Protege Biomedical, LLC v. Z-Medica, LLC

Background

Protégé Biomedical, LLC and Z-Medica, LLC both developed blood-clotting products. During discussions about Z-Medica potentially acquiring Protégé, Doug Schillinger signed a nondisclosure agreement with Protégé. The agreement did not identify Z-Medica or Schillinger’s other company in its body. Schillinger signed below a listing for DW Healthcare Partners and his title as Managing Director.

Protégé alleged that Schillinger appeared authorized to sign for Z-Medica and that Z-Medica participated in later discussions without denying that it was covered by the agreement. During a February 9, 2018 conference call, Protégé shared what it described as trade-secret information, including technical and know-how information, its patent strategy, and its marketing strategy. Protégé alleged that Z-Medica later used that information in a continuation patent application that became the ‘106 Patent.

After Z-Medica sent Protégé a letter warning that marketing Protégé’s gauze product could lead to patent-infringement claims, Protégé filed seven claims: breach of the nondisclosure agreement; violations of the federal Defend Trade Secrets Act and Minnesota Uniform Trade Secrets Act; unjust enrichment; tortious interference; declaratory judgment of non-infringement; and declaratory judgment of patent invalidity. Z-Medica moved to dismiss for lack of personal jurisdiction and failure to state a claim.

Personal Jurisdiction

The court held that Protégé made the required initial showing that Z-Medica was subject to personal jurisdiction in Minnesota. For the patent-related claims, the court relied in part on Z-Medica’s cease-and-desist letter to Protégé, its alleged use of Protégé’s trade secrets in obtaining the patent, Minnesota’s interest in protecting its residents, and the absence of an indication that litigating in Minnesota would be unusually burdensome for Z-Medica.

The court also found personal jurisdiction over the other claims because they involved the same alleged trade-secret use and therefore arose from the same core set of facts as the patent-related claims. The court denied Z-Medica’s motion to dismiss for lack of personal jurisdiction.

Failure to State a Claim

Count I—Nondisclosure Agreement. The court dismissed this claim without prejudice. Protégé did not allege enough facts to show that Schillinger had actual authority—authority Z-Medica directly or implicitly gave him—to sign the agreement for Z-Medica. Protégé also did not adequately allege apparent authority, which can bind a company when the company’s own conduct reasonably causes another person to believe that an agent is authorized. The court found that Protégé’s allegations showed its own belief about Schillinger’s authority, but not a manifestation of authority by Z-Medica.

Counts II and III—Trade-Secret Claims. The court denied dismissal of the federal and Minnesota trade-secret claims. Protégé adequately alleged that the information had economic value because it was secret, was not readily ascertainable, and was protected through measures such as identifying confidential documents, using contracts, and requiring employee agreements. The court also found it plausible, before discovery, that differences between Z-Medica’s earlier patent applications and the continuation application could reflect the use of information learned from Protégé.

Counts IV and V—Unjust Enrichment and Tortious Interference. The court held that the unjust-enrichment claim was displaced by the Minnesota Uniform Trade Secrets Act because Protégé alleged no more than the misuse of its trade-secret information. The discussion states that Count IV was dismissed with prejudice. The tortious-interference claim was also dismissed with prejudice. The court concluded that the patent-infringement assertions could support that claim only if they were objectively baseless, meaning no reasonable litigant could expect to succeed. Protégé alleged possible subjective bad faith but did not allege or argue objective baselessness, and its trade-secret theory was barred.

Count VI—Non-Infringement. The court denied dismissal. Protégé alleged that the relevant patent claims required hydrated aluminum silicates while its product used non-hydrated aluminum silicate. Although some patent language left room for interpretation, the court found it plausible at the pleading stage that Protégé’s product did not infringe.

Count VII—Patent Invalidity. The court found that Protégé adequately stated an invalidity claim concerning the ‘106 Patent. Protégé identified statutory provisions concerning anticipation, obviousness, and disclosure and alleged that Z-Medica improperly included new matter in the continuation application by incorporating Protégé’s trade-secret information. Protégé did not provide supporting facts or argument for invalidity as to the other five patents, so the court dismissed Count VII as to those patents.

Order and Classification

Judge John R. Tunheim ordered that Z-Medica’s motion to dismiss was granted in part and denied in part. The order states that Counts I, IV, and VII as to U.S. Patent Nos. 8,257,732; 8,383,148; 8,784,876; 9,078,782; and 9,821,084 were dismissed without prejudice; that Count V was dismissed with prejudice; and that the motion was denied as to Counts II, III, VI, and Count VII concerning the ‘106 Patent.

This is classified as a procedural order because the court ruled on a motion under Federal Rule of Civil Procedure 12, addressing whether the claims were adequately pleaded and whether the court had jurisdiction, rather than deciding the underlying trade-secret or patent disputes on the merits.