to breach the Option Agreement, that Merck improperly obtained confidential material and information, and that Woodruff fraudulently misrepresented SB's vaccine business.
Merck did not retain unjustly any benefit to SB's detriment nor did Merck's retention of such benefit violate "the fundamental principles of justice or equity and good conscience." Cantor Fitzgerald, L.P. is. Cantor, Del. Ch. , 724 A.2d 571, 585 (1998). In addition, because SB did not accept the license offered by Biken in June 1979 that included exclusive United States rights and also did not accept a later offer of non-exclusive United States rights, there was nothing "unjust" about SB's loss of such rights to Merck.
4. Woodruff's November 1979 Statement Violated No Rights of SB
SB claims that Woodruff's statement in late 1979 concerning SB's withdrawal from the United States vaccine business was a fraudulent misrepresentation (SB Br. at 59). The elements that must be shown-to sustain an action for fraudulent misrepresentation are a false representation of a material fact, made with knowledge of its falsity or recklessness as to whether it is true or false, with the intent of misleading another into relying on it, justifiable reliance on the misrepresentation, and resulting injury proximately caused by such reliance. See, e.g., Brzoska v. Olson, Del. Supr., 688 A.2d 1355, 1367 (1995); Hudson v. Wesley College, Inc., Del. Ch. , 1998 Del. Ch. LEXIS 235 at *43, Steele, V.C. (Dec. 23, 1998). SB has failed to establish any of these elements.
a) There Was No Knowing Misstatement
Even if Woodruff's statement could be construed as inaccurate, there is no evidence that Woodruff believed it to be inaccurate. Fraudulent misrepresentation requires that the person "must have knowledge of the falsity of his representation." Brzoska, 668 A.2d at 1367. A representation that is believed to state the truth but, because of careless expression, is misleading cannot constitute fraudulent misrepresentation. Restatement (Second) of Torts § 528. Woodruff based his statement on information contained in a high-level Merck document on which he reasonably believed he could rely, and there is no evidence that Woodruff thought his statement was inaccurate in any respect.
b) Biken Did Not Rely on Woodruff's Statement
In any event, there is no evidence that Biken actually relied on Woodruff's statement, and three separate facts strongly indicate it did not. First, well before Woodruff's statement, Biken was extremely unhappy with SB's lack of progress and its failure to sign a licensing agreement. In October 1979, the Biken board was considering whether to cancel its exclusive dealings with SB. On November 19, 1979, the Biken board decided to cancel the relationship. This decision, made before the alleged Woodruff statement, conclusively demonstrates that the statement was not a factor in Biken's decision.
Second, no Biken document makes any reference to Woodruff's statement, and there is no evidence that the statement even was reported to Biken's board. And third, after Biken terminated its exclusive dealings with SB in December 1979, it continued to negotiate with SB, offering SB non-exclusive rights in the United States and other countries in 1980. In addition, Biken granted SB a license for Biken's mumps vaccine in 1980. If Biken had relied on Woodruff's statement, it would have been unwilling to offer SB any licensing rights in the United States.
In its reply brief; SB says that Huygelen had told Biken that SB was "actively attempting" to resume rubella sales in the United States (SB Reply Br. at 35). Of course, SB never did resume its rubella sales in the United States. In any event, that reinforces the conclusion that the Biken Board did not base its decision on Woodruff's statement, since it had SB's contrary position and since it thereafter offered SB United States rights.