The U.S. Court of Appeals for the Seventh Circuit recently held that limited disclosures of a product, such as through patents and trade show displays, would not defeat a company’s reasonable efforts to protect its confidential information.
The case involves two competing medical device manufacturers: Life Spine, Inc. (Life Spine), which makes and sells surgically implanted medical devices to treat spine disorders; and AegisSpine, Inc. (Aegis), which sells similar medical devices created by its parent company L&K Biomed, Inc. (L&K). Life Spine spent more than three years of intensive study and exhaustive trial and error to design and develop its ProLift Expandable Spacer System (ProLift), an expandable cage used to treat degenerative disc disease. Eventually, it was FDA approved and Spine Life obtained a patent. Although the patent displays drawings and figures of the expandable cage, Life Spine considers the “precise dimensions and measurements of the ProLift components and subcomponents and their interconnectivity” to be confidential trade secrets.
One month after the ProLift’s FDA approval, Aegis and L.K. decided to design and develop an expandable cage product. The month Life Spine obtained its ProLift patent, Aegis contacted Life Spine to inquire about serving as a distributor of the ProLift and to request a sample device to show clients. Life Spine agreed but first required Aegis to promise, in writing, to protect Life Spine’s confidential information and refrain from sharing such information for the purposes of reverse engineering, copying, or competing with Life Spine. Aegis agreed but immediately showed the device to a surgeon for the purpose of designing a new expandable cage product.
For the next year, the parties maintained a business relationship pursuant to a distribution agreement, in which Aegis agreed to act as a fiduciary for Life Spine’s property and to protect Life Spine’s confidential information. Meanwhile, Aegis and L.K. continued to develop their own expandable cage product using the ProLift products it obtained from Life Spine. Eventually, the parties’ distribution agreement ended, and Aegis backed out of all negotiations and launched its own expandable cage product, the AccelFix-XT, in direct competition with the ProLift.
Soon after, Life Spine filed suit for breach of contract and misappropriation of trade secrets. The district court granted a preliminary injunction, finding Life Spine made a “strong showing that Aegis misappropriated three distinct trade secrets: (1) the combination, dimensions, and interconnectivity of the ProLift’s components and subcomponents; (2) static shear compression testing data; and (3) information about how Life Spine prices the ProLift.” Aegis filed an interlocutory appeal to the Seventh Circuit. On appeal, Aegis argued that none of the information it used was confidential because Life Spine had shared this information in patents, public displays, and through sales of its products to hospitals and surgeons.
The Seventh Circuit disagreed, finding the analysis of whether information is kept confidential is not an “all or nothing proposition for a given product” but a consideration of the “precise information that the plaintiff seeks to protect.” That is, a limited disclosure will not destroy a product’s trade secret protection. The issue is factual, and, according to the Seventh Circuit, the district court did not err in finding that Life Spine properly protected the ProLift’s confidential information.
The Seventh Circuit based its decision on several important measures taken by Life Spine to protect specific ProLift information: (1) Life Spine’s patent did not provide precise measurements; (2) potential customers and distributors were never granted unrestricted access to the ProLift; and (3) Life Spine instilled several key chain-of-custody restrictions to ensure the device’s security upon sale to a hospital or surgeon for use in surgery—the device is sent in sealed boxes that remain sealed until the surgery, distributors oversee and inspect the devices prior to surgery, and the distributors remain present during the surgery to answer questions and act as fiduciaries of Life Spine’s property.
Critically, the court dismissed, as speculative, Aegis’s hypothetical scenarios involving surgeons secretly unpacking the device or removing the device from a patient for the purpose of copying it. The court stressed that owners of trade secrets need only take reasonable steps to secure its confidential information—not every conceivable measure.
Thus, the Seventh Circuit upheld the injunction and made it clear that, with the right measures, a company can protect integral, confidential components of its products even if it patents and distributes those products.
The case is Life Spine, Inc. v. Aegis Spine, Inc., –F.4th –, 2021 WL 3482921 (7th Cir. 2021).